Ctbc Financial Holding Co., Ltd. and Subsidiaries
1 Stock Code:2891
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES
Consolidated Financial Statements
With Independent Auditors’ Report For the Six Months Ended June 30, 2019 and 2018
Address: 27F and 29F, No.168, Jingmao 2nd Rd., Nangang Dist., Taipei City 115, Taiwan, R.O.C. Telephone: 886-2-3327-7777
The independent auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors’ report and consolidated financial statements, the Chinese version shall prevail. 2 Table of contents
Contents Page 1. Cover Page 1 2. Table of Contents 2 3. Independent Auditors’ Report 3 4. Consolidated Balance Sheets 4 5. Consolidated Statements of Comprehensive Income 5 6. Consolidated Statements of Changes in Stockholder’s Equity 6 7. Consolidated Statements of Cash Flows 7 8. Notes to the Consolidated Financial Statements (1) History and Organization 8 (2) Approval Date and Procedures of the Consolidated Financial Statements 8 (3) New Standards, Amendments and Interpretations adopted 9～12 (4) Summary of Significant Accounting Policies 12～39 (5) Primary Sources of Significant Accounting Judgments, Estimates and 40 Assumptions Uncertainty (6) Summary of Major Accounts 40～202 (7) Related-Party Transactions 203～215 (8) Pledged Assets 216 (9) Significant Contingent Liabilities and Unrecognized Contract 217～226 Commitment (10) Significant Catastrophic Losses 227 (11) Significant Subsequent Events 227 (12) Other 227～282 (13) Disclosures Required (a) Related information on significant transactions 283～287 (b) Related information on reinvestment 287～289 (c) Information on investment in Mainland China 289～290 (14) Segment Information 291 KPMG 11049 5 7 68 ( 101 ) Telephone + 886 (2) 8101 6666 台北市 信義路 段 號 樓 台北 大樓 68F., TAIPEI 101 TOWER, No. 7, Sec. 5, Fax 電話 + 886 (2) 8101 6667 Xinyi Road, Taipei City 11049, Taiwan (R.O.C.) Internet 傳真 kpmg.com/tw 網址
KPMG, a Taiwan partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
4 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2019, December 31, 2018 and June 30, 2018 (Expressed in Thousands of New Taiwan Dollars)
June 30, 2019 December 31, 2018 June 30, 2018 June 30, 2019 December 31, 2018 June 30, 2018 ASSETS Amount % Amount % Amount % LIABILITIES AND EQUITY Amount % Amount % Amount % 11000 Cash and cash equivalents(Note 4 and 6(a)) $ 110,660,527 2 128,348,319 2 113,026,717 2 Liabilities: 11500 Due from the central bank and call loans to 296,352,207 5 252,880,081 4 266,666,653 5 21000 Deposits from the central bank and banks(Note 6(t)) $ 57,672,257 1 74,498,692 1 59,834,742 1 banks(Note 6(b), 7 and 8) 21500 Due to the central bank and banks(Note 6(u)) 18,503,959 - 14,041,775 - 16,957,916 - 12000 Financial assets measured at fair value through profit 428,132,525 7 368,632,520 6 346,121,032 6 22000 Financial liabilities measured at fair value through 120,343,348 2 106,571,323 2 118,068,280 2 or loss(Note 4, 6(c) and (w), 7 and 8) profit or loss(Note 4 and 6(c)) 12150 Financial assets measured at fair value through other 571,204,439 9 463,855,794 8 410,320,269 8 22300 Derivative financial liabilities-hedging(Note 4 and 47,038 - 184,195 - 453,506 - comprehensive income (Note 4, 6(d) and (w), and 6(f)) 8) 22500 Securities sold under repurchase agreements(Note 4, 118,067,677 2 70,524,205 1 56,273,699 1 12200 Investments in debt instruments measured at 1,728,662,996 28 1,627,683,522 28 1,615,587,089 29 6(v) and 7) amortised cost(Note 4, 6(e) and (v), and 8) 22600 Commercial papers issued-net(Note 6(w)) 43,425,226 1 38,638,067 1 17,696,022 - 12300 Financial assets-hedging(Note 4 and 6(f)) 189,815 - 34,212 - 148,808 - 23000 Payables(Note 6(x) and 7) 120,100,339 2 96,119,060 2 105,888,121 2 12500 Securities purchased under resell agreements(Note 4 32,729,836 1 24,656,572 1 10,849,931 - and 6(g)) 23200 Current income tax liabilities(Note 4) 2,411,509 - 3,713,312 - 4,574,993 - 13000 Receivables-net(Note 4, 6(h), (k) and (av), 7 and 8) 211,193,134 3 197,753,645 4 192,939,443 4 23500 Deposits and remittances(Note 6(y) and 7) 3,325,205,899 55 3,138,015,328 55 3,076,643,805 56 13200 Current income tax assets(Note 4) 1,808,046 - 3,258,128 - 1,560,667 - 24000 Bonds payable(Note 6(c) and (f), and (z)) 98,326,412 2 98,724,952 2 110,833,235 2 13300 Assets classified as held for sale, net(Note 4 and - - 523,182 - - - 24600 Provisions(Note 4, 6(aa), (ae) and (af)) 1,657,985,690 27 1,585,162,090 28 1,464,222,860 27 6(i)) 25500 Other financial liabilities(Note 4, 6(ab) and (ap)) 200,718,379 3 193,255,451 3 181,933,919 3 13500 Loans-net(Note 4, 6(j), 6(k) and (av), and 7) 2,429,439,225 40 2,364,345,480 41 2,268,302,128 41 26000 Lease liabilities(Note 4 and 6(ac)) 15,690,756 - - - - - 13700 Reinsurance contract assets-net(Note 4 and 6(l)) 2,135,643 - 2,593,345 - 2,694,272 - 29300 Deferred tax liabilities(Note 4) 4,837,709 - 2,383,652 - 2,258,821 - 15000 Investment under equity method-net(Note 4 and 37,096,984 1 35,353,449 1 34,517,617 1 29500 Total other liabilities(Note 6(ad)) 19,044,212 - 16,266,963 - 15,612,658 - 6(m)) Total liabilities 5,802,380,410 95 5,438,099,065 95 5,231,252,577 94 15500 Other financial assets-net(Note 4, 6(k), (n) and (ap), 89,214,726 1 75,939,497 1 74,141,739 1 Stockholders’ equity - parent company: and 8) 31100 Capital stock: 18000 Investment property-net(Note 4 and 6(o)) 74,225,967 1 57,591,759 1 57,686,897 1 31101 Common stock(Note 6(ah)) 194,969,896 3 194,969,896 3 194,969,896 3 18500 Premises and equipment-net(Note 4 and 6(p)) 54,366,291 1 53,985,880 1 53,120,859 1 31103 Preferred stock(Note 6(ah)) 4,999,900 - 3,333,300 - 3,333,300 - 18600 Right-of-use assets-net(Note 4 and 6(q)) 17,058,834 - - - - - 31500 Capital surplus(Note 6(ah)) 58,686,089 1 50,368,539 1 50,368,539 1 19000 Intangible assets-net(Note 4 and 6(r)) 24,648,156 - 24,487,733 1 23,800,710 - 32000 Retained earnings: 19300 Deferred income tax assets(Note 4) 9,981,020 - 15,656,082 - 14,853,529 - 32001 Legal reserve 27,793,018 - 24,189,775 - 24,189,775 - 19500 Other assets-net(Note 4, 6(s) and 8) 46,012,167 1 55,668,346 1 57,674,273 1 32003 Special reserve 50,412,813 1 29,719,062 1 29,719,062 1 32011 Undistributed earnings(Note 6(ai)) 24,175,372 - 48,945,112 1 35,099,203 1 32500 Other equity interest(Note 6(ah)) 1,613,582 - (36,453,220) (1) (25,000,524) - 39500 Non-controlling interests 81,458 - 76,017 - 80,805 - Total equity 362,732,128 5 315,148,481 5 312,760,056 6 TOTAL ASSETS $ 6,165,112,538 100 5,753,247,546 100 5,544,012,633 100 TOTAL LIABILITIES AND EQUITY $ 6,165,112,538 100 5,753,247,546 100 5,544,012,633 100
See accompanying notes to financial statements. 5 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the three and six months ended June 30, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share)
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Amount % Amount % Amount % Amount % 41000 Interest income(Note 6(al) and 7) $ 35,788,750 74 31,699,439 46 70,678,391 55 61,611,595 42 51000 Less: Interest expenses(Note 6(al) and 7) (7,923,802) (16) (6,517,014) (9) (15,635,145) (12) (12,421,691) (8) Net income of interest (Note 6(al)) 27,864,948 58 25,182,425 37 55,043,246 43 49,189,904 34 Net non-interest income (loss) 49800 Service fee and commissions income(Note 6(am) and 7) 5,888,146 12 4,908,560 7 12,152,342 9 11,348,241 8 49810 Net insurance income(Note 6 (an)) 8,094,577 17 30,437,881 44 49,201,009 39 70,081,346 48 49820 Gains on financial assets measured at fair value through profit or loss(Note 6(ao)) 2,654,922 5 (20,675,995) (30) 13,058,500 10 (9,049,846) (6) 49825 (Losses) Gains on investment properties (6,755) - 154,119 - 383,540 - 381,323 - 49835 Realized gain on financial assets measured at fair value through other comprehensive 3,318,713 7 1,706,655 3 5,390,583 4 6,414,887 5 income 49850 Gains on derecognition of financial assets measured at amortized cost(Note 6(e)) (221,100) - 152,477 - 31,817 - 182,170 - 49870 Foreign exchange gains (losses) 4,352,682 9 26,781,973 39 6,952,159 5 13,463,756 9 49880 Reversal of impairment loss on assets 89,247 - 13,968 - 292,696 - 50,284 - 49890 Proportionate share of gains from associates or joint ventures under equity method(Note 395,957 1 321,256 - 780,144 1 657,865 - 6(m)) 49898 (Losses) Gains on reclassification under the overlay approach(Note 6(c)) (2,703,171) (6) 1,740,087 3 (12,477,621) (10) 4,991,424 4 49900 Net other non-interest incomes (853,428) (2) (1,291,195) (2) (261,855) - (990,646) (1) 58099 Public-welfare lottery payment (503,277) (1) (424,426) (1) (1,767,722) (1) (1,580,710) (1) Net revenue 48,371,461 100 69,007,785 100 128,778,838 100 145,139,998 100 58100 Provisions for bad debt expenses, commitment and guarantee liability provision(Note (1,342,814) (3) (1,698,815) (3) (2,489,860) (2) (2,148,522) (1) 6(k)) 58300 Net change in provisions for insurance liabilities(Note 6(aq)) (17,752,423) (37) (38,255,184) (55) (67,288,624) (52) (85,360,448) (59) Operating expenses: 58501 Employee benefits expenses(Note 6(ar)) (9,879,878) (20) (9,400,885) (14) (19,281,042) (15) (18,518,319) (13) 58503 Depreciation and amortization expenses(Note 6(as)) (1,699,480) (4) (911,957) (1) (3,368,537) (3) (1,839,724) (1) 58599 Other general and administrative expenses(Note 6(au)) (5,640,406) (12) (5,768,535) (8) (10,646,282) (8) (11,076,222) (8) Total operating expenses (17,219,764) (36) (16,081,377) (23) (33,295,861) (26) (31,434,265) (22) Profit from continuing operations before tax 12,056,460 24 12,972,409 19 25,704,493 20 26,196,763 18 61003 Less: Income tax expenses(Note 6(ag)) 2,734,146 6 3,297,377 5 5,307,743 4 4,292,728 3 Profit 9,322,314 18 9,675,032 14 20,396,750 16 21,904,035 15 69500 Other comprehensive income: 69560 Components of other comprehensive income that will not be reclassified to profit or loss 69561 Losses on remeasurements of defined benefit plans (3,360) - - - (9,196) - (1,578) - 69565 Change in fair value of financial liability attributable to change in credit risk of liability 1,430,885 3 363,474 - 2,180,513 2 252,236 - 69567 Unrealized gains from investments in equity instruments measured at fair value through 3,669,245 8 709,310 1 9,524,160 7 795,983 1 other comprehensive income 69563 Share of other comprehensive (losses) income of associates and joint ventures accounted (179) - 4,488 - 7,131 - 2,961 - for using equity method, components of other comprehensive income that will not be reclassified to profit or loss 69569 Less: Income tax related to items that will not be reclassified to profit or loss 11,080 - 100,681 - 333,049 - (145,446) - Components of other comprehensive income that will not be reclassified to profit or 5,085,511 11 976,591 1 11,369,559 9 1,195,048 1 loss 69570 Components of other comprehensive income (loss) that will be reclassified to profit or loss 69571 Exchange differences on translation of foreign financial statements 2,269,298 5 1,657,332 2 3,284,949 3 1,465,571 1 69583 Unrealized gains (losses) from investments in debt instruments measured at fair value 5,450,762 11 (4,993,110) (7) 13,967,431 11 (17,369,623) (12) through other comprehensive income 69575 Share of other comprehensive income (losses) of associates and joint ventures accounted 127,725 - (182,538) - 563,090 - (205,048) - for using equity method, components of other comprehensive income that will be reclassified to profit or loss 69590 Other comprehensive income (losses) on reclassification under the overlay approach 2,703,171 6 (1,740,087) (2) 12,477,621 10 (4,991,424) (3) 69579 Less: Income tax related to items that are or may be reclassified to profit or loss 1,590,584 3 (827,703) (1) 4,204,309 3 (3,473,292) (2) Components of other comprehensive income that will be reclassified to profit or loss 8,960,372 19 (4,430,700) (6) 26,088,782 21 (17,627,232) (12) 69500 Other comprehensive income 14,045,883 30 (3,454,109) (5) 37,458,341 30 (16,432,184) (11) Total comprehensive income $ 23,368,197 48 6,220,923 9 57,855,091 46 5,471,851 4 Net income attributable to: Parent company $ 9,321,414 18 9,674,688 14 20,395,003 16 21,902,491 15 Non-controlling interest 900 - 344 - 1,747 - 1,544 - $ 9,322,314 18 9,675,032 14 20,396,750 16 21,904,035 15 Comprehensive income attributable to: Parent company $ 23,365,634 48 6,220,186 9 57,849,650 46 5,473,568 4 Non-controlling interest 2,563 - 737 - 5,441 - (1,717) - $ 23,368,197 48 6,220,923 9 57,855,091 46 5,471,851 4 Earnings per share (unit: NT Dollars)(Note 6(ak)) $ 0.44 0.50 1.01 1.12
See accompanying notes to financial statements. 6
(English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholder’s Equity For the six months ended June 30, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars)
Stockholder's Equity - parent company Other equity interest Capital Stock Retained earnings Change in Unrealized designated as (losses) gains on financial Exchange financial assets liabilities Other differences of measured at measured at fair comprehensive overseas fair value Unrealized value through income on subsidiaries' through other (losses) gains on profit or loss reclassification Stockholders' Common Undistributed financial reports comprehensive available-for-sale attributable to under the overlay equity - parent Non-controlling stock Preferred stock Capital surplus Legal reserve Special reserve earnings translation income financial assets credit risk approach Treasury stock Company interests Total equity Balance at January 1, 2018 $ 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,417,514 (8,728,029) - (5,608,490) (1,422,950) - (582,754) 320,900,639 83,532 320,984,171 Effects of retrospective application of new standards - - - - - 276,540 (804) (646,184) 5,608,490 - 1,552,859 - 6,790,901 (905) 6,789,996 Balance at January 1, 2018, after adjustments 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,694,054 (8,728,833) (646,184) - (1,422,950) 1,552,859 (582,754) 327,691,540 82,627 327,774,167 Net income - - - - - 21,902,491 ------21,902,491 1,544 21,904,035 Other comprehensive income (losses) - - - - - 20,888 1,502,870 (13,751,657) - 252,236 (4,453,260) - (16,428,923) (3,261) (16,432,184) Total comprehensive income (losses) - - - - - 21,923,379 1,502,870 (13,751,657) - 252,236 (4,453,260) - 5,473,568 (1,717) 5,471,851 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 3,722,222 - (3,722,222) ------Cash dividends - common stock - - - - - (21,056,749) ------(21,056,749) - (21,056,749) Cash dividends of preferred stock - - - - - (14,383) ------(14,383) - (14,383) Reversal of special reserve - - - - (969,519) 969,519 ------Changes in non-controlling interests ------(105) (105) Disposal of investments in equity instruments designated at fair value through other - - - - - (694,395) - 694,395 ------comprehensive income Others - - (306) ------(306) - (306) Disposal of treasury stock - - 2,827 ------582,754 585,581 - 585,581 Balance at June 30, 2018 $ 194,969,896 3,333,300 50,368,539 24,189,775 29,719,062 35,099,203 (7,225,963) (13,703,446) - (1,170,714) (2,900,401) - 312,679,251 80,805 312,760,056
Balance at January 1, 2019 $ 194,969,896 3,333,300 50,368,539 24,189,775 29,719,062 48,945,112 (6,844,471) (18,434,666) - (310,604) (10,863,479) - 315,072,464 76,017 315,148,481 Net Income - - - - - 20,395,003 ------20,395,003 1,747 20,396,750 Other comprehensive income (losses) - - - - - (7,375) 2,760,635 21,034,140 - 2,180,513 11,486,734 - 37,454,647 3,694 37,458,341 Total comprehensive income (losses) - - - - - 20,387,628 2,760,635 21,034,140 - 2,180,513 11,486,734 - 57,849,650 5,441 57,855,091 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 3,603,243 - (3,603,243) ------Special reserve appropriated - - - - 20,693,751 (20,693,751) ------Cash dividends - common stock - - - - - (19,496,990) ------(19,496,990) - (19,496,990) Cash dividends of preferred stock - - - - - (749,992) ------(749,992) - (749,992) Issuance of preferred stock - 1,666,600 8,315,380 ------9,981,980 - 9,981,980 Share-based payments - - 2,170 ------2,170 - 2,170 Disposal of investments in equity instruments designated at fair value through other - - - - - (604,780) - 604,780 ------comprehensive income
Others - - - - - (8,612) ------(8,612) - (8,612) Balance at June 30, 2019 $ 194,969,896 4,999,900 58,686,089 27,793,018 50,412,813 24,175,372 (4,083,836) 3,204,254 - 1,869,909 623,255 - 362,650,670 81,458 362,732,128
See accompanying notes to financial statements. 7 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the six months ended June 30, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars)
For the six months ended June 30 2019 2018 Cash Flows from Operating Activities: Net Income Before Tax $ 25,704,493 26,196,763 Adjustments: Income and expenses items with no effect on cash flow: Depreciation expense 2,866,850 1,374,177 Amortization expense 754,644 624,814 Impairment losses on expected credit loss/ Provisions for bad debt expenses, commitments and 2,489,860 2,148,522 guarantee reserve Net (gains) losses on financial assets or liabilities measured at fair value through profit or loss (16,438,977) 24,518,708 Interest expense 15,635,145 12,421,691 Interest income (70,678,391) (61,611,595) Dividend income (1,460,202) (1,306,092) Net change in insurance liabilities 67,288,624 85,360,448 Net change in other provisions 724,650 1,308,510 Share-based payments 2,328 - Proportionate share of gains from associates or joint ventures under the equity method (780,144) (657,865) Losses (gains) reclassified by applying overlay approach 12,477,621 (4,991,424) Losses on disposal and retirement of premises and equipment 30,610 27,136 Losses (gains) on disposal of investment properties 53,904 (27,982) Losses on disposal and retirement of intangible assets 40,966 76 Gain on disposal of assets classified as held for sale (319,878) - Reversal of impairment losses on financial assets (296,481) (51,298) Impairment losses on non-financial assets 3,785 1,014 Losses on disposal of foreclosed properties 1,888 1,410 Unrealized foreign exchange losses on insurance liabilities 4,734,244 6,975,343 Other adjustments 157,373 1,132,636 Subtotal of income and expense items with no effect on cash flows 17,288,419 67,248,229 Changes in Operating Assets and Liabilities: Net Changes in Operating Assets: (Increase) decrease in due from the central bank and call loans to banks (14,752,422) 8,533,481 Increase in financial assets measured at fair value through profit or loss (38,890,309) (58,786,333) (Increase) decrease in financial assets measured at fair value through other comprehensive income (83,867,663) 37,901,464 Increase in investments in debt instruments measured at amortised cost (100,672,384) (143,937,926) Increase in hedging financial assets (155,603) (11,798) Increase in receivables (11,704,707) (37,545,821) Increase in loans (67,426,492) (75,922,972) Decrease (increase) in reinsurance contract assets 513,415 (89,984) Increase in other financial assets (13,221,564) (13,460,101) Net Changes in Operating Assets (330,177,729) (283,319,990) Net Changes in Operating Liabilities: Decrease in deposits from the central bank and other banks (16,826,435) (15,040,041) Increase in financial liabilities measured at fair value through profit or loss 11,292,981 45,299,256 (Decrease) increase in hedging financial liabilities (137,157) 436,641 Increase (decrease) in payables 2,404,937 (3,943,516) Increase in deposits and remittances 187,190,571 131,670,638 Decrease in employee benefits reserve (55,752) (65,538) Increase (decrease) in other financial liabilities 7,483,593 (8,257,429) Net Changes in Operating Liabilities 191,352,738 150,100,011 Net Changes in Operating Assets and Liabilities (138,824,991) (133,219,979) Sum of Adjustments (121,536,572) (65,971,750)
See accompanying notes to financial statements. 7-1 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Statements Of Cash Flows For the six months ended June 30, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars)
For the six months ended June 30 2019 2018 Cash Used in Operating Activities $ (95,832,079) (39,774,987) Interest received 69,348,921 60,179,056 Dividends received 1,440,237 1,436,864 Interest paid (13,082,657) (9,628,129) Income taxes paid (1,547,972) (6,379,612) Net Cash Flows (Used in) Provided by Operating Activities (39,673,550) 5,833,192 Cash Flows from Investing Activities: Purchase of financial assets under equity method (6,057) (708,777) Increase in prepayments for investments (130,100) (795,471) Proceeds from capital reduction of investments accounted for using equity method 19,426 - Proceeds from disposal of assets classified as held for sale 843,060 - Purchase of premises and equipment (1,694,829) (1,264,111) Disposal of premises and equipment 140,531 8,660 Purchase of intangible assets (671,955) (890,111) Disposal of intangible assets 574 - Proceed from disposal of foreclosed collateral 5,215 3,638 Purchase of investment properties (2,493,380) (1,645,221) Proceeds from disposal of investment properties 261,133 194,379 (Increase) decrease in securities purchased under resell agreements (447,333) 24,312,285 Increase in other assets (6,649,321) (12,968,438) Net Cash Flows (Used in) Provided by Investing Activities (10,823,036) 6,246,833 Cash Flows from Financing Activities: Increase in due to the central bank and banks 4,462,184 1,487,283 Increase (decrease) in commercial papers payable 4,787,159 (34,081,502) Proceeds from issuing bonds 10,000,000 - Repayments of bonds (10,400,000) - Repayments of financial debentures - (1,431,360) Increase (decrease) in securities sold under repurchase agreement 47,543,472 (17,844,527) Increase in financial liabilities designated at fair value through profit or loss - 6,862,500 Payment of lease liabilities (1,117,208) - Increase (decrease) in other liabilities 2,777,249 (4,467,309) Proceeds from issuing shares 9,981,817 - Disposal of treasury stock - 585,581 Interest paid (1,201,238) (1,200,751) Other financing activities - (306) Net Cash Flows Provided by (Used in) Financing Activities 66,833,435 (50,090,391) Effect of Exchange Rate Changes on Cash and Cash Equivalents 2,320,994 1,472,969 Increase (decrease) in Cash and Cash Equivalents 18,657,843 (36,537,397) Cash and Cash Equivalents at the Beginning of the Period 360,465,314 379,305,243 Cash and Cash Equivalents at the End of the Period $ 379,123,157 342,767,846 Composition of Cash and Cash Equivalents: Cash and cash equivalents recognized in balance sheet $ 110,660,527 113,026,717 Due from the central bank and call loans to bank which meet IAS 7 definition of cash and cash equivalents 236,180,127 218,891,198 Securities purchased under resell agreements which meet IAS 7 definition of cash and cash equivalents 32,282,503 10,849,931 Cash and Cash Equivalents at the End of the Period $ 379,123,157 342,767,846
See accompanying notes to financial statements. 8 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the six months ended June 30, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified)
(1) History and Organization
CTBC FINANCIAL HOLDING CO., LTD. (the “Company”) was established on May 17, 2002, through a stock conversion (conversion ratio: one to one) with CTBC Bank Co., Ltd. On the same date, following the approval from the Securities & Futures Bureau (the “SFB” ) under the Financial Supervisory Commission (the “FSC”), Executive Yuan, the shares of the Company started to be traded publicly, while shares of CTBC Bank Co., Ltd. were delisted.
The Company conducts business in the following areas:
(a) The Company has been approved to invest in the following businesses:
(i) Banking;
(ii) Bills financing;
(iii) Credit cards;
(iv) Trusts;
(v) Insurance;
(vi) Securities;
(vii) Futures;
(viii) Venture capital;
(ix) Investments in overseas financial institutions as approved by the FSC;
(x) Other related financing as approved by the FSC; and
(xi) Other financial related business investments in accordance with the law.
(b) Management of invested businesses stipulated in item (A).
(c) Investments in businesses other than the ones stipulated in item (A) as approved by the FSC.
(d) Other related businesses as approved by the FSC.
(2) Approval Date and Procedures of the Consolidated Financial Statements:
The consolidated financial reports were approved by the board of directors on August 28, 2019.
(Continued) 9
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(3) New Standards, Amendments and Interpretations adopted:
(a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.
The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019.
Effective date New, Revised or Amended Standards and Interpretations per IASB IFRS 16 “Leases” January 1, 2019 IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019 Amendments to IFRS 9 “Prepayment features with negative compensation” January 1, 2019 Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” January 1, 2019 Amendments to IAS 28 “Long-term interests in associates and joint ventures” January 1, 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019
Except for the following items, the Company and subsidiaries believe that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows:
IFRS 16 “Leases”
IFRS 16 has replaced the existing IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, SIC-15 “Operating Leases: Incentives” and SIC-27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”.
The Company and subsidiaries have applied IFRS 16 using the modified retrospective approach. The related changes of accounting policies are described below:
Under IFRS16, lessee adopts single accounting treatment to recognize lease transactions in the balance sheet, using right-of-use assets and lease liabilities to represent its rights for underlying assets and obligations for lease payments. In addition, the related cost of lease transactions would include depreciation expense and interest expense, which would replace current method recognizing rent expense by straight line basis under operating lease. Besides, there are exemptions for short- term lease and low-value asset lease. As for lessor, the accounting treatments are similar to the current guidance, which indicates that the lessor should classify lease into operating lease or capital lease. For the accounting policy of lease transactions under IFRS16 of the Company and subsidiaries, please refer to note 4(p).
During the period of transition, the Company and subsidiaries measure lease liabilities by using the present value of remaining lease payments - which applies 2.79% weighted average rate. Right-of- use assets are measured by lease liabilities and adjusted by all lease-related prepaid lease payment. In addition, for the lease contracts which lease period are less than 12 months after initial application date of IFRS16, they are exempt from recognizing right-of-use assets and lease liabilities, and use hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
(Continued) 10
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The amount of right-of-use assets, investment property- right-of-use assets and lease liabilities that the Company and subsidiaries recognize at the initial application date of IFRS16 are $16,376 million, $15,218 million and $15,061 million, respectively. The difference between right-of-use assets and the increase amount of lease liabilities is related to the reclassification from prepaid rent payment to right-of-use assets under IFRS16.
The explanation of differences between operating lease commitments disclosed at the end of the annual reporting period immediately preceding the date of initial application, and lease liabilities recognized in the statement of financial position at the date of initial application disclosed as follows:
January 1, 2019 Lease liabilities recognized at January 1, 2019 $ 15,713,532 Less: Finance lease liabilities recognized as of December 31, 2018 (652,316) Variable lease payment based on an index or a rate (8,049,448) Extension and termination options reasonably certain to be (4,189,282) exercised Add: Recognition exemption for Total rental payments of short-term leases or leases of low-value 222,783 assets Others 410,774 Operating lease commitment discounted by using the incremental 3,456,043 borrowing rate at December 31, 2018 Discount effects 348,013 Operating lease commitment at December 31, 2018 $ 3,804,056
(b) The impact of IFRS endorsed by FSC but not yet effective
The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2020 in accordance with Ruling No. 1080323028 issued by the FSC on July 29, 2019:
Effective date New, Revised or Amended Standards and Interpretations per IASB Amendments to IFRS 3 “Definition of a Business” January 1, 2020 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020
The Company and subsidiaries assess that the adoption of the abovementioned standards would not have any material impact on its consolidated financial statements.
(Continued) 11
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(c) The impact of IFRS issued by IASB but not yet endorsed by the FSC
As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (IASB), but have yet to be endorsed by the FSC:
Effective date New, Revised or Amended Standards and Interpretations per IASB Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between Effective date to an Investor and Its Associate or Joint Venture” be determined by IASB IFRS 17 “Insurance Contracts” January 1, 2021
Those which may be relevant to the Company and subsidiaries are set out below:
Issuance / Release Standards or Dates Interpretations Content of amendment September 11, 2014 Amendments to IFRS 10 and The main consequence of the amendments is IAS 28 “Sale or Contribution that a full gain or loss is recognized when a of Assets Between an Investor transaction involves a business (whether it is and Its Associate or Joint housed in a subsidiary or not). A partial gain Venture” or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.
(Continued) 12
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Issuance / Release Standards or Dates Interpretations Content of amendment May 18, 2017 IFRS 17 “Insurance Contracts ” The new standard of accounting for insurance contracts contain recognition, measurement, presentation and disclosure of insurance contracts issued, and the main amendments are as follows: ● Recognition: the beginning of the coverage period of the group of contracts, the date when the first payment from a policyholder in the group becomes due and when the group becomes onerous shall recognize a group of insurance contracts it issues from the earliest. ● Measurement: on initial recognition, an entity shall measure a group of insurance contracts at the total of the fulfilment cash flows and the contractual service margin. For subsequent measurement, the entity shall estimate the cash flows, discount rates and the adjustment for non-financial risk. ● Presentation and disclosure: the presentation of insurance revenue is based on the provision of service pattern and investment components excluded from insurance revenue and insurance service fee.
The impact of applying new standards on the financial position and financial performance of the Company and subsidiaries is under evaluation. Once the evaluation is completed, the Company and subsidiaries will disclose the effect on the financial reports. (4) Summary of Significant Accounting Policies: This report was originally prepared in Chinese language. When conflicts or ambiguities arise in interpretations between the two versions, the Chinese version shall prevail. (a) Assertion of compliance The consolidated financial reports were prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firms, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Insurance Companies and International Auditing Standards No. 34 “ Interim Financial Reporting” as accepted by the FSC. The consolidated financial reports do not need to meet the partial requirement of disclosing mandatory information in the annual consolidated financial reports as required by IFRSs, IAS, interpretations and pronouncements as accepted by the FSC (“IFRSs as accepted by the FSC”) (Continued) 13
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(b) Basis of preparation
The consolidated financial reports have been prepared on a historical cost basis except for the following material items in the statement of financial position:
(i) Financial instruments measured at fair value through profit or loss (including derivative financial instruments);
(ii) Financial instruments measured at fair value through other comprehensive income;
(iii) Hedging financial instruments measured at fair value;
(iv) Cash-settled share-based payment agreements liability measured at fair value;
(v) Defined benefit assets, which are recognized as the net amount of pension plan assets plus unrecognized prior service cost and unrecognized actuarial losses, minus unrecognized actuarial gains and present value of defined benefits obligation; and
(vi) Reinsurance assets, insurance liabilities and reserve for financial insurance contracts, which are recognized in compliance with the Regulations Governing the Provision of Reserves by Insurance Companies.
(c) Basis of consolidation
(i) Basis of compilation for consolidated financial reports
The consolidated financial reports encompass the Company itself and controlled entities. All significant intra-group transactions are eliminated.
(ii) The control of an entity by the Company and subsidiaries may be indicated if the following criteria are met simultaneously.
1) The Company and subsidiaries have powers to obtain the majority of the benefits of the entity’s activities through voting rights or other rights;
2) By having a right to the majority of the entity's benefits, the Company and subsidiaries are exposed to the entity's business risks;
3) The Company and subsidiaries are capable of using leverage over the entity to influence the benefits of the entity.
(Continued) 14
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) Subsidiaries and special purpose entities are included in the consolidated financial reports:
Name of Shareholding Investor June 30, December June 30, Company Name of Subsidiary Primary Business 2019 31, 2018 2018 Description The Company CTBC Bank Co., Ltd. (“CTBC Bank”) Commercial banking and 100.00 % 100.00 % 100.00 % financing business " CTBC Securities Co., Ltd. (“CTBC Securities”) Securities and futures 100.00 % 100.00 % 99.92 % (Note 4) business " CTBC Venture Capital Co., Ltd. (“CTBC Venture Venture capital business 100.00 % 100.00 % 100.00 % Capital”) " CTBC Asset Management Co., Ltd. (“CTBC Asset Asset management 100.00 % 100.00 % 100.00 % Management”) business " Taiwan Lottery Co., Ltd. (“Taiwan Lottery”) Dealerships of public 100.00 % 100.00 % 100.00 % welfare lottery products " Taiwan Life Insurance Co., Ltd. (“Taiwan Life”) Insurance business 100.00 % 100.00 % 100.00 % " CTBC Investments Co., Ltd. (“CTBC Investments”) Investment and 100.00 % 100.00 % 100.00 % trust business CTBC Bank CTBC Bank (Philippines) Corp. Commercial banking and 99.60 % 99.60 % 99.60 % financing business " PT. Bank CTBC Indonesia Commercial banking and 99.00 % 99.00 % 99.00 % financing business " CTBC Bank Corp. (Canada) Commercial banking and 100.00 % 100.00 % 100.00 % financing business " The Tokyo Star Bank, Ltd. Commercial banking and 100.00 % 100.00 % 100.00 % financing business " CTBC Capital Corp. Investment business 100.00 % 100.00 % 100.00 % The Tokyo Star Tokyo Star Business Finance, Ltd. Financing and assurance 100.00 % 100.00 % 100.00 % Bank, Ltd. business " TSB Servicer, Ltd. Debt management 100.00 % 100.00 % 100.00 % business " Pecuniary Trust Contract Mortgage management / - % - % - % (Note 1) Asset-backed security that is secured by mortgage /NPL Collection " Credit Linked Notes A security with an - % - % - % (Note 1) embedded credit default swap " SPE Consolidation Asset-back Securities Consumer loan - % - % - % (Note 1) management CTBC Capital CTBC Bank Corp. (USA) Commercial banking and 100.00 % 100.00 % 100.00 % Corp. financing business CTBC Asset CTBC International Co., Limited Holding company 100.00 % 100.00 % 100.00 % Management CTBC CTBC Leasing Co., Ltd. (“CTBC Leasing (China)”) Financial leasing 100.00 % 100.00 % 100.00 % International Co., Limited CTBC Venture CTBC Capital International Co., Limited Holding company 100.00 % 100.00 % 100.00 % Capital CTBC Capital CTBC Venture Capital Investment Management Venture capital 100.00 % 100.00 % 100.00 % (Note 2) International (Shanghai) Co., Ltd. (“CTBC Venture Capital management and Co., Limited (Shanghai)”) consulting CTBC CTBC (Mauritius) Holding Co., Ltd. Investment business 100.00 % 100.00 % 100.00 % Securities
(Continued) 15
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Name of Shareholding Investor June 30, December June 30, Company Name of Subsidiary Primary Business 2019 31, 2018 2018 Description CTBC CTBC Investment Service Co., Ltd. Securities investment 100.00 % 100.00 % 100.00 % Securities consultant business " CTBC Securities Venture Capital Co., Ltd. Venture capital business 100.00 % 100.00 % - % (Note 3) CTBC CTBC Asia Limited Securities business 100.00 % 100.00 % 100.00 % (Mauritius) Holding Co., Ltd. Taiwan Life TLG Capital Co., Ltd. Installment, leasing and 100.00 % 100.00 % 100.00 % account receivable factoring business, etc. " TLG Insurance Co., Ltd. (TLG Insurance) Property insurance 100.00 % 100.00 % 100.00 % business
(iv) Below are investees excluded in the consolidated financial reports while the Company has de facto control or over 50% holdings.
Shareholding Name of Investor Name of June 30, December June 30, Company Subsidiary Primary Business 2019 31, 2018 2018 Description The CTBC Security Co., Ltd. Protection, fire and life 100.00 % 100.00 % 100.00 % The total assets and Company safety services operating revenue of this investee company are insignificant. Taiwan Life Hofa Land Development Co., Premises development 90.00 % 90.00 % 90.00 % Has no de facto control Insurance Ltd. and transaction over the entity. Co., Ltd. " Wu Tzu Development Co., Athletics and 99.00 % 99.00 % 99.00 % 〃 Ltd. recreational sports stadium
Note 1: The reason the listed entities are included in the consolidated financial reports is because the subsidiary CTBC Bank and its subsidiaries have leverage over these entities through direct or indirect investment, voting rights of these entities, and rights to either benefit from the majority of subsidiary CTBC Bank and its subsidiaries’ profits or sustain the risks. As of June 30, 2019, the subsidiary CTBC Bank and its subsidiaries have not, either under the terms of any contractual or non- contractual arrangements, provided financial or other support to its special purpose entities. Pecuniary trust contract, credit linked notes and asset-back securities have successively expired in March 2019, October, 2018 and December, 2018, respectively.
Note 2: The Company has been liquidated on August 8, 2019.
Note 3: The subsidiary CTBC Securities founded CTBC Securities Venture Capital Co., Ltd. by investing $300 million as capital amount on October 19, 2018.
Note 4: The Company acquired 495 thousand shares equity stocks of its subsidiary CTBC Securities, and its consideration was about $6,234 as the percentage of ownership was 100%.
(Continued) 16
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(d) Foreign currency
(i) A foreign currency transaction that is denominated or requires settlement in a foreign currency, shall be recorded on initial recognition in the functional currency by applying to the foreign currency spot exchange rate between the functional currency and the foreign currency on the date of the transaction.
(ii) On each balance sheet date, foreign currency monetary items shall be translated using the closing rate. Non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate on the date of the transaction; and non- monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates on the date when the fair value was determined.
(iii) Foreign currency differences arising on the settlement of a foreign currency transaction are recognized in current profit or loss. Foreign currency differences arising on the retranslation of monetary items, except for differences arising on the retranslation of monetary items designated as the hedging instruments in a hedge of the net investments in foreign operation or in a qualifying cash flow hedge are recognized directly in other comprehensive income, others are recognized in profit or loss when it incurred.
(iv) When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange difference of that gain or loss shall be recognized in other comprehensive income. Otherwise, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange difference of that gain or loss shall be recognized in profit or loss.
(v) Functional currency and presentation currency
The functional currency of the Company and subsidiaries is the currency of the primary economic environment in which they operate. The consolidated financial reports are presented in New Taiwan dollars, the functional currency of the Company.
(e) Cash and cash equivalents
The statements of cash flows are compiled based upon cash and cash equivalents. Cash comprises cash on hand, savings accounts, checking accounts, and unrestricted time deposits or negotiable certificates of deposit which may be terminated anytime without impairing the principal. Cash equivalents consist of short term and highly liquid investments that are readily convertible to known amounts of cash and will mature within a short period so that interest rate fluctuations have little effect on their values. Cash equivalents include short term bills with maturities within three months from the investment date.
Cash and cash equivalents comprise time deposits that are used by the Company and subsidiaries in the management of its short-term cash commitments and are not for investment or other purposes. Additionally, the aforementioned deposits are readily convertible to fixed amount of cash and are subject to an insignificant risk of changes in their fair value.
(Continued) 17
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(f) Financial instruments
Financial assets held by the Company and subsidiaries are recorded on the trading date, the fair value is recorded at the time of initial recognition. Except for financial instruments classified as fair value through profit or loss (FVTPL), other financial instruments are initially recognized at acquiring or issuing cost plus transaction costs. However, if the handling fee arising from the sale and purchase does not reach the principle of materiality, it will be charged to current expenses. Upon disposition, the cost of sale of equity securities is determined by the moving-average method, and the cost of sale of debt securities is determined by the first-in, first-out (FIFO) method.
(i) Financial assets
Financial assets are classified into the following categories: fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI) and measured at amortized cost.
1) Financial assets measured at fair value through profit or loss
Financial assets measured at fair value through profit or loss, if one of the following conditions is met:
a) Financial assets held for trading.
i) Its main purpose is to sell or repurchase in the near future.
ii) When it was originally recognized, it was part of the identifiable financial commodity investment of a group of merged management with evidence shows the mode of operation in which this combination is actually a short- term profit in the near term.
b) Financial assets that are not measured at amortised cost or fair value through other comprehensive income.
c) In addition to being designated as a hedged item by hedge accounting, financial assets designated as at fair value through profit or loss at initial recognition.
d) Derivative financial instrument. At each balance sheet date, the fair value is remeasured, and the resulting gain or loss from such remeasurement is recognized in current profit or loss. 2) Financial assets measured at fair value through other comprehensive income a) Financial assets measured at fair value through other comprehensive income, if both of the following conditions are met and financial assets were not designated as financial assets measured at fair value through profit or loss: i) The financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
(Continued) 18
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 1. Principal is the fair value of the financial asset at initial recognition. Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin. 2. However, in some cases, the time value of money element may be modified (i.e. imperfect). In such cases, the Company and subsidiaries must assess the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. The fair value of debt instruments measured at fair value through other comprehensive income shall be remeasured at each balance sheet date. The resulting gain or loss from such remeasurement is recognized directly in other comprehensive income. Interest on a debt instrument shall be recorded under the accrual basis, with the relevant premium/discount amortized by using the effective-interest-rate method. Credit losses on the financial instrument shall be recognized as well. If, in a subsequent period, the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. The balance of impaired adjustment amount in other comprehensive income after the reversal shall not be negative. A gain or loss on financial assets is recognized directly in other comprehensive income, except for foreign exchange gains or losses arising from monetary financial assets, until the financial assets are derecognized, at which time the cumulative gain or loss previously recognized in other comprehensive income is charged to profit or loss. b) At initial recognition, an irrevocable election is made to present changes in the fair value of an equity instrument that is not held for trading in other comprehensive income. When the equity instrument is derecognized, the amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, the cumulative gain or loss may be transferred within equity or into retained earnings directly. Dividends are recognized in profit or loss unless the dividend represents the recovery of part of the investment costs clearly.
(Continued) 19
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3) Financial assets at amortized cost
Financial assets measured at amortized cost include cash and cash equivalents, debt instruments measured at amortized cost, securities under repurchase/resell agreements, loans and receivables, deposits pledged and other financial assets that are not measured at fair value, etc.
Financial assets measured at amortized cost are initially recognized at whose fair value plus transaction costs. After initial recognition, the amortized cost minus impairment loss are determined by using the effective-interest-rate method. The interest income and impairment loss are recognized in profit or loss. Until the financial assets are derecognized, at which time the cumulative gain or loss is charged to profit or loss.
a) Debt instruments at amortized cost
The debt instrument investments held by the Company and subsidiaries shall be measured at amortized cost if both of the following conditions conditions are met:
i) The financial assets is held within a business model whose objective is achieved by collecting contractual cash flows.
ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Company and subsidiaries, whose business model is to hold assets in order to collect contractual cash flows, may sell financial assets when there is an increase in the assets’ credit risk. Sales made for other reasons may be consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows if those sales are infrequent (even if significant in value) or insignificant in value both individually and in aggregate (even if frequent). For debt instruments measured at amortized cost, the effective-interest-rate method shall be used to calculate amortized cost and interest revenue. Credit-impaired loss shall be recognized for assets measured at amortized cost. If, in a subsequent period, the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. The carrying amount after the reversal shall not exceed the recoverable amount.
b) Securities under repurchase/resell agreements
Securities sold/purchased with a commitment to repurchase/resell at a predetermined price are treated as financing transactions. The difference between the cost and the repurchase/resell price is treated as interest expenses/revenue and recognized over the term of the agreement. On the selling/purchasing date, these agreements are recognized as securities sold under repurchase agreements or securities purchased under resell agreements.
(Continued) 20
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
c) Loans and receivables
At initial recognition, loans and receivables include incremental direct transaction costs. The subsequent measurement recognizes interest revenues through the effective-interest-rate method on accrual basis, under which the loans and receivables are carried at amortized cost less impairment losses. Loans are reclassified as a non-accrual account if either of the following conditions is met, and interest collected while accruing of interest has been suspended is included in earnings only to the extent of cash actually received.
- Collection of payment of principal or interest accrued is considered highly unlikely; or
- Payment of principal or interest accrued is over 3 or 6 months past due; or
- Payment of principal, interest accrued and other suspense account of credit card is over 90 days past due.
Loans and receivables are assessed on each reporting day and the credit risk of loans and receivables have been significantly increased since the initial recognition. Comparing the risk of breach of contract on the reporting date and the original date of recognition, and considering the credit risk from the original recognition , the significant increase of reasonable and verifiable information as a basis for the estimation of default risk and expected loss rate. In accordance with the expected credit losses and with reference to the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans” and relevant regulations issued by the FSC. The provision will be determined based on the higher of the amount calculated in accordance with regulatory requirements.
Nonaccrual accounts deemed uncollectible are written off upon approval of the board of directors. The recovery of written-off loans and accounts receivable is accounted for under the reversal of the allowance for credit losses.
Off-balance-sheet loan commitments and financial guarantee contracts should be evaluated for the possibility of bad debts and the provisions of guarantee or financial commitments should be recognized.
(Continued) 21
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
4) Financial asset impairment
The Company and subsidiaries should consider the past events, the current situation and the forecast of future economic conditions, to identify whether the credit risk of financial instruments have been significantly increased since the initial recognition; After the credit risk has increased significantly, the impairment loss should be measured as the expected credit loss during the existence; if there is no significant increase in credit risk after recognition, the impairment loss should be measured against the 12-month expected credit loss. For the judgment and forward-looking adjustment method after the recognition of whether the credit risk has increased significantly, please refer to Note 6(av).
5) Derecognition of financial assets
The Company and subsidiaries shall derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire or when the Company and subsidiaries transfer substantially all the risks and rewards of ownership of the financial assets.
Securities lending agreement or repurchase transactions, where bonds or stocks are taken as collateral, shall not be derecognized, because the Company and subsidiaries have retained substantially all the risks and rewards of ownership. The transaction of asset- backed securitization is applying to such situation when the Company and subsidiaries still retained partial risks.
6) Reclassification of financial assets
The Company and subsidiaries reclassify all affected financial assets in accordance with regulations only when changing the business model of managing financial assets.
7) Overlay approach
The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and subsidiaries may elect designated financial assets for the overlay approach. A financial asset is eligible for designation for the overlay approach if, and only if it is measured at fair value through profit or loss applying IFRS 9 but would not have been measured at fair value through profit or loss in its entirety applying IAS 39, and it is held in respect of an activity that is connected with IFRS17. The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries have to designate explicitly eligible financial assets for the overlay approach when and only when they elect to apply the overlay approach. The financial assets should only be designated only when it first applies IFRS 9. Subsequently, they may designate an eligible financial asset for the overlay approach when, and only when that asset is initially recognized or when that asset newly meets the criterion having previously not met.
(Continued) 22
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) Financial liabilities
The financial liability held by the Company and subsidiaries includes a financial liability measured at fair value through profit or loss (including the instruments designated as at fair value through profit or loss), amortized cost of a financial liability and hedge derivatives.
1) Financial liabilities measured at fair value through profit or loss
a) Financial liability measured at fair value through profit or loss, if one of the following conditions is met:
i) A financial liability is held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. A derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument, is classified as instrument held for trading as well. Financial liabilities held for trading include obligations to deliver financial assets borrowed by a short seller.
ii) Financial liability designated as measured at fair value through profit or loss at the time of initial recognition, except that designated as a hedged item in accordance with the hedge accounting. Financial liabilities falling under this category are measured at fair value in the balance sheet at the balance sheet date. Moreover, the changes in fair value are recognized as current profit or loss. While for financial liabilities designated at fair value through profit or loss, its fair value changed in the liability’s credit risk should be recognized under other comprehensive income, except for avoiding accounting mismatch or in the circumstances of loan commitments and financial guarantee contract to provide a loan that should be accounted as current profit or loss. Under certain circumstances, the Company and subsidiaries may not recognize profit or loss of a financial asset or financial liability at initial recognition, if a fair value is not derived from a quoted market price in an active market and is based on the evaluation method with data retrieved from unobservable market. In the above scenario, the recognition of the difference between fair value at initial recognition and transaction price is deferred. After initial recognition, the entity shall recognize the aforesaid deferred difference as a gain or loss only to the extent that it arises from a change in a factor that market participants would take into account when pricing the asset or liability. 2) Amortized cost of a financial liability Financial liabilities are classified at amortized cost of a financial liability, except for financial liabilities measured at fair value through profit or loss, hedged derivatives financial liability, financial bonds payable, financial guarantee contracts, commitments to provide a loan at a below-market interest rate and financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies.
(Continued) 23
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3) Derecognition of a financial liability The Company and subsidiaries shall remove a financial liability from its statement of financial position when, and only when, it is extinguished. 4) Offsetting financial assets and financial liabilities Financial assets and financial liabilities will be offset and recognized in the net amount on the balance sheet only when the Company and subsidiaries have statutory rights to offset and intend to net settle or realize assets and to pay off liabilities at the same time. 5) The Company and subsidiaries shall not reclassify any financial liability. (iii) Derivatives and Hedging Accounting Derivatives instruments are initially recognized at fair value on contract date and are subsequently measured at fair value. Fair value includes quoted price in an active market, occurring market transaction prices or model valuation techniques. All derivatives instruments are recognized as assets with positive fair value and as liability with negative fair value. The Company and subsidiaries should accounts for an embedded derivative separately from the host contract when the host contract is not itself carried at fair value through profit or loss, the terms of the embedded derivative would meet the definition that the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, and the entire hybrid contract is not designated as at fair value through profit or loss. In addition, the embedded derivative is recognized as financial liability as measured at fair value through profit or loss. When a fair value hedge, cash flow hedge, and hedge of a net investment in a foreign operation are in conformity with all the conditions for the application of hedge accounting, the affected profit or loss is recognized by offsetting the changes in the fair value of hedging instruments and hedged items. The related accounting treatments are as follows: 1) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedging instruments against the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment are recognized through profit or loss in the current period. 2) Cash flow hedge Where a derivative financial instrument is designated as a hedge of the variability in cash flow of a recognized asset or liability or a highly probable forecast transaction, the effective portion of any gain or loss on remeasurement of the derivative financial instrument to fair value is recognized directly under other comprehensive income. When the hedged transaction actually affects the profit or loss, the gain or loss previously recognized under other comprehensive income shall be recognized through current profit or loss. Any gain or loss from the change in fair value relating to an ineffective portion of the hedge transaction is recognized immediately through profit or loss in the current period.
(Continued) 24
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3) Hedge of a net investment in a foreign operation
The effective portion of any gain or loss on a hedging instrument relating to a hedge against foreign currency fluctuation in a foreign operation is recognized directly in other comprehensive income until the disposal of the foreign operation, at which time the cumulative gain or loss recognized directly under other comprehensive income is recognized in profit or loss in the current period.
(iv) Financial guarantee contracts
The Company and subsidiaries recognize financial guarantee liabilities initially at their fair value at the date of providing guarantee. The Company and subsidiaries receive commission income with non-arm's length transaction at contract date; this is, the income could represent the fair value of financial guarantee contract. The advanced service fee is recognized as deferred item and amortized by straight-line method over the life of the financial guarantee.
Financial guarantee contracts shall be subsequently measured by the Company and subsidiaries at the higher of:
1) The amount determined in accordance with “ Provisions”; and
2) The amount initially recognized less, when appropriate, cumulative amortization recognized from deferred revenues.
(g) Investment properties
Investment property could be recognized by the Company’s insurance subsidiary only to earn rentals or for capital appreciation or both.
Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use by the Company’s insurance subsidiary. If these portions could be sold separately, the Company’s insurance subsidiary accounts for the portions separately. The portion that is held for use is treated following “Property and Equipment”, and another portion that is held to earn rentals or for capital appreciation or both is regarded as investment property. If the portions could not be sold separately, and if an insignificant portion is held for use, then the whole property is regarded as investment property.
Investment property shall be recognized as an asset when, and only when it is probable that the future economic benefits that are associated with the investment property will flow to the Company’ s insurance subsidiary, and the cost of the investment property can be measured reliably. Subsequent expenditure is capitalized as cost only when it is probable that the future economic benefits that are associated with the investment property will flow to the Company’s insurance subsidiary, and the cost of the investment property can be measured reliably. Regular repair costs are recognized as expenses in the period they are incurred.
(Continued) 25
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
If the recognition criteria are met, the Company’s insurance subsidiary recognizes the cost of replacement in the carrying amount of the replaced investment property at the time the cost is incurred. The carrying amount of the part that is replaced is derecognized.
After initial recognition, real estate property is subsequently measured by using cost model, and amortized by the depreciable amount. Its depreciation method, useful life and residual value can be referred to the regulation of properties and equipment.
When the use of a property changes such that it is reclassified as property and equipment, the book value at the date of reclassification become its cost for subsequent accounting.
(h) Non-financial asset impairment
At each balance sheet date, the recoverable amount of an asset is estimated and compared with the carrying amount whenever there is an indication that the non-financial asset may be impaired. An impairment loss is recognized when the recoverable amount, higher of fair market value or value in use, is less than the carrying amount. For assets other than goodwill, reversal of impairment loss is recognized when the recoverable amount of the asset has increased from its prior-period estimation. The carrying amount after the reversal shall not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods.
(i) Assets held for sale
For an asset or disposal group to be classified as held for sale, it needs to be disposed of through sale rather than through continuing use to recover its carrying amount. Assets or disposal groups that meet the criteria to be classified as such must be subject only to terms that are usual and customary and be available for immediate sale, which is highly probable, within one year of such classification. After being classified as held for sale, it is measured at the lower of carrying amount and fair value less costs to sell.
Amortization or depreciation on investment property, intangible assets, premises and equipment ceases once they are classified as held for sale.
(j) Investments in associates
Investments in associates in which the Company is able to exercise significant influence and subsidiaries the Company has control over are accounted for under the equity method and initially recognized at cost. Goodwill, with a deduction of accumulated impairment loss, relating to an associate is included in the carrying amount of the investment. The equity method discontinues from the date when it ceases to have significant influence, and the book value is taken as the new cost of the investment.
The Company has significant influence if holding, directly or indirectly, 20% or more of the voting right of the investee. However, an exception will apply if the Company can specify that it has no significant influence over an investee.
(Continued) 26
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
After the date of acquisition, the Company and subsidiaries’ share of the profit or loss of the associates is recognized in profit or loss. Distributions received from an associate reduce the carrying amount of the investment. Adjustments to the carrying amount of the investment may also be necessary for changes in the Company or its subsidiaries’ proportionate interest in the associates arising from changes in the associates’ other comprehensive income. If the Company or its subsidiaries’ share of losses of an associate equals or exceeds their interest in the associate (including non-guarantee long-term receivables), the Company or its subsidiaries discontinues recognizing its share of further losses. Additional losses and liabilities are recognized, only to the extent that the Company or its subsidiaries has incurred legal or constructive obligations or made payments on behalf of the associate.
Changes in ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the parent’ s ownership interest and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received shall be recognized directly in equity.
(k) Interest in joint ventures
The joint agreements include joint operations and joint ventures, and have the following characteristics:
(i) The parties are bound by a contractual arrangement;
(ii) The contractual arrangement gives two or more of those parties joint control of the arrangement.
The Company or its subsidiaries distinguish between joint operations and joint ventures by considering the structure and legal form of the arrangement, the contractual terms agreed to by the parties to the arrangement and, when relevant, other facts and circumstances. In joint operations, the company or its subsidiaries accounts for its share of the joint assets, liabilities, revenues and expenses in accordance with the contractual arrangement. In joint ventures, the company or its subsidiaries account for its investment using the equity method.
(l) Cash surrender value of life insurance
The Company’s sub-subsidiary CTBC Bank Corp. (USA) purchased single premium life insurance under which the executive officers and directors are the insured, while CTBC Bank Corp. (USA) is the owner and beneficiary thereof. The cash surrender value indicates the amount that would be received if the life insurance is terminated prior to the maturity date, and is accounted for under other assets.
(Continued) 27
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(m) Reinsurance assets
In cases of reinsurance contracts that transfer significant insurance risk, unless the Company’s insurance subsidiary can independently measure the deposit component, the insurance component and deposit component should be unbundled. That is, the consideration received or paid, after deducting the amount belonging to the insurance component, is recognized as a financial liability or asset, rather than as revenue or expense. That financial liability or asset is recognized or measured at fair value, which is based on the discount value of future cash flows.
The Company’s insurance subsidiary periodically assesses the impairment of the reinsurance reserve assets, claims recoverable from reinsurers, and amount due from reinsurers and ceding companies. If a cedant’s reinsurance asset is impaired, the cedant shall reduce its carrying amount accordingly and recognize the impairment loss in profit or loss. A reinsurance asset is impaired if, and only if, there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the cedant may not receive all amounts due to it under the terms of the contract, and that event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer.
(n) Premises and equipment
The Company and subsidiaries’ premises and equipment are recognized after deducting any accumulated depreciation and accumulated impairment losses from historical cost. The historical cost includes any costs directly attributable to acquiring the assets.
Subsequent expenditure of premises and equipment shall be recognized as an asset or be included in the carrying amount of assets, when, and only when it is probable that the future economic benefits that are associated with premises and equipment will flow to the Company and subsidiaries, and the cost of premises and equipment can be measured reliably. The carrying amount of those parts that are replaced is derecognized. A major improvement or repair expense that can extend the benefits over afterward period is regarded as capital expenditure; while frequent maintenance or repairs are charged to current expenses.
If the Company and subsidiaries have obligations to dismantle, remove and restore the property and equipment, the obligation for which the Company and subsidiaries incurs either when the item is acquired or as a consequence of having used the item during a particular period shall be recognized as the cost of the premises and equipment as well as liability.
Depreciation is computed using the straight-line method; the useful lives are calculated based on the normal economic lives. Each part of an item of premises and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The residual value and the useful life of an asset shall be reviewed or adequately adjusted at least at each fiscal year-end. Useful lives of major premises and equipment are as follows:
Buildings and premises 2 ~ 56 years
Transportation equipment 1 ~ 12 years
Miscellaneous equipment 2 ~ 20 years
(Continued) 28
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The gain or loss arising from the disposition of an item of premises and equipment shall be recognized in current profit or loss and determined as the difference between the disposal proceeds and the carrying amount of an item.
A property is reclassified to investment property at its carrying amount when the use of the property changes from owner-occupied to investment property.
(o) Intangible assets
(i) Computer software system
Computer software system expenses, which are recorded on the basis of the actual cost of acquisition, are amortized using a straight-line method over a period of 3 to 15 years. Its amortization method, useful life and residual value are referred to the regulation of properties and equipment. The Company and subsidiaries use cost model to proceed subsequently measurement.
(ii) Goodwill
The Company and subsidiaries account a business combination by applying the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities assumed by the acquirer and the equity interests issued by the acquirer. In addition, other expense directly contributed to the acquisition is included. The acquirer shall measure the identifiable assets acquired from business combination and the liabilities or contingent liabilities assumed at their acquisition-date fair values without considering non-controlling interest. The acquirer shall recognize goodwill as of the acquisition date measured as the excess of the consideration transferred over the fair value of net identifiable assets held according to holding proportion. Adversely, the difference may result in directly recognizing a gain on a purchase.
Goodwill relating to cash-generating units is tested for impairment periodically each year. An impairment loss is recognized when the recoverable amount is less than the carrying amount. Impairment losses cannot be reversed once an impairment loss has been recognized.
(iii) The acquisition value of insurance policies
The Company’s insurance subsidiary should broadly accept the acquisition value of an insurance policy. In accordance to IFRS 4, the acquisition value of general assumption insurance policies is the difference between the liability, which is determined by the insurer based on the evaluation of accounting policies for the issued insurance policies, and the fair value of both the acquired contractual rights and commitment to insurance obligations. When amortizing, the amortizable amount would be the value of acquired insurance policies at the date when general assumption incurs. Over the effective period of the insurance contracts, an amortization expense should be accounted based on the profit or loss of the acquired insurance policies. And the amortization expense should be recognized at current profit or loss.
(Continued) 29
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(p) Lease
(i) Application from January 1, 2019
1) Identifying a lease
At inception of a contract, the Company and subsidiaries assess whether a contract is, or contains, a lease. A contract is, or contains, a lease, if the contract conveys the right to control the use of an identified asset for a period of time.
2) As a lessor
The leases are classified as finance leases, if the Company and subsidiaries transfer substantially the entire risks and rewards incidental to the ownership of the assets. Otherwise, the leases are classified as operating leases.
a) Operating lease: Lease payments or receivables under an operating lease shall be recognized in current profit or loss using a straight-line method over the lease term.
b) Finance lease: As lessors, the Company and subsidiaries shall derecognize assets held under a finance lease at contract date and recognize them as lease payment receivable at an amount equal to the present value of lease payments. The difference between gross amount and present value of lease payment receivables is recognized as unrealized interest income and transferred to interest income of current period on an accrual basis. Lease revenue is calculated based on the interest rate implicit in the lease on the remaining balance of lease payment receivables and recognized in current profit or loss over the lease term.
3) As a lessee
The Company and subsidiaries recognize a right-of-use asset and a lease liability at the lease commencement date. The initial amount of the right-of-use asset comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, and an estimate of costs to restore the underlying asset, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the underlying asset or the end of the lease term. Refer to 「Premises and Equipment」 for the review of useful life and the impairment assessment policy.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease ,or the Company and subsidiaries’ incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise the following:
a) Fixed payments, including payments that may, in form, contain variability but that, in substance, are unavoidable.
(Continued) 30
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
b) Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
c) Amounts expected to be payable under a residual value guarantee; and
d) Amounts expected for the exercise price under a purchase option, lease payments under an extension option, and penalties for early termination, if the Company and subsidiaries are reasonably certain to exercise or early terminate.
The lease liability is measured by the effective interest method to recognize the interest expense, and remeasured to reflect the changes as follow:
a) The lease term changes;
b) The future lease payments changes to reflect a change in an index or rate; or
c) If there is a change in the Company and subsidiaries estimate of the amount expected to be payable under a residual value guarantee, or if the Company and subsidiaries changes their assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured to reflect above changes, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company and subsidiaries do not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Company and subsidiaries recognize the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
(ii) Application before January 1, 2019
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise a lease is classified as an operating lease.
The Company and subsidiaries recognized lease payments or receivables under an operating lease as current profit or loss using a straight-line method over the lease term.
As lessors, the Company and subsidiaries shall derecognize assets held under a finance lease at contract date and recognize them as lease payment receivable at an amount equal to the present value of lease payments. The difference between gross amount and present value of lease payment receivables is recognized as unrealized interest income and transferred to interest income of current period on an accrual basis. Lease revenue is calculated based on the interest rate implicit in the lease or the incremental borrowing rate of interest on the remaining balance of lease payment receivables and recognized in current profit or loss over the lease term.
(Continued) 31
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
As lessees, the Company and subsidiaries shall capitalize finance leases at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Interest expense is recognized by amortizing finance leased liability when each rental is paid. Lease expense is calculated based on the interest rate implicit in the lease or the incremental borrowing rate of interest on the opening balance of finance leases liabilities of each period and recognized in current profit or loss over the lease term. The property and equipment acquired under a finance lease contract is measured at cost model.
(q) Segregated account insurance product assets
When the Company’s insurance subsidiary sells a segregated account insurance product, premiums paid by policyholders are deposited in a specifically designated account book, after deducting variable expenses incurred by the insurer per the agreement, in ways that are agreed or required by policyholders. The account book asset values are calculated according to the market valuation of the valuation date, while net asset value is calculated in accordance with regulations and IFRSs.
The assets and liabilities in the account book, whether or not they result from an insurance contract or an insurance contract that has the nature of a financial product, are recognized under “segregated account insurance assets” and “segregated account insurance liabilities”, respectively.
The revenue and expense in the account book refer to the accumulation of variable revenues and expenses that meet the definition of an insurance contract under IFRS No. 4, and they are recognized under “segregated account insurance revenue” and “segregated account insurance expense” , respectively. That is, for a segregated account insurance product that is classified as an insurance contract, the premiums received are recognized as premium income, after deducting preliminary expenses and other expenses such as account management services fees, while the difference between the original cost and the disposal/ subsequent valuation is recognized as profit and loss.
For a segregated account insurance product that is classified as an investment contract, the received or paid consideration should be treated as financial assets and liabilities, rather than as an income or expense. And the difference between the original cost and the disposal/ subsequent valuation of the financial asset is not recognized as profit and loss, but rather recognized under the account “segregated account insurance value reserve.”
(r) Foreclosed properties
Foreclosed properties received are stated at acquired cost, and the difference between it and the nominal value of the original claim is reflected as a credit loss. On the Balance sheet date, if the foreclosed properties received are still unsold, they shall be evaluated at the lower of carrying amount and net fair market value. If there is sufficient evidence indicating that the net fair market value is lower than the carrying amount of foreclosed properties, the difference after reassessment is accounted for under impairment loss on assets. Gain or loss on disposal of foreclosed properties is recognized in current profit or loss as well.
(Continued) 32
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(s) Provisions
The Company and subsidiaries recognize liability reserve only if all of the following conditions are met:
(i) An entity has a present obligation, legal or constructive, as a result of a past event;
(ii) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
(iii) A reliable estimate can be made of the amount of the obligation.
The Company and subsidiaries shall not recognize liability reserve for future operating losses.
Where there are a number of similar obligations the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognized.
The amount of a provision is measured subsequently as the present value of the expenditures expected to be required to settle the obligation. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Any deficiency is recognized in current profit and loss.
In line with each corresponding authority’s regulations, the Company’s insurance subsidiaries make reserves for unearned premiums, claims, liabilities, contingencies, underinsurance, liability adequacy, and insurance contracts with embedded derivatives. Except for catastrophe and equalization reserves provided by the Company’s life insurance subsidiaries; whereas special catastrophe reserve, special risk-volatility reserve and partial provision over pool elevation on non- compulsory Automobile and Motorcycle Liability Insurance regulated by the authorities of R.O.C are recognized under equity. Other provisions are recognized as expenses in the period they arise.
In accordance with Article 32 of the Regulations, if there is a revaluation increment when appraising the investment property at fair value, the increment shall be recognized as a special reserve under liability after offsetting the adverse effects of other accounting items resulting from the first-time adoption of IFRSs. In addition, in accordance with Jin-Guan-Pao-Chai No. 10102515281 dated November 30, 2012, life insurance businesses shall determine the amount of policy reserve that needs to be strengthened in accordance with the fair value standards for effective contract stipulated in Jin-Guan-Pao-Chai No.10102515285 dated November 27, 2012, and transfer the aforementioned special reserve to the “policy reserves – insurance contract liability fair value” on January 1, 2013. If there is a remaining surplus subsequent to the transfer, the Company may reverse 80% of the surplus in the first year or reverse it on a straight-line basis over the following consecutive five years and recognize the reversal as special earnings reserve. However, the annual reversal and the provision for the special earnings reserve are limited to $10 billion.
(Continued) 33
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The liability adequacy test of the Company’s insurance subsidiary is based on product type group (or the overall company contracts) and is to compare on each Balance sheet date the net book value of the insurance liability (after deduction of the deferred acquisition costs and relevant intangible assets) to the estimate of the present value of the future cash flow of the insurance contracts. If the net book value is lower than the estimate, then the difference shall be recognized as current loss. The test also follows “Code of Conduct of Actuarial Practice for IFRS 4 Contract Classification and Liability Adequacy Test” pronounced by the Actuarial Institute of the Republic of China.
(t) Foreign exchange rate fluctuation reserves
On March 1, 2012, the Company’s insurance subsidiary transferred to be the opening balance of foreign exchange rate fluctuation reserves part of catastrophic special reserves and risk variation special reserves; the provision and charge off of foreign exchange rate fluctuation reserves follow the Guidelines on Foreign Exchange Rate Fluctuation Reserves in Life Insurance Companies. The opening balance of foreign exchange rate fluctuation reserves will then be set aside as special reserve within 3 years of 2012. The amount set aside in the first year shall not be less than one third of the opening balance after tax, and the amount set aside in the first 2 years shall not be less than two thirds of the opening balance after tax. Also, the amount saved on the cost of hedging shall be transferred to special reserve each year. If the earning of a particular year is not enough for the transfer, it shall be done in later years when there are enough earnings. The special reserve mentioned herein will then be used to increase capital or make up for losses. According to article 9 of the Guidelines on Life Insurance Foreign Exchange Rate Fluctuation Reserves, a life insurance company should after the shareholders’ meeting provide for special reserve equal to 10% of after tax profit.
(u) Treasury stock
The Company has repurchased the issued stocks and booked them as treasury stock at the cost of buyback. The difference should be recognized as Capital surplus- treasury stock transaction if the price of treasury stock disposal is greater than the book value. On the other hand, if the price of treasury stock disposal is less than book value, the difference should be offset against the capital surplus that incurs due to the transaction of equivalent treasury stock. If the balance is insufficient to absorb the loss, retained earnings should be debited. The book value of treasury stock is computed based on the weighted average method and should be calculated separately depending on the repurchase reason.
When treasury stock is cancelled, Capital surplus- paid in capital and Capital stock should be debited. The difference should be offset against the capital surplus that incurs due to the transaction of similar treasury stock, if the book value is greater than the aggregate amount of par value and capital premium. If the balance is insufficient to absorb the loss, retained earnings should be debited. On the contrary, if the book value is less than the aggregate amount of par value and capital premium, capital surplus resulting from the transaction of similar treasury stock should be credited.
(Continued) 34
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(v) Revenue recognition
(i) The income of the Company and subsidiaries is recognized on an accrual basis.
(ii) Please refer to Note 4(f)(i)3) and (ii)4). Loans and receivables for more information on interest income from receivables and loans.
(iii) Life insurance business
1) Insurance income and contract acquisition cost
In terms of the insurance contracts and the investment linked contracts with a discretionary participation feature, the first and the subsequent period premiums are recognized as revenue when the insurance process is completed and the total payment is received. The contract acquisition costs such as commission expenses are recognized as current expenses when the insurance contracts become effective.
The premiums on insurance contracts that are not investment linked insurance and classified as financial products without a discretionary participation feature are recognized as “reserves for insurance contract of the nature of financial products.” The acquisition costs are used to write off “reserves for insurance contract of the nature of financial products” when the insurance contracts become effective.
Insurance products with a non-segregated account classified as financial products without a discretionary participation feature are all recognized as “liabilities on insurance product—segregated account” after deducting the expenses, such as the front end load and investment administrative service charge.
2) The recognized service income for the life insurance subsidiary’ s insurance products with a segregated account is classified as financial products without a discretionary participation feature.
The service fees on insurance products of segregated accounts classified as financial products without a discretionary participation feature include contract management fees, investment management fees, surrender charges, and others. The service fees are recognized as income when received. When the service fees (e.g., preliminary cost) are attached with the obligation to provide future services, though, their recognition is deferred under “deferred service fee and commission income”, and they are amortized using the straight line method at a constant proportion over the period during which the service is provided. The amortized amount is recognized under “service fee and commission income”.
The paid acquisition costs of the investment management service for an insurance policy include commission expense and other incremental costs directly related to issuing a new contract. Those costs’ recognition is deferred under “deferred cost of acquirement”, and they are amortized using the straight line method at a constant proportion over the period during which the service is provided. The amortized amount is recognized under “other non-interest net profit and loss”.
(Continued) 35
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iv) Property insurance
Premium income includes various insurance income generated from insurance contracts derived from insurance and reinsurance business. Premium income includes the entire insurance premium generated from direct underwritten and revised premiums issued within the accounting period, including premium received and temporarily held by solicitors and insurance agents. Started from January 1, 2015, for automobile insurance business, the insurance subsidiary should collect automobile insurance fees and sign and issue insurance policy or certification before the insurance agreement become effective. Income should be recognized once the underwriting process is done. Reinsurance premium assumed is recognized based on the billing schedule, and unbilled reinsurance premium assumed should be assessed and recognized based on a reasonable and systematic method at each balance sheet date. Corresponding expenses, including commissions, agency charges, and service fee charges, are recognized as incurred.
(w) Employee benefit
(i) Short-term employee benefit: The Company and subsidiaries expects to settle all short-term non-discounted benefits in twelve months after the end of annual financial reporting date in which the services are rendered by employees, and recognize as current expenses.
(ii) Post-employment benefit: The Company and subsidiaries’ pension plan comprises defined contribution plan and defined benefit plan.
1) A defined contribution plan is a post-employment benefit plan under which a company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that is due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.
2) A defined benefit plan is a post-employment benefit plan under which benefit is paid to an employee on the basis of their ages, service periods and compensated salaries at the date of retirement. The Company and subsidiaries recognize actuarial gains and losses which are incurred by the change of actual experience and actuarial assumption in other comprehensive income, and recognize pension asset or liability in balance sheet in which asset or liability is the amount of actuarial present value of defined benefit obligation deducting fair value of plan assets. The calculation of defined benefit obligation is performed annually by an actuary using the projected unit credit method. The actuarial present value of defined benefit obligation is calculated by discounting future cash flow at the yield rate on AA credit rated bonds that have maturity dates approximating the terms of the obligation and that are denominated in the same currency in which the benefits are expected to be paid. In accordance with the article 30 of the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, when
(Continued) 36
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
the interest incurred from retiree deposits with favorable rates exceed the interest generated from market rate, it should be considered as the actuarial amount according to defined benefit plan regulated on IAS 19 “Employee Benefits” since the employee’ s retirement date. Otherwise, the parameter of actuarial assumption of competent authority should be followed (if have). The interim amount of define benefit plan is determined based on the pension cost rate, which is the actuarial rate at the end of last fiscal year, and the amount, which is from the beginning of the year to the end of current period. In addition, an adjustment would be made if significant market fluctuation, significant decrease, pay-off or other significant one-time event occurs after the end of period.
3) The defined contribution plan of overseas unit is in accordance with respective authorities’ regulation.
(iii) Termination benefits: Termination benefits are incurred when the Company and subsidiaries terminate employment prior to qualifying for retirement, or the employees accepted voluntary redundancy to get termination benefits in return. Termination benefits are recognized as a liability when the Company and subsidiaries are committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to provide termination benefits or make an offer of termination benefits to encourage voluntary redundancy. Termination benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.
(x) Share-based payment transactions
The accounting treatments of share-based payment are as follows.
(i) Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, and the corresponding increase in owners’ equity is recognized. The vesting period is estimated based on the ultimate vesting conditions that must be satisfied. The vesting conditions include service conditions and performance conditions, including market conditions. In valuing equity-settled payments, no account is taken of any vesting conditions other than market conditions.
(ii) For cash-settled share-based payment transactions, a liability equal to the portion of the goods or services received is recognized at its current fair value determined at each balance sheet date and at the date of settlement, with any changes in the fair value recognized in profit or loss of the period.
(iii) Fair value of the share options at the grant date is measured with the use of an option pricing model based on management’s best estimate of the exercise price, expected term, underlying share price, expected volatility, expected dividend yield, risk-free interest rate, and any other inputs to the model.
(Continued) 37
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(y) Compensations of employees and directors The Company and subsidiaries employees’ and directors’ (including independent directors) compensations are recognized as personnel expense. Any difference lies between the actual allocation amount and previously recognized in the financial report is considered as change in accounting estimates which is then recognized as profit or loss in next year. (z) Income taxes Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years. Income tax expense is measured by interim reporting period net income before tax multiplied by best estimate effective annual tax rate. And the best estimate effective annual tax rate is determined by the management. Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities may be offset against each other if the following criteria are met by the Company and subsidiaries: (i) The entity has the legal right to settle tax assets and liabilities on a net basis; and (ii) The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: 1) Levied by the same taxing authority; or 2) Levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched. A deferred tax asset should be recognized for the carry-forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and adjusted based on the probability that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized.
(Continued) 38
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
When the Company files a consolidated corporate income tax return with its domestic subsidiaries pursuant to the regulations on consolidated taxation, it shall determine the income tax liability of each individual member of the group. During the period of consolidation, the members of the group calculate and adjust deferred tax assets (liabilities) and current income tax payable (tax refund receivable) accordingly based on a reasonable, consistent and systematic method, and such adjustments are reflected in income tax recognition as other receivables (payables), which are eliminated in preparing the consolidated financial reports. (aa) Contingent liability
A contingent liability is defined as a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company and subsidiaries; or a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. The Company and subsidiaries shall not recognize a contingent liability; instead, contingent liability shall be appropriately disclosed.
(ab) Insurance contract
An insurance contract is a “contract under which the insurance subsidiary accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder”. Insurance risk refers to the risk transferred from the policyholder to the insurer that is not financial risk. Financial risk refers to the risk resulting from possible changes in one or more of the following in the future: specified interest rate, financial instrument price, commodity price, foreign exchange rate, price index, tariff index, credit rating, credit index or other variables. Non-financial variables are subject to contributing factors from the counterparty in a contract.
The insurance subsidiary defines significant insurance risk as an event which might lead to additional significant payment. But cases that lack commercial essences are excluded. When an insurance policy was originally judged to meet the definition of an insurance contract, it remains an insurance contract until its rights and obligations end or mature, even if the risk has been significantly reduced in the policy period. Contracts that do not transfer significant insurance risk are classified as insurance contracts with the nature of a financial product. When the significant risk of an insurance contract with the nature of a financial product is transferred to the Company’s insurance subsidiary, the Company’s insurance subsidiary will re classify it as an insurance contract. Insurance contracts and insurance contracts with financial instrument features can be further classified as insurance with or without a discretionary participation feature. Except for guaranteed benefits, a discretionary participation feature is a contractual right to receive. The right also has the features below:
(i) It is likely to be a significant portion of the total contractual benefits;
(ii) In accordance with the contract, the additional payments and timing of distribution are at the discretion of the issuer; and
(Continued) 39
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) In accordance with the contract, the additional payments are contractually based on:
1) The performance of a specified pool of contracts or a specified type of contract;
2) Return on investment of a specific asset portfolio held by the insurance subsidiary, or
3) The profit or loss of the insurance subsidiary, fund or other entity.
An embedded derivative is accounted for separately from the host contract when its economic characteristics and risks are not closely related to the host contract, and the contract is measured at fair value through profit or loss. If the embedded derivative conforms to the definition of an insurance contract and the entire contract is not measured at fair value through profit or loss, the Company’s insurance subsidiary does not need to recognize it separately. (ac) Operating segments An operating segment is a component of the Company and subsidiaries that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Company and subsidiaries). The segment’ s operating results are reviewed regularly by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance for which discrete financial information is available. The prime responsibility of the Company is the management of its subsidiaries, whose operational performance and resource allocation are executed under board approval of the parent company. The components periodically report actual financial results to the Group’ s Management Board, and thereby leading to its role as the chief operating decision maker. (ad) Reasons and impact of accounting changes
In order to more accurately reflect the operating conditions and insurance payment obligations of overseas invested companies, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. was approved by the Financial Management Committee Jin Guan Bao Shou Zi No. 10804160440 to change the estimates in the insurance liability of King Dragon Life Investment Co., Ltd. under equity method investment in mainland china and recognize the investment gains and losses. The accounting estimates were applied from the date of approval by the authority. The impact of changes in accounting estimates was deferred and recognized in profit or loss. The amount of profit and loss from joint ventures recognized under equity-method investments for the joint venture equity King Dragon Life Investment Co., Ltd. was increased by $205,997 for the six months ended June 30, 2019.
(Continued) 40
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(5) Primary Sources of Significant Accounting Judgments, Estimates and Assumptions Uncertainty:
When preparing for the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firms, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Insurance Companies, and following IAS 34 “ Interim Financial Reporting” as accepted by Financial Supervisory Commission, the management needs to make judgments, estimates, and assumptions that affect the adoption of accounting policies, reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from these estimates.
When the Company and subsidiaries compile the consolidated quarterly financial statements, the source of the judgments and estimates uncertainty which the management decides on accepting policies is consistent with Note 5 in 2018 annual consolidated financial statements.
(6) Summary of Major Accounts:
(a) Cash and cash equivalents
December 31, June 30, 2019 2018 June 30, 2018 Cash on hand $ 30,133,621 31,717,320 30,473,015 Petty cash and revolving fund 25,331 24,364 24,048 Checks for clearance 3,702,093 4,168,156 3,923,097 Cash in transit 2,304,960 5,128,157 4,639,811 Due from other banks 74,152,583 86,853,522 73,800,987 Cash equivalents 341,939 456,800 165,759 Total $ 110,660,527 128,348,319 113,026,717
(b) Due from Central Bank and call loans to banks
December 31, June 30, 2019 2018 June 30, 2018 Required reserve—Account A $ 55,220,040 40,668,559 25,191,257 Required reserve—Account B 55,508,072 50,779,809 47,849,113 Required reserve—Foreign Currency 466,080 - 152,500 Due from Central Bank 128,716,562 115,515,402 129,113,815 Call loans to banks 56,441,453 45,898,349 64,359,968 Banks overdrafts - 17,962 - Total $ 296,352,207 252,880,081 266,666,653
(Continued) 41
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The reserves for deposits are calculated at prescribed rates, using the average monthly balances of various deposit accounts, and are appropriated and deposited in the reserve account of the Central Bank of the Republic of China (Taiwan). Deposits in “Required reserve－Account A” are interest free and can be withdrawn at any time; deposits in “Required reserve－ Account B” are interest bearing and cannot be withdrawn except for the monthly adjustment to the required reserve permitted by relevant regulations.
Parts of the above due from Central Bank and call loans to banks are restricted, and please refer to Note 8 for further details.
(c) Financial instruments measured at fair value through profit or loss
December 31, June 30, 2019 2018 June 30, 2018 Designated as financial assets measured at fair value through profit or loss Other securities and bonds $ 1,118,712 1,113,200 1,136,850 Valuation adjustment of financial assets 5,082 17,084 9,639 Subtotal 1,123,794 1,130,284 1,146,489 Mandatorily measured at fair value through profit or loss Commercial papers 86,322,482 101,208,363 97,402,718 Negotiable certificate of deposits 5,000,575 4,000,301 8,000,491 Other securities and bonds 24,958,022 22,189,696 20,667,848 Government bonds 1,823,755 1,244,511 2,310,132 Corporate bonds 7,483,450 8,353,566 9,171,073 Convertible bonds 2,226,123 965,133 1,454,852 Financial debentures 45,827,690 39,260,849 25,924,028 Asset-backed securities 5,560,065 913,647 953,931 Listed and OTC securities 61,432,116 66,594,705 66,146,695 Beneficiary certificates 120,900,855 96,630,872 61,370,686 Linked deposits 5,100,000 100,000 100,000 Derivative financial assets 61,459,236 42,517,681 56,116,271 Valuation adjustment of financial assets (1,085,638) (16,477,088) (4,644,182) Subtotal 427,008,731 367,502,236 344,974,543 Total $ 428,132,525 368,632,520 346,121,032
Please refer to Note 6(v) and 8 for information with regard to the repurchase conditions for, or restrictions on, financial assets held for trading shown above.
(Continued) 42
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
From January 1, 2018, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries adopted IFRS 9 and elected to apply the overlay approach under the IFRS 4 “Insurance Contracts” to recognize the profit and loss for the designated financial assets. As of June 30, 2019, December 31 and June 30, 2018, among the financial assets relating to the investing activities under insurance contracts, the amounts of financial assets at fair value through profit or loss designated applying the overlay approach were $242,399,133, $166,532,688 and $123,948,871.
For the three months and six months ended June 30, 2019 and 2018, the reclassification amounts between profit or loss and other comprehensive income for the aforementioned designated financial assets under the overlay approach were as follows:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 The amounts reported in profit $ 6,890,190 2,623,526 20,186,738 1,370,050 for the designated financial assets as applying IFRS 9 Less: The amounts that would 4,187,019 4,363,613 7,709,117 6,361,474 have been reported in profit for the designated financial assets as applying IAS 39 Gains (losses) of the $ 2,703,171 (1,740,087) 12,477,621 (4,991,424) reclassification to other comprehensive income under the overlay approach
Due to the adjustment of the overlay approach, the gains (losses) on financial assets measured at fair value through profit or loss of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries has decreased from losses $792,576, gains $6,266,922 to losses $3,495,747, $6,210,699, and decreased from losses $24,504,928, $16,844,422 to $22,764,841 and $11,852,998, respectively, for the three months and six months ended June 30, 2019 and 2018.
The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries did not designate financial products that are previously unqualified for the overlay approach but then qualified during for the six months ended June 30, 2019 and 2018, or cancel the designated application.
Financial liabilities measured at fair value through profit or loss of the Company and subsidiaries were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Derivative financial liabilities $ 79,927,026 68,641,142 79,608,686 Financial liabilities designated at fair value 40,409,225 37,930,181 38,452,906 through profit or loss Borrowed listed and OTC securities 7,097 - 6,688 Total $ 120,343,348 106,571,323 118,068,280
(Continued) 43
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The aforementioned financial liabilities designated at fair value through profit or losses were issued by the Company’s subsidiary CTBC Bank Co., Ltd., with the related terms and conditions disclosed in Note 6(z). The amounts of fair value and its changes which are attributable to changes in market conditions that give rise to credit risk were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Financial debentures at fair value $ 40,409,225 37,930,181 38,452,906 Cumulative changes in fair value that is (1,869,909) 310,604 1,170,714 attributable to changes in the credit risk The difference between book value and the 4,396,599 6,386,805 5,528,094 amount payable upon maturity as specified in the contract
The Company’s subsidiary CTBC Bank Co., Ltd. assesses changes in fair value that is not attributable to changes in market conditions that give rise to swing of market risk to evaluate changes in fair value due to shift of credit risk. For the years ended June 30, 2019 and 2018, there is no transfer of cumulative gain or loss within equity.
The fair value of the callable financial liabilities issued by the Company’s subsidiary CTBC Bank Co., Ltd., evaluated based on the internal evaluation method, with evaluation variables retrieved from parameters unobservable in the market. In consideration of the discrepancy between evaluated price and transaction price, CTBC Bank Co., Ltd. has recognized reserve for day one profits. The changes in reserve for day one profits were as follows:
For the six months ended June 30 2019 2018 January 1 $ 1,430,916 3,545,835 Current increase - 1,256,405 Current decrease (180,680) (3,108,338) Foreign exchange gains 15,081 44,055 June 30 $ 1,265,317 1,737,957
(Continued) 44
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(d) Financial assets measured at fair value through other comprehensive income
December June 30, 2019 31, 2018 June 30, 2018 Debt instruments measured at fair value through other comprehensive income Negotiable certificate of deposits $ 9,531,977 16,014,499 13,524,156 Treasury bills 2,356,404 954,637 3,777,934 Government bonds 116,355,870 103,107,792 116,438,026 Corporate bonds 98,987,308 83,260,007 63,798,236 Commercial papers 14,233,688 - - Financial debentures 163,050,637 149,186,964 104,418,089 Asset-backed securities 44,019,941 31,581,823 29,472,422 Other securities and bonds 3,384,716 1,518,273 1,220,022 Valuation adjustment of financial assets 10,126,238 (4,902,849) (4,725,167) Subtotal 462,046,779 380,721,146 327,923,718 Equity investments measured at fair value through other comprehensive income Listed and OTC securities 98,509,283 82,471,951 77,679,826 Unlisted and non-OTC securities 8,031,726 8,237,387 8,528,667 Beneficiary certificates 553,166 548,664 - Valuation adjustment of financial assets 2,063,485 (8,123,354) (3,811,942) Subtotal 109,157,660 83,134,648 82,396,551 Total $ 571,204,439 463,855,794 410,320,269
During the three months and six months ended June 30, 2019 and 2018, the dividends of the Company and subsidiaries related to amounts derecognized during the reporting period and held by the end of the reporting period were as follows:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Amounts held by the end of the $ 745,049 552,432 1,078,755 734,648 reporting period
For the six months ended June 30, 2019 and 2018, the Company and subsidiaries disposed shares designated as measured at fair value through other comprehensive income due to the consideration of investment strategy, dual purpose of receiving dividends and selling financial assets, or due to the capital reduction conducted by the investees.
(Continued) 45
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
During the six months ended June 30, 2019 and 2018, the gains or losses on disposal of the Company and subsidiaries related to equity investments at fair value through other comprehensive income were as follows. The gains or losses on disposal will transfer from other equity interest to retained earnings.
The fair value at the date of derecognition Loss on disposal(before tax) For the three For the six months months ended June For the six months ended June 30, 2019 30, 2019 ended June 30, 2018 Stocks $ 3,178,830 (138,491) (656,054)
The fair value at the date of derecognition Loss on disposal(before tax) For the three For the six months months ended June For the six months ended June 30, 2018 30, 2018 ended June 30, 2018 Stocks $ 2,921,610 (374,348) (791,459)
The changes in allowance for credit losses attribute to the financial assets above were as follows:
For the six months ended June 30, 2019 Lifetime ECL (Not Lifetime purchased ECL or (Purchased originated or originated The provision Lifetime Lifetime credit- credit- of impairment ECL ECL impaired impaired in accordance 12-month (collectively (individually financial financial with IFRS 9 ECL assessed) assessed) assets) assets) (Total) Beginning balance $ 171,339 - 108,089 - - 279,428 Changes in financial instruments that have been identified at the beginning of the period: －The financial assets that have been derecognized (71,450) - - - - (71,450) The financial assets that have been derecognition 57,829 - - - - 57,829 Foreign exchange and other movement (21,718) - 46,784 - - 25,066 Ending balance $ 136,000 - 154,873 - - 290,873
For the six months ended June 30, 2018 Lifetime ECL (Not Lifetime purchased ECL or (Purchased originated or originated The provision Lifetime Lifetime credit- credit- of impairment ECL ECL impaired impaired in accordance 12-month (collectively (individually financial financial with IFRS 9 ECL assessed) assessed) assets) assets) (Total) Beginning balance $ 196,697 - 83,087 - - 279,784 Changes in financial instruments that have been identified at the beginning of the period: －Transfer to 12-month ECL 75,800 - (75,800) - - - －The financial assets that have been derecognized (64,637) - - - - (64,637) The financial assets that have been derecognition 28,141 - - - - 28,141 Foreign exchange and other movement (91,451) - (7,287) - - (98,738) Ending balance $ 144,550 - - - - 144,550
(Continued) 46
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Please refer to Notes 6(v) and 8 for information with regard to the resell conditions for, or restrictions on, financial assets measured at fair value through other comprehensive income shown above.
(e) Investment in debt instruments at amortized cost
December June 30, 2019 31, 2018 June 30, 2018 Negotiable certificate of deposits $ 390,187,784 381,989,358 409,418,091 Treasury bills 15,242,964 9,700,256 8,653,661 Government bonds 311,461,597 287,786,174 273,721,994 Corporate bonds 452,398,620 432,770,329 430,671,534 Financial debentures 495,147,280 464,563,767 461,789,397 Asset-backed securities 51,855,712 25,063,194 26,610,376 Others 13,319,707 27,067,585 5,559,165 Less: Loss allowance (950,668) (1,257,141) (837,129) Total $1,728,662,996 1,627,683,522 1,615,587,089
The Company and subsidiaries derecognized investments in debt instruments measured at amortized cost for the purpose of fund management, early redemption of issuer, sales for credit risk management and infrequent sales or unsignificant value both individually and in aggregate for the six months ended June 30, 2019 and 2018, the information of derecognition of carrying amounts and disposal gains (losses) were as follows:
The carrying amount at the date of derecognition Accumulated (losses) gains of disposal For the six months For the three For the six ended June 30, months ended months ended 2019 June 30, 2019 June 30, 2019 Government bonds $ 637,726 318 14,502 Corporate bonds 9,344,629 (262,866) (28,840) Financial debentures 4,086,503 41,448 46,155 Asset-backed securities 632,780 - - Structured deposits 19,000,000 - - Total $ 33,701,638 (221,100) 31,817
The carrying amount at the date of derecognition Accumulated gains of disposal For the six months For the three For the six ended June 30, months ended months ended 2018 June 30, 2018 June 30, 2018 Government bonds $ 1,841,570 96 29,866 Corporate bonds 6,395,742 141,948 141,948 Financial debentures 3,998,860 10,433 10,356 Asset-backed securities 315,742 - - Total $ 12,551,914 152,477 182,170
(Continued) 47
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The changes in allowance for credit losses attribute to the above assets were as follows:
For the six months ended June 30, 2019 Lifetime ECL (Not Lifetime purchased ECL The or (Purchased provision originated or originated of Lifetime Lifetime credit- credit- impairment ECL ECL impaired impaired in 12-month (collectively (individually financial financial accordance ECL assessed) assessed) assets) assets) with IFRS 9 Beginning balance $ 444,393 - 812,748 - - 1,257,141 Changes in financial instruments that have been identified at the beginning of the period: －Transfer to Lifetime ECL(credit risk have been significantly increased) (5,207) - 5,207 - - - －Transfer to 12-month ECL 992 - (992) - - - －The financial assets that have been derecognized (9,800) - (138,161) - - (147,961) New financial assets originated or purchased 30,670 - - - - 30,670 Foreign exchange and other movement (97,091) - (92,091) - - (189,182) Ending balance $ 363,957 - 586,711 - - 950,668
For the six months ended June 30, 2018 Lifetime ECL (Not Lifetime purchased ECL The or (Purchased provision originated or originated of Lifetime Lifetime credit- credit- impairment ECL ECL impaired impaired in 12-month (collectively (individually financial financial accordance ECL assessed) assessed) assets) assets) with IFRS 9 Beginning balance $ 371,566 - 379,179 - - 750,745 Changes in financial instruments that have been identified at the beginning of the period: －Transfer to Lifetime ECL(credit risk have been significantly increased) (4,754) - 4,754 - - - －Transfer to 12-month ECL 211,495 - (211,495) - - - －The financial assets that have been derecognized (5,187) - - - - (5,187) New financial assets originated or purchased 100,079 - - - - 100,079 Foreign exchange and other movement (226,831) - 218,323 - - (8,508) Ending balance $ 446,368 - 390,761 - - 837,129
Please refer to Notes 6(v) and 8 for information with regard to the repurchase conditions for, or restrictions on, Investments in debt instruments measured at amortized cost shown above.
(Continued) 48
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(f) Financial instruments－hedging
Hedging derivative financial assets of the Company’s subsidiary CTBC Bank Co., Ltd. were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Fair value hedge: Interest rate swaps $ - - 10,198 Non-delivery forwards - 980 - Hedge of a net investment in a foreign operation: Currency swaps 189,815 33,232 138,610 Total $ 189,815 34,212 148,808
Hedging derivative financial liabilities of the Company’s subsidiary CTBC Bank Co., Ltd. were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Fair value hedge: Non-delivery forwards $ 17,481 15,426 55,764 Hedge of a net investment in a foreign operation: Currency swaps 29,557 168,769 397,742 Total $ 47,038 184,195 453,506
(i) For the six months ended June 30, 2019 and 2018, the hedging derivative financial instruments of the Company’s subsidiary CTBC Bank Co., Ltd. have no ineffective portion of hedging.
(ii) Fair value hedge
In order to minimize the risk from future market interest rate fluctuation, the Company’s subsidiary CTBC Bank Co., Ltd. entered into interest rate swap transactions, where the interest rate payable on fixed interest rate debts issued has been swapped with a floating interest rate to reduce interest rate risk. The Company’s subsidiary CTBC Bank Co., Ltd. further entered into non delivery forwards; these contracts are principally to hedge against the foreign exchange fluctuation of capital of the international banking department.
(Continued) 49
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Designated hedging instruments Financial instruments Fair value designated as hedging June 30, December June 30, Hedged items instruments 2019 31, 2018 2018 Financial debentures in NTD Interest rate swaps $ - - 10,198 Capital of international Non-delivery forwards (17,481) (14,446) (55,764) banking department in USD
The information of the Company’s subsidiary CTBC Bank Co., Ltd. designated as the hedged items on June 30, 2019, December 31 and June 30, 2018 were as follows:
The change The cumulative amount of in the fair adjustment The separate line value of the included in the carrying items of the ineffective The carrying amount of the amount of the hedged hedged portion of Provision of hedged items item at fair value hedge items included in hedging cash flow Assets Liabilities Assets Liabilities the balance sheet items hedge June 30, 2019 Fair value hedge: Currency swaps 1,078,345 - 9,175 - Cash and cash - - equivalents
The change The cumulative amount of in the fair adjustment The separate line value of the included in the carrying items of the ineffective The carrying amount of the amount of the hedged hedged portion of Provision of hedged items item at fair value hedge items included in hedging cash flow Assets Liabilities Assets Liabilities the balance sheet items hedge December 31, 2018 Fair value hedge: Currency swaps 1,072,345 - 3,310 - Cash and cash - - equivalents
The change The cumulative amount of in the fair adjustment The separate line value of the included in the carrying items of the ineffective The carrying amount of the amount of the hedged hedged portion of Provision of hedged items item at fair value hedge items included in hedging cash flow Assets Liabilities Assets Liabilities the balance sheet items hedge June 30, 2018 Fair value hedge: Interest rate swaps $ - 8,909,756 - 9,756 Financial - - debentures Currency swaps 1,033,155 - 34,345 - Cash and cash - - equivalents
(Continued) 50
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) Hedge of a net investment in a foreign operation
In order to minimize the risk from overseas equity-method investments, the Company’s subsidiary CTBC Bank Co., Ltd. entered into currency swaps to hedge against foreign exchange fluctuation.
Designated hedging instruments Financial instruments Fair value designated as June 30, December June 30, Hedged items hedging instruments 2019 31, 2018 2018 CTBC Bank Co., Ltd.-Ho Chi Minh Currency swaps $ 10,761 2,450 (25,474) City Branch CTBC Capital Corp. 〞 50,294 9,312 (76,811) CTBC Bank Corp. (Canada) 〞 (3,905) 3,039 (546) The Tokyo Star Bank, Ltd. 〞 103,108 (150,338) (156,301)
(iv) The amounts applicable to the hedge accounting that affects the statement of comprehensive income statement for the six months ended June 30, 2019 and 2018 were as follows:
Provision of hedge reclassified to profit or loss The separate line Recognized in items of the hedged The hedged The hedged Recognized in profit or loss of items included in the items no longer items have The separate other the ineffective statements of expected to affected profit line items comprehensive portion of comprehensive occur and or loss and affected by income hedging income transfer transferred reclassification June 30, 2019 Hedge of net investment Currency swaps －Hedge of a net $ (505,321) - - - - - investment in a foreign operations
Provision of hedge reclassified to profit or loss The separate line Recognized in items of the hedged The hedged The hedged Recognized in profit or loss of items included in the items no longer items have The separate other the ineffective statements of expected to affected profit line items comprehensive portion of comprehensive occur and or loss and affected by income hedging income transfer transferred reclassification June 30, 2018 Hedge of net investment Currency swaps －Hedge of a net $ (596,959) - - - - - investment in a foreign operations
(Continued) 51
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(v) The amounts, timing and uncertainty of the aforementioned hedging instruments affecting the Company's subsidiary CTBC Bank Co., Ltd.'s future cash flow were as follows:
Maturity date Up to 1 3 months to Over 5 month 1-3 months 1 year 1-5 years years June 30, 2019 Fair value hedge Non-delivery forwards Notional Amount USD 15,000 20,000 - - - Range of FX(TWD/USD) 30.809~30.851 30.800 - Hedge of net investment Exchange transaction Notional Amount USD 204,500 - - - - Range of FX(TWD/USD) 31.400~31.419 Notional Amount CAD 10,000 - - - - Range of FX(TWD/CAD) 23.365 Notional Amount JPY 52,970,726 - - - - Range of FX(TWD/JPY) 0.2900~0.2910
Maturity date Up to 1 3 months to Over 5 month 1-3 months 1 year 1-5 years years June 30, 2018 Fair value hedge Interest rate swaps Notional Amount $ - - 8,900,000 - - Range of fixed rate 1.070~1.145% Non-delivery forwards Notional Amount - - USD 35,000 - - Range of FX(TWD/USD) 28.709~29.922 Hedge of net investment Exchange transaction Notional Amount USD 161,000 - - - - Range of FX(TWD/USD) 29.832~30.365 Notional Amount CAD 10,000 - - - - Range of FX(TWD/CAD) 23.040 Notional Amount JPY 52,970,726 - - - - Range of FX(TWD/JPY) 0.2709~0.2745
(g) Securities purchased under resell agreements
December 31, June 30, 2019 2018 June 30, 2018 Securities purchased under resell agreements $ 32,729,836 24,656,572 10,849,931 Face value of securities $ 32,033,200 24,024,624 10,415,560
(Continued) 52
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(h) Receivables－net
December 31, June 30, 2019 2018 June 30, 2018 Notes receivable $ 286,715 285,756 275,995 Accounts receivable 108,809,458 91,114,293 93,954,965 Accounts receivable factoring 17,192,542 21,578,332 19,934,715 Interest receivable 24,121,803 22,825,434 21,130,241 Acceptances receivable 10,671,064 12,150,952 9,860,724 Accrued income 891,833 343,298 544,427 Securities margin loan receivable 2,467,830 2,416,476 3,635,058 Securities receivable 9,443,133 7,031,197 7,523,940 Financial leasing receivable 10,197,367 10,774,511 10,899,889 Interbank clearing receivable 2,165,892 2,206,146 1,969,665 Premium receivable 17,772,257 17,769,081 14,694,887 Separate account of investment products 942,223 816,267 923,577 receivable Installment accounts receivable 4,804,221 5,286,896 6,626,098 Other receivables 4,353,393 6,171,612 4,155,707 Subtotal 214,119,731 200,770,251 196,129,888 Less: Allowance for credit losses (2,926,597) (3,016,606) (3,190,445) Total $ 211,193,134 197,753,645 192,939,443
The accounts receivable shown above included the receivables from credit card holders who were involved in debt repayment negotiation with the Company’s subsidiary CTBC Bank Co., Ltd.
Please refer to Note 8 for information with regard to the restrictions on other receivables shown above.
Please refer to Note 6(k) for changes in allowance for credit losses of receivables listed above.
Please refer to Note 6(av) for credit risk and the market risk information about parts of the aforementioned receivables.
Receivables of the Company and subsidiaries should be included in impairment assessment. Please refer to the following table for the amounts of receivables and the respective allowance for credit losses, excluding that of credit card receivables, which are accounted for under liability reserve. Total receivables do not encompass investments in security-related and other receivables whose impairment assessments are consistent with corresponding assets.
(Continued) 53
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(i) Assets classified as held for sale－net
The board of directors of subsidiary Taiwan Life Insurance Co., Ltd. resolved to sell the investment property, at lot No.20, Wenshang Section., Situn District., Taichung City, in the fourth-quarter for 2018. The Company signed the contract in November 2018, and its ownership has been transferred in January 2019. Besides, the procedures of the transaction including obtaining the payment, etc. have been finished in February 2019. As the property in accordance with the terms of held-for-sale financial assets, it transferred from Investment property to Assets classified as held for sale. The book value of the property is $523,182 in December 31, 2018.
(j) Loans－net
December 31, June 30, 2019 2018 June 30, 2018 Corporate loans $ 561,039,607 552,570,803 517,600,234 Micro business loans 12,740,268 10,897,083 10,519,694 Mortgage loans 665,311,118 642,147,515 604,152,481 Automobile loans 8,187,063 8,273,766 7,861,752 Consumer loans 119,494,204 115,548,807 110,790,797 Life insurance loans 19,963,768 19,841,658 19,596,213 Automatic premium loans 3,478,910 3,351,963 3,249,028 Subtotal of NTD loans 1,390,214,938 1,352,631,595 1,273,770,199 Foreign currency loans 1,062,266,705 1,033,629,689 1,016,300,179 Non-accrual loans 9,823,824 9,656,370 9,019,614 Subtotal 2,462,305,467 2,395,917,654 2,299,089,992 Less: Allowance for credit losses (31,727,617) (30,400,448) (29,557,266) Less: Adjustment of discount and premium (1,138,625) (1,188,957) (1,252,610) Fair value adjustment resulting from - 17,231 22,012 acquisition Total $2,429,439,225 2,364,345,480 2,268,302,128
The loans shown above included the loans to cash card holders and fiduciary loans to clients who were involved in debt repayment negotiation with the Company’s subsidiary CTBC Bank Co., Ltd.
Please refer to Note 6(av) for the industry information.
Non-performing loans of the Company’s subsidiary CTBC Bank Co., Ltd. and its subsidiaries were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Non-performing loans $ 10,214,300 10,123,335 9,373,618
(Continued) 54
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The Company’s subsidiary CTBC Bank Co., Ltd. and subsidiaries have suspended interests on non- performing loans. The amounts of suspended interests were as follows:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Suspended interest on non- $ 29,854 5,883 66,759 34,794 performing loans
For the six months ended June 30, 2019 and 2018, there were no loans written off without recourse.
Please refer to Note 6(k) for changes in allowance for credit losses of loans listed above.
Please refer to Note 6(av) for credit risk and market risk information of loans listed above.
(k) Allowance for credit losses
The changes in allowance for credit losses, attributed to loans, receivables, other financial assets, and financing guarantee etc., were as follows:
(i) Receivables
For the six months ended June 30, 2019 Lifetime ECL Lifetime (Not ECL Additional purchased or (Purchased provision of originated or originated impairment in Lifetime Lifetime credit- credit- The provision accordance with ECL ECL impaired impaired of impairment regulations 12-month (collectively (individually financial financial in accordance for each industry ECL assessed) assessed) assets) assets) with IFRS 9 (Note) Total Beginning balance $ 896,132 93,910 10,674 1,638,837 12 2,639,565 377,041 3,016,606 Changes in financial instruments that have been identified at the beginning of the period:
－Transfer to lifetime ECL (9,668) 9,424 760 (516) - - - －Transfer to the credit-impaired financial assets (21,347) (61,189) (5,636) 88,172 - - - -
－Transfer to 12-month ECL 29,409 (24,726) (11) (4,672) - - - - －The financial assets that have been derecognized (60,471) (2,644) (836) (3,384) - (67,335) - (67,335) New financial assets originated or purchased 153,277 4,633 84 21,470 - 179,464 - 179,464 Additional provision of impairment in accordance with regulations for each industry (Note) ------(63,726) (63,726)
Write-offs - - - (448,972) - (448,972) (202) (449,174) Recoveries of amounts previously written off - - - 429,577 - 429,577 - 429,577
Foreign exchange and other movement (146,636) 65,767 (177) (37,781) 12 (118,815) - (118,815)
Ending balance $ 840,696 85,175 4,858 1,682,731 24 2,613,484 313,113 2,926,597
(Continued) 55
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Lifetime ECL Lifetime (Not ECL Additional purchased or (Purchased provision of originated or originated impairment in Lifetime Lifetime credit- credit- The provision accordance with ECL ECL impaired impaired of impairment regulations 12-month (collectively (individually financial financial in accordance for each industry ECL assessed) assessed) assets) assets) with IFRS 9 (Note) Total Beginning balance $ 836,317 201,450 13,395 1,884,075 11 2,935,248 191,965 3,127,213 Changes in financial instruments that have been identified at the beginning of the period:
－Transfer to lifetime ECL (17,462) 9,587 8,281 (406) - - - －Transfer to the credit-impaired financial assets (15,763) (130,235) (1,152) 147,149 1 - - -
－Transfer to 12-month ECL 27,098 (22,827) (4) (4,267) - - - - －The financial assets that have been derecognized (50,594) (41,843) (622) (7,492) - (100,551) - (100,551) New financial assets originated or purchased 199,154 6,522 - 66,912 40,873 313,461 - 313,461 Additional provision of impairment in accordance with regulations for each industry (Note) ------141,354 141,354
Write-offs - - - (485,189) - (485,189) (3,478) (488,667) Recoveries of amounts previously written off - - - 422,494 - 422,494 - 422,494
Foreign exchange and other movement (88,123) 69,014 5,280 (211,029) (1) (224,859) - (224,859)
Ending balance $ 890,627 91,668 25,178 1,812,247 40,884 2,860,604 329,841 3,190,445
Note: Additional provision of impairment were in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrual Loans “and” Jin Kuan Yin Kong Zi No. 10660004381-Strenthening supervision mechanism of capital companies”.
(ii) Loans
For the six months ended June 30, 2019 Lifetime ECL Lifetime (Not ECL Additional purchased or (Purchased provision of originated or originated impairment in Lifetime Lifetime credit- credit- The provision accordance with ECL ECL impaired impaired of impairment regulations 12-month (collectively (individually financial financial in accordance for each industry ECL assessed) assessed) assets) assets) with IFRS 9 (Note) Total Beginning balance $ 5,535,971 706,108 10,869 7,834,007 55,056 14,142,011 16,258,437 30,400,448 Changes in financial instruments that have been identified at the beginning of the period: －Transfer to lifetime ECL (71,958) 82,895 4 (10,941) - - - - －Transfer to the credit-impaired financial assets (76,480) (236,538) (7,770) 320,677 111 - - - －Transfer to 12-month ECL 223,948 (184,325) (132) (39,491) - - - - －The financial assets that have been derecognized (1,020,472) (174,244) (49) (386,507) (6) (1,581,278) - (1,581,278) New financial assets originated or purchased 1,240,804 77,051 27,530 396,587 98,735 1,840,707 - 1,840,707 Additional provision of impairment in accordance with regulations for each industry (Note) ------1,316,799 1,316,799 Write-offs (815) (8,829) - (1,896,209) - (1,905,853) - (1,905,853) Recoveries of amounts previously written off 670 - - 601,557 - 602,227 - 602,227 Foreign exchange and other movement (873,439) 410,577 1,726 1,512,403 3,300 1,054,567 - 1,054,567 Ending balance $ 4,958,229 672,695 32,178 8,332,083 157,196 14,152,381 17,575,236 31,727,617
(Continued) 56
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Lifetime ECL Lifetime (Not ECL Additional purchased or (Purchased provision of originated or originated impairment in Lifetime Lifetime credit- credit- The provision accordance with ECL ECL impaired impaired of impairment regulations 12-month (collectively (individually financial financial in accordance for each industry ECL assessed) assessed) assets) assets) with IFRS 9 (Note) Total Beginning balance $ 5,380,835 609,080 117,454 7,609,768 36,347 13,753,484 13,998,821 27,752,305 Changes in financial instruments that have been identified at the beginning of the period: －Transfer to lifetime ECL (46,099) 58,677 - (12,578) - - - - －Transfer to the credit-impaired financial assets (83,087) (121,365) (121) 204,501 72 - - - －Transfer to 12-month ECL 202,444 (165,868) - (36,576) - - - - －The financial assets that have been derecognized (1,099,898) (170,436) (4,667) (554,430) - (1,829,431) - (1,829,431) New financial assets originated or purchased 1,405,334 66,838 4,293 559,023 19,176 2,054,664 - 2,054,664 Additional provision of impairment in accordance with regulations for each industry (Note) ------973,521 973,521 Write-offs (1,799) (7,507) - (1,188,635) - (1,197,941) - (1,197,941) Recoveries of amounts previously written off 5,593 - - 720,827 - 726,420 - 726,420 Foreign exchange and other movement (259,498) 275,083 164 1,062,971 (992) 1,077,728 - 1,077,728 Ending balance $ 5,503,825 544,502 117,123 8,364,871 54,603 14,584,924 14,972,342 29,557,266 Note: Additional provisions of impairment were in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrual Loans” and “Guidelines for Handling Assessment of Assets, Loans Overdue, Receivables on Demand and Bad Debts by Insurance Enterprises”.
(iii) Short term advances, non-accrual loans and others
For the six months ended June 30, 2019 Additional provision Lifetime of impairment in ECL Lifetime accordance with (Not ECL “Guidelines for purchased or (Purchased Handling Assessment originated or originated of Assets, Loans Lifetime Lifetime credit- credit- The provision Overdue, Receivables ECL ECL impaired impaired of impairment on Demand and Bad 12-month (collectively (individually financial financial in accordance Debts by Insurance ECL assessed) assessed) assets) assets) with IFRS 9 Enterprises” Total Beginning balance $ 24,800 8,128 - 220,926 - 253,854 44,983 298,837 Changes in financial instruments that have been identified at the beginning of the period: －Transfer to the credit-impaired financial assets - (14) - 14 - - - - －Transfer to 12-month ECL 1,123 (3) - (1,120) - - - - －The financial assets that have been derecognized (5,164) (20) - (5,035) - (10,219) - (10,219) New financial assets originated or purchased 4,052 10 - 48,869 - 52,931 - 52,931 Additional provision of impairment in accordance with “Guidelines for Handling Assessment of Assets, Loans Overdue, Receivables on Demand and Bad Debts by Insurance Enterprises” ------(5,885) (5,885) Write-offs - (5,605) - (39,499) - (45,104) - (45,104) Foreign exchange and other movement (8,538) 1,927 - 44,122 - 37,511 - 37,511 Ending balance $ 16,273 4,423 - 268,277 - 288,973 39,098 328,071
(Continued) 57
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Additional provision Lifetime of impairment in ECL Lifetime accordance with (Not ECL “Guidelines for purchased or (Purchased Handling Assessment originated or originated of Assets, Loans Lifetime Lifetime credit- credit- The provision Overdue, Receivables ECL ECL impaired impaired of impairment on Demand and Bad 12-month (collectively (individually financial financial in accordance Debts by Insurance ECL assessed) assessed) assets) assets) with IFRS 9 Enterprises” Total Beginning balance $ 36,893 8,420 - 206,694 - 252,007 68,258 320,265 Changes in financial instruments that have been identified at the beginning of the period: －Transfer to lifetime ECL - 158 - (158) - - - - －Transfer to the credit-impaired financial assets - (29) - 29 - - - - －Transfer to 12-month ECL 864 (3) - (861) - - - - －The financial assets that have been derecognized (7,686) (20) - (25,970) - (33,676) - (33,676) New financial assets originated or purchased 5,028 2 - 24,680 - 29,710 - 29,710 Additional provision of impairment in accordance with “Guidelines for Handling Assessment of Assets, Loans Overdue, Receivables on Demand and Bad Debts by Insurance Enterprises” ------3,682 3,682 Write-offs - (50) - (44,912) - (44,962) - (44,962) Foreign exchange and other movement (7,362) (47) - 53,464 - 46,055 - 46,055 Ending balance $ 27,737 8,431 - 212,966 - 249,134 71,940 321,074 (iv) Financing commitment and guarantee reserve
For the six months ended June 30, 2019 Additional provision of impairment in accordance with “Regulations Lifetime Governing the ECL Lifetime Procedures for (Not ECL Banking purchased or (Purchased Institutions to originated or originated Evaluate Assets Lifetime Lifetime credit- credit- The provision and Deal with ECL ECL impaired impaired of impairment Nonperforming/ 12-month (collectively (individually financial financial in accordance Non-accrual ECL assessed) assessed) assets) assets) with IFRS 9 Loans” Total Beginning balance $ 370,203 10,483 - 216,446 136 597,268 540,319 1,137,587 Changes in financial instruments that have been identified at the beginning of the period:
－Transfer to lifetime ECL (1,097) 1,157 - (60) - - - - －Transfer to the credit-impaired financial assets (1,302) (437) - 1,739 - - - -
－Transfer to 12-month ECL 7,291 (6,805) - (486) - - - - －The financial assets that have been derecognized (46,862) (651) - (30,267) - (77,780) - (77,780) New financial assets originated or purchased 64,934 26 - 1,564 - 66,524 - 66,524 Additional provision of impairment in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non- accrual Loans” ------132,715 132,715
Write-offs - - - (78) - (78) - (78) Recoveries of amounts previously written off - - - 3,736 - 3,736 - 3,736
Foreign exchange and other movement (68,533) (164) - (8,430) (63) (77,190) - (77,190)
Ending balance $ 324,634 3,609 - 184,164 73 512,480 673,034 1,185,514
(Continued) 58
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Additional provision of impairment in accordance with “Regulations Lifetime Governing the ECL Lifetime Procedures for (Not ECL Banking purchased or (Purchased Institutions to originated or originated Evaluate Assets Lifetime Lifetime credit- credit- The provision and Deal with ECL ECL impaired impaired of impairment Nonperforming/ 12-month (collectively (individually financial financial in accordance Non-accrual ECL assessed) assessed) assets) assets) with IFRS 9 Loans” Total Beginning balance $ 364,317 9,052 12 167,192 1,951 542,524 524,571 1,067,095 Changes in financial instruments that have been identified at the beginning of the period:
－Transfer to lifetime ECL (1,123) 1,125 - (2) - - - - －Transfer to the credit-impaired financial assets (1,301) (415) - 1,716 - - - -
－Transfer to 12-month ECL 5,545 (5,076) - (469) - - - - －The financial assets that have been derecognized (52,010) (1,600) (12) (622) - (54,244) - (54,244) New financial assets originated or purchased 73,172 1,972 - 32,930 - 108,074 - 108,074 Additional provision of impairment in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non- accrual Loans” ------(49,290) (49,290)
Write-offs - - - (723) - (723) - (723) Recoveries of amounts previously written off - - - 1,438 - 1,438 - 1,438
Foreign exchange and other movement (13,400) 12,674 - (3,001) (1,631) (5,358) - (5,358)
Ending balance $ 375,200 17,732 - 198,459 320 591,711 475,281 1,066,992
Note: Including other financial assets and provision of guarantee reserves, etc.
(l) Reinsurance assets－net
December 31, June 30, 2019 2018 June 30, 2018 Claims recoverable from reinsurers $ 396,683 722,006 659,528 Due from reinsurers and ceding companies 390,758 578,989 514,382 Less: Allowance for credit losses (17,622) (17,761) (17,851) Subtotal 769,819 1,283,234 1,156,059 Reinsurance reserve assets : Ceded unearned premium reserve 960,266 921,525 1,004,454 Ceded claim reserve 405,558 357,310 533,759 Ceded premium deficiency reserve - 31,276 - Subtotal 1,365,824 1,310,111 1,538,213 Total $ 2,135,643 2,593,345 2,694,272
(Continued) 59
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
As of June 30, 2019, December 31 and June 30, 2018, non-performing loans of due from reinsures and ceding companies were $17,687, $17,961 and $20,404 respectively, and the bad debts allowance were $17,622, $17,761 and $17,851, respectively.
(m) Investment under equity method－net
June 30, 2019 % Book value Investment in associates: Grand Bills Finance Corporation 21.15 $ 1,980,035 (original investment at 1,010,880 thousand) AZ-Star Co., Ltd. 40.00 27,375 (original investment at JPY 12,000 thousand) AZ-Star no. 1 Investment Limited Partnership 43.98 105,232 (original investment at JPY 2,333,068 thousand) AZ-Star no. 3 Investment Limited Partnership 26.04 133,583 (original investment at JPY 504,000 thousand) LH Financial Group Public Company Limited 35.62 18,092,259 (original investment at THB 16,598,915 thousand) CTBC Security Co., Ltd. 100.00 56,726 (original investment at 58,839 thousand) Hofa Land Development Co., Ltd. 90.00 11,909,946 (original investment at 11,237,393 thousand) Wu Tzu Development Co., Ltd. 99.00 1,988,591 (original investment at 2,101,144 thousand) Top Taiwan IX Venture Capital Co., Ltd. 25.00 216,378 (original investment at 200,000 thousand) Star Shining Energy Co., Ltd. 30.00 909,318 (original investment at 900,000 thousand) Giga Green Energy Co., Ltd. 30.00 335,821 (original investment at 327,000 thousand) Investment in joint ventures: Xiamen Jinmeixin Consumer Finance Co., Ltd. 34.00 775,120 (original investment at CNY170,000 thousand) King Dragon Life Investment Co., Ltd. 50.00 566,600 (original investment at 1,646,486 thousand) Total $ 37,096,984
(Continued) 60
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 % Book value Investment in associates: Grand Bills Finance Corporation 21.15 $ 1,975,668 (original investment at 1,010,880 thousand) AZ-Star Co., Ltd. 40.00 20,511 (original investment at JPY 12,000 thousand) AZ Star no. 1 Investment Limited Partnership 43.98 105,543 (original investment at JPY 2,333,068 thousand) AZ-Star no. 3 Investment Limited Partnership 30.86 153,204 (original investment at JPY 550,500 thousand) LH Financial Group Public Company Limited 35.62 16,520,616 (original investment at THB 16,598,915 thousand) CTBC Security Co., Ltd. 100.00 58,706 (original investment at 58,839 thousand) Hofa Land Development Co., Ltd. 90.00 11,788,779 (original investment at 11,237,393 thousand) Wu Tzu Development Co., Ltd. 99.00 2,006,213 (original investment at 2,101,144 thousand) Top Taiwan IX Venture Capital Co., Ltd. 25.00 204,924 (original investment at 200,000 thousand) Star Shining Energy Co., Ltd. 30.00 911,554 (original investment at 900,000 thousand) Giga Green Energy Co., Ltd. 30.00 326,959 (original investment at 327,000 thousand) Investment in joint ventures: Xiamen Jinmeixin Consumer Finance Co., Ltd. 34.00 761,208 (original investment at CNY 170,000 thousand) King Dragon Life Investment Co., Ltd. 50.00 519,564 (original investment at 1,646,486 thousand) Total $ 35,353,449
(Continued) 61
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 % Book value Investment in associates: Grand Bills Finance Corporation 21.15 $ 1,924,170 (original investment at 1,010,880 thousand) AZ-Star Co., Ltd. 40.00 32,463 (original investment at JPY 12,000 thousand) AZ-Star no. 1 Investment Limited Partnership 43.98 214,251 (original investment at JPY 2,274,268 thousand) LH Financial Group Public Company Limited 35.62 15,876,878 (original investment at THB 16,598,915 thousand) CTBC Security Co., Ltd. 100.00 55,471 (original investment at 58,839 thousand) Hofa Land Development Co., Ltd. 90.00 12,673,301 (original investment at 12,251,513 thousand) Wu Tzu Development Co., Ltd. 99.00 2,033,999 (original investment at 2,101,144 thousand) Top Taiwan IX Venture Capital Co., Ltd. 25.00 213,652 (original investment at 200,000 thousand) Star Shining Energy Co., Ltd. 30.00 903,773 (original investment at 900,000 thousand) Investment in joint ventures: King Dragon Life Investment Co., Ltd. 50.00 589,659 (original investment at 1,646,486 thousand) Total $ 34,517,617
For the three months and six months ended June 30, 2019 and 2018, the amount of profit and loss from associates and joint ventures recognized under equity-method investments were as follows:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Investment in associates $ 340,573 348,204 738,683 735,584 Investment in joint ventures 55,384 (26,948) 41,461 (77,719) Total $ 395,957 321,256 780,144 657,865
(Continued) 62
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(i) Investment in associates
1) Information of significant associates:
The relevant information about the associates which are material to the Company and subsidiaries was as follows:
Main operating location/Regist Nature of ered Percentage of ownership Relationship with Country of the June 30, December 31, June 30, Name of Associates the Company Company 2019 2018 2018 LH Financial Group Investment under Thailand 35.62 % 35.62 % 35.62 % Public Company equity method Limited
The fair value of associates listed on the Stock Exchange (over the counter) which are material to the Company and subsidiaries were as follows:
December 31, June 30, 2019 2018 June 30, 2018 LH Financial Group Public $ 11,529,606 9,646,112 10,064,978 Company Limited
Summarized financial Information of LH Financial Group Public Company Limited was as follows:
December 31, June 30, 2019 2018 June 30, 2018 Total assets $ 250,922,820 233,390,597 210,752,244 Total liabilities (208,826,284) (195,706,681) (174,875,718) Net assets $ 42,096,536 37,683,916 35,876,526
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Net revenue $ 1,330,191 1,010,751 2,344,665 2,176,250 Net income from $ 753,344 751,010 1,536,258 1,466,580 continuing operations Other 268,803 (421,267) 1,248,179 (465,492) comprehensive income Comprehensive $ 1,022,147 329,743 2,784,437 1,001,088 income
(Continued) 63
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, June 30, 2019 2018 June 30, 2018 Proportionate share of net assets of $ 14,993,523 13,421,880 12,778,142 associates Add: Premium on the investment 3,098,736 3,098,736 3,098,736 under equity method Book value of associates $ 18,092,259 16,520,616 15,876,878
2) Information of insignificant associates:
As of June 30, 2019, December 31 and June 30, 2018, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. acquired 90% equity stake of Hofa Land Development Co., Ltd. without any management involvement by posting directors, supervisors, managers or other ways in accordance with Article 146-5 of the Insurance Act. Hofa Land Development Co., Ltd. is set up for participating in the program of “Kaohsiung City Hofa industrial park development, sell (bid) and management”. However, the final approval of practical operations, such as development plans, expenditures and the bid price of the land, were made by Kaohsiung City Government. As a result, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. has no de facto control, but with significant influence, hence, Hofa Land Development Co., Ltd. is excluded in the consolidated entities.
As of June 30, 2019, December 31 and June 30, 2018, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. acquired 99% equity stake of Wu Tzu Development Co., Ltd. Wu Tzu Development Co., Ltd. was set up for the purpose of participating in “the Development and Operating Program of Taichung Intercontinental Baseball Stadium” , and was authorized by Taichung City Government to operate the Taichung Intercontinental Baseball Stadium, build multiple functional sport center, parking lots, and other items raised by Wu Tzu Development Co., Ltd. The aforesaid items should be reviewed and approved by Taichung City Government before operating. Furthermore, without any management involvement by posting directors, supervisors, managers or other ways in accordance with Article 146-5 of the Insurance Act, as a result, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. has no de facto control but with significant influence, hence, Wu Tzu Development Co., Ltd. is excluded in the consolidated entities.
The following is the collected prorated financial information of the associates that are individually insignificant to the Company and subsidiaries. The financial information is derived from the consolidated financial report:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Net income from $ 70,681 79,586 188,219 210,780 continuing operations Other 7,133 2,806 22,219 (2,514) comprehensive income (losses) Comprehensive $ 77,814 82,392 210,438 208,266 income
(Continued) 64
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) Investment in joint venture
The joint venture for Xiamen Jinmeixin Consumer Finance Co., Ltd. was jointly invested by the Company's subsidiary CTBC Bank Co., Ltd. , GOME Holdings Group Co., Ltd. and Xiamen Jin Yuan Financial Holding Co., Ltd. on October 10, 2018. The Investment was joint ventures accounted for using equity method. The Bank had 34% ownership of the joint venture and with the investment amounted to RMB170,000 thousand.
The joint agreement between the Company’s subsidiary Taiwan Life Insurance Co., Ltd. and King Dragon Life Insurance Co., Ltd. is a joint venture, hence accounted for under equity method. As of June 30, 2019, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. hold 50% voting rights over King Dragon Life Insurance Co., Ltd., and its capital amounted to CNY700,000 thousand.
The Company’ s subsidiary Taiwan Life Insurance Co., Ltd. was approved by the Financial Management Committee Jin Guan Bao Shou Zi No. 10804160440 to change the estimates in the insurance liability of King Dragon Life Investment Co., Ltd. under equity method investment in mainland China and recognize the investment gains and losses. Please refer to Note 4 (ad).
The aforementioned financial information for investments in individually insignificant joint venture accounted for using equity method are shown below. The amount of these financial informations included in the consolidated financial statement :
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Net gains (losses) from $ 55,384 (26,948) 41,461 (77,719) continuing operations Other comprehensive (10,185) (6,154) 19,487 3,730 income Comprehensive income $ 45,199 (33,102) 60,948 (73,989) (losses)
The financial information for investments in joint venture accounted for using equity method of Taiwan Life Insurance Co., Ltd. is individually insignificant. The financial information has reflected the adjustments of the difference of the accounting policy when the consolidated Company adopted equity method. Moreover, due to the carrying amount of liabilities generating from the contracts within the scope of IFRS 4 are considered significant compared to the total liabilities, the Company is temporarily exempt from applying IFRS 9.
(Continued) 65
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The fair value as of the end of financial reporting date and changes of the fair value during the period of King Dragon Life Insurance Co., Ltd.’s financial assets were as follows:
For the six months The Fair Value on ended June 30, June 30, 2019 2019 Financial assets with the characteristic of solely $ 2,941,634 1,233 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of payments 887,997 12,434 of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value For the six months The Fair Value on ended June 30, June 30, 2018 2018 Financial assets with the characteristic of solely $ 3,392,343 7,389 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of payments 1,728,088 (23,149) of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value The carrying amount of the financial assets under IAS 39 above were as follows:
June 30, 2019 Sub- Investment investment High risk grade grade grade Financial assets with the characteristic of solely $ 2,422,138 - 746,361 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of 413,160 - 474,837 payments of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value (Continued) 66
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Sub- Investment investment High risk grade grade grade Financial assets with the characteristic of solely $ 3,247,057 - 138,102 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of 449,911 - 1,278,177 payments of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value
Note: If the financial assets are measured at amortized cost, the carrying amount is measured before adjusting for any loss allowance.
The fair value of the financial assets above which do not belong to low credit risk, and the carrying amount under IAS 39 as of the end of reporting date were as follows:
June 30, 2019 The Carrying Amount under IAS 39 (Note) Fair Value Financial assets with the characteristic of solely $ 746,361 474,995 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of payments 474,837 474,837 of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value
(Continued) 67
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 The Carrying Amount under IAS 39 (Note) Fair Value Financial assets with the characteristic of solely $ 138,102 138,102 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of payments 1,278,177 1,278,177 of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value
Note: If the financial assets are measured at amortized cost, the carrying amount is measured before adjusting for any credit loss allowance.
(n) Other financial assets－net
December 31, June 30, 2019 2018 June 30, 2018 Short-term advances $ 1,161,914 1,914,653 194,720 Less: Allowance for credit losses－short-term (56,507) (49,128) (43,688) advances Deposits pledged 499,534 593,423 696,756 Non-accrual loans transferred from non-loan 264,652 257,014 269,784 financial assets Less: Allowance for credit losses—non- (222,817) (205,060) (230,965) accrual loans transferred from non-loan financial assets Separate insurance products 86,970,082 72,962,418 71,273,280 Customer margin deposit 412,122 382,350 339,656 Prepayments for investments 130,100 - 795,471 Others 55,646 83,827 846,725 Total $ 89,214,726 75,939,497 74,141,739
Please refer to Note 6(k) for information with regard to the changes of allowance for short term advances and allowance for credit losses— non-accrual loans transferred from non-loan financial assets shown above.
Please refer to Note 6(ap) for the information on separate insurance products.
Please refer to Note 8 for information with regard to the restrictions on the other financial assets shown above.
(Continued) 68
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(o) Investment property－net
June 30, 2019 Accumulated Accumulated Asset Cost depreciation impairment Book value Proprietary Assets Land $ 42,219,847 - 245,972 41,973,875 Buildings 16,082,121 1,494,348 100,013 14,487,760 Construction in progress 2,639,130 - - 2,639,130 Prepayment for land 87,603 - - 87,603 Subtotal 61,028,701 1,494,348 345,985 59,188,368 Right-of-Use Assets Surface right 15,218,219 180,620 - 15,037,599 Total $ 76,246,920 1,674,968 345,985 74,225,967 Fair value $ 79,703,281
December 31, 2018 Accumulated Accumulated Asset Cost depreciation impairment Book value Proprietary Assets Land $ 41,224,972 - 245,972 40,979,000 Buildings 15,871,198 1,278,845 100,013 14,492,340 Construction in progress 2,034,736 - - 2,034,736 Prepayment for land 85,683 - - 85,683 Total $ 59,216,589 1,278,845 345,985 57,591,759 Fair value $ 61,761,660
June 30, 2018 Accumulated Accumulated Asset Cost depreciation impairment Book value Proprietary Assets Land $ 41,704,482 - 243,668 41,460,814 Buildings 13,973,551 1,100,807 100,013 12,772,731 Construction in progress 3,369,909 - - 3,369,909 Prepayment for land 83,443 - - 83,443 Total $ 59,131,385 1,100,807 343,681 57,686,897 Fair value $ 61,589,400
(Continued) 69
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Changes in the cost were as follows:
January 1, 2019 Current increase Current decrease Others June 30, 2019 Proprietary Assets Land $ 41,224,972 1,683,763 688,888 - 42,219,847 Buildings 15,871,198 458,509 247,586 - 16,082,121 Construction in progress 2,034,736 647,568 43,174 - 2,639,130 Prepayment for land 85,683 10,878 8,958 - 87,603 Subtotal 59,216,589 2,800,718 988,606 - 61,028,701 Right-of-Use Assets Surface right 15,218,219 - - - 15,218,219 Total $ 74,434,808 2,800,718 988,606 - 76,246,920
The changes in 2019 is primarily due to the facts that the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. signed with Easy Finder Publishing Ltd. the contract of purchase of land and buildings at Jiuzong Section, Neihu District, Taipei City, and the right of ownership has been transferred in February, 2019.
January 1, 2018 Current increase Current decrease Others June 30, 2018 Proprietary Assets Land $ 41,749,056 1,601,563 1,646,137 - 41,704,482 Buildings 12,418,981 1,770,851 216,281 - 13,973,551 Construction in progress 3,706,741 1,291,097 1,627,929 - 3,369,909 Prepayment for land 60,422 519,543 496,522 - 83,443 Total $ 57,935,200 5,183,054 3,986,869 - 59,131,385
Note: The change in 2018 was mainly due to the joint venture contract signed by the Company’s subsidiary Taiwan Life Insurance Co., Ltd. in November 2012 with Mainland China Construction Co., Ltd. (hereinafter referred to as “Mainland China Construction”) for the middle section of the Zhongzheng District of Taipei City. The construction was completed. According to the contract of the construction contract, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. exchanged the land for the building on the basis of the agreed distribution ratio, and purchased the value of the rights allocated by the Mainland China Construction according to the scheduled sales contract.
Changes in accumulated depreciation were as follows:
January 1, 2019 Current increase Current decrease Others June 30, 2019 Proprietary Assets Buildings $ 1,278,845 237,826 22,323 - 1,494,348
Right-of-Use Asset Surface rights $ - 180,620 - - 180,620
January 1, 2018 Current increase Current decrease Others June 30, 2018 Proprietary Assets Buildings $ 996,938 171,718 67,849 - 1,100,807
(Continued) 70
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Changes in accumulated impairment were as follows:
January 1, 2019 Current increase Current decrease Others June 30, 2019 Proprietary Assets Land $ 245,972 - - - 245,972 Buildings 100,013 - - - 100,013 Total $ 345,985 - - - 345,985
January 1, 2018 Current increase Current decrease Others June 30, 2018 Proprietary Assets Land $ 244,099 - 431 - 243,668 Buildings 100,264 - 251 - 100,013 Total $ 344,363 - 682 - 343,681
The fair value of investment property is based on a valuation by an independent appraiser who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. The value of investment properties is estimated through application of market value method.
The rental income and direct operating expenses arising from investment properties under operating leases of the Company and subsidiaries were as follows:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Rental income from investment $ 323,187 262,316 639,612 619,561 property Direct operating expense arising $ 179,779 144,055 343,671 281,938 from investment property that generated rental income during the period Direct operating expense arising $ 6,360 1,759 11,638 2,614 from investment property that did not generate rental income during the period
The Company and subsidiaries have no pledged investment properties.
(p) Premises and equipment－net
Accumulated Accumulated June 30, 2019 Cost depreciation impairment Net Land $ 21,524,565 - 41,383 21,483,182 Buildings 35,102,563 7,690,213 23,610 27,388,740 Transportation equipment 96,328 66,135 - 30,193 Miscellaneous equipment 10,105,147 5,515,663 - 4,589,484 Construction in progress 476,631 - - 476,631 Prepayment for equipment 398,061 - - 398,061 Total $ 67,703,295 13,272,011 64,993 54,366,291
(Continued) 71
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Accumulated Accumulated December 31, 2018 Cost depreciation impairment Net Land $ 17,710,416 - 41,383 17,669,033 Buildings 32,598,196 6,924,050 23,610 25,650,536 Transportation equipment 91,304 66,580 - 24,724 Miscellaneous equipment 10,162,857 5,375,911 - 4,786,946 Construction in progress 76,320 - - 76,320 Prepayment for equipment 192,598 - - 192,598 Prepayment for land and buildings 4,928,334 - - 4,928,334 Leased premises 1,172,611 515,222 - 657,389 Total $ 66,932,636 12,881,763 64,993 53,985,880
Accumulated Accumulated June 30, 2018 Cost depreciation impairment Net Land $ 17,718,233 - 41,383 17,676,850 Buildings 30,701,319 6,383,026 23,610 24,294,683 Transportation equipment 91,783 65,281 - 26,502 Miscellaneous equipment 9,056,694 4,807,637 - 4,249,057 Construction in progress 1,262,806 - - 1,262,806 Prepayment for equipment 232,208 - - 232,208 Prepayment for land and buildings 4,644,205 - - 4,644,205 Leased premises 1,187,002 452,454 - 734,548 Total $ 64,894,250 11,708,398 64,993 53,120,859
Changes in the cost were as follows:
Others (exchange January 1, 2019 Current increase Current decrease difference) June 30, 2019 Land $ 17,710,416 3,886,548 93,355 20,956 21,524,565 Buildings 32,840,537 2,288,222 123,742 97,546 35,102,563 Transportation equipment 91,304 10,556 7,764 2,232 96,328 Miscellaneous equipment 10,162,857 430,699 555,551 67,142 10,105,147 Construction in progress 76,320 617,534 220,294 3,071 476,631 Prepayment for equipment 192,598 234,519 29,056 - 398,061 Prepayment for land and 4,928,334 240,621 5,168,955 - - buildings Total $ 66,002,366 7,708,699 6,198,717 190,947 67,703,295
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Others (exchange January 1, 2018 Current increase Current decrease difference) June 30, 2018 Land $ 17,442,101 361,289 107,584 22,427 17,718,233 Buildings 30,569,006 411,704 365,170 85,779 30,701,319 Transportation equipment 97,497 4,703 7,665 (2,752) 91,783 Miscellaneous equipment 8,747,368 665,813 390,151 33,664 9,056,694 Construction in progress 1,023,229 411,297 173,054 1,334 1,262,806 Prepayment for equipment 94,615 206,199 68,606 - 232,208 Prepayment for land and 4,644,205 - - - 4,644,205 buildings Leased premises 1,270,176 76 114,791 31,541 1,187,002 Total $ 63,888,197 2,061,081 1,227,021 171,993 64,894,250
Changes in accumulated depreciation were as follows:
Others (exchange January 1, 2019 Current increase Current decrease difference) June 30, 2019 Buildings $ 7,145,610 604,263 111,516 51,856 7,690,213 Transportation equipment 66,580 5,020 6,704 1,239 66,135 Miscellaneous equipment 5,375,911 613,840 524,589 50,501 5,515,663 Total $ 12,588,101 1,223,123 642,809 103,596 13,272,011
Others (exchange January 1, 2018 Current increase Current decrease difference) June 30, 2018 Buildings $ 6,049,733 606,759 322,770 49,304 6,383,026 Transportation equipment 66,141 5,231 4,667 (1,424) 65,281 Miscellaneous equipment 4,588,429 581,591 382,996 20,613 4,807,637 Leased premises 468,750 82,960 111,091 11,835 452,454 Total $ 11,173,053 1,276,541 821,524 80,328 11,708,398
Changes in accumulated impairment were as follows:
Others (exchange January 1, 2019 Current increase Current decrease difference) June 30, 2019 Land $ 41,383 - - - 41,383 Buildings 23,610 - - - 23,610 Total $ 64,993 - - - 64,993
Others (exchange January 1, 2018 Current increase Current decrease difference) June 30, 2018 Land $ 41,383 - - - 41,383 Buildings 23,590 20 - - 23,610 Total $ 64,973 20 - - 64,993
Part of leased premises has been classified to right-of-use assets under IFRS 16 since 2019. Please refer to Note 6 (q).
(Continued) 73
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(q) Right-of-use assets
June 30, 2019 Accumulated Accumulated Cost depreciation impairment Net Surface rights $ 9,453,760 127,171 - 9,326,589 Buildings 8,226,400 1,184,484 - 7,041,916 Transportation equipment 155,002 48,421 - 106,581 Miscellaneous equipment 1,142,877 559,129 - 583,748 Total $ 18,978,039 1,919,205 - 17,058,834
Changes in the cost were as follows:
Others (exchange January 1, 2019 Current increase Current decrease difference) June 30, 2019 Surface rights $ 9,453,760 - - - 9,453,760 Buildings 6,815,272 1,313,303 25,021 122,846 8,226,400 Transportation equipment 127,343 38,668 14,618 3,609 155,002 Miscellaneous equipment 1,110,089 547 40 32,281 1,142,877 Total $ 17,506,464 1,352,518 39,679 158,736 18,978,039
Changes in accumulated depreciation were as follows:
Others (exchange January 1, 2019 Current increase Current decrease difference) June 30, 2019 Surface rights $ - 127,171 - - 127,171 Buildings - 1,174,563 3,187 13,108 1,184,484 Transportation equipment 29,760 27,464 9,051 248 48,421 Miscellaneous equipment 464,054 78,861 40 16,254 559,129 Total $ 493,814 1,408,059 12,278 29,610 1,919,205
The buildings and vehicles rent by the Company and subsidiaries are used for the operation and business purposes. There are no any restrictions on the rent properties.
(r) Intangible assets－net
December 31, June 30, 2019 2018 June 30, 2018 Goodwill $ 18,015,340 18,015,340 18,015,340 Computer software 5,941,296 5,770,393 5,090,555 The acquisition value of insurance policies 627,225 637,011 645,166 Others 64,295 64,989 49,649 Total $ 24,648,156 24,487,733 23,800,710
Goodwill of the Company and subsidiaries was acquired from business combination.
The acquisition value of insurance policies is the difference between the fair value of both the acquired contractual rights and commitment to insurance obligations, and the liability, which is determined by the insurer based on the evaluation of accounting policies for the issued insurance policies under general assumption.
(Continued) 74
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Changes in intangible assets were as follows:
Others (exchange January 1, 2019 Current increase Current decrease difference) June 30, 2019 Goodwill $ 18,015,340 - - - 18,015,340 Computer software 5,770,393 979,461 907,980 99,421 5,941,295 The acquisition value of 637,011 - 9,785 - 627,226 insurance policies Others 64,989 - 694 - 64,295 Total $ 24,487,733 979,461 918,459 99,421 24,648,156
Others (exchange January 1, 2018 Current increase Current decrease difference) June 30, 2018 Goodwill $ 18,015,340 - - - 18,015,340 Computer software 4,687,750 1,162,098 835,261 75,968 5,090,555 The acquisition value of 652,983 - 7,817 - 645,166 insurance policies Others 50,176 - 527 - 49,649 Total $ 23,406,249 1,162,098 843,605 75,968 23,800,710
(s) Other assets－net
December 31, June 30, 2019 2018 June 30, 2018 Prepayments $ 17,614,012 10,419,292 7,522,945 Deferred charges 274,604 31,347 25,298 Foreclosed properties received－net 169,431 178,267 147,493 Temporary payments 231,907 1,495,742 171,550 Refundable deposits－net 20,958,771 19,879,844 25,576,828 Long-term prepaid rent - 16,621,516 16,822,872 Cash surrender value of life insurance 1,846,702 1,801,928 1,790,673 Clients’ position-debit 1,807,864 1,728,843 1,890,450 Rental assets 1,167,514 1,435,458 1,511,389 Others 1,941,362 2,076,109 2,214,775 Total $ 46,012,167 55,668,346 57,674,273
In order to fulfill social responsibility of the Company’s subsidiary CTBC Bank Co., Ltd., improve the image of the Company’s subsidiary CTBC Bank Co., Ltd. and receive a long term benefit from advertisements, the Company’s subsidiary CTBC Bank Co., Ltd. sponsor a professional baseball team by signing a sponsorship and cooperative advertisement contract with Hua Yi Entertaining Co. Ltd. on December 5, 2013, amounting to $400,000 and accounted under prepaid expenses. The duration of the name of the baseball team will last for 10 years, starting from the date the Company’s subsidiary CTBC Bank Co., Ltd. appointed the team name. As of June 30, 2019, the account balance was $180,000.
(Continued) 75
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
In May 2006, the Company’s subsidiary CTBC Bank Co., Ltd. acquired the superficies of lots 43, 43-1, 45 and 45-1 of Jingmao Section, Nankang, Taipei, from Taiwan Fertilizer Co., Ltd. for 50 years through a public tender. The acquisition cost amounted to $3,364,140 (including business tax and other related expenses of the superficies). The rental is determined annually at the rate of 8% of the government assessed present value and accounted under long-term prepaid rent in 2018. The rental has been classified as right-of-use assets under IFRS16 since 2019 which stated at Note 6(q) for more information. In addition, please refer to Note 8 for information on performance guarantee deposits.
On August 12, 2015, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. acquired the superficies of lot 15 of Jingmao Section, Nankang, Taipei, from Taipei Fertilizer Co., Ltd. for 45 years. The total royalty is about $15 billion (from the sixth month of the ninth year to the tenth year, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. can decide whether to extend the using period for more 40 years, and the royalty of extension is $15 billion, with 15 years to pay off averagely. The creation of superficies was completed on December 10, 2015. The rental was accounted under long-term prepaid rent in 2018 and has been classified as right-of-use assets under Investment property in accordance with IFRS16 since 2019. Please refer to Note 6(o) for more information. In addition, please refer to Note 8 for information on performance guarantee deposits.
(t) Deposits from Central Bank and other banks
December 31, June 30, 2019 2018 June 30, 2018 Deposits from Central Bank $ 172,603 210,705 167,292 Deposits from other banks 25,239,551 27,508,521 23,709,578 Deposits from post offices 450,566 493,473 720,662 Overdraft on banks 2,830,947 7,220,370 1,049,458 Call loans from banks 28,978,590 39,065,623 34,187,752 Total $ 57,672,257 74,498,692 59,834,742
(u) Due to Central Bank and other banks
December 31, June 30, 2019 2018 June 30, 2018 Financing from Central Bank $ 8,320,415 1,323,294 4,260,267 Financing from other banks 3,795,306 5,629,774 4,268,484 Long-term borrowings 6,388,238 7,088,707 8,429,165 Total $ 18,503,959 14,041,775 16,957,916
(Continued) 76
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Financing from Central Bank:
(i) CTBC Bank Co., Ltd.
December 31, June 30, 2019 2018 June 30, 2018 Borrowings (USD) $ 6,452 12,903 19,355 Interest rate 2.69% 2.52% 2.18% 6M LIBOR 6M LIBOR 6M LIBOR Maturity date July 26, 2019 July 26, 2019 July 26, 2019 Interest Payment Interest is Interest is Interest is payable semi- payable semi- payable semi- annually and annually and annually and at the maturity at the maturity at the maturity date date date
(ii) The Tokyo Star Bank, Ltd.
December 31, June 30, 2019 2018 June 30, 2018 Borrowings (JPY) $ 28,125,910 3,330,000 13,316,200 Interest rate 0.00%~2.69% 2.53%~2.88% 0.00%~2.48% Maturity date March 5, 2020 December 4, June 4, 2019 2019 Interest Payment Interest is Interest is Interest is payable payable payable at the maturity at the maturity at the maturity date date date
Financing from other banks:
(i) CTBC Bank Corp. (USA)
December 31, June 30, 2019 2018 June 30, 2018 Inter bank borrowings (USD) $ 5,000 55,000 45,000 Interest rate 2.96% 2.57%~2.96% 1.97%~2.96% Maturity date December 31, December 31, December 31, 2020 2020 2020
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) PT. Bank CTBC Indonesia
December 31, June 30, 2019 2018 June 30, 2018 Inter bank borrowings (IDR) $ - 300,000,000 99,795,650 Interest rate - 8.71% 2.89%~7.50% Maturity date - March 19, 2019 November 2, 2018
(iii) CTBC Bank (Philippines) Corp.
December 31, June 30, 2019 2018 June 30, 2018 Inter bank borrowings (PHP) $ 2,458,522 - - Interest rate 7.38% - - Maturity date April 29, 2022 - -
(iv) CTBC Securities Co., Ltd.
December 31, June 30, 2019 2018 June 30, 2018 Inter bank borrowings (NTD) $ 38,600 162,885 82,257 Interest rate 3.05% 3.35%~3.40% 2.59%~2.81% Maturity date July 26, 2019 January 24, July 26, 2018 2019
(v) TLG Capital Co., Ltd.
December 31, June 30, 2019 2018 June 30, 2018 Inter bank borrowings (NTD) $ 1,090,000 1,140,000 2,150,000 Interest rate 1.05%~1.20% 1.05%~1.22% 1.05%~1.22% Maturity date September 20, April 16, 2019 April 16, 2019 2019
(vi) CTBC Venture Capital Co., Ltd.
December 31, June 30, 2019 2018 June 30, 2018 Inter bank borrowings (NTD) $ 350,000 640,000 450,000 Interest rate 0.97%~1.05% 1.25% 1.25% Maturity date August 15, 2019 February 18, July 13, 2018 2019
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(vii) CTBC Asset Management Co., Ltd.
December 31, June 30, 2019 2018 June 30, 2018 Inter bank borrowings (NTD) $ 670,000 1,400,000 - Interest rate 0.96%~1.00% 1.15%~2.10% - Maturity date July 26, 2019 January 7, 2022 - Interest is payable monthly and at the maturity date.
Long-term borrowings:
(i) CTBC Leasing (China)
December 31, June 30, 2019 2018 June 30, 2018 Borrowings (CNY) $ 710,900 751,928 863,571 Borrowings (USD) 102,000 121,250 146,500 Interest rate LIBOR+1.6%~ LIBOR+1.5%~ LIBOR+1.5%~ 6.41% 6.41% 6.41% Maturity date December 17, December 17, June 28, 2021 2021 2021 Interest Payment Interest is Interest is Interest is payable payable payable monthly, monthly, monthly, quarterly and at quarterly and at quarterly and at the maturity the maturity the maturity date. date. date.
(v) Securities sold under repurchase agreements
June 30, 2019 Selling price Designated Designated Assets Par value (Note) repurchase amount repurchase date Financial assets measured at $ 14,667,329 14,588,871 14,598,741 Prior to December 3, fair value through profit or 2019 loss Financial assets measured at 70,641,396 69,479,937 69,568,715 Prior to December 3, fair value through other 2019 comprehensive income Debt instruments at amortized 32,978,160 33,998,869 34,041,464 Prior to July 30, 2019 cost Total $ 118,286,885 118,067,677 118,208,920
(Continued) 79
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Selling price Designated Designated Assets Par value (Note) repurchase amount repurchase date Financial assets measured at $ 13,868,936 13,740,884 13,755,270 Prior to January 29, fair value through profit or 2019 loss Financial assets measured at 31,239,489 29,953,261 30,054,917 Prior to March 19, fair value through other 2019 comprehensive income Debt instruments at amortized 27,374,133 26,830,060 26,917,294 Prior to February 25, cost 2018 Total $ 72,482,558 70,524,205 70,727,481
June 30, 2018 Selling price Designated Designated Assets Par value (Note) repurchase amount repurchase date Financial assets measured at $ 8,347,400 8,324,284 8,328,688 Prior to July 31, 2018 fair value through profit or loss Financial assets measured at 7,263,752 7,055,457 7,063,172 Prior to August 13, fair value through other 2018 comprehensive income Debt instruments at amortized 40,729,700 40,893,958 40,930,360 Prior to August 15, cost 2018 Total $ 56,340,852 56,273,699 56,322,220
Note: Recognized under securities sold under repurchase agreements.
(w) Commercial paper payable－net
The information of commercial paper payable issued by the Company and subsidiaries was as below:
December 31, June 30, 2019 2018 June 30, 2018 Commercial paper payable $ 43,451,000 38,676,000 17,705,000 Less: discount on commercial paper payable (25,774) (37,933) (8,978) Total $ 43,425,226 38,638,067 17,696,022 Rate range 0.38%~1.10% 0.47%~1.10% 0.37%~1.13% Duration March 7, 2019~ July 9, 2018~ January 19, November 13, June 21, 2019 2018~ 2019 December 24, 2018
The commercial paper payable aforementioned is guaranteed by financial institution and acceptance institution. Please refer to Note 8 for information with regard to the restrictions on collateral notes.
(Continued) 80
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(x) Payables
December 31, June 30, 2019 2018 June 30, 2018 Accounts payable $ 7,484,500 9,385,982 4,330,166 Accounts payable factoring 5,196,498 5,158,097 4,449,129 Accrued expenses 15,871,628 21,484,778 17,150,227 Interest payable 11,795,900 10,446,110 9,081,687 Acceptances payable 10,591,742 11,198,063 9,834,586 Collection payable 4,701,948 4,047,738 4,610,599 Other tax payable 3,349,420 3,120,050 2,933,840 Dividends and bonuses payable 20,376,003 254,121 21,184,808 Checks for clearance 3,550,010 3,782,978 3,617,687 Miscellaneous lottery accounts payable 12,194,823 6,588,088 11,081,244 Commission payable 1,181,708 1,776,444 1,339,929 Claims payable 4,819,877 4,065,477 4,027,124 Due to reinsurers and ceding companies 879,286 1,417,872 1,246,926 Securities payable 7,935,583 5,062,633 4,994,013 Separate account of investment products 636,596 650,744 647,211 payables Premium payable 5,055,635 2,120,278 2,142,773 Other payables 4,479,182 5,559,607 3,216,172 Total $ 120,100,339 96,119,060 105,888,121
(Continued) 81
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(y) Deposits and remittances
December 31, June 30, 2019 2018 June 30, 2018 NTD deposits Checking accounts $ 10,077,359 10,578,262 7,664,582 Demand deposits Demand deposits 202,215,660 190,332,650 185,607,379 Demand savings deposits 779,214,088 733,530,119 703,190,249 Public treasury deposits 7,691,744 9,226,288 8,956,357 Subtotal of demand deposits 989,121,492 933,089,057 897,753,985 Time deposits Time deposits 283,292,651 206,537,969 182,894,844 Time savings deposits 472,783,200 443,003,524 436,590,723 Negotiable certificates of deposit 1,040,700 1,215,600 1,006,500 Public treasury deposits 21,200,000 30,547,750 23,270,850 Others 15,273,500 14,248,500 9,201,000 Subtotal of time deposits 793,590,051 695,553,343 652,963,917 Subtotal of NTD deposits 1,792,788,902 1,639,220,662 1,558,382,484 Foreign currency deposits 1,530,256,951 1,493,048,851 1,517,303,632 Stored value cards 167 167 167 Remittances under custody 395,178 83,521 37,429 Remittances outstanding 1,764,701 5,662,127 920,093 Total $3,325,205,899 3,138,015,328 3,076,643,805
(Continued) 82
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(z) Bonds Payable
December 31, Bonds June 30, 2019 2018 June 30, 2018 2008-1 $ 2,000,000 2,000,000 2,000,000 2009-1 - 800,000 800,000 2009-2 150,000 150,000 150,000 2011-1 4,000,000 4,000,000 12,900,000 2012-1 2,400,000 12,000,000 12,000,000 2014-1 20,000,000 20,000,000 20,000,000 2014-2 15,000,000 15,000,000 15,000,000 2015-1(financial debentures) (Note 3) 7,985,504 7,898,381 7,838,500 2015-1(unsecured ordinary corporate bonds) 11,800,000 11,800,000 15,000,000 2015-2 12,000,000 12,000,000 12,000,000 2015-3 5,000,000 5,000,000 5,000,000 2016-1 (Note3) 24,236,160 23,971,740 23,790,000 2017-1 (financial debentures) (Note3) 5,592,960 5,531,940 5,490,000 2017-1 (subordinated corporate debentures) 15,000,000 15,000,000 15,000,000 2017-2 1,000,000 1,000,000 1,000,000 2018-1 (financial debentures) (Note 3) 6,991,200 6,914,925 6,862,500 2018-1 (subordinated corporate debentures) 10,000,000 - - Adjustment for fair value increase of hedged - - 9,756 transactions Unamortized discount (23,588) (25,048) (26,521) Less: financial liability designated at fair value (44,805,824) (44,316,986) (43,981,000) through profit or loss (Note 3) Total $ 98,326,412 98,724,952 110,833,235
(Continued) 83
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Terms of transactions Bond issued Bonds Issue date Maturity date Interest rate Type 2008-1 04/10/2008 04/10/2023 3.49% Unsecured subordinated financial debentures 2009-1 06/08/2009 N/A 4.0%, if redemption right is not exercised 10 years after Unsecured subordinated the issue date, the interest rate will increase by corporate bonds 2.20%, not lower than 5.0%. 2009-2 11/25/2009 N/A 4.0%, if redemption right is not exercised 10 years after 〞 the issue date, the interest rate will increase by 2.20%, not lower than 5.0%. 2011-1 09/27/2011 09/27/2021 A=1.80%, B=1.95%. From the 4th year after the issue Unsecured subordinated date, the interest rate will be the prime rate plus financial debentures 0.55% (Note 1) 2012-1 02/20/2012 02/20/2022 A=1.66%, B=1.80%. Unsecured subordinated corporate bonds 2014-1 06/18/2014 N/A A=3.70%, B=4.00%. Perpetual non accumulated subordinated financial debentures 2014-2 06/26/2014 06/26/2029 A=2.00%, B=The prime rate plus 0.45%. (Note 2) Unsecured subordinated financial debentures 2015-1(financial debentures) 01/27/2015 01/27/2045 0% (Note 3) Unsecured financial debentures 2015-1 08/03/2015 08/03/2022 A=1.15%, B=1.35%, C=1.65% Unsecured ordinary (unsecured ordinary corporate corporate bonds bonds) 2015-2 06/10/2015 N/A 3.60% Perpetual non accumulated subordinated financial debentures 2015-3 06/18/2015 06/18/2025 A=1.83%, B=2.00%, C=2.05% Unsecured subordinated financial debentures 2016-1 11/29/2016 11/29/2044 0% (Note 3) Unsecured financial debentures 2017-1 (financial debentures) 03/29/2017 03/29/2047 0% (Note 3) 〞 2017-1 06/21/2017 N/A 3.45%, if redemption right is not exercised 10 years after Unsecured subordinated (subordinated corporate bonds) the issue date, the interest rate will increase by 1.00% corporate bonds 2017-2 05/19/2017 05/19/2020 0.83% Unsecured financial debentures 2018-1 (financial debentures) 03/29/2018 03/29/2048 0% (Note 3) 〞 2018-1 01/16/2019 01/16/2031 A=1.30%, B=1.55% Unsecured subordinated (subordinated corporate bonds) ordinary corporate bonds
Note 1: The original prime rate is based on page code 6165 of Reuters, the fixed interest rate of 90- day CP/BA at 11:00 am on the interest reset date. With the consensus reached among creditors through forward rate agreement, the prime rate will be changed to the 3-month Taipei Interbank Offered Rate (TAIBOR) from January 1, 2015.
Note 2: The prime rate is based on page code 6165 of Reuters, the fixed interest rate of 90-day CP/BA at 11:00 am on the interest reset date. If no quotation is available on page code 6165 of Reuters, no page is displayed, or no prime rate is retrievable from Reuters, the Bank would change the resource of the rate. The Bank would set the prime rate as Secondary Market Fixing Rate of 90-day TAIBIR 02 from the “TAIBIR Section” in the webpage of Taiwan Depository and Clearing Corporation.
(Continued) 84
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Note 3: Financial debentures of 2015-1, 2016-1, 2017-1 and 2018-1 are recognized as financial liabilities designated at fair value through profit or loss. For more information, please refer to Note 6(c).
Please refer to Note 6(f) for the information on the hedging of bonds shown above.
(aa) Provisions
December 31, June 30, 2019 2018 June 30, 2018 Settlement compensation provision $ 243,298 242,512 243,178 Employee benefits provision 4,016,100 4,062,656 4,481,378 Guarantee provision 941,500 857,258 848,790 Insurance provision 1,643,707,087 1,571,499,621 1,450,336,701 Reserve for insurance policies with financial 2,616 3,329 3,442 instrument features FX rate fluctuation provision 2,930,940 2,273,640 1,965,103 Financing commitment provision 244,014 280,329 218,202 Other provision 323,724 266,963 275,438 Fair value adjustment 5,576,411 5,675,782 5,850,628 Total $1,657,985,690 1,585,162,090 1,464,222,860
Please refer to Note 6(af) for more information on provisions, reserve for insurance policies with financial instrument features and FX rate fluctuation provision.
(ab) Other financial liabilities
December 31, June 30, 2019 2018 June 30, 2018 Futures trader’s equity $ 410,948 381,621 335,980 Lease payable - 652,316 725,180 Structured commodity principal 100,169,419 99,921,394 96,174,318 Guarantee deposits received-securities lending 13,166,574 19,337,702 13,425,161 transaction Separate insurance products 86,970,082 72,962,418 71,273,280 Others 1,356 - - Total $ 200,718,379 193,255,451 181,933,919
Please refer to Note 6(ap) for information on separate insurance products.
Lease payable has been classified as lease liability since 2019. Please refer to Note 6 (ac) for more information.
(Continued) 85
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ac) Lease liabilities
Summary Leased period Discount rate June 30, 2019 Notes Surface rights Lease for operation 2019/01~2065/11 3.50% $ 7,810,636 units Buildings Lease for operation 2015/08~2029/05 0.07%~5.70% 7,166,409 units Transportation Lease for official 2016/02~2024/04 2.32%~5.23% 109,223 equipment vehicles Miscellaneous Leased office 2015/03~2023/06 0.80%~6.01% 604,488 equipment equipments Total $ 15,690,756
Few real estate include lease extension options to extend the lease while some of them are not reasonably assured that options will be exercised, so the measurement of lease liabilities do not reflect the terms.
Maturity analysis of lease liabilities (undiscounted) were as follows:
June 30, 2019 Less than one year $ 3,100,582 Between one and five years 6,159,169 More than five years 12,964,712 Total $ 22,224,463
The total cash outflow of leases were $1,740,024, for the six months ended June 30, 2019.
(ad) Other liabilities
December 31, June 30, 2019 2018 June 30, 2018 Amount received in advance $ 1,144,744 1,638,113 1,780,540 Custody payable 1,414,553 212,842 654,561 Deferred income 1,401,410 1,760,027 802,805 Guarantee deposits 10,873,994 7,973,632 8,305,043 Temporary receipt 2,192,801 2,782,777 2,000,906 Credits recognized when accepting orders to 1,786,687 1,701,385 1,888,737 trade Others 230,023 198,187 180,066 Total $ 19,044,212 16,266,963 15,612,658
(Continued) 86
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ae) Employee benefits
(i) Defined contribution plan
The Company and subsidiaries’ defined contribution plan follows the Labor Pension Act of the R.O.C. and makes monthly cash contributions to the employees’individual pension accounts at the Bureau of Labor Insurance at the rate of 6% of the employees’ monthly salary. Under this plan, the Company and subsidiaries have no legal or constructive obligation to make other payments after the Company and subsidiaries make the fixed amount of contribution to the Bureau of Labor Insurance.
For the three months and six months ended June 30, 2019 and 2018, the pension expenses under defined contribution plan of the Company and subsidiaries amounted to $242,656, $231,244, $442,373 and $430,208, respectively, and were contributed to the Bureau of Labor Insurance or labor agencies designated by local authorities in the case of overseas units.
(ii) Employee benefits provision
Employee benefits provision reserve recognized by the Company and subsidiaries in the consolidated balance sheet were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Defined benefits plan $ 3,169,040 3,266,474 3,686,842 Retiree deposits with favorable rates and 425,490 423,560 397,260 other post-employment benefits Total $ 3,594,530 3,690,034 4,084,102
After the end of last fiscal year, no significant market fluctuations, significant decrease, pay off or other significant one-time event occurred. Therefore, the pension costs for the interim periods are assessed and disclosed at the actuarial costs that were determined on December 31, 2018 and 2017 by the Company and subsidiaries.
1) Defined benefits plan
The Company and subsidiaries’ defined benefits plan contributes to designated depository account with Bank of Taiwan. Payments of pension benefits to employees who are covered by the Labor Standards Act are calculated based on the employee’ s average monthly salary for the last 6 months prior to approved retirement and base point (b.p.) entitlement based on years of service.
For the three months and six months ended June 30, 2019 and 2018, the Company and subsidiaries have recognized $28,811, $35,500, $57,546 and $71,964, respectively, as expenses in profit or loss.
(Continued) 87
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Retiree deposits with favorable rates and other post-employment benefits
The Company's subsidiary CTBC Bank Co., Ltd.'s obligation to grant retirees, including current employees retiring in the future, fixed-amount deposits with favorable rates is based on the Bank’s Regulations for Subsidizing the Retiree Benefits.
For the three months and six months ended June 30, 2019 and 2018, expenses recognized by the Company’s subsidiary CTBC Bank Co., Ltd. in profit and loss amounted of $4,793, $4,584, $9,585 and $9,168, respectively.
3) Defined benefits plan of overseas branches and subsidiaries
Defined benefits plan of the Company's subsidiary CTBC Bank Co., Ltd.'s overseas branches and subsidiaries recognized in consolidated balance sheets was as follows:
December 31, June 30, 2019 2018 June 30, 2018 Defined benefits plan $ 421,570 372,622 397,276
For the three months and six months ended June 30, 2019 and 2018, expenses recognized by overseas branches and subsidiaries in profit and loss amounted to $43,532, $38,289, $86,776 and $76,805, respectively.
(af) Insurance liabilities, income, and expense
(i) Insurance liabilities
Reserve for insurance contracts and financial instruments with discretionary participation feature:
The details of the reserve for insurance contracts and financial instruments with discretionary participation feature and its adjustment and the balances of the related accounts of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. and sub-subsidiary TLG Insurance were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Reserve for unearned premiums $ 4,319,623 4,191,621 3,843,345 Claim reserve 2,081,539 1,763,731 1,863,890 Insurance reserve 1,630,424,517 1,557,690,802 1,435,568,540 Special reserve 723,179 973,352 584,422 Premium deficiency reserve 6,158,229 6,880,115 8,476,504 Total $1,643,707,087 1,571,499,621 1,450,336,701
(Continued) 88
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Life Insurance Business:
1) The details of reserve for unearned premium were as follows:
June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 385,931 - 385,931 Individual injury 637,046 - 637,046 Individual health 1,746,375 - 1,746,375 Annuity insurance 1 1 2 Group insurance 303,776 - 303,776 Investment linked insurance 23,168 - 23,168 Total 3,096,297 1 3,096,298 Less: reserve for unearned premiums Individual life 168,210 - 168,210 Individual injury 64,527 - 64,527 Individual health 394,486 - 394,486 Investment linked insurance 845 - 845 Total 628,068 - 628,068 Net value $ 2,468,229 1 2,468,230
December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 356,567 - 356,567 Individual injury 649,669 - 649,669 Individual health 1,705,055 - 1,705,055 Annuity insurance 1 - 1 Group insurance 257,661 - 257,661 Investment linked insurance 23,532 - 23,532 Total 2,992,485 - 2,992,485 Less: reserve for unearned premiums Individual life 198,367 - 198,367 Individual injury 63,417 - 63,417 Individual health 334,425 - 334,425 Group insurance 31,076 - 31,076 Investment linked insurance 1,350 - 1,350 Total 628,635 - 628,635 Net value $ 2,363,850 - 2,363,850
(Continued) 89
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 319,588 - 319,588 Individual injury 584,104 - 584,104 Individual health 1,389,640 - 1,389,640 Annuity insurance - 1 1 Group insurance 241,235 - 241,235 Investment linked insurance 23,025 - 23,025 Total 2,557,592 1 2,557,593 Less: reserve for unearned premiums Individual life 173,692 - 173,692 Individual injury 102,098 - 102,098 Individual health 347,978 - 347,978 Group insurance 38,569 - 38,569 Investment linked insurance 1,351 - 1,351 Total 663,688 - 663,688 Net value $ 1,893,904 1 1,893,905
(Continued) 90
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The changes and adjustments of the aforesaid reserve for unearned premiums were as follows:
For the six months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 2,992,485 - 2,992,485 Current provision 1,141,836 1 1,141,837 Reversal of provision (1,038,034) - (1,038,034) Foreign exchange gains 10 - 10 Ending balance 3,096,297 1 3,096,298
Less: reserve for unearned premiums Beginning balance—net 628,635 - 628,635 Current decrease (799) - (799) Foreign exchange gains 232 - 232 Ending balance—net 628,068 - 628,068 Ending balance $ 2,468,229 1 2,468,230
For the six months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 2,555,691 1 2,555,692 Current provision 910,367 - 910,367 Reversal of provision (908,480) - (908,480) Foreign exchange gains 14 - 14 Ending balance 2,557,592 1 2,557,593
Less: reserve for unearned premiums Beginning balance—net 823,998 - 823,998 Current decrease (160,678) - (160,678) Foreign exchange gains 368 - 368 Ending balance—net 663,688 - 663,688 Ending balance $ 1,893,904 1 1,893,905
(Continued) 91
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) The details of claim reserve were as follows:
June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Individual life -reported but not paid $ 302,037 12,429 314,466 -not reported and not paid 743 - 743 Individual injury -reported but not paid 26,838 - 26,838 -not reported and not paid 166,261 - 166,261 Individual health -reported but not paid 368,891 - 368,891 -not reported and not paid 220,136 - 220,136 Annuity insurance -reported but not paid 5 - 5 -not reported and not paid - - - Group insurance -reported but not paid 50,008 - 50,008 -not reported and not paid 52,281 - 52,281 Investment linked insurance -reported but not paid 6,989 - 6,989 -not reported and not paid - - - Total 1,194,189 12,429 1,206,618 Less: reserve for claim reserve Individual life 61,799 - 61,799 Individual injury 2 - 2 Individual health 80,314 - 80,314 Group insurance - - - Investment linked insurance - - - Total 142,115 - 142,115 Net value $ 1,052,074 12,429 1,064,503
(Continued) 92
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life -reported but not paid $ 126,005 - 126,005 -not reported and not paid 549 - 549 Individual injury -reported but not paid 26,721 - 26,721 -not reported and not paid 123,334 - 123,334 Individual health -reported but not paid 333,188 - 333,188 -not reported and not paid 147,846 - 147,846 Annuity insurance -reported but not paid 60 4,705 4,765 -not reported and not paid - - - Group insurance -reported but not paid 44,336 - 44,336 -not reported and not paid 31,835 - 31,835 Investment linked insurance -reported but not paid 12,776 - 12,776 -not reported and not paid - - - Total 846,650 4,705 851,355 Less: reserve for claim reserve Individual life 18,738 - 18,738 Individual injury 3,258 - 3,258 Individual health 42,794 - 42,794 Group insurance 3,162 - 3,162 Investment linked insurance 2,338 - 2,338 Total 70,290 - 70,290 Net value $ 776,360 4,705 781,065
(Continued) 93
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life -reported but not paid $ 182,473 - 182,473 -not reported and not paid 254 - 254 Individual injury -reported but not paid 26,020 - 26,020 -not reported and not paid 100,538 - 100,538 Individual health -reported but not paid 254,478 - 254,478 -not reported and not paid 102,240 - 102,240 Annuity insurance -reported but not paid 1,345 1,000 2,345 -not reported and not paid - - - Group insurance -reported but not paid 47,974 - 47,974 -not reported and not paid 20,034 - 20,034 Investment linked insurance -reported but not paid 13,349 - 13,349 -not reported and not paid - - - Total 748,705 1,000 749,705 Less: reserve for claim reserve Individual life 4,871 - 4,871 Individual injury 6,430 - 6,430 Individual health 14,717 - 14,717 Group insurance 4,052 - 4,052 Investment linked insurance 500 - 500 Total 30,570 - 30,570 Net value $ 718,135 1,000 719,135
(Continued) 94
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The changes and adjustments of the aforesaid claim reserve were as follows:
For the six months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 846,650 4,705 851,355 Current provision 775,793 12,534 788,327 Reversal of provision (428,534) (4,705) (433,239) Foreign exchange gains (losses) 280 (105) 175 Ending balance 1,194,189 12,429 1,206,618 Less: reserve for claim reserve Beginning balance－net 70,290 - 70,290 Current increase 71,818 - 71,818 Foreign exchange gains 7 - 7 Ending balance—net 142,115 - 142,115 Ending balance $ 1,052,074 12,429 1,064,503
For the six months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 805,124 409 805,533 Current provision 350,134 795 350,929 Reversal of provision (407,068) (221) (407,289) Foreign exchange gains 515 17 532 Ending balance 748,705 1,000 749,705 Less: reserve for claim reserve Beginning balance－net 81,739 - 81,739 Current decrease (51,159) - (51,159) Foreign exchange losses (10) - (10) Ending balance—net 30,570 - 30,570 Ending balance $ 718,135 1,000 719,135
(Continued) 95
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3) Details of insurance reserves were as follows:
June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 1,503,020,204 4,572,633 1,507,592,837 Individual health 91,019,261 - 91,019,261 Annuity insurance 4,885,987 26,037,526 30,923,513 Group insurance 274,137 222,297 496,434 Investment linked insurance 175,104 - 175,104 Incremental reserve 35,834 - 35,834 Transfer from operating loss reserve 43,665 - 43,665 Recovery of special catastrophe 7,252 - 7,252 reserve Other 130,617 - 130,617 Total $ 1,599,592,061 30,832,456 1,630,424,517
December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 1,435,467,974 3,692,489 1,439,160,463 Individual health 86,473,207 - 86,473,207 Annuity insurance 4,361,369 26,884,957 31,246,326 Group insurance 214,391 188,412 402,803 Investment linked insurance 211,065 - 211,065 Incremental reserve 35,834 - 35,834 Transfer from operating loss reserve 43,665 - 43,665 Recovery of special catastrophe 7,252 - 7,252 reserve Other 110,187 - 110,187 Total $ 1,526,924,944 30,765,858 1,557,690,802
(Continued) 96
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 1,317,350,297 2,871,835 1,320,222,132 Individual health 81,179,971 - 81,179,971 Annuity insurance 5,816,221 27,671,393 33,487,614 Group insurance 181,498 157,683 339,181 Investment linked insurance 153,427 - 153,427 Incremental reserve 35,833 - 35,833 Transfer from operating loss reserve 43,665 - 43,665 Recovery of special catastrophe 7,252 - 7,252 reserve Other 99,465 - 99,465 Total $ 1,404,867,629 30,700,911 1,435,568,540
As the Company’s subsidiaries Taiwan Life Insurance Co., Ltd. measured the insurance reserves on a discounted basis, the recognized amounts of cumulative interest over-time effects were as below:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Cumulative interest $ 14,724,661 13,122,872 29,184,626 25,925,245 over-time effects of insurance reserves
The changes and adjustments of the aforesaid insurance reserves were as follows:
For the six months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 1,526,924,944 30,765,858 1,557,690,802 Current provision 90,913,614 1,125,052 92,038,666 Reversal of provision (22,914,806) (1,115,223) (24,030,029) Foreign exchange gains 4,647,879 56,769 4,704,648 Others 20,430 - 20,430 Ending balance $ 1,599,592,061 30,832,456 1,630,424,517
(Continued) 97
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 1,311,750,692 30,582,991 1,342,333,683 Current provision 122,944,396 1,845,868 124,790,264 Reversal of provision (36,775,188) (1,808,009) (38,583,197) Foreign exchange gains 6,848,264 80,061 6,928,325 Others 99,465 - 99,465 Ending balance $ 1,404,867,629 30,700,911 1,435,568,540
4) Special reserve liabilities:
June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Reserve for policyholder dividend $ 230,880 - 230,880 Reserve for bonus risk 288,295 - 288,295 Revaluation appreciation on real estate 57,891 - 57,891 Total $ 577,066 - 577,066
December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Reserve for policyholder dividend $ 506,610 - 506,610 Reserve for bonus risk 245,543 - 245,543 Revaluation appreciation on real estate 57,891 - 57,891 Total $ 810,044 - 810,044
June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Reserve for policyholder dividend $ 124,198 - 124,198 Reserve for bonus risk 257,469 - 257,469 Revaluation appreciation on real estate 57,891 - 57,891 Total $ 439,558 - 439,558
(Continued) 98
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The changes and adjustments of the aforesaid special reserve were as follows:
For the six months ended June 30, 2019 Reserve for Revaluation policyholder Reserve appreciation on dividend for bonus risk real estate Total Beginning balance $ 506,610 245,543 57,891 810,044 Current provision 312,557 44,047 - 356,604 Reversal of provision (606,184) - - (606,184) Reversal of provision- gain 8,828 - - 8,828 from disposal of investments measured at fair value through other comprehensive income Foreign exchange gains 7,990 - - 7,990 Loss from disposal of equity (216) - - (216) instruments measured at fair value through other comprehensive income for policyholder dividend Ending balance $ 229,585 289,590 57,891 577,066
For the six months ended June 30, 2018 Reserve for Revaluation policyholder Reserve appreciation on dividend for bonus risk real estate Total Beginning balance $ 658,226 293,531 57,891 1,009,648 Impacts under IFRS9 (51,210) 371 - (50,839) Current provision 602,171 - - 602,171 Reversal of provision (1,062,509) (36,433) - (1,098,942) Foreign exchange losses (22,480) - - (22,480) Ending balance $ 124,198 257,469 57,891 439,558
5) The details of premium deficiency reserve were as follows:
June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 6,057,341 - 6,057,341 Individual health 96,100 - 96,100 Annuity insurance 63 - 63 Total $ 6,153,504 - 6,153,504
(Continued) 99
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 6,736,381 - 6,736,381 Individual health 107,812 - 107,812 Annuity insurance 67 - 67 Total $ 6,844,260 - 6,844,260
June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 8,381,985 - 8,381,985 Individual health 80,426 - 80,426 Annuity insurance 67 - 67 Total $ 8,462,478 - 8,462,478
The changes and adjustments of the aforesaid premium deficiency reserve were as follows:
For the six months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 6,844,260 - 6,844,260 Current provision 61,373 - 61,373 Reversal of provision (773,544) - (773,544) Foreign exchange gains 21,415 - 21,415 Ending balance $ 6,153,504 - 6,153,504
For the six months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 8,744,854 - 8,744,854 Current provision 985,465 - 985,465 Reversal of provision (1,314,295) - (1,314,295) Foreign exchange gains 46,454 - 46,454 Ending balance $ 8,462,478 - 8,462,478
(Continued) 100
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
6) The details of liability adequacy reserve of the Company's subsidiary Taiwan Life Insurance Co., Ltd. were as follows:
Insurance contracts and financial instruments with discretionary December 31, participation feature June 30, 2019 2018 June 30, 2018 Unearned premium reserve $ 3,096,298 2,992,943 2,557,593 Claim reserve 1,206,618 851,355 749,705 Insurance reserve 1,630,424,517 1,557,759,171 1,435,568,540 Premium deficiency reserve 6,153,504 6,775,821 8,462,478 Total 1,640,880,937 1,568,379,290 1,447,338,316 Less: intangible asset (627,226) (637,011) (645,166) Book value of related insurance $1,640,253,711 1,567,742,279 1,446,693,150 liabilities Current estimate of future cash $1,308,043,518 1,277,399,481 1,207,746,236 flows under insurance liabilities Liability adequacy reserve balance $ - - -
The liability adequacy test method of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. was as follows:
June 30, 2019 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant (1) Insurance contract information: As of June 30, 2019, the Assumptions insurance contracts and financial instruments with a discretionary participation feature were tested. (2) Discount rate: For the asset allocation in the latest quarterly report as of valuation date, the rate of investment return under the best-case scenario in the latest certified actuarial report provided to the regulator for the year 2018 is adopted. The assumed rate beyond 30 years remains unchanged.
(Continued) 101
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant (1) Insurance contract information: As of December 31, 2018, the Assumptions insurance contracts and financial instruments with a discretionary participation feature were tested. (2) Discount rate: For the asset allocation in the latest quarterly report as of valuation date, the rate of investment return under the best-case scenario in the latest certified actuarial report provided to the regulator for the year 2017 is adopted. The assumed rate beyond 30 years remains unchanged.
June 30, 2018 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant (1) Insurance contract information: As of June 30, 2018, the Assumptions insurance contracts and financial instruments with a discretionary participation feature were tested. (2) Discount rate: For the asset allocation in the latest quarterly report as of valuation date, the rate of investment return under the best-case scenario in the latest certified actuarial report provided to the regulator for the year 2017 is adopted. The assumed rate beyond 30 years remains unchanged.
7) Reserve for insurance policies with financial instrument features
The financial instruments, belonging to the Company’s subsidiary Taiwan Life Insurance Co., Ltd. are segregated account insurance product and are classified as financial instruments without discretionary participation feature. As of June 30, 2019, December 31 and June 30, 2018 the details of reserves for insurance contract of the nature of financial products and their adjustments were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Annuities $ 2,616 3,329 3,442
(Continued) 102
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30 2019 2018 Beginning balance $ 3,329 3,193 Net provision for statutory reserve for the period 92 3,947 Insurance claims payment for the period (811) (3,716) Exchange number 6 18 Ending balance $ 2,616 3,442
8) Foreign exchange rate fluctuation reserves
a) Hedging strategy and risk exposure:
When adjusting the foreign exchange rate hedge ratio, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. takes into consideration the dynamics of the international financial market and its own ability to take risks, so that the fluctuation in foreign exchange profit and loss can be reduced, and choose traditional hedge instrument as its major hedge tools, and properly allocation depending on the corresponded hedge cost ratio of each maturity. As of June 30, 2019, December 31 and June 30, 2018, major risk exposure on foreign exchange are all from US dollar assets, amounted to USD16,188,000 thousand, USD17,500,000 thousand and USD17,912,345 thousand, respectively, without hedge positions, and risk exposure of it are amounted to USD8,444,926 thousand, USD6,565,914 thousand and USD2,941,765 thousand, respectively.
b) As of June 30, 2019, December 31 and June 30, 2018, foreign exchange rate fluctuation reserves of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. amounted to $2,930,940, $2,273,640 and $1,965,103, respectively.
Changes in foreign exchange rate fluctuation reserves:
For the six months ended June 30 2019 2018 Beginning balance $ 2,273,640 730,720 Current provision Mandatory provision 741,898 447,095 Extra provision 1,802,039 1,311,194 Subtotal 2,543,937 1,758,289 Current recovery (1,886,637) (523,906) Ending balance $ 2,930,940 1,965,103
(Continued) 103
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
c) The effects of foreign exchange rate fluctuation reserves on the Company’s subsidiary Taiwan Life Insurance Co., Ltd. were as follows:
Items Not applicable Applicable Effect June 30, 2019 Foreign exchange rate $ - 2,930,940 (2,930,940) fluctuation reserves Stockholders’ equity 111,237,516 109,767,479 1,470,037 December 31, 2018 Foreign exchange rate - 2,273,640 (2,273,640) fluctuation reserves Stockholders’ equity 66,256,969 65,312,772 944,197 June 30, 2018 Foreign exchange rate - 1,965,103 (1,965,103) fluctuation reserves Stockholders’ equity 77,956,356 77,258,989 697,367
For the three months ended June 30, 2019 For the six months ended June 30, 2019 Not Not applicable Applicable Effect applicable Applicable Effect Profit after tax $ 3,888,591 3,103,376 785,215 6,398,150 5,872,310 525,840 Earnings per share 0.90 0.72 0.18 1.48 1.36 0.12
For the three months ended June 30, 2018 For the six months ended June 30, 2018 Not Not Items applicable Applicable Effect applicable Applicable Effect Profit after tax $ 5,157,525 4,047,029 1,110,496 7,782,771 6,795,265 987,506 Earnings per share 1.23 0.97 0.26 1.86 1.63 0.23
9) Special reserve
Special reserves on the Company’s subsidiary Taiwan Life Insurance Co., Ltd. were as follows:
June 30, 2019 December 31, 2018 June 30, 2018 Recovery of special reserve for $ 3,047,421 2,963,625 2,963,625 catastrophe Special reserves for significant 1,564,762 1,564,762 1,531,417 incidents and catastrophe Foreign exchange rate fluctuation 3,189,045 2,359,283 2,359,283 reserves Recovery of revaluation appreciation 231,566 231,566 231,566 reserves on real estate Provision on profit testing of insurance 30,475 69,564 69,564 products Deduction of other shareholders’ equity 4,323,614 - - Employees training transfer program 111,267 73,672 73,672 $ 12,498,150 7,262,472 7,229,127
(Continued) 104
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
According to Tai-Tsai-Bao-Zi No.0910074195, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. shall follow the “Regulations Governing Insurance Enterprises for Setting Aside Various Reserves” since 2002 to set aside a special reserve by the net of tax amounts of recovery of special reserve for catastrophe after the approval of shareholder meeting next year.
The Company’s subsidiary Taiwan Life Insurance Co., Ltd. have recognized special reserves for significant incidents and catastrophe in accordance with the “Regulations Governing Insurance Enterprises for Setting Aside Various Reserves” . The provision should be made at after-tax amount at the end of each year, and should be placed in special reserve under “Equity.” Special reserve under “Equity” can be offset or recovered by the aforementioned offset or recoverable amount at the after-tax amount.
In addition, in accordance with the mechanism of the reserve for fluctuation of foreign exchange, under legal proceedings, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. should contribute a special reserve by 10% of its after tax income earnings.
According to FSC Jin-Guan-Bao-Shou-Zi No. 10302125060, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. has recognized additional special reserve amounting to $30,475 in accordance with the results of the insurance product profit testing on June 30, 2019.
According to FSC Jin-Guan-Bao-Tsai-Zi No. 10502066461, in order to response the trend of the development of FinTech, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. should recognize special reserve amounting to $111,266 to assist insurance employees to transform and protect their rights on June 30, 2019.
According to FSC Jin-Guan-Bao-Tsai-Zi No. 10102508861, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. recognizes the same amount of special reserve from current income and undistributed earnings from previous period as the deduction of other equity incurred in the current year; the Company recognizes the same amount of nondistributable special reserve from undistributed earnings from previous period as the deduction of other shareholder equity accumulated from previous period. Once the deduction items of other equity reverse in the future, the reversed amount could be deemed as distributable earnings.
(Continued) 105
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Property insurance business:
a) Unearned premium reserve and ceded unearned premium reserve
i) As of June 30, 2019, December 31 and June 30, 2018, the reserve for unearned premiums of the Company’s sub-subsidiary TLG insurance Co., Ltd. were as follows:
June 30, 2019 Ceded unearned Unearned premium reserve premium reserve Reinsurance Reinsurance cede Retained Direct business assumed business business business Fire insurance $ 246,298 14,332 143,319 117,311 Marine insurance 18,933 455 17,992 1,396 Miscellaneous casualty 88,043 10,436 64,784 33,695 insurance Personal accident and 116,924 1,248 40,091 78,081 health insurance Voluntary auto insurance 534,957 2 1,466 533,493 Compulsory auto TPL 107,575 84,122 64,546 127,151 insurance Total $ 1,112,730 110,595 332,198 891,127
December 31, 2018 Ceded unearned Unearned premium reserve premium reserve Reinsurance Reinsurance cede Retained Direct business assumed business business business Fire insurance $ 239,393 12,263 130,200 121,456 Marine insurance 12,308 413 11,456 1,265 Miscellaneous casualty 61,752 9,915 43,369 28,298 insurance Personal accident and 119,600 1,161 38,835 81,926 health insurance Voluntary auto insurance 542,185 1 - 542,186 Compulsory auto TPL 115,049 85,096 69,030 131,115 insurance Total $ 1,090,287 108,849 292,890 906,246
(Continued) 106
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Ceded unearned Unearned premium reserve premium reserve Reinsurance Reinsurance cede Retained Direct business assumed business business business Fire insurance $ 256,525 12,199 134,443 134,281 Marine insurance 20,116 478 18,606 1,988 Miscellaneous casualty 96,030 7,101 70,612 32,519 insurance Personal accident and 124,846 912 43,989 81,769 health insurance Voluntary auto insurance 558,781 14 - 558,795 Compulsory auto TPL 121,857 86,893 73,116 135,634 insurance Total $ 1,178,155 107,597 340,766 944,986
ii) The movements in reserve for unearned premiums and reserve for unearned premiums (cede) were as follows:
For the six months ended June 30, 2019 For the six months ended June 30, 2018 Unearned Unearned Unearned premium Unearned premium premium reserve reserve cede premium reserve reserve cede Beginning balance $ 1,199,136 292,890 1,294,495 343,242 Current provision 1,223,325 332,198 1,285,752 340,766 Current recovery (1,199,136) (292,890) (1,294,495) (343,242) Ending balance $ 1,223,325 332,198 1,285,752 340,766
b) Claim reserve and ceded claim reserve
i) Liabilities for claims categorized by reported to be paid, reported but unpaid, and not reported.
June 30, 2019 Notes payable Claims (claims) payable Claim reserve Reported but Reported to be paid unpaid Not reported Total Fire insurance $ - - 31,105 3,890 34,995 Marine insurance - - 22,308 2,428 24,736 Miscellaneous casualty 179 - 90,351 35,304 125,655 insurance Personal accident and 493 - 16,456 45,073 61,529 health insurance Voluntary auto insurance 2,195 - 280,810 76,615 357,425 Compulsory auto TPL 1,119 - 59,286 211,295 270,581 insurance Total $ 3,986 - 500,316 374,605 874,921
(Continued) 107
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Notes payable Claims (claims) payable Claim reserve Reported but Reported to be paid unpaid Not reported Total Fire insurance $ 48 - 42,262 4,133 46,395 Marine insurance - - 21,897 2,607 24,504 Miscellaneous casualty 433 - 102,431 36,535 138,966 insurance Personal accident and 663 - 11,205 47,644 58,849 health insurance Voluntary auto insurance 1,392 - 282,570 75,907 358,477 Compulsory auto TPL 505 - 65,264 219,921 285,185 insurance Total $ 3,041 - 525,629 386,747 912,376
June 30, 2018 Notes payable Claims (claims) payable Claim reserve Reported but Reported to be paid unpaid Not reported Total Fire insurance $ - - 18,281 9,563 27,844 Marine insurance - - 20,718 3,290 24,008 Miscellaneous casualty 351 - 117,668 98,594 216,262 insurance Personal accident and 2,096 - 25,130 49,098 74,228 health insurance Voluntary auto insurance 1,169 - 267,286 220,123 487,409 Compulsory auto TPL 458 - 67,761 216,673 284,434 insurance Total $ 4,074 - 516,844 597,341 1,114,185
ii) Reinsurance assets－ the insurance ceded business for the policy holders with reported but unpaid or not reported claims.
June 30, 2019 Reported but unpaid Not reported Total Fire insurance $ 15,151 847 15,998 Marine insurance 18,223 955 19,178 Miscellaneous casualty insurance 55,618 11,901 67,519 Personal accident and health 7,691 12,842 20,533 insurance Voluntary auto insurance 6,611 35,845 42,456 Compulsory auto TPL insurance 20,793 77,057 97,850 Less: Accumulated impairment (91) - (91) Total $ 123,996 139,447 263,443
(Continued) 108
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Reported but unpaid Not reported Total Fire insurance $ 24,470 1,277 25,747 Marine insurance 17,588 951 18,539 Miscellaneous casualty insurance 61,371 13,542 74,913 Personal accident and health 5,674 15,145 20,819 insurance Voluntary auto insurance 6,577 35,469 42,046 Compulsory auto TPL insurance 23,502 81,546 105,048 Less: Accumulated impairment (92) - (92) Total $ 139,090 147,930 287,020
June 30, 2018 Reported but unpaid Not reported Total Fire insurance $ 8,732 5,021 13,753 Marine insurance 16,588 1,318 17,906 Miscellaneous casualty insurance 81,503 77,566 159,069 Personal accident and health 12,565 31,511 44,076 insurance Voluntary auto insurance 9,648 156,184 165,832 Compulsory auto TPL insurance 23,228 79,421 102,649 Less: Accumulated impairment (96) - (96) Total $ 152,168 351,021 503,189 iii) The movements in claim reserve and claim reserve (ceded) were as follows:
For the six months ended June 30, 2019 For the six months ended June 30, 2018 Ceded claim Ceded claim Claim reserve reserve Claim reserve reserve Beginning balance $ 912,376 287,020 1,162,126 526,293 Current provision 874,921 263,534 1,114,185 503,285 Current recovery (912,376) (287,112) (1,162,126) (526,393) Reversal of Impairment loss - 1 - 4 Ending balance $ 874,921 263,443 1,114,185 503,189
(Continued) 109
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
c) Special reserve
i) Special reserve of the Company’s sub-subsidiary TLG insurance Co., Ltd. was as follows:
December 31, June 30, 2019 2018 June 30, 2018 Special reserve of compulsory auto $ 45,935 61,502 47,565 liability insurance Special reserve of non-compulsory 100,178 101,806 97,299 auto liability insurance $ 146,113 163,308 144,864
ii) The movements in special reserve were as follows:
1. Special reserve－compulsory auto liability insurance
For the six months ended June 30 2019 2018 Beginning balance $ 61,502 55,739 Current recovery (15,567) (8,174) Ending balance $ 45,935 47,565
2. Special reserve－non-compulsory auto liability insurance
For the six months ended June 30, 2019 Liability Special reserve Dangerous Dangerous Catastrophe change Total Catastrophe change Total Beginning balance $ 40,679 61,127 101,806 87,441 279,242 366,683 Current recovery (1,628) - (1,628) - - - Ending balance $ 39,051 61,127 100,178 87,441 279,242 366,683
For the six months ended June 30, 2018 Liability Special reserve Dangerous Dangerous Catastrophe change Total Catastrophe change Total Beginning balance $ 42,306 61,127 103,433 72,116 257,133 329,249 Current recovery (1,627) (4,507) (6,134) 2,376 2,762 5,138 Ending balance $ 40,679 56,620 97,299 74,492 259,895 334,387
(Continued) 110
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The amount of special reserve liabilities the Company’s sub-subsidiary TLG Insurance Co., Ltd. recognized as of December 31, 2012 was in accordance with Jin Kuan Bao CAI Zi No. 10102515061 “Notice to Reserve Enforcement of Insurance Companies for Natural Disaster Insurance (Commercial Earthquake Insurance and Typhoon and Flood Insurance)”, ”Disclosure of the special reserve for resident earthquake insurance” , and “Disclosure of the special reserve for nuclear insurance”. Since the aforesaid amount was not achieved to the level as requested by the regulator, the special reserve should be accounted for under liabilities and the special catastrophe reserve and risk volatility reserve should be reclassified into natural disaster insurance category since January 1, 2013.
The effects on income, liabilities, equity and earnings per share of the Company’s sub-subsidiary TLG Insurance Co., Ltd. under the circumstance of not adopting the aforesaid regulations were as follows:
June 30, 2019 Amount Amount without the with the adoption adoption of reserve of reserve Effect Special reserve $ 45,935 146,113 (100,178) Stockholders’ equity 1,860,704 1,780,562 80,142
December 31, 2018 Amount Amount without the with the adoption adoption of reserve of reserve Effect Special reserve $ 63,130 163,308 (100,178) Stockholders’ equity 1,784,476 1,704,334 80,142
June 30, 2018 Amount Amount without the with the adoption adoption of reserve of reserve Effect Special reserve $ 47,565 149,371 (101,806) Stockholders’ equity 1,901,170 1,819,725 81,445
For the three months ended June 30, 2019 For the six months ended June 30, 2019 Amount Amount Amount Amount without the with the without the with the adoption of adoption of adoption of adoption of reserve reserve Effect reserve reserve Effect Net losses $ (1,150) (1,150) - (2,320) (2,320) -
Deficits earnings per share (0.01) (0.01) - (0.01) (0.01) - after tax
For the three months ended June 30, 2018 For the six months ended June 30, 2018 Amount Amount Amount Amount without the with the without the with the adoption of adoption of adoption of adoption of reserve reserve Effect reserve reserve Effect Net Income $ 39,224 36,265 2,959 69,307 69,307 -
Earnings per share after tax 0.20 0.18 0.02 0.35 0.35 -
(Continued) 111
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
d) Premium deficiency reserve and ceded premium deficiency reserve:
i) Details of premium deficiency reserve and premium deficiency reserve (ceded) of the Company’s sub-subsidiary TLG Insurance Co., Ltd. were as follows:
June 30, 2019 December 31, 2018 June 30, 2018 Ceded Ceded Ceded Premium premium Premium premium Premium premium deficiency deficiency deficiency deficiency deficiency deficiency reserve reserve reserve reserve reserve reserve Voluntary auto insurance $ - - 31,749 31,749 12,218 - Miscellaneous casualty 4,725 - 4,106 (473) 1,523 - insurance Marine insurance - - - - 285 - $ 4,725 - 35,855 31,276 14,026 -
ii) The movements of premium deficiency reserve were as follows:
For the six months ended June 30 2019 2018 Premium Ceded premium Premium Ceded premium deficiency deficiency deficiency deficiency reserve reserve reserve reserve Beginning balance $ 35,855 31,276 21,797 - Current provision 8,709 3,982 14,026 - Current recovery (39,839) (35,258) (21,797) - Ending balance $ 4,725 - 14,026 -
(ii) Insurance revenue and expense
1) Retained earned premium:
Life insurance business:
For the three months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 44,457,347 54,142 44,511,489 Reinsurance premium - - - Insurance income 44,457,347 54,142 44,511,489 Reinsurance expense 345,907 - 345,907 Net changes in unearned 105,276 - 105,276 premium reserve 451,183 - 451,183 Retained earned premium $ 44,006,164 54,142 44,060,306
(Continued) 112
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the three months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 51,319,471 678,666 51,998,137 Reinsurance premium - - - Insurance income 51,319,471 678,666 51,998,137 Reinsurance expense 486,018 - 486,018 Net changes in unearned 91,839 (10) 91,829 premium reserve 577,857 (10) 577,847 Retained earned premium $ 50,741,614 678,676 51,420,290
For the six months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 106,747,130 77,472 106,824,602 Reinsurance premium - - - Insurance income 106,747,130 77,472 106,824,602 Reinsurance expense 630,741 - 630,741 Net changes in unearned 104,602 - 104,602 premium reserve 735,343 - 735,343 Retained earned premium $ 106,011,787 77,472 106,089,259
For the six months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 108,394,075 1,406,449 109,800,524 Reinsurance premium - - - Insurance income 108,394,075 1,406,449 109,800,524 Reinsurance expense 897,386 - 897,386 Net change in unearned 162,575 (10) 162,565 premium reserves 1,059,961 (10) 1,059,951 Retained earned premium $ 107,334,114 1,406,459 108,740,573
(Continued) 113
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Property insurance business:
For the three months ended June 30, 2019 Claims The net change Earned retain (Contain claim Reinsurance Claim Retain claims of unearned claims expense) claim recovered payment claims reserve payment Item (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)-(5) Non-compulsory insurance $ 460,484 18,513 120,982 358,015 (5,640) 363,655 Compulsory insurance 61,310 35,529 25,762 71,077 (2,434) 73,511 Total $ 521,794 54,042 146,744 429,092 (8,074) 437,166
For the three months ended June 30, 2018 Claims The net change Earned retain (Contain claim Reinsurance Claim Retain claims of unearned claims expense) claim recovered payment claims reserve payment Item (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)-(5) Non-compulsory insurance $ 466,226 15,677 119,110 362,793 (16,125) 378,918 Compulsory insurance 68,472 37,805 28,782 77,495 (1,433) 78,928 Total $ 534,698 53,482 147,892 440,288 (17,558) 457,846
For the six months ended June 30, 2019 Claims The net change Earned retain (Contain claim Reinsurance Claim Retain claims of unearned claims expense) claim recovered payment claims reserve payment Item (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)-(5) Non-compulsory insurance $ 955,306 33,854 316,112 673,048 (11,155) 684,203 Compulsory insurance 121,849 69,967 51,140 140,676 (3,964) 144,640 Total $ 1,077,155 103,821 367,252 813,724 (15,119) 828,843
For the six months ended June 30, 2018 Claims The net change Earned retain (Contain claim Reinsurance Claim Retain claims of unearned claims expense) claim recovered payment claims reserve payment Item (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)-(5) Non-compulsory insurance $ 993,264 25,870 284,855 734,279 (3,612) 737,891 Compulsory insurance 140,452 72,054 58,879 153,627 (2,655) 156,282 Total $ 1,133,716 97,924 343,734 887,906 (6,267) 894,173
2) Retained claims payment:
Life insurance business:
For the three months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 35,697,560 568,520 36,266,080 Reinsurance claims payment 9 - 9 Insurance claims payment 35,697,569 568,520 36,266,089 Less: recovery of reinsurance 149,304 - 149,304 claims payment Retained claims payment $ 35,548,265 568,520 36,116,785
(Continued) 114
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the three months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 20,678,113 714,317 21,392,430 Reinsurance claims payment 9 - 9 Insurance claims payment 20,678,122 714,317 21,392,439 Less: recovery of reinsurance 232,743 - 232,743 claims payment Retained claims payment $ 20,445,379 714,317 21,159,696
For the six months ended June 30, 2019 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 55,883,794 1,404,497 57,288,291 Reinsurance claims payment 13 - 13 Insurance claims payment 55,883,807 1,404,497 57,288,304 Less: recovery of reinsurance 228,919 - 228,919 claims payment Retained claims payment $ 55,654,888 1,404,497 57,059,385
For the six months ended June 30, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 37,761,500 1,684,584 39,446,084 Reinsurance claims payment 12 - 12 Insurance claims payment 37,761,512 1,684,584 39,446,096 Less: recovery of reinsurance 465,931 - 465,931 claims payment Retained claims payment $ 37,295,581 1,684,584 38,980,165
(Continued) 115
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Property insurance business:
For the three months ended June 30, 2019 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 242,698 2,311 40,098 204,911 Compulsory insurance 81,655 52,608 46,797 87,466 Total $ 324,353 54,919 86,895 292,377
For the three months ended June 30, 2018 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 241,715 4,316 50,883 195,148 Compulsory insurance 48,419 35,856 28,296 55,979 Total $ 290,134 40,172 79,179 251,127
For the six months ended June 30, 2019 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 470,061 6,294 75,926 400,429 Compulsory insurance 118,764 81,212 68,662 131,314 Total $ 588,825 87,506 144,588 531,743
For the six months ended June 30, 2018 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 466,995 9,678 95,936 380,737 Compulsory insurance 88,444 94,324 51,518 131,250 Total $ 555,439 104,002 147,454 511,987
(Continued) 116
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ag) Income tax
According to the amendments to the “Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, the corporate income tax rate increased from 17% to 20%.
(i) Income tax expenses
For the three months and six months ended June 30, 2019 and 2018, the Company and subsidiaries’ income tax expenses and related accounts were as follows:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Current income tax $ 38,000 469,029 1,696,251 4,723,883 expenses Deferred income tax 2,696,146 2,828,348 3,611,492 707,596 expenses Effects of change in tax - - - (1,138,751) rate Income tax expenses $ 2,734,146 3,297,377 5,307,743 4,292,728
For the three months and six months ended June 30, 2019 and 2018, the Company and subsidiaries’income tax expenses (benefits) recognized under other comprehensive income were as follows:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Items that will not be reclassified subsequently to profit or loss: Remeasurement gains $ (866) - (4,940) (329) related to defined benefit plans Proportionate share of (851) 226 (851) 226 other comprehensive income from associates or joint ventures under the equity method Unrealized (losses) gains 12,797 100,455 338,840 (17,704) from equity investments measured at fair value through other comprehensive income Effects of change in tax - - - (127,639) rate Total $ 11,080 100,681 333,049 (145,446)
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Items that are or may be reclassified subsequently to profit or loss: Exchange differences of $ 406,860 115,859 521,209 181,428 overseas subsidiaries’ financial reports translation Unrealized (losses) gains 1,046,550 (893,456) 2,589,153 (3,238,359) from investment in debt instrument measured at fair value through other comprehensive income Other comprehensive 112,472 (20,023) 990,887 (553,669) (losses) income on reclassification under the overlay approach Proportionate share of 24,702 (30,083) 103,060 (34,020) other comprehensive income from its subsidiaries, associates or joint ventures under the equity method Effects of change in tax - - - 171,328 rate Total $ 1,590,584 (827,703) 4,204,309 (3,473,292)
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) The Company and subsidiaries’ income tax returns assessed and administrative remedies filed were as follows:
Latest year of assessment The Company Until 2014 CTBC Bank Co., Ltd. Until 2014 (Note) CTBC Securities Co., Ltd. Until 2014 (Note) CTBC Insurance Brokers Co., Ltd. (dissolved) Until 2015 CTBC Venture Capital Co., Ltd. Until 2014 CTBC Asset Management Co., Ltd. Until 2014 CTBC Security Co., Ltd. Until 2014 Taiwan Lottery Co., Ltd. Until 2014 Chinatrust Bills Finance Corp. (dissolved) Until 2008 Taiwan Life Insurance Co., Ltd. Until 2015 CTBC Life Insurance Co., Ltd. (dissolved) Until 2014 CTBC Investments Co., Ltd. Until 2014 Note: The Company and its subsidiaries will decide whether to apply for re-examination of 2014 income tax in the statutory period (within thirty days from the day after payment deadline).
Year of Re-exam Description of Re-examination The Company 2014 Other income CTBC Venture Capital Co., 2013 Loss on investment Ltd. CTBC Asset Management 2013 Operating income and operating expenses allocation of exempt Co., Ltd. income and tax " 2014 Operating income and operating expenses allocation of exempt income Taiwan Life Insurance Co., 2015 Interest income Ltd.
Year of Appeal Description of Appeal The Company 2010 Losses carryforward CTBC Venture Capital Co., 2010 Operating income and operating expenses allocation of exempt Ltd. income " 2011 " CTBC Asset Management 2010 Operating income and operating expenses allocation of exempt Co., Ltd. income " 2011 " " 2012 "
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Year of Litigation Description of Litigation The Company 2009 Other losses and other expenses CTBC Insurance Brokers 2009 Interest income and operating expenses allocation of exempt income Co., Ltd. (dissolved) CTBC Venture Capital Co., 2009 Interest income Ltd. CTBC Asset Management 2009 Interest income, operating income and operating expenses allocation Co., Ltd. of exempt income
(ah) Capital stock, capital surplus, treasury stock, and other equity interest
(i) Capital stock
As of June 30, 2019, the Company’s authorized capital was $230,000,000 representing 23,000,000 thousand shares with par value at NT$10 per share. The paid-in capital includes common stock amounted to $194,969,896, preferred stock B amounted to $3,333,300 and, preferred stock C amounted to $1,666,600 with 19,496,990 thousand shares common stock, 333,330 thousand shares preferred stock B and 166,660 thousand shares preferred stock C, respectively.
On December 21, 2018, the Company’s board of directors resolved to issue 166,660 thousand shares of Series C Preferred Stock to increase capital by cash, with the subscription price at NT$60 per share, amounting to $9,999,600. The capital increase was approved by the FSC in accordance with Ruling No.1070348778 on January 17, 2019. All issued shares were fully paid and expected to be recognized as equity on April 3, 2019, the subscription date.
The Company’s rights and obligations of issuing preferred stock were as follows:
1) Series B Preferred Stock
a) Dividends: The dividend yield is set at 3.75% per annum (equal to the sum of 7- year IRS 1.0825%+2.6675%) on the issue price. The IRS rate will be reset every 7 years and the pricing date for reset is two business days prior to the IRS reset date. The IRS rate is the arithmetic mean of 7-year IRS rates appearing on Reuters pages ” PYTWDFIX” and “COSMOS3” at 11:00 a.m. (Taipei time) on the relevant pricing date for reset. If such rate cannot be obtained, the Company will determine the rate based on reasonable market price with good faith. The dividends will be distributed annually in arrears.
b) Earnings distribution: The fiscal year-end earnings of the Company shall be applied to the following uses in order: payments of taxes, adjustments per financial and accounting principle, making-up of deficit, legal reserve, special reserve by law or reversal, and the remaining shall be paid to holders of preferred shares B as the current year’s dividends.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
c) Dividend distribution: The Company has discretion over the dividend distribution of preferred shares B. The Company may decide not to distribute dividends of preferred shares B in the following circumstances: (a) there are no earnings in a fiscal year, (b) the earnings are insufficient to distribute dividends of preferred shares B, (c) the distribution of dividends of preferred shares B will cause the capital adequacy ratio to be lower than the regulatory requirements, and (d) other considerations. The cancellation of dividend payment should not constitute an event of default.
d) The preferred shares B are noncumulative, and the preferred shareholders do not have the right to claim any of the unpaid or omitted dividends in the future.
e) Other than the receipt of dividends at the rate as a) mentioned above, holders of Series B Preferred Stock are not entitled to common shares’ cash or stock dividends derived from earnings or capital reserve.
f) Holders of preferred shares B have prior claim on the Company’s assets over common shareholders if it is liquidated. The repayment shall be capped at respective issue amount of preferred shares B upon liquidation.
g) Voting right and election right: Preferred shareholders do not have voting rights or suffrage. However, they have voting rights with respect to agendas related to the rights and obligations of preferred shares B in shareholders' meetings.
h) Conversion Rights: Cannot be converted to common shares and Holders do not have the right to request the Company to redeem preferred shares.
i) Due date: The preferred shares B is perpetual but may be redeemed in whole or in part at issue price anytime after seven years of issuance at the option of the Company. Unredeemed preferred shares shall continue to have the rights and obligations of issuance terms prescribed in this Article.
2) Series C Preferred Stock
a) Dividends: The dividend yield is set at 3.20% per annum (equal to the sum of 7- year IRS 0.99%+2.21%) on the issue price. The IRS rate will be reset every 7 years, the reference date for pricing is one business day prior to the pricing date and the reference date for reset is two business days prior to the interest rate reset date. The IRS rate is the arithmetic mean of 7-year IRS rates appearing on Reuters pages “TAIFX IRS” and “COSMOS3” at 11:00 a.m. (Taipei time) on the relevant reference date. If such rate cannot be obtained, the Company will determine the rate based on reasonable market price with good faith. The dividends will be distributed annually in arrears.
b) Earnings distribution: The fiscal year-end earnings of the Company shall be applied to the following uses in order: payments of taxes, making-up of deficit, legal reserve, special reserve by law or reversal, and the remainders shall first be applied to distribute the dividend of Preferred Shares.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
c) Dividend distribution: The Company has discretion over the dividend distribution of preferred shares C. The Company may decide not to distribute dividends of preferred shares C in the following circumstances: (a) there are no earnings in a fiscal year, (b) the earnings are insufficient to distribute dividends of preferred shares, (c) the distribution of dividends of preferred shares C will cause the capital adequacy ratio to be lower than the regulatory requirements, and (d) other considerations. The preferred shareholders can not object to the decision.
d) The preferred shares C are noncumulative, and the preferred shareholders do not have the right to claim any of the unpaid or omitted dividends in the future.
e) Other than the receipt of dividends at the rate as a) mentioned above, holders of Series C Preferred Stock are not entitled to common shares’ cash or stock dividends derived from earnings or capital reserve.
f) Holders of preferred shares C have prior claim on the Company’ s assets over common shareholders if it is liquidated. The claims of all series of preferred shareholders are equal. The repayment shall be capped at respective issue amount of preferred shares C upon liquidation.
g) Voting right and election right: Holders of preferred shares C do not have voting right and election right in the Common Shareholders’ Meeting, but may be elected as directors, and have voting right in the Preferred Shareholders’ Meeting and the Shareholders’ Meeting concerning the rights and obligations of shareholders of Preferred Shares C.
h) Conversion Rights: Preferred shares C cannot be converted to common shares and holders do not have the right to request the Company to redeem preferred shares.
i) Due date: The preferred shares C is perpetual but may be redeemed in whole or in part at issue price anytime after seven years of issuance at the option of the Company. Unredeemed preferred shares shall continue to have the rights and obligations of issuance terms prescribed in this Article. If the Company decides to distribute the dividend in the current year, the distribution of the payable dividends in the date of redemption shall be calculated based on the actual number of days the Preferred Shares remained outstanding in that year.
(Continued) 122
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) Capital surplus
The components and sources of capital surplus were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Additional paid-in capital－common $ 32,242,318 32,242,318 32,242,318 stock Additional paid-in capital－preferred 24,963,848 16,648,468 16,648,468 stock Share based payment transactions 1,501,496 1,499,326 1,499,326 Others (21,573) (21,573) (21,573) Total $ 58,686,089 50,368,539 50,368,539
In compliance with the Company Act, capital surplus can only be used to offset a deficit when surplus reserve is not sufficient to offset losses or be distributed by issuing new shares or by cash pursuant to a resolution to be adopted by a shareholders’ meeting as required in Article 241, Paragraph 1 of the Company Act. Furthermore, according to Article 72 1, Paragraph 1 of the Regulations Governing the offering and Issuance of Securities by Securities Issuers, the amount of capital surplus to be used to increase capital shall not exceed 10% of total paid in capital. The capital surplus arising from a capital increase can be capitalized only in the following fiscal year after being registered by the Company with the competent authority for approval.
The share based payment transactions are treasury stock and cash capital increase transferred to employees. The Company is reserving ten percent of new shares for subscription by employees of the Company and subsidiaries follows Article 267, Paragraph 1 of the Company Act.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) Other equity interest
Changes in the Company’s other equity interest were as follows:
Changes in Unrealized gains financial (losses) on liabilities Other Exchange financial assets designated at comprehensive differences of measured at fair fair value income on overseas value through through profit reclassification subsidiaries' other or loss under the financial reports comprehensive attributable to overlay translation income credit risk approach Total Balance at January 1, 2019 $ (6,844,471) (18,434,666) (310,604) (10,863,479) (36,453,220) Exchange differences of overseas subsidiaries’ 3,265,956 - - - 3,265,956 financial reports translation Losses on designated as hedging instruments in a (505,321) - - - (505,321) hedge of the net investments in overseas subsidiaries Proportionate share of other comprehensive gains - 471,158 - - 471,158 from associates under the equity method Unrealized gains from financial assets measured at - 24,874,810 - - 24,874,810 fair value through other comprehensive income Accumulated losses on disposals of investments in - (4,311,828) - - (4,311,828) debt instruments measured at fair value through other comprehensive income reclassified to profit or loss Disposals of investments in equity instruments - 604,780 - - 604,780 measured at fair value through other comprehensive income Valuation adjustment of other comprehensive - - - 11,486,734 11,486,734 income on reclassification under the overlay approach Change in designated as financial liabilities - - 2,180,513 - 2,180,513 measured at fair value through profit or loss attributable to credit risk June 30, 2019 $ (4,083,836) 3,204,254 1,869,909 623,255 1,613,582
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Changes in Unrealized gains financial (losses) on liabilities Other Exchange financial assets designated at comprehensive differences of measured at fair Unrealized fair value income on overseas value through gains (losses) through profit reclassification subsidiaries' other on available- or loss under the financial reports comprehensive for-sale attributable to overlay translation income financial assets credit risk approach Total Balance at January 1, 2018 $ (8,728,029) - (5,608,490) (1,422,950) - (15,759,469) Effects of retrospective (804) (646,184) 5,608,490 - 1,552,859 6,514,361 application of new standards Balance at January 1, 2018 after (8,728,833) (646,184) - (1,422,950) 1,552,859 (9,245,108) adjustments Exchange differences of 2,099,829 - - - - 2,099,829 overseas subsidiaries’ financial reports translation Losses on designated as (596,959) - - - - (596,959) hedging instruments in a hedge of the net investments in overseas subsidiaries Proportionate share of other - (168,252) - - - (168,252) comprehensive losses from associates under the equity method Unrealized losses from financial - (7,903,166) - - - (7,903,166) assets measured at fair value through other comprehensive income Accumulated losses on - (5,680,239) - - - (5,680,239) disposals of investments in debt instruments measured at fair value through other comprehensive income reclassified to profit or loss Disposals of investments in - 694,395 - - - 694,395 equity instruments measured at fair value through other comprehensive income Valuation adjustment of other - - - - (4,453,260) (4,453,260) comprehensive income on reclassification under the overlay approach Change in designated as - - - 252,236 - 252,236 financial liabilities measured at fair value through profit or loss attributable to credit risk June 30, 2018 $ (7,225,963) (13,703,446) - (1,170,714) (2,900,401) (25,000,524)
(ai) Earnings distribution and dividend policy
Annual earnings, if any, are used to pay taxes, make adjustments in accordance with financial accounting standards, offset deficits, appropriate legal reserve, and provision for or reversal of special reserve. Then, preferred stock dividends are distributed prior to the distribution of the remaining earnings. The remaining earnings, if any, will be the undistributed earnings of the year, plus the beginning undistributed earnings, it will be the accumulated distributable earnings, and Board of Directors will draft the proposal for earnings distribution and have it passed by the resolution of shareholders’ meeting before distribution or modification.
The Company, aiming to a continued growth and increase profitability as well as to be in line with the provisions of laws, adopts a residual dividend policy.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
According to operational planning of the Company, shareholders dividend and bonus will be distributed according to the following manners:
(i) In principle, the distribution of annual shareholders dividend and bonus shall not be lower than 20% of the distributable earnings of the current year; the distributable earnings of the current year referred to in this subparagraph is the aforementioned undistributed earnings of the year stated in Article 29-1, paragraph 1of the corporate charter after deducting the balance of adjustments per accounting principle and reversals of special reserves by law in the current year, excluding distributable but not yet distributed Preferred Shares dividends for the current year;
(ii) Shareholders dividend and bonus may be distributed in cash and/or by stock, provided the cash dividend shall not be less than 10% of the total dividends;
For the above mentioned dividend distribution policy, Board of Directors may propose to a Shareholders’ Meeting for resolution to an appropriate adjustment of the ratio in cash dividend distribution according to the business operation of the Company, funds demand in reinvestments and acquisition, and major amendment of laws, provided it shall not be less than 1% of the total dividends. The Company may retain the earnings if the cash dividend is less than NT$0.1(dollars) per share.
A resolution on 2018 earnings distribution of the Company was approved by the general shareholder meeting on June 14, 2019 and the distribution of cash dividend for common stock and preferred stock were $19,496,990 and $749,992.
A resolution on 2017 earnings distribution of the Company was approved by the general shareholder meeting on June 15, 2018 and the distribution of cash dividend for common stock and preferred stock were $21,056,749 and $14,383.
Relevant information about employee bonuses approved by the board of directors on behalf of shareholders’ meeting is available on Market Observation Post System or other sites.
(aj) Share-based payment
For the six months ended June 30, 2019 and 2018, the Company and subsidiaries had set out the measurement principles and specific requirements for the share based payment transactions which were as follows:
Management stock appreciation rights plan for the years 2015 2016 2017 2018 Grant date 2016.02.04 2017.01.25 2018.02.28 2019.01.31 Grant number 273,119 231,283 241,881 308,951 Exercise period 2018.12.31 2019.12.31 2020.12.31 2021.12.31 Exercise price at grant date 14.92 17.82 21.39 20.24
The Company and subsidiaries implement the above plan via cash settlements, yet absentee and resigned employees’ stock appreciation rights will be deemed abandoned and forfeited.
(Continued) 126
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Disclosures for the Company and subsidiaries’ employee stock appreciation rights plan (SARs) were as follows:
For the six months ended June 30, 2019 Management stock appreciation rights plan for the years 2016 2017 2018 Weighted Weighted Weighted average average average exercise exercise exercise Number price Number price Number price Outstanding at the beginning 245,390 16.11 249,343 20.32 308,951 20.24 of the period Granted during the period - 16.11 - 20.32 - 20.24 Forfeited during the period - 16.11 - 20.32 - 20.24 Exercised during the period 552 16.11 411 20.32 74 20.24 Expired during the period - 16.11 - 20.32 - 20.24 Outstanding at the end of the 244,838 16.11 248,932 20.32 308,877 20.24 period Exercisable at the end of the - 16.11 - 20.32 - 20.24 period
For the six months ended June 30, 2018 Management stock appreciation rights plan for the years 2015 2016 2017 Weighted Weighted Weighted average average average exercise exercise exercise Number price Number price Number price Outstanding at the beginning 313,790 12.57 241,180 16.96 241,881 21.39 of the period Granted during the period - 12.57 - 16.96 - 21.39 Forfeited during the period - 12.57 - 16.96 - 21.39 Exercised during the period 3,693 12.57 2,660 16.96 - 21.39 Expired during the period - 12.57 - 16.96 - 21.39 Outstanding at the end of the 310,097 12.57 238,520 16.96 241,881 21.39 period Exercisable at the end of the - 12.57 - 16.96 - 21.39 period
For the six months ended June 30, 2019, the weighted-average stock prices executed under SARs for 2016, 2017 and 2018 were NT$20.45, $20.43 and $20.92 (in dollars), respectively.
As of June 30, 2019, the weighted-average remaining durations of outstanding shares under SARs for 2016, 2017 and 2018 were 0.50, 1.50 and 2.50 years, respectively.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ak) EPS
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Net income attributable to parent $ 9,321,414 9,674,688 20,395,003 21,902,491 company Dividends on preferred stock (749,992) (14,383) (749,992) (14,383) Net income attributable to $ 8,571,422 9,660,305 19,645,011 21,888,108 common stockholders Weighted average outstanding 19,496,990 19,489,013 19,496,990 19,479,470 shares of common stock (in thousands) Basic EPS (in dollars) $ 0.44 0.50 1.01 1.12
Since the Company deals with share-based payment transactions via cash settlement, no impact is expected to be on its weighted-average outstanding shares, nor does the diluted EPS need to be calculated.
(al) Net interest income
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Interest income Loan interest $ 16,181,910 14,702,163 32,013,775 28,653,277 Revolving credit interest 750,694 688,951 1,503,862 1,372,240 Securities interest 17,115,277 14,421,720 33,596,639 27,810,733 Due from Central Bank 114,444 95,616 221,815 202,420 Due from banks and call 682,117 854,463 1,448,848 1,754,068 loans to banks Hedging derivatives - 24,348 - 48,429 Insurance policies loans 315,649 303,648 629,026 601,605 Others 628,659 608,530 1,264,426 1,168,823 Subtotal 35,788,750 31,699,439 70,678,391 61,611,595 Interest expense Deposit 6,054,471 5,077,280 11,961,370 9,559,701 Due to other banks 343,090 237,301 614,804 428,828 Borrowings and other 1,144,412 908,195 2,268,845 1,794,429 financing Hedging derivatives - 14,603 - 29,046 Lease liabilities 98,599 - 193,828 - Others 283,230 279,635 596,298 609,687 Subtotal 7,923,802 6,517,014 15,635,145 12,421,691 Total $ 27,864,948 25,182,425 55,043,246 49,189,904
The above table does not include income from financial assets or liabilities measured at fair value.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(am) Service fee and commission income
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Commission income Credit card business $ 1,478,598 1,251,739 2,982,705 2,540,401 Wealth management business 1,417,782 1,275,624 2,675,997 3,221,811 Corporate business 1,346,375 1,303,086 2,783,775 2,726,642 Banking business 1,427,466 1,191,932 2,608,371 2,452,960 Insurance business 1,862,377 2,545,957 3,471,023 5,140,348 Securities business 154,054 158,357 287,309 306,128 Lottery business 881,718 765,825 3,094,264 2,810,859 Others 149,166 149,217 295,150 280,601 Total commission income 8,717,536 8,641,737 18,198,594 19,479,750 Service fee Credit card business 172,866 135,859 338,442 267,358 Wealth management business 53,113 42,977 109,132 92,324 Corporate business 82,915 59,363 144,840 121,995 Banking business 566,736 517,868 1,057,417 1,026,661 Insurance business 1,924,686 2,805,266 4,154,696 6,220,900 Securities business 18,247 19,414 32,632 38,361 Lottery business 62,671 58,127 248,821 230,663 Others (51,844) 94,303 (39,728) 133,247 Total service fee 2,829,390 3,733,177 6,046,252 8,131,509 Service fee and commission $ 5,888,146 4,908,560 12,152,342 11,348,241 income
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(an) Net insurance income
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Insurance income Insurance income $ 45,033,282 52,532,835 107,901,757 110,934,240 Reinsurance premium income 54,042 53,482 103,821 97,924 Recovery of reinsurance 236,200 311,922 373,507 613,385 claims payment Separate account insurance 5,654,020 13,315,238 13,670,186 17,093,070 product income Total insurance income 50,977,544 66,213,477 122,049,271 128,738,619 Insurance expense Reinsurance expense 492,651 633,910 997,993 1,241,120 Underwriting expense 5,152 3,385 9,900 5,908 Claims payment 22,122,243 10,879,064 30,875,615 20,987,463 Reinsurance claims payment 54,928 40,181 87,519 104,014 Life insurance bonus payment 439,008 576,342 481,486 614,429 Surrender value 14,029,183 10,227,158 26,520,015 18,399,630 Guaranty fund expense 85,782 100,318 205,548 211,639 Separate account insurance 5,654,020 13,315,238 13,670,186 17,093,070 product expense Total insurance expense 42,882,967 35,775,596 72,848,262 58,657,273 Total net insurance income $ 8,094,577 30,437,881 49,201,009 70,081,346
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ao) Gains and losses on financial assets and liabilities measured at fair value through profit or loss
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Disposal gains (losses) Commercial paper $ 347 543 934 941 Treasury bills (5,940) 133 (9,347) 80 Government bonds 30,854 (94,937) 70,336 (466,548) Corporate bonds 37,059 19,378 68,800 6,472 Financial debentures 33,636 46,638 133,812 125,400 Convertible bonds 15,980 7,365 18,317 9,585 Asset-backed securities - 137,921 - (98,433) Listed and OTC securities 712,081 3,432,200 563,914 4,959,124 Beneficiary certificates 2,469,951 598,392 4,835,343 1,482,106 Negotiable certificate of 69 1,082 899 2,097 deposit Derivative financial (3,802,346) (1,321,998) (10,077,443) 8,129,280 instruments Margin purchase and short 3 60 (48) 1,694 sale of securities Other securities and bonds 21,114 15,060 25,495 15,382 Subtotal (487,192) 2,841,837 (4,368,988) 14,167,180 Valuation gains (losses) Commercial paper $ 26,023 54 (12,574) 12,951 Treasury bills 6 3 39 3 Government bonds 3,667 (12,345) 7,425 (1,818) Corporate bonds 64,926 (80,889) 198,474 (131,458) Financial debentures (1,628,386) 1,151,874 (3,243,005) 2,761,560 Convertible bonds 33,405 (80,455) 44,004 (329,793) Asset-backed securities 25,092 (241,986) 32,296 (362,268) Listed and OTC securities (945,867) (2,467,758) 6,256,145 (4,823,140) Beneficiary certificates 3,050,147 1,677,704 7,215,592 (202,317) Negotiable certificate of 198 599 (335) 172 deposit Other securities and bonds 55,774 (160,763) 499,787 (719,073) Derivative financial 1,768,239 (24,006,718) 5,440,470 (20,704,972) instruments Margin purchase and short 659 (602) 659 (1,172) sale of securities Fair value hedge adjustment - (9,051) - (17,383) Subtotal 2,453,883 (24,230,333) 16,438,977 (24,518,708) Dividend income 337,664 425,911 381,447 571,444 Interest income 855,345 750,272 1,604,731 1,576,770 Interest expense (504,778) (463,682) (997,667) (846,532) Total $ 2,654,922 (20,675,995) 13,058,500 (9,049,846)
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ap) Investment-linked assets, liabilities, incomes and expenses
Related account balances of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. were as follows:
June 30, 2019 December 31, 2018 June 30, 2018 Insurance product assets of segregated account: Cash in bank $ 2,322,810 780,931 869,147 Securities 84,145,906 71,236,063 69,626,900 Receivables 501,323 945,350 777,196 Others 43 74 37 Total $ 86,970,082 72,962,418 71,273,280 Insurance product liabilities of segregated account: Insurance product reserve－insurance contract of $ 66,547,703 54,815,047 52,954,781 segregated account Insurance product reserve－investment contract 19,523,945 17,288,903 17,417,703 of segregated account Payables 898,434 858,468 900,796 Total $ 86,970,082 72,962,418 71,273,280
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Insurance product revenues of segregated account: Premium income $ 4,118,175 13,538,787 8,733,547 18,356,033 Gains (losses) on financial 1,009,131 (597,596) 2,925,912 (829,934) assets or liabilities measured at fair value through profit or loss Foreign exchange gains 467,787 294,346 1,882,781 (610,262) (losses) Interest income 58,927 79,701 127,946 177,233 Total $ 5,654,020 13,315,238 13,670,186 17,093,070 Insurance product expenses of segregated account: Net changes in segregated $ 4,565,438 12,254,481 11,646,773 15,004,486 account reserve－insurance contract Surrender value 769,282 783,161 1,398,993 1,547,270 Insurance claims payment 40,837 24,213 74,219 44,747 Management fee expense 278,463 253,383 550,201 496,567 Total $ 5,654,020 13,315,238 13,670,186 17,093,070
For the three months and six months ended June 30, 2019 and 2018, sales bonuses or discount of investment-oriented insurance products from counterparties amounted to $193,423, $157,097, $359,995 and $313,620, respectively.
(Continued) 132
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(aq) Net changes in insurance liability reserve
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Provision for liability reserve $ 18,487,663 39,234,006 68,008,637 86,207,067 Provision for (reversal of) claim 92,769 (78,177) 269,393 (30,034) reserve Reversal of premium deficiency (464,521) (181,715) (712,025) (336,601) reserve Reversal of special claim reserve (407,610) (720,022) (266,775) (511,079) Provision for unearned premium 97,202 74,271 89,483 156,298 reserve (Reversal of) provision for (763) 404 (719) 231 insurance policies with financial instrument features Fair value adjustment (52,317) (73,583) (99,370) (125,434) Total $ 17,752,423 38,255,184 67,288,624 85,360,448
(ar) Employee benefits expenses
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Salary expenses $ 8,287,357 7,565,361 16,328,754 14,961,085 Insurance expenses 514,811 501,005 1,162,834 1,079,472 Cash-settled share-based 492,959 629,470 659,193 1,102,313 payment Retirement expenses Defined contribution plan 242,656 231,244 442,373 430,208 Defined benefits plan 77,136 78,373 153,907 157,937 Other personnel expenses 264,959 395,432 533,981 787,304 Total $ 9,879,878 9,400,885 19,281,042 18,518,319
As of June 30, 2019 and 2018, numbers of the Company and subsidiaries’ employees were 20,228 and 19,753, respectively.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(as) Depreciation and amortization expenses
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Housing $ 285,011 258,035 586,426 547,942 General equipment 123,578 146,260 246,429 289,313 Transportation equipment 2,706 5,788 5,255 12,408 Information equipment 177,113 182,538 367,200 365,247 Subtotal of depreciation 588,408 592,621 1,205,310 1,214,910 expenses from premises and equipments Surface rights 63,586 - 127,171 - Buildings 615,476 - 1,173,837 - Transportation equipment 14,740 - 28,588 - Miscellaneous equipment 39,659 - 78,987 - Subtotal of depreciation 733,461 - 1,408,583 - expenses from right-of-use assets Amortization of information 376,589 318,414 752,636 622,941 software Other deferred expenses 1,022 922 2,008 1,873
Subtotal of amortization 377,611 319,336 754,644 624,814 expenses Total $ 1,699,480 911,957 3,368,537 1,839,724
(at) Compensations of employees and the remunerations to directors
In accordance with the Company’s article of incorporation, annual earnings, if any, should be appropriated 0.05% and 0.7% (not higher than) as compensations of employees and remunerations to board of directors. However, if there is any cumulative loss, the Company should offset cumulative losses in priority. Compensations of employees and the remunerations to directors which are recognized as current period operating expenses based on the Company’s net income before tax excluding the amount of the compensations of employees and remunerations to directors, according to accounting period multiplied by the estimate of remuneration distribution set by the Company’s article of incorporation.
The estimated compensation of employees were $10,657 and $11,671 and the remunerations to directors were $149,201 and $163,392 for the six months ended June 30, 2019 and 2018, respectively.
The actual compensations of employees of 2018 and 2017 amounted to $18,664 and $18,630, with $84 and $(204) different from the amount recognized in the annual financial report. The actual compensations of the directors’ of 2018 and 2017 amounted to $261,300 and $260,823, with $0 and $(2,856) different from the amount recognized in the annual financial report. The difference is regarded as a change of accounting estimates and will be adjusted in profit or loss in the fiscal year of 2019 and 2018. Relevant information is available on Market Observation Post System.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(au) Other general and administrative expenses
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Site usage and general $ 462,342 1,312,073 862,478 2,600,884 equipment expenses Information equipment expenses 624,676 603,510 1,246,659 1,132,141 General administration expenses 1,704,913 1,257,905 3,311,732 2,472,229 Marketing and promotion 853,341 785,755 1,644,822 1,468,615 expenses Other expenses 1,113,954 961,035 1,863,638 1,750,657 Business tax 881,180 848,257 1,716,953 1,651,696 Total $ 5,640,406 5,768,535 10,646,282 11,076,222
The total amount of rent expenses of short-term lease contracts and low-value assets of the Company and subsidiaries for the three months and six months ended June 30, 2019 were $199,818 and $428,988, respectively.
(av) Financial instruments
(i) Methods and assumptions used by the Company and subsidiaries for fair value evaluation of financial instruments were as follows:
1) Fair value of short term financial instruments is estimated by their book value on the Balance sheet date. Since these instruments have short maturities, the book value is adopted as a reasonable basis in estimating the fair value. The method is applied to cash and cash equivalents, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, reinsurance assets, other financial assets, deposits from Central Bank and other banks, due to Central Bank and other banks, securities sold under repurchase agreements, commercial paper payables, payables, remittances, and other financial liabilities.
2) If there is a quoted price in an active market for the financial asset, including financial instruments measured at fair value through profit or loss, financial assets measured at fair value through other comprehensive income, financial assets measured at amortized cost, hedging financial instruments, the quoted price is regarded as its fair value. If there is no quoted price in an active market for the financial asset, its fair value is estimated on the basis of the result of a valuation technique that refers to quoted prices provided by financial institutions. The discounted cash flow technique is used to estimate the fair value of a debt instrument where an active market does not exist. The estimates, hypotheses and discount rates for valuation refer to quoted prices, from financial institutions, of financial instruments having substantially the same terms and characteristics, including the credit quality of debtors, the remaining term over which the contractual interest rate is fixed, the remaining term to repayment of the principal, and the currency in which the payments are to be made. Fair value for an equity investment is determined based on either the price calculated using a valuation technique or its book value.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3) Loans and deposits are both classified as interest bearing financial assets; therefore, the book value of financial assets is equivalent to their fair value. The net book value of the non-accrual loan, after deducting provision for credit loss, is adopted as the fair value.
4) Fair value of long term liabilities is estimated by the present value of expected future cash flows. The discount rate is based on rates of similar loans available elsewhere; that is, loans with similar maturity date and terms (close to the maturity date).
5) Derivatives usually adopt mark to model prices. The Discounted Cash Flow model is adopted for non-option derivatives, and the Black Scholes Model is adopted for option derivatives.
6) The exchange price is used for financial instruments traded on an exchange. Over-the- counter (OTC) positions use independent price/ parameter quotes by reliable brokers or data vendors, such as Reuters, Bloomberg, etc. In general, the closing price, settlement price, mid-price at a fixed cut-off time, and the average price of several independent brokers could be used as market data for valuation purposes.
7) The Company and subsidiaries would calculate credit valuation adjustment (CVA) by assessing probability of default (PD) and loss given default (LGD) of the counterparty before multiplying exposure at default (EAD) of the counterparty. On the contrary, debit valuation adjustment (DVA) is computed by applying probability of default of the Company and subsidiaries and considering loss given default of the Company and subsidiaries before being multiplied by exposure at default of the Company and subsidiaries.
The Company and subsidiaries adopt IFRS9 or take any observable data into account to evaluate the probability of impairment and loss rate of allowance for doubtful accounts as the estimates of PD and LGD. In addition, mark to market assessment of a derivative instrument from Over the Counter (OTC) is applied as EAD. For those accounts have showed significant increase in credit risk, would be the CVA assessment individually by taking into account of the changes of exposures, conditions of collaterals and the recovery probabilities.
8) Except the following listed items, the book value is considered to be a reasonable basis of estimated fair value if the Company and subsidiaries do not measure a financial instrument at fair value.
June 30, 2019 Financial Assets Book value Fair value Investment in debt instruments at amortized cost $1,728,662,996 1,788,063,914
December 31, 2018 Financial Assets Book value Fair value Investment in debt instruments at amortized cost $1,627,683,522 1,591,692,774
June 30, 2018 Financial Assets Book value Fair value Investment in debt instruments at amortized cost $1,615,587,089 1,589,139,034
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) Fair value hierarchy information on financial instruments and the statements of changes in fair value of Level 3
1) The definition of fair value hierarchy
a) Level 1
Fair value measurement for a financial instrument classified in Level 1 is determined as the quoted price for an identical financial instrument in an active market. The definition of active market has all of the following conditions: (1) the products traded in the market are homogeneous, (2) willing parties are available anytime in the market, and (3) price information is available for the public.
b) Level 2
Fair value measurement for a financial instrument classified in Level 2 is determined as the observable price other than quoted price in an active market, including an observable input obtained in an active market, either directly (i.e., as prices) or indirectly (i.e., derived from prices). The examples of observable price are as follows:
i) The quoted price for an identical financial instrument in an active market means the fair value from the market transaction prices for an identical financial instrument. An identical financial instrument should be determined by its characteristics and terms of transaction. The fair value of a financial instrument has to be adjusted according to the observable market price of the identical financial instrument. The reasons for adjustments include time lag of the occurring market transaction prices for an identical financial instrument (the quoted prices do not represent fair value at the measurement date), the difference in transaction terms for financial instruments, transaction prices involving related parties, and the correlation between the observable transaction prices of identical financial instruments and the market prices of held financial instruments.
ii) The quoted market price of the same or identical financial instruments in an inactive market.
iii) The fair value is estimated on the basis of the results of a valuation technique, and the market inputs used (i.e., interest rate, yield curve, and fluctuation rate) are based on obtainable data from the market (an observable input means an input can be derived from market data and can reflect the expectation of market participants when the inputs were used in evaluating the prices of financial instruments).
(iv) A majority of inputs are derived from observable market data, or the input correlation can be tested based on observable market data.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
c) Level 3
Input for a fair value measurement for a financial instrument classified in Level 3 is not based on obtainable data from the market (an unobservable input, such as volatility for a share option derived from the share’s historical prices, as it does not generally represent current market expectations about future volatility).
2) Fair value hierarchy information on financial instruments
June 30, 2019 Asset and Liability Items Total Level 1 Level 2 Level 3 Instruments measured at fair value Instruments measured at fair value on a recurring basis Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value through profit or loss Investment in equity instruments $ 56,954,235 54,842,010 442,966 1,669,259 Investment in debt instruments 181,131,021 8,020,386 142,041,621 31,069,014 Others 127,464,239 101,701,558 - 25,762,681 Designated as financial assets measured at fair value through profit or loss Investment in debt instruments 1,123,794 - - 1,123,794 Financial assets measured at fair value through other comprehensive income Investment in equity instruments 109,157,660 98,669,276 1,704,196 8,784,188 Investment in debt instruments 462,046,779 233,611,031 228,075,699 360,049 Liabilities: Financial liabilities measured at fair value 7,097 7,097 - - through profit or loss Designated as financial liabilities measured at 40,409,225 - - 40,409,225 fair value through profit or loss Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through $ 61,459,236 118,741 61,063,868 276,627 profit or loss Financial assets－hedging 189,815 - 189,815 - Liabilities: Financial liabilities measured at fair value 79,927,026 224,140 79,366,308 336,578 through profit or loss Financial liabilities－hedging 47,038 - 47,038 - Instruments not measured at fair value Investment in debt instruments at amortized cost 1,788,063,914 1,072,913,994 676,914,962 38,234,958 Investment property 79,703,281 - - 79,703,281
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Asset and Liability Items Total Level 1 Level 2 Level 3 Instruments measured at fair value Instruments measured at fair value on a recurring basis Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value through profit or loss Investment in equity instruments $ 55,819,151 53,580,094 667,623 1,571,434 Investment in debt instruments 174,335,742 6,996,713 143,759,889 23,579,140 Others 94,829,662 74,593,077 - 20,236,585 Designated as financial assets measured at fair value through profit or loss Investment in debt instruments 1,130,284 - - 1,130,284 Financial assets measured at fair value through other comprehensive income Investment in equity instruments 83,134,648 73,149,178 1,452,930 8,532,540 Investment in debt instruments 380,721,146 155,101,207 225,238,466 381,473 Liabilities: Designated as financial liabilities measured at 37,930,181 - - 37,930,181 fair value through profit or loss Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through $ 42,517,681 377,145 41,773,804 366,732 profit or loss Financial assets－hedging 34,212 - 34,212 - Liabilities: Financial liabilities measured at fair value 68,641,142 217,815 68,007,364 415,963 through profit or loss Financial liabilities－hedging 184,195 - 184,195 - Instruments not measured at fair value Investment in debt instruments at amortized cost 1,591,692,774 905,376,933 659,537,224 26,778,617 Investment property 61,761,660 - - 61,761,660
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Asset and Liability Items Total Level 1 Level 2 Level 3 Instruments measured at fair value Instruments measured at fair value on a recurring basis Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value through profit or loss Investment in equity instruments $ 64,796,813 62,053,545 1,139,699 1,603,569 Investment in debt instruments 162,179,381 8,399,188 122,354,657 31,425,536 Others 61,882,078 47,058,532 799,268 14,024,278 Designated as financial assets measured at fair value through profit or loss Investment in debt instruments 1,146,489 - - 1,146,489 Financial assets measured at fair value through other comprehensive income Investment in equity instruments 82,396,551 72,490,575 1,629,025 8,276,951 Investment in debt instruments 327,923,718 150,815,391 176,628,321 480,006 Liabilities: Financial liabilities measured at fair value 6,688 6,688 - - through profit or loss Designated as financial liabilities measured at 38,452,906 - - 38,452,906 fair value through profit or loss Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through $ 56,116,271 538,793 55,308,575 268,903 profit or loss Financial assets－hedging 148,808 - 148,808 - Liabilities: Financial liabilities measured at fair value 79,608,686 488,204 78,819,130 301,352 through profit or loss Financial liabilities－hedging 453,506 - 453,506 - Instruments not measured at fair value Investment in debt instruments at amortized cost 1,589,139,034 936,822,693 623,620,502 28,695,839 Investment property 61,589,400 - - 61,589,400
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3) For the six months ended June 30, 2019 and 2018, the Company and subsidiaries have transferred financial assets measured at fair value through profit or loss amount to $682,472 and $0, and Financial assets measured at fair value through other comprehensive income amount to $1,878,607 and $719,370 from Level 1 to Level 2, based on the lack of active quote markers for debt securities. Furthermore, the Company and subsidiaries have also transferred financial assets measured at fair value through profit or loss and financial assets measured at fair value through other comprehensive income amounted to $13,324,989 and $1,412,832, respectively, from Level 2 to Level 1, based on the high frequency of the transaction and the availability of observable of input parameters.
4) Statements of changes in financial assets which were classified to Level 3 based on fair value measurement
For the six months ended June 30, 2019 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to assets and out of Transfer in to liabilities and out Beginning current net comprehensive Purchase or Level 3 and out Level 3 of financial Sale, disposal, other levels and of Level 3 of Items balance income income issue of other levels liabilities or settlement out of Level 3 financial assets Ending balance Financial assets measured at fair value through profit or loss Mandatorily measured at $ 45,753,891 (310,645) 840,541 27,141,343 - 18,751 6,260,421 8,385,595 20,284 58,777,581 fair value through profit or loss Designated as financial 1,130,284 22,910 42,775 - - - 72,175 - - 1,123,794 assets measured at fair value through profit or loss Financial assets measured 8,914,013 - 438,702 - - 7,241 215,719 - - 9,144,237 at fair value through other comprehensive income
Total $ 55,798,188 (287,735) 1,322,018 27,141,343 - 25,992 6,548,315 8,385,595 20,284 69,045,612
For the six months ended June 30, 2018 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to assets and out of Transfer in to liabilities and out Beginning current net comprehensive Purchase or Level 3 and out Level 3 of financial Sale, disposal, other levels and of Level 3 of Items balance income income issue of other levels liabilities or settlement out of Level 3 financial assets Ending balance Financial assets measured at fair value through profit or loss Mandatorily measured at $ 44,149,201 220,066 825,207 3,044,864 - 37,704 767,791 186,965 - 47,322,286 fair value through profit or loss Designated as financial 1,276,517 (10,710) (84,868) - - - 34,450 - - 1,146,489 assets measured at fair value through profit or loss Financial assets measured 8,140,230 - 410,602 419,640 - - 206,692 6,823 - 8,756,957 at fair value through other comprehensive income
Total $ 53,565,948 209,356 1,150,941 3,464,504 - 37,704 1,008,933 193,788 - 57,225,732
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The policy for when to recognize the transfers in or out of Level 3 is according to the actual date of the event or change in circumstances. In the current year, the transfer of financial assets from Level 3 to Level 2 was due to a switch of valuation approach.
Unrealized gains (losses) associated with assets as of June 30, 2019 and 2018 which were recognized in current net income shown in the above table were $88,186 and $648,474, respectively.
5) Statements of changes in financial liabilities which were classified to Level 3 based on fair value measurement
For the six months ended June 30, 2019 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to liabilities and out Transfer in to assets and out of Beginning current net comprehensive Purchase or Level 3 and out of Level 3 of Sale, disposal, other levels and Level 3 of financial Items balance income income issue of other levels financial assets or settlement out of Level 3 liabilities Ending balance Financial liabilities at fair value through profit or loss Financial liabilities held $ 415,963 (17,803) - - - 20,284 18,617 44,498 18,751 336,578 for trading Designated as financial 37,930,181 4,659,558 (2,180,514) ------40,409,225 liabilities measured at fair value through profit or loss
Total $ 38,346,144 4,641,755 (2,180,514) - - 20,284 18,617 44,498 18,751 40,745,803
For the six months ended June 30, 2018 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to liabilities and out Transfer in to assets and out of Beginning current net comprehensive Purchase or Level 3 and out of Level 3 of Sale, disposal, other levels and Level 3 of financial Items balance income income issue of other levels financial assets or settlement out of Level 3 liabilities Ending balance Financial liabilities at fair value through profit or loss Financial liabilities held $ 396,598 54,068 - 8,384 - 37,704 56,680 138,722 - 301,352 for trading Designated as financial 34,090,353 (7,737,711) (252,236) 12,352,500 - - - - - 38,452,906 liabilities measured at fair value through profit or loss Total $ 34,486,951 (7,683,643) (252,236) 12,360,884 - 37,704 56,680 138,722 - 38,754,258
The policy for when to recognize the transfers in or out of Level 3 is according to the actual date of the event or change in circumstances. In the current year, the transfer of financial liabilities from Level 3 to Level 2 was due to a switch of valuation approach.
Unrealized (losses) gains associated with liabilities as of June 30, 2019 and 2018 which were recognized current net income shown in the above table were $(4,238,565) and $2,757,073, respectively.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
6) Sensitivity analysis of Level 3 fair value if reasonably possible alternative assumptions used
Valuation techniques used by the Company’s subsidiary CTBC Bank Co., Ltd. for fair value measurements of financial instruments are appropriate. However, the use of different valuation models or inputs could lead to different outcomes of fair value measurements. The following statement analyses Level 3 sensitivities for those unobservable inputs in valuation models that have a material impact on the valuation of Level 3 financial instrument. The Company’s subsidiary CTBC Bank Co., Ltd. major Level 3 financial instruments include:
a) Back-to-back derivative transactions: the movements of fair value between financial assets and liabilities can be fully offset for back-to-back trades, so there is no material impact on the income statement.
b) Financial Debentures issued by the Company’s subsidiary CTBC Bank Co., Ltd.: the sensitivity analysis based on the assumption of one basis point change in the Company’s subsidiary CTBC Bank Co., Ltd. credit spread would have the following effects on the statement of other comprehensive income.
Impacts on other comprehensive income as credit spread changes Favorable Unfavorable changes changes June 30, 2019 Liabilities Financial liabilities measured at fair value through profit or loss Designated as financial liabilities measured at fair $ 66,050 (65,820) value through profit or loss December 31, 2018 Liabilities Financial liabilities measured at fair value through profit or loss Designated as financial liabilities measured at fair $ 69,561 (69,319) value through profit or loss June 30, 2018 Liabilities Financial liabilities measured at fair value through profit or loss Designated as financial liabilities measured at fair $ 64,532 (64,400) value through profit or loss
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
7) Quantitative information about the significant unobservable inputs used in the fair value measurement (Level 3)
Quantitative information about the significant unobservable inputs was as follows:
June 30, 2019 Key The relation Valuation unobservable between inputs Fair value techniques inputs Range of inputs and fair value Recurring fair value measurements Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value $ 58,500,954 Net asset valuation Net asset value/ Not applicable/ The higher net through profit or loss method/ Internal Interest rate/ 0%~100%/ Not assets, the higher evaluation Underwriting applicable fair value/ The model/ price quotation higher interest Underwriting rate correlation price quotation coefficient, the lower fair value/ The higher underwriting price quotation, the higher fair value Designated as financial assets measured 1,123,794 Discounted cash Default rate 2.01%~3.01% The higher default at fair value through profit or loss flow model rate, the lower fair value Financial assets measured at fair value through other comprehensive income Investment in equity instruments 8,784,188 Net asset valuation Net asset value/ Not applicable/ The higher net method/ Dividend 0%~100%/ Not assets/ the Discounted distribution rate/ applicable dividend cash flow Price-to-earning distribution model/ ratio/ Price rate/Price-to- Market model book ratio/ earning Price-to-sales ratio/ Price book ratio ratio/ Price-to- sales ratio, the higher fair value Investment in debt instruments 360,049 Discounted cash Interest rate 0.70% The higher interest flow model rate, the lower fair value Liabilities: Designated as financial liabilities measured 40,409,225 Interest rate option Credit risk 0.53%~1.44% The higher credit at fair value through profit or loss pricing model spread, the lower fair value Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value $ 276,627 Interest rate option Interest rate 53%~98% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the lower fair value Liabilities: Financial liabilities measured at fair value 336,578 Interest rate option Interest rate 53%~98% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the higher fair value
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Key The relation Valuation unobservable between inputs Fair value techniques inputs Range of inputs and fair value Recurring fair value measurements Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value $ 45,387,159 Net asset valuation Net asset Not applicable/ The higher net through profit or loss method/ Internal value/interest 0%~100% assets, the higher evaluation rate fair value/Interest model rate is negatively related to fair value Designated as financial assets measured 1,130,284 Discounted cash Default rate 2.02%~3.08% The higher default at fair value through profit or loss flow model rate, the lower fair value Financial assets measured at fair value through other comprehensive income Investment in equity instruments 8,532,540 Net asset valuation Net asset value/ Not applicable/ The higher net method/ market risk 0%~100% assets/market Discounted cash premium/ β/ risk premium/ the dividend model/ dividend value of β/ the Discounted cash distribution rate dividend flow model/ distribution rate, Market model the higher fair value Investment in debt instruments 381,473 Discounted cash Interest rate 0.70% The higher interest flow model rate, the lower fair value Liabilities: Designated as financial liabilities measured 37,930,181 Interest rate option Credit spread 0.53%~1.22% The higher credit at fair value through profit or loss pricing model spread, the lower fair value Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value $ 366,732 Interest rate option Interest rate 77%~99% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the lower fair value Liabilities: Financial liabilities measured at fair value 415,963 Interest rate option Interest rate 77%~99% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the higher fair value
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Key The relation Valuation unobservable between inputs Fair value techniques inputs Range of inputs and fair value Recurring fair value measurements Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value $ 47,053,383 Net asset valuation Net asset Not applicable/ The higher net through profit or loss method/ Internal value/interest 0%~100% assets, the higher evaluation model rate fair value/Interest rate is negatively related to fair value Designated as financial assets measured 1,146,489 Discounted cash Default rate 8.6%~20.51% The higher default at fair value through profit or loss flow model rate, the lower fair value Financial assets measured at fair value through other comprehensive income Investment in equity instruments 8,276,951 Net asset valuation Net asset value/ Not applicable The higher net method/ market risk assets/market Discounted cash premium/ β risk premium/ the dividend model value of β, the higher fair value Investment in debt instruments 480,006 Discounted cash Interest rate 0.72% The higher interest flow model rate, the lower fair value Liabilities: Designated as financial liabilities measured 38,452,906 Interest rate option Credit spread 0.80%~1.29% The higher credit at fair value through profit or loss pricing model spread, the lower fair value Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value $ 268,903 Interest rate option Interest rate 62%~98% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the lower fair value Liabilities: Financial liabilities measured at fair value 301,352 Interest rate option Interest rate 62%~98% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the higher fair value
8) The valuation process used for fair value measurements categorized within Level 3
Market risk management unit of the Company and subsidiaries is in charge of independently testifying the fair value through applying independent data sources so that the information can be close to the current market status, making sure that the data sources are independent, reliable, consistent with other information and representable as an exercisable price. Additionally, periodically calibrating the pricing model, conducting retrospective testing, renewing inputs and information required for pricing model, and making any other necessary fair value adjustment are used to verify the reasonableness of valuation.
(iii) For the three months and six months ended June 30, 2019 and 2018, unrealized gains (losses) due to the estimated change of fair value recognized by the Company and subsidiaries were $243,798, $(23,508,875), $3,081,591 and $(19,328,942), respectively.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iv) Financial risk information The risk management objectives of the Company and subsidiaries are to minimize the potential financial losses through appropriate strategies, policies and procedures. The overall risk management frameworks, which are transparent, systematic, professional and well-established, are rooted in their corporate governance to improve both business performance and shareholder’s equity. The organization structure of risk management includes Board of Directors, General Auditor, Risk Management Committee, Executive Committee, Credit Committee and Risk Management Department. The Company’s subsidiaries also have their own risk management units. The scope of their authorities is illustrated as follows: Board of directors, who is in charge of risk strategy approval, risk policies, risk management frameworks, and creating a culture of risk management, serves as the primary guidance for all risks and undertakes ultimate responsibility of overall risk management. General Auditor is responsible for planning and carrying out all kind of audit business and is directly accountable to the Board. The internal auditing unit under the General Auditor must regularly review and assess the integrity and the actual implementation on various kinds of risk management mechanism, and provide timely suggestion for improvement so that the risk management mechanism can be effectively implemented. By communications, reporting, and advising the Board, Risk Management Committee assists the Board in risk governance. Risk Management committee also builds appropriate risk authorization and monitors and ensures risk authorization system operate properly. We expect the senior managers to support the Company’s risk culture, through decision-making processes and leader’ s supportive behavior, which could eventually influence all employees and organization. Executive Committee is accountable for overall risk control and holds executive meetings. In those meetings, risk management policies and risk limits are reviewed. Credit Committee is in charge of supervising, approving and reviewing significant credit risk incidents of the Company and subsidiaries. Risk Management Department is in charge of establishing and implementing appropriate risk mechanisms, and providing integrated risk report of the Company. 1) Credit Risk Management a) Description of credit risk Credit risk is the risk of financial loss if a client, guarantor, debtor or counterparty fails to meet its contractual obligations due to financial problems or other factors. Credit risk arises from both on-balance-sheet items and off-balance-sheet items, including but not limited to lending risk, issuer’ s credit risk, counterparty credit risk and credit risk of the underlying assets/ investments. On/off-balance-sheet items of the Company and subsidiaries primarily include loans, securities investment approved by regulators, and derivatives financial transaction, etc.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
b) Management procedures of credit risk i) Risk Identification: By prudent credit review process, the Company and subsidiaries assess sources and degrees of default risks from lenders, issuers, counterparties, and issues. By considering both internal operations and external environment, the Company and subsidiaries lay out risk factors to serve as the foundation for risk measurement. ii) Risk Measurement: In order to appropriately evaluate and monitor obligor’ s credit risk, the internal rating system or external rating is applied in accordance with their respective characteristics/ complexity of business, which improves the management and analysis of the credit approval, facility management and performance evaluation. Please refer to (1) C, measurement of credit risk for detailed explanation. iii) Risk Monitoring: The Company and subsidiaries develop proper and necessary guidelines in accordance with their respective characteristics of credit portfolio, such as: 1. Before undertaking the business, comprehensive credit process are developed, such as credit extension and annual review procedure, loan review mechanism, guideline for early-warning and watch- list accounts, guideline for collateral appraisement and management, procedure for non-performing loan management, guideline for limit management of on/off-balance-sheet credit assets and so on. 2. After undertaking business, management information systems are used to monitor the credit risk portfolio and risk concentration situation. 3. To ensure the effectiveness and appropriateness of credit risk monitoring mechanism of subsidiaries, the Company has established credit risk assurance review mechanism to assess, scrutinize or physically observe the completeness/independence of the subsidiaries’ credit risk organization structure, the effectiveness/improving status of the subsidiaries’ credit risk management, the portfolio risk of credit risk assets and management process of credit risk. These conducts would help the Company identify the current status of the subsidiaries’ credit risk management, potential risk and the necessary monitoring mechanism that needs to be carried out. Consequently, a growth of the subsidiaries’ long-term operation can be supported.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
iv) Risk Reporting:
Risk management units of the Company and subsidiaries periodically prepare credit risk portfolio/management reports which are regularly submitted to senior managements or the board. The reports disclose credit risk profiles from various dimensions, such as credit exposure, portfolio mix (by product, industry sector, counterparty, rating, etc.) portfolio concentration, credit quality, credit line with major loss, stress testing and so on.
c) Measurement of credit risk
i) Internal Rating System:
The Company’s subsidiary CTBC Bank Co., Ltd. develops internal rating systems based on its own internal historical data. The major risk components including Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) are used to measure the expected loss (EL) and unexpected loss (UL). 1. Probability of default (PD)
Regarding the institutional banking business, various scorecard models are developed for Jumbo Enterprise, Middle Enterprise, Small Enterprise, Real Estate Developer, and Personal etc. based on obligor’s characteristics, including exposure types, industrial characteristics, revenue scales, and the correspondent with banks. A master scale is also developed to segment the obligor’ s default risk; each segment of the master scale is associated with a predefined one-year forward-looking probability of default. As for retail banking business, the risk segmentation with predefined one-year forward-looking probability of default is also established, which is developed according to obligor’ s risk characteristics, credit score, and delinquency status, etc. 2. Loss given default (LGD)
Regarding the institutional banking business, the parameters of LGD, such as Collateral Recovery Rate, is calculated based on the product characteristics, collateral types, and guarantee forms, etc. The parameters are used to estimate the LGD for each facility. As for retail banking business, the LGD parameter is developed according to the product characteristics, such as loan-to-value, exposure, collateral type, etc.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3. Exposure at default (EAD)
Exposure at default is calculated by current outstanding plus potential extra outstanding at default. The credit conversion factor for potential extra outstanding at default is calculated by taking the facility commitment, usage ratio, loan outstanding and headroom into consideration. For off-balance exposure, Non-cash conversion factor is used to estimate the portion of off-balance-sheet exposure converted into on-balance-sheet if default.
ii) Stress Test:
Stress testing helps to aware the plausible change of subsidiaries risk component resulting from stress event, assess the amount of capital needed to absorb losses or plan remedial actions to mitigate the impact of exceptional loss when such incident occurs.
d) Mitigation of credit risk
i) Collateral Management:
In assessing the credit extension, the business prospect, and future cash flow of an obligor are the main factors for determining the repayment capability. However, for the creditor’s sake, the obligor or a third party could be asked to deliver pledge of real estate, chattel, or securities as collateral which could be disposed for recovering the creditor’s right if the obligor defaults. In order to maintain the good standing value of collateral, the Company’s subsidiaries with loan business have established guidelines regarding collateral management, which is as follows. By taking the volatility of market value and the characteristic of collateral into account, the Company’s subsidiaries with loan business set the type of collateral that can be pledged and consider the historical recovery situation to draw up the highest loan to value. To verify the fairness of the value of the collateral, the value is identified not only through valuation reports issued by professional appraisers but also market price and the actual registered price. With the periodic revaluation, the adequacy of the guarantee capability of an object which is highly fluctuation can be timely monitored.
ii) External guarantee:
In order to enhance the credit for weak small and medium business borrowers and the risk mitigation for the unsecured exposure of small and medium business borrower, external guarantee provided by R.O.C SMEG fund approved by government is one of the eligible guarantees.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
iii) Pre-settlement risk mitigation:
The Company and subsidiaries might take mitigation actions such as call for additional collateral (or margin), signing a netting agreement or signing an early determination agreement so as to reduce the credit loss.
e) Maximum exposure to credit risk
Without taking collateral or other credit enhancement mitigation effect into account, the maximum exposure to credit risk of on-consolidated-balance-sheet financial assets is equal to their carrying values.
Please refer to Note 6 (av)(iv)(2) F. for off-balance-sheet financial instruments’ maximum exposure to credit risks maturity analysis.
f) Concentrations of credit risk
Significant concentrations of credit risk occur when there are significant exposures to an individual counterparty of a transaction or a number of related counterparties engage in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be affected by changes in economic or other conditions. The Company and subsidiaries have a strategy to manage the concentration of credit risk in terms of a single client or counterparty to a transaction or clients located in nearby regions or specific industries. The following table illustrates the diversification of financial assets among industry sectors, geographical regions.
i) By Industry
June 30, 2019 Financial Individual Clients Service Public Sector High Tech Real Estate Manufacturing Institution Others Total On balance sheet Receivables—Credit card $ 101,382,542 ------101,382,542 Receivables—Factoring - 877,767 - 10,305,592 3,461 2,946,529 3,059,193 - 17,192,542 Loans -Consumer loans 792,992,385 ------792,992,385 -Corporate loans 76,519,194 74,110,481 156,764,922 60,182,073 90,847,090 95,763,551 6,654,973 197,323 561,039,607 -Micro-business loans 3,497,949 4,563,184 - 1,600,561 1,097,739 1,885,718 49,556 45,561 12,740,268 -Life insurance loans 19,963,768 ------19,963,768 -Premium advance loans 3,478,910 ------3,478,910 -Foreign currency loans 276,328,525 272,882,255 11,796,465 45,204,452 147,594,866 187,605,175 112,359,416 8,495,551 1,062,266,705 -Non-accrual loans 4,126,579 3,166,836 - 386,964 624,301 1,375,573 962 142,609 9,823,824 -Adjustment of discount (161,761) (519,680) (299) (50,519) (195,174) (79,924) (71,783) (59,485) (1,138,625) and premium Other financial assets 192,577 37,300 - - - 33,770 - - 263,647
Total $ 1,278,320,668 355,118,143 168,561,088 117,629,123 239,972,283 289,530,392 122,052,317 8,821,559 2,580,005,573
Off balance sheet Guarantee and commitment $ 581,760,681 157,980,379 103,700,517 186,882,719 79,882,239 300,550,947 109,325,112 3,471,410 1,523,554,004
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2019 Financial Individual Public Sector Corporate Institution Clients Total Financial assets measured at fair value $ 139,329,507 121,336,613 184,847,588 16,533,071 462,046,779 through other comprehensive income－ Investment in debt instruments Financial assets for hedging 145,685 - 44,130 - 189,815 Reinsurance assets－Claims recoverable from - - 396,683 - 396,683 reinsurers Reinsurance assets－Due from reinsurers and - - 390,758 - 390,758 ceding companies Investment in debt instrument at amortized 752,505,138 370,400,636 606,707,890 - 1,729,613,664 cost Total $ 891,980,330 491,737,249 792,387,049 16,533,071 2,192,637,699
December 31, 2018 Financial Individual Clients Service Public Sector High Tech Real Estate Manufacturing Institution Others Total On balance sheet Receivables—Credit card $ 84,265,074 ------84,265,074 Receivables—Factoring 1,550,197 13,011,962 14,939 3,420,149 3,581,085 21,578,332 Loans -Consumer loans 765,970,088 ------765,970,088 -Corporate loans 74,205,932 77,866,083 146,710,776 62,838,847 87,796,719 93,940,733 8,959,204 252,509 552,570,803 -Micro-business loans 3,487,108 3,756,829 - 912,564 800,361 1,756,353 101,309 82,559 10,897,083 -Life insurance loans 19,841,658 ------19,841,658 -Premium advance loans 3,351,963 ------3,351,963 -Foreign currency loans 269,149,360 262,698,521 19,054,930 49,654,585 141,352,072 178,006,402 104,480,432 9,233,387 1,033,629,689 -Non-accrual loans 3,864,605 3,365,753 - 596,547 98,255 1,199,935 107,409 423,866 9,656,370 -Adjustment of discount (145,069) (513,725) - (57,554) (206,088) (99,951) (78,210) (88,360) (1,188,957) and premium Other financial assets 191,257 58,951 - - - 6,045 - 41,474 297,727
Total $ 1,224,181,976 348,782,609 165,765,706 126,956,951 229,856,258 278,229,666 117,151,229 9,945,435 2,500,869,830
Off balance sheet Guarantee and commitment $ 586,115,384 142,676,825 67,375,559 181,032,232 78,681,495 302,241,300 123,487,683 2,115,130 1,483,725,608
December 31, 2018 Financial Individual Public Sector Corporate Institution Clients Total Financial assets measured at fair value $ 111,648,332 83,586,616 171,923,598 13,562,600 380,721,146 through other comprehensive income－ Investment in debt instruments Financial assets for hedging 26,382 - 7,830 - 34,212 Reinsurance assets－Claims recoverable from - - 722,006 - 722,006 reinsurers Reinsurance assets－Due from reinsurers and - - 578,989 - 578,989 ceding companies Investment in debt instrument at amortized 688,975,569 349,238,704 590,726,390 - 1,628,940,663 cost Total $ 800,650,283 432,825,320 763,958,813 13,562,600 2,010,997,016
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Financial Individual Clients Service Public Sector High Tech Real Estate Manufacturing Institution Others Total On balance sheet Receivables—Credit card $ 89,699,652 ------89,699,652 Receivables—Factoring 696,273 2,814 10,609,295 3,473 2,755,737 5,828,081 39,042 19,934,715 Loans -Consumer loans 722,805,030 ------722,805,030 -Corporate loans 69,000,040 74,734,278 138,811,052 58,305,331 80,239,079 83,148,579 13,135,894 225,981 517,600,234 -Micro-business loans 3,858,798 3,123,239 - 896,932 807,893 1,557,409 126,604 148,819 10,519,694 -Life insurance loans 19,596,213 ------19,596,213 -Premium advance loans 3,249,028 ------3,249,028 -Foreign currency loans 262,153,534 255,555,592 26,426,476 59,220,747 140,204,725 171,063,108 90,367,260 11,308,737 1,016,300,179 -Non-accrual loans 4,050,450 3,294,800 - 670,882 149,372 636,590 108,934 108,586 9,019,614 -Adjustment of discount (162,788) (478,258) (586) (46,770) (239,907) (83,182) (98,573) (142,546) (1,252,610) and premium Other financial assets 183,856 81,392 - - - 4,144 - - 269,392
Total $ 1,174,433,813 337,007,316 165,239,756 129,656,417 221,164,635 259,082,385 109,468,200 11,688,619 2,407,741,141
Off balance sheet Guarantee and commitment $ 571,195,932 157,387,567 87,134,480 172,819,101 65,252,670 274,590,283 134,154,386 2,198,208 1,464,732,627
June 30, 2018 Financial Individual Public Sector Corporate Institution Clients Total Financial assets measured at fair value $ 124,772,847 74,485,681 118,207,795 10,457,395 327,923,718 through other comprehensive income－ Investment in debt instruments Financial assets for hedging - - 148,808 - 148,808 Reinsurance assets－Claims recoverable from - - 659,528 - 659,528 reinsurers Reinsurance assets－Due from reinsurers and - - 514,382 - 514,382 ceding companies Investment in debt instrument at amortized 691,133,830 351,925,332 573,365,056 - 1,616,424,218 cost Total $ 815,906,677 426,411,013 692,895,569 10,457,395 1,945,670,654
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
ii) By Area
June 30, 2019 Asia (excluding Taiwan North America Taiwan) Others Total On balance sheet Financial assets measured at fair $ 82,005,342 102,892,663 204,052,055 73,096,719 462,046,779 value through other comprehensive income－ Investment in debt instruments Financial assets for hedging 189,815 - - - 189,815 Receivables－Credit card 101,382,542 - - - 101,382,542 Receivables－Factoring 4,573,703 1,334,705 8,973,679 2,310,455 17,192,542 Loans Consumer finance －Mortgage loans 665,311,118 - - - 665,311,118 －Automobile loans 8,187,063 - - - 8,187,063 －Consumer loans 119,494,204 - - - 119,494,204 Corporate finance －Corporate loans 560,440,362 157,000 295,123 147,122 561,039,607 －Micro-business loans 12,731,346 - 8,922 - 12,740,268 Life insurance loans 19,963,768 - - - 19,963,768 Premium advance loans 3,478,910 - - - 3,478,910 Foreign currency loans 28,612,981 130,394,883 832,622,420 70,636,421 1,062,266,705 Non-accrual loans 1,585,068 824,962 7,394,430 19,364 9,823,824 Adjustment of discount and (345,950) 28,585 (756,929) (64,331) (1,138,625) premium Reinsurance assets－Claims 59,361 137,109 194,152 6,061 396,683 recoverable from reinsurers Reinsurance assets－Due from 111,084 135,864 134,479 9,331 390,758 reinsurers and ceding companies Investments in debt instruments at 594,184,164 435,999,546 328,966,123 370,463,831 1,729,613,664 amortised cost Other financial assets 229,877 - 33,770 - 263,647 Total $ 2,202,194,758 671,905,317 1,381,918,224 516,624,973 4,772,643,272
Off balance sheet Guarantee and commitment $ 1,127,577,523 21,841,418 348,623,548 25,511,515 1,523,554,004
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Asia (excluding Taiwan North America Taiwan) Others Total On balance sheet Financial assets measured at fair $ 64,675,960 68,140,594 186,496,583 61,408,009 380,721,146 value through other comprehensive income－ Investment in debt instruments Financial assets for hedging 34,212 - - - 34,212 Receivables－Credit cards 84,265,074 - - - 84,265,074 Receivables－Factoring 7,458,824 1,027,848 10,608,317 2,483,343 21,578,332 Loans Consumer finance －Mortgage loans 642,147,515 - - - 642,147,515 －Automobile loans 8,273,766 - - - 8,273,766 －Consumer loans 115,548,807 - - - 115,548,807 Corporate finance －Corporate loans 552,282,072 157,000 97,509 34,222 552,570,803 －Micro business loans 10,887,956 - 9,127 - 10,897,083 Life insurance loans 19,841,658 - - - 19,841,658 Premium advance loans 3,351,963 - - - 3,351,963 Foreign currency loans 33,916,192 129,456,618 796,016,720 74,240,159 1,033,629,689 Non-accrual loans 1,769,992 186,825 7,670,262 29,291 9,656,370 Adjustment of discount and (340,454) 10,836 (789,147) (70,192) (1,188,957) premium Reinsurance assets－Claims 158,301 139,724 422,311 1,670 722,006 recoverable from reinsurers Reinsurance assets－Due from 208,431 77,132 288,046 5,380 578,989 reinsurers and ceding companies Investments in debt instruments at 586,104,686 384,148,863 309,193,700 349,493,414 1,628,940,663 amortised cost Other financial assets 250,208 - 47,519 - 297,727 Total $ 2,130,835,163 583,345,440 1,310,060,947 487,625,296 4,511,866,846
Off balance sheet Guarantee and commitment $ 1,098,261,793 23,721,683 328,754,534 32,987,598 1,483,725,608
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Asia (excluding Taiwan North America Taiwan) Others Total On balance sheet Financial assets measured at fair $ 69,838,567 50,996,923 157,098,578 49,989,650 327,923,718 value through other comprehensive income－ Investment in debt instruments Financial assets for hedging 148,808 - - - 148,808 Receivables－Credit cards 89,699,652 - - - 89,699,652 Receivables－Factoring 5,905,143 1,495,113 10,389,008 2,145,451 19,934,715 Loans Consumer finance －Mortgage loans 604,152,481 - - - 604,152,481 －Automobile loans 7,861,752 - - - 7,861,752 －Consumer loans 110,790,797 - - - 110,790,797 Corporate finance －Corporate loans 516,362,946 157,000 926,981 153,307 517,600,234 －Micro-business loans 10,510,364 - 9,330 - 10,519,694 Life insurance loans 19,596,213 - - - 19,596,213 Premium advance loans 3,249,028 - - - 3,249,028 Foreign currency loans 32,386,561 126,603,183 783,129,250 74,181,185 1,016,300,179 Non-accrual loans 2,052,490 155,163 6,671,651 140,310 9,019,614 Adjustment of discount and (328,112) (22,341) (839,334) (62,823) (1,252,610) premium Reinsurance assets－Claims 144,327 128,906 374,581 11,714 659,528 recoverable from reinsurers Reinsurance assets－Due from 157,226 48,775 288,931 19,450 514,382 reinsurers and ceding companies Investments in debt instruments at 602,581,980 380,243,094 297,006,643 336,592,501 1,616,424,218 amortised cost Other financial assets 265,517 - 3,875 - 269,392 Total $ 2,075,375,740 559,805,816 1,255,059,494 463,170,745 4,353,411,795
Off balance sheet Guarantee and commitment $ 1,047,199,662 22,995,600 374,220,168 20,317,197 1,464,732,627
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
g) Credit quality and overdue loss analysis of financial assets of the Company and subsidiaries
The measurement of credit risk of the Company and subsidiaries is based on three stage classification of credit risk status of financial assets and the estimation of three major credit risk components including Probability of Default, Loss Given Default and Exposure At Default, which are used to measure the 12-month and lifetime expected credit losses.
For Probability of Default, to evaluate the expected credit losses, the Company and subsidiaries consider the internal history default experience and external credit rating default rate information of financial assets or issuers or counterparties, the risk segmentation is developed according to obligor’s risk characteristics、industry and country.
For Loss Given Default, the risk segmentation depends on whether the asset is partially secured, fully secured, product characteristics or other else. Current exposure method or expected exposure approach is adopted for the estimation of exposure at default. The on-balance sheet exposure at default is measured by gross carrying amount or amortized cost; the off-balance sheet exposure at default is estimated by carrying amount multiplied by credit conversion factor.
The Company and subsidiaries evaluate credit risk whether financial instruments increased significantly that should be included in credit loss provisions. The Company and subsidiaries consider to disclose the information which can prove the significant increases in credit risk. The criteria for identifying the significant increases in credit risk are set as below:
i) Obligor’ s risk rating or collateral value at the reporting date deteriorates significantly compared to that at the initial recognition date.
ii) Past due information.
iii) Significant increases in credit risk on other financial instruments of the same borrower.
iv) Credit quality status placed in early warning list due to the mechanism of early warning at reporting date.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The Company and subsidiaries' definition of default on financial assets generally includes the items as below:
i) Significant financial difficulty of the issuer or the borrower;
ii) Potential breach of contract due to adverse changes in the repayment status of borrower;
iii) Decease, dissolution, or it becoming probable that the borrower will enter bankruptcy or other financial reorganization;
iv) The disappearance of an active market for that financial asset because of financial difficulties; or
v) Significant adverse news in the market, e.g. the fair value of the debt instrument has been less than its amortized cost, causing the impairment of the financial asset.
The estimation of the expected credit loss includes forward-looking information and primarily references to historically macroeconomic data and relevant macroeconomic factors (e.g. economic growth rate, consumer price index, interest rate or unemployment rate etc.) to develop internal forward-looking risk signals. The risk signals incorporate internal and external loss experiences and apply the forward-looking adjustments to credit risk position. Besides, the Company and subsidiaries consider macroeconomic forecast derived from industry, public agencies, and academic institutions to reflect the estimation of impairment allowance.
There is no significant change on the methodology or assumptions for assessment of expected credit losses during the six months ended June 30, 2019.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Credit quality and impairment analysis of financial assets
Some financial assets held by the Company and subsidiaries, such as cash and cash equivalent, due from Central Bank, call loans to banks, financial assets measured at fair value through profit or loss, securities purchased under resell agreements, refundable deposits, operational guarantee deposits, and settlement fund, are excluded from this analysis since the most of the counterparties are normally with good credit quality and can be considered as low credit risk. Some products consider their characteristics and experiences with no historical impairments and are therefore considered as low-risk products, such as deposit quality loan or depository and demolition industry. Below tables provide the credit quality analysis for the rest of financial assets.
i) Credit quality analysis of financial assets
June 30, 2019 Stage 1 Stage 2 Stage 3 Individually Collectively Investment Sub-investment Investment Sub-investment assessed assessed Impairment Total (A)+(B) Item grade grade High risk grade Subtotal (A) grade grade High risk grade Subtotal (B) impaired (C) impaired (D) allowances (E) +(C)+(D)-(E) On balance sheet Financial assets at fair value through other $ 407,504,996 40,897,471 1,844,904 450,247,371 10,052,117 760,262 987,029 11,799,408 - - 290,873 461,755,906 comprehensive incomes－Investment in debt instruments Financial assets for hedging 189,815 - - 189,815 ------189,815 Receivables－Credit cards 86,740,581 8,412,151 2,923,419 98,076,151 1,653 6,000 209,110 216,763 - 3,089,628 1,078,727 100,303,815 Receivables－Factoring 6,342,234 7,045,411 3,126,865 16,514,510 - 2,330 - 2,330 675,702 - 573,910 16,618,632 Loans Consumer finance －Mortgage loans 652,884,484 6,695,681 1,615,052 661,195,217 52,386 1,136 105,749 159,271 - 3,956,630 315,092 664,996,026 －Automobile loans 8,179,624 - - 8,179,624 472 - - 472 - 6,967 6,740 8,180,323 －Consumer loans 83,049,509 21,219,564 6,913,366 111,182,439 14,566 26,506 557,038 598,110 - 7,713,655 2,522,039 116,972,165 Corporate finance －Corporate loans 279,203,451 233,551,556 44,441,268 557,196,275 - 488,384 1,184,628 1,673,012 2,170,320 - 800,548 560,239,059 －Micro-business loans 1,170,595 9,624,332 1,505,776 12,300,703 114 129,827 216,688 346,629 70,959 21,977 73,377 12,666,891 Life insurance loans 19,963,768 - - 19,963,768 ------19,963,768 Premium advance loans 3,478,910 - - 3,478,910 ------3,478,910 Foreign currency loans 415,167,226 458,336,324 173,608,745 1,047,112,295 36,644 540,238 7,184,807 7,761,689 6,951,533 441,188 5,317,512 1,056,949,193 Non-accrual loans 4,607 - - 4,607 - 84,512 151,648 236,160 5,231,521 4,351,536 5,117,682 4,706,142 Adjustment of discount and premium (334,861) (631,245) (161,219) (1,127,325) 348 5 (7,996) (7,643) (2,627) (1,030) (609) (1,138,016) Reinsurance assets－Claims recoverable from 346,572 - - 346,572 38,483 11,306 322 50,111 - - - 396,683 reinsurers Reinsurance assets－Due from reinsurers and 339,750 - - 339,750 19,432 12,138 1,751 33,321 17,687 - 17,622 373,136 ceding companies Investments in debt instruments at amortised 1,615,529,966 51,994,842 53,295,069 1,720,819,877 1,260,221 7,533,566 - 8,793,787 - - 950,668 1,728,662,996 cost Other financial assets ------81,051 182,596 173,956 89,691 Total $ 3,579,761,227 837,146,087 289,113,245 4,706,020,559 11,476,436 9,596,210 10,590,774 31,663,420 15,196,146 19,763,147 17,238,137 4,755,405,135 Off balance sheet Guarantee and commitment $ 989,269,570 438,376,099 94,577,770 1,522,223,439 1,189 1,971 772,565 775,725 32,469 522,371 512,480 1,523,041,524
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Stage 1 Stage 2 Stage 3 Individually Collectively Investment Sub-investment Investment Sub-investment assessed assessed Impairment Total (A)+(B) Item grade grade High risk grade Subtotal (A) grade grade High risk grade Subtotal (B) impaired (C) impaired (D) allowances (E) +(C)+(D)-(E) On balance sheet Financial assets at fair value through other $ 343,508,193 23,532,314 2,986,768 370,027,275 9,082,485 727,089 884,297 10,693,871 - - 279,428 380,441,718 comprehensive incomes－Investment in debt instruments Financial assets for hedging 34,212 - - 34,212 ------34,212 Receivables－Credit cards 69,578,868 8,494,511 2,815,234 80,888,613 1,259 5,191 227,258 233,708 - 3,142,753 1,100,231 83,164,843 Receivables－Factoring 6,551,377 10,618,775 3,739,337 20,909,489 - 513 - 513 668,330 - 575,919 21,002,413 Loans Consumer finance －Mortgage loans 630,411,837 5,992,843 1,474,528 637,879,208 108,007 23,288 165,107 296,402 - 3,971,905 344,826 641,802,689 －Automobile loans 8,262,095 - - 8,262,095 954 - - 954 - 10,717 7,788 8,265,978 －Consumer loans 79,491,634 20,870,538 6,589,409 106,951,581 6,408 28,550 696,886 731,844 7,865,382 2,595,551 112,953,256 Corporate finance －Corporate loans 276,764,095 226,620,099 45,447,507 548,831,701 - 428,680 1,024,205 1,452,885 2,286,217 - 813,241 551,757,562 －Micro business loans 966,338 7,924,699 1,554,815 10,445,852 - 130,114 224,962 355,076 50,617 45,538 43,365 10,853,718 Life insurance loans 19,841,658 - - 19,841,658 ------19,841,658 Premium advance loans 3,351,963 - - 3,351,963 ------3,351,963 Foreign currency loans 404,366,098 440,030,769 171,966,155 1,016,363,022 60,800 2,917,955 7,778,270 10,757,025 6,060,823 448,819 5,556,526 1,028,073,163 Non-accrual loans ------111,118 111,118 5,759,889 3,785,363 4,781,553 4,874,817 Adjustment of discount and premium (335,285) (640,788) (194,040) (1,170,113) 342 (11,149) (6,555) (17,362) (45) (1,437) (839) (1,188,118) Reinsurance assets－Claims recoverable from 668,122 - - 668,122 42,590 10,707 587 53,884 - - - 722,006 reinsurers Reinsurance assets－Due from reinsurers and 534,032 - - 534,032 14,128 12,868 - 26,996 17,961 - 17,761 561,228 ceding companies Investments in debt instruments at amortised 1,541,282,916 27,996,475 53,773,374 1,623,052,765 1,458,577 4,429,321 - 5,887,898 - - 1,257,141 1,627,683,522 cost Other financial assets 121,211 - - 121,211 - - - - 74,792 101,724 68,883 228,844 Total $ 3,385,399,364 771,440,235 290,153,087 4,446,992,686 10,775,550 8,703,127 11,106,135 30,584,812 14,918,584 19,370,764 17,441,374 4,494,425,472
Off balance sheet Guarantee and commitment $ 962,840,809 428,048,080 87,141,440 1,478,030,329 1,856 248,788 4,752,850 5,003,494 52,439 639,346 597,268 1,483,128,340
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Stage 1 Stage 2 Stage 3 Individually Collectively Investment Sub-investment Investment Sub-investment assessed assessed Impairment Total (A)+(B) Item grade grade High risk grade Subtotal (A) grade grade High risk grade Subtotal (B) impaired (C) impaired (D) allowances (E) +(C)+(D)-(E) On balance sheet Financial assets at fair value through other $ 304,315,905 21,786,156 1,821,657 327,923,718 ------144,550 327,779,168 comprehensive incomes－Investment in debt instruments Financial assets for hedging 148,808 - - 148,808 ------148,808 Receivables－Credit cards 75,710,588 7,796,604 2,775,553 86,282,745 1,158 4,829 220,722 226,709 - 3,190,198 1,105,911 88,593,741 Receivables－Factoring 8,077,956 9,728,292 1,459,726 19,265,974 - 5,478 - 5,478 663,263 - 559,030 19,375,685 Loans Consumer finance －Mortgage loans 592,279,856 5,707,456 1,505,621 599,492,933 83,767 6,789 191,701 282,257 - 4,377,291 362,108 603,790,373 －Automobile loans 7,848,947 - - 7,848,947 837 - - 837 - 11,968 4,511 7,857,241 －Consumer loans 76,464,420 19,334,657 6,281,275 102,080,352 20,141 26,038 617,614 663,793 8,046,652 2,635,818 108,154,979 Corporate finance －Corporate loans 249,949,299 208,352,007 54,930,872 513,232,178 - 380,062 1,543,810 1,923,872 2,444,184 - 894,428 516,705,806 －Micro-business loans 1,650,549 6,669,101 1,684,249 10,003,899 - 117,986 251,897 369,883 61,856 84,056 44,920 10,474,774 Life insurance loans 19,596,213 - - 19,596,213 ------19,596,213 Premium advance loans 3,249,028 - - 3,249,028 ------3,249,028 Foreign currency loans 423,755,859 384,122,384 195,189,780 1,003,068,023 30,622 297,444 4,610,620 4,938,686 7,824,556 468,914 5,930,707 1,010,369,472 Non-accrual loans ------4,982,114 4,037,500 4,713,364 4,306,250 Adjustment of discount and premium (459,304) (576,865) (217,188) (1,253,357) 278 - (581) (303) 2,618 (1,568) (932) (1,251,678) Reinsurance assets－Claims recoverable from 604,624 - - 604,624 43,994 10,910 - 54,904 - - - 659,528 reinsurers Reinsurance assets－Due from reinsurers and 461,878 - - 461,878 19,272 12,829 - 32,101 20,403 - 17,851 496,531 ceding companies Investments in debt instruments at amortised 1,531,283,968 30,392,019 48,809,072 1,610,485,059 ------837,129 1,609,647,930 cost Other financial assets 74,787 - - 74,787 - - - - 96,758 97,847 151,861 117,531 Total $ 3,295,013,381 693,311,811 314,240,617 4,302,565,809 200,069 862,365 7,435,783 8,498,217 16,095,752 20,312,858 17,401,256 4,330,071,380
Off balance sheet Guarantee and commitment $ 950,595,261 417,306,531 91,066,313 1,458,968,105 3,622 39,237 4,891,874 4,934,733 202,810 626,979 591,711 1,464,140,916
Note 1: The balances of impairment allowance, as shown above, are in compliance with the IFRSs accepted by FSC. Note 2: Stage 1 is the loss allowance measured at 12-month expected credit loss of financial instrument. Stage 2 is the loss allowance measured at lifetime ECL measurement and the credit risk of a financial asset at the reporting date has increased significantly. Stage 3 is the loss allowance measured at lifetime ECL measurement and the credit losses has impaired of a financial asset at the reporting date.
(Continued) 161
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
h) Foreclosed properties
Foreclosed properties of the Company and subsidiaries are classified under other assets. Please refer to Note 6(s).
i) Disclosures required by the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies
i) Asset quality of CTBC Bank Co., Ltd. and subsidiaries’ overdue loans and overdue receivables
Unit：In Thousands of New Taiwan Dollars, %
Month / Year June 30, 2019 Non-performing Non-performing Allowance for Categories / Items loans Total loans loans ratio credit losses Coverage ratio Corporate Secured 1,970,498 462,216,206 0.43 % 17,466,115 292.81 % finance Unsecured (Note 10) 3,994,407 885,324,356 0.45 % Residential mortgages 2,015,921 834,919,534 0.24 % 8,039,251 398.79 % Cash cards 32,382 2,003,631 1.62 % 78,166 241.39 % Consumer Micro credit Original 1,701,087 117,586,148 1.45 % 4,601,272 270.49 % finance loans Purchase - 106 - % 1 - % Others Secured 210,053 102,667,099 0.20 % 1,129,464 225.89 % Unsecured 289,952 5,710,643 5.08 % Total loan business 10,214,300 2,410,427,723 0.42 % 31,314,269 306.57 % Overdue Balance of Delinquency Allowance for receivables receivables ratio credit losses Coverage ratio Credit cards business 93,798 101,479,573 0.09 % 1,141,838 1,217.34 % Without recourse factoring - 17,192,542 - % 722,770 - %
Month / Year June 30, 2018 Non-performing Non-performing Allowance for Categories / Items loans Total loans loans ratio credit losses Coverage ratio Corporate Secured 2,396,172 442,562,241 0.54 % 16,380,853 317.40 % finance Unsecured (Note 10) 2,764,821 827,860,870 0.33 % Residential mortgages 1,937,114 777,562,377 0.25 % 6,994,291 361.07 % Cash cards 48,993 2,340,475 2.09 % 107,041 218.48 % Consumer Micro credit Original 1,818,225 109,574,453 1.66 % 4,769,699 262.33 % finance loans Purchase - 138 - % 1,410 - % Others Secured 192,459 82,522,484 0.23 % 880,876 215.75 % Unsecured 215,834 5,344,653 4.04 % Total loan business 9,373,618 2,247,767,691 0.42 % 29,134,170 310.81 % Overdue Balance of Delinquency Allowance for receivables receivables ratio credit losses Coverage ratio Credit cards business 91,210 89,794,594 0.10 % 1,176,958 1,290.38 % Without recourse factoring - 19,934,715 - % 739,557 - %
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Note 1: Non-performing loans represent the amount of overdue loans as reported in accordance with the “Regulations on the Procedures for Banking Institutions to Evaluate Assets and Deal with Past Due/Non-performing Loans.” The credit card overdue loans represent the amount of overdue loans as reported in accordance with Jin Kuan Yin (4) Zi No. 0944000378, dated July 6, 2005.
Note 2: Non-performing loan ratio = non-performing loans ÷ total loans; credit card delinquency ratio = Overdue receivables ÷ balance of receivables.
Note 3: Coverage ratio for loans = allowance for credit losses ÷ non-performing loans; Coverage ratio for credit card business = allowance for credit losses ÷ overdue receivables.
Note 4: For residential mortgage loans, a borrower provides his/her (or spouse’s or minor child’s) house as collateral in full and pledges it to the financial institution for the purpose of obtaining funds to purchase property and to construct or repair a house.
Note 5: Microcredit loans are defined by Jin Kuan Yin (4) Zi No. 09440010950, dated December 19, 2005, and do not include credit cards or cash cards.
Note 6: Others in consumer finance are secured and unsecured consumer loans other than residential mortgage loans, cash card loans, and microcredit loans, and do not include credit cards.
Note 7: In accordance with Jin Kuan Yin (5) Zi No. 094000494, dated July 19, 2005, the amounts of without recourse factoring will be classified as overdue receivables within three months from the date that suppliers or insurance companies resolve not to compensate the loss.
Note 8: The balances of impairment allowance, as shown above, are calculated in accordance with the IFRSs accepted by the FSC and “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans,” and other related regulations. Additionally, the amounts exclude non-accrual loans arising from guarantees. Related allowance for credit losses is recognized under provisions.
Note 9: Supplemental disclosures:
The information below shows supplemental disclosures of the Company’s subsidiary CTBC Bank Co., Ltd.’s loans and receivables that may be exempted from reporting as non-performing loans and overdue receivables, respectively.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Loans that may be Receivables that Loans that may be Receivables that exempted from may be exempted exempted from may be exempted reporting as a non- from reporting as reporting as a non- from reporting as performing loan overdue receivables performing loan overdue receivables Pursuant to a contract under a debt 40,336 161,358 55,379 142,223 negotiation plan (Note 1) Pursuant to a contract under a debt 682,799 67,642 694,905 68,419 liquidation plan and a debt relief plan (Note 2) Total 723,135 229,000 750,284 210,642
Note 1: In accordance with Jin Kuan Yin (1) Zi No. 09510001270, dated April 25, 2006, a bank is required to make supplemental disclosures of credit information which was approved under the “Debt Coordination Mechanism of Unsecured Consumer Debts by the Bankers Association of the R.O.C.”
Note 2: In accordance with Jin Kuan Yin (1) Zi No. 09700318940, dated September 15, 2008, and with Jin Kuan Yin No. 10500134790, dated September 20, 2016, a bank is required to make supplemental disclosures of credit information once debtors apply for pre-negotiation, pre-meditation, relief and liquidation under the “Consumer Debt Clearance Act.”
Note 10:Those loans that are not 100% backed by collateral are classified as unsecured.
ii) The Company’s subsidiary CTBC Bank Co., Ltd.’ s concentration of credit extensions
Unit: In Thousands of New Taiwan Dollars, %
June 30, 2019 Credit amount/ stockholders’ Ranking Enterprise group by industry sector Credit amount equity (%) 1 A group. Cement manufacturing 19,598,785 6.57 % 2 B group. Liquid crystal panel and components 14,457,190 4.84 % manufacturing 3 C group. Cable telecommunications 9,508,608 3.19 % 4 D group. Iron and steel smelting 8,510,177 2.85 % 5 E group. Retailing sale of other food, beverages and 7,563,655 2.53 % tobacco 6 F group. Real estate developing 7,354,531 2.46 % 7 G group. Cement manufacturing 6,918,952 2.32 % 8 H group. Liquid crystal panel and components 6,903,487 2.31 % manufacturing 9 I group. Motor vehicle parts manufacturing 6,536,440 2.19 % 10 J group. Other unclassified financial service 6,193,747 2.08 %
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Unit: In Thousands of New Taiwan Dollars, %
June 30, 2018 Credit amount/ stockholders’ Ranking Enterprise group by industry sector Credit amount equity (%) 1 A group. Cement manufacturing 14,401,130 5.14 % 2 K group. Data storage media units manufacturing 10,976,709 3.92 % 3 D group. Iron and steel smelting 9,155,377 3.27 % 4 B group. Liquid crystal panel and components 8,910,988 3.18 % manufacturing 5 L group. Other unclassified financial service 8,304,104 2.96 % 6 E group. Retailing sale of other food, beverages and 6,570,807 2.34 % tobacco 7 M group. Cable telecommunications 6,252,148 2.23 % 8 N group. Television broadcasting and subscription 6,200,000 2.21 % programming 9 F group. Real estate developing 5,949,995 2.12 % 10 G group. Cement manufacturing 5,901,003 2.11 %
Note 1: The top ten enterprise groups other than government or state owned enterprises are ranked according to their total outstanding credit amount. If the borrowers belong to an enterprise group, the aggregate credit balance of the enterprise should be calculated and disclosed as a code number for each such borrower together with an indication of the borrowers’ line of business. In addition, if the borrowers are enterprise groups, the enterprise group’ s industry sector with the maximum exposure to credit risk in its main industry sector should be disclosed, along with the “class” of the industry, in compliance with the Standard Industrial Classification System of the R.O.C. posted by the Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C.
Note 2: Enterprise group is as defined in Article 6 of the “Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings.”
Note 3: The total outstanding credit amount is the sum of the balances of all loan types (including import and export bill negotiations, loans, overdrafts, short/medium/long term secured and unsecured loans, margin loans receivable, and non-accrual loans), bills purchased, without recourse factoring, acceptances receivable, and guarantees receivable.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Liquidity Risk Management Mechanism
a) Description and origin of liquidity risk
Liquidity risk refers to the risk of inability to obtain funds at a reasonable cost within a reasonable timeframe to meet the financial obligations and to cause the impact on the Company’s earnings or stockholder’s equity value.
Liquidity risk may stem from external and internal factors, one of the external key factors could be undermined payment capability caused by financial market volatility, and one of the internal factors could be funding shortage caused by mismatch between the timing of capital inflow and outflow.
b) Management procedures of liquidity risk
Based on the Company’s Financial Risk Management Policy, the Company and subsidiaries set robust management procedures and risk measurement to identify, measure, monitor, and report the liquidity risk. To avoid liquidity crisis events, the Company and subsidiaries continuously monitor liquidity status by applying various assessment tools, coordinating responsible units to handle potential liquidity risk issues and implementing necessary disposals. Moreover, the risk limit is set and monitored, in order to ensure the actual risk profile comply with the risk tolerance requirements.
c) Measurement of liquidity risk
The measurement of liquidity risk includes:
i) Maturity gap analysis: The measure discloses cash flow gap by time bucket.
ii) Ratio of fund source to fund usage: The indicators are loan-to-deposit ratio, and current ratio, etc.
iii) Stress test: The test assesses the liquidity impact from extreme scenarios.
iv) Financial market liquidity: The information about changes of market liquidity is used for cross-check the appropriateness of its own liquidity position.
The Company and subsidiaries should adopt appropriate measurements to help implement management procedures in accordance with their respective characteristics and complexity of assets and liabilities.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
d) Maturity analysis of non-derivative liabilities
Table below shows the analysis of cash outflows of non-derivative liabilities of the Company and subsidiaries based on time remaining until the contractual maturity date. The amount disclosed is based on contractual cash flows and may be different from that included in the consolidated balance sheets.
June 30, 2019 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Total Deposits from Central Bank and $ 41,615,056 12,053,462 577,400 3,426,339 - 57,672,257 other banks Due to Central Bank and other 8,914,348 1,005,320 858,739 2,468,173 5,257,379 18,503,959 banks Non-derivative financial liabilities - - 7,097 - 40,409,225 40,416,322 measured at fair value through profit and loss Securities sold under repurchase 115,570,798 2,496,879 - - - 118,067,677 agreements Commercial papers payable 20,830,917 14,281,833 7,312,750 1,025,500 - 43,451,000 Payables 63,339,754 29,533,754 5,401,481 7,583,492 105,871,693 211,730,174 Current income tax liabilities 865 1,730 2,595 2,270,766 135,553 2,411,509 Deposits and remittances 1,996,185,746 370,504,535 303,228,562 501,545,649 153,741,407 3,325,205,899 Bonds payable - - 150,000 1,000,000 97,200,000 98,350,000 Other financial liabilities 23,081,742 12,617,784 16,456,973 25,409,736 36,182,062 113,748,297 Deferred income tax liabilities - - - 2,139,428 2,698,281 4,837,709
December 31, 2018 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Total Deposits from Central Bank and $ 51,673,603 17,306,366 3,186,498 2,332,225 - 74,498,692 other banks Due to Central Bank and other 3,276,806 2,623,833 1,336,998 2,652,415 4,151,723 14,041,775 banks Non-derivative financial liabilities - - - - 37,930,181 37,930,181 measured at fair value through profit and loss Securities sold under repurchase 64,311,160 6,213,045 - - - 70,524,205 agreements Commercial papers payable 11,286,000 16,830,000 10,560,000 - - 38,676,000 Payables 59,676,696 11,974,690 11,087,633 17,714,715 88,662,354 189,116,088 Current income tax liabilities 13,347 1,357,146 2,270,741 72,078 - 3,713,312 Deposits and remittances 1,927,381,499 381,769,504 257,517,023 417,746,278 153,601,024 3,138,015,328 Bonds payable - 9,600,000 800,000 150,000 88,200,000 98,750,000 Other financial liabilities 26,296,935 6,920,325 14,311,466 28,224,480 44,539,827 120,293,033
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Deposits from Central Bank and $ 41,796,442 12,224,201 2,971,502 2,842,597 - 59,834,742 other banks Due to Central Bank and other 2,900,014 3,020,846 2,819,703 2,401,483 5,815,870 16,957,916 banks Non-derivative financial liabilities - - 6,688 - 38,452,906 38,459,594 measured at fair value through profit and loss Securities sold under repurchase 47,167,777 9,105,922 - - - 56,273,699 agreements Commercial papers payable 13,495,000 2,660,000 1,550,000 - - 17,705,000 Payables 64,392,433 30,201,079 5,362,464 7,156,283 5,600,330 112,712,589 Current income tax liabilities 768 1,400,135 4,381 3,162,765 6,944 4,574,993 Deposits and remittances 1,963,711,558 377,922,907 264,262,990 411,828,537 58,917,813 3,076,643,805 Bonds payable - 8,900,000 3,200,000 - 98,750,000 110,850,000 Other financial liabilities 21,291,299 9,234,870 8,933,374 18,536,747 52,664,349 110,660,639
Note: For demand deposits included in “Deposit and remittances,” the amount will be disclosed in the earliest period since such deposits can be withdrawn at anytime.
e) Maturity analysis of derivative liabilities
i) Net settled derivatives
Net settled derivatives engaged by the Company and subsidiaries include but not limited to:
1. Foreign exchange derivatives: Non-delivery forwards and net settled FX options;
2. Interest rate derivatives: Forward rate agreements, interest rate swaps, and interest rate futures;
3. Other derivatives: Equity options and commodity futures.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For derivatives held by trading purpose, the amount will be disclosed in the earliest period with fair value to reflect the nature of short-term trading behavior; for hedging derivatives, the amount disclosed is based on contractual cash flow and may be different from that included in the consolidated balance sheets. The maturity analysis of net settled derivatives liabilities is as follows:
June 30, 2019 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial liabilities measured at fair value through profit or loss －Foreign exchange derivatives $ 3,334,411 2,899 849 19,069 - 3,357,228 －Interest rate derivatives 35,834,328 - - - - 35,834,328 －Other derivatives 120,562 - 165,856 3,403 139,915 429,736 Total $ 39,289,301 2,899 166,705 22,472 139,915 39,621,292
December 31, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial liabilities measured at fair value through profit or loss －Foreign exchange derivatives $ 3,075,557 - - - - 3,075,557 －Interest rate derivatives 29,809,444 - - - - 29,809,444 －Other derivatives 155,284 31 117,395 3,149 51,077 326,936 Derivative financial liabilities for hedging －Foreign exchange derivatives 1,374,721 1,832,961 - - - 3,207,682 Total $ 34,415,006 1,832,992 117,395 3,149 51,077 36,419,619
June 30, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial liabilities measured at fair value through profit or loss －Foreign exchange derivatives $ 5,756,686 - - - - 5,756,686 －Interest rate derivatives 21,821,290 - - - - 21,821,290 －Other derivatives 7,349,974 - 399,385 13,784 74,855 7,837,998 Derivative financial liabilities for hedging －Foreign exchange derivatives - - 3,045,693 - - 3,045,693 －Interest rate derivatives 14,651 - 14,914 15,381 - 44,946 Total $ 34,942,601 - 3,459,992 29,165 74,855 38,506,613
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
ii) Gross settled derivatives
Gross settled derivatives engaged by the Company and subsidiaries include:
Foreign exchange derivatives: forwards, currency swaps, cross currency swaps, and gross settled foreign currency options. For forwards, currency swaps, and cross currency swaps, the amount disclosed is based on contractual cash flow and may be different from that included in the consolidated balance sheet; for gross settled foreign currency options, the amount will be disclosed in the earliest period with fair value, as currency options are for trading purpose and can be disposed at anytime. The maturity analysis of gross settled derivatives was as follows:
June 30, 2019 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial instruments measured at fair value through profit or loss －Foreign exchange derivatives －Cash outflow $ 2,636,494,928 834,168,836 571,771,263 941,675,687 34,917,385 5,019,028,099 －Cash inflow 2,632,010,290 833,368,262 569,313,247 933,851,930 34,369,349 5,002,913,078 Derivative financial liabilities for hedging －Foreign exchange derivatives －Cash outflow 32,736,152 - - - - 32,736,152 －Cash inflow 32,897,875 - - - - 32,897,875 Cash outflow subtotal 2,669,231,080 834,168,836 571,771,263 941,675,687 34,917,385 5,051,764,251 Cash inflow subtotal 2,664,908,165 833,368,262 569,313,247 933,851,930 34,369,349 5,035,810,953 Net cash flow $ (4,322,915) (800,574) (2,458,016) (7,823,757) (548,036) (15,953,298)
December 31, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial instruments measured at fair value through profit or loss －Foreign exchange derivatives －Cash outflow $ 1,757,500,900 678,027,960 521,388,262 639,985,690 45,689,930 3,642,592,742 －Cash inflow 1,754,284,705 678,696,389 523,691,742 635,806,225 43,232,956 3,635,712,017 Derivative financial liabilities for hedging －Foreign exchange derivatives －Cash outflow 31,984,532 - - - - 31,984,532 －Cash inflow 31,842,019 - - - - 31,842,019 Cash outflow subtotal 1,789,485,432 678,027,960 521,388,262 639,985,690 45,689,930 3,674,577,274 Cash inflow subtotal 1,786,126,724 678,696,389 523,691,742 635,806,225 43,232,956 3,667,554,036 Net cash flow $ (3,358,708) 668,429 2,303,480 (4,179,465) (2,456,974) (7,023,238)
June 30, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial instruments measured at fair value through profit or loss －Foreign exchange derivatives －Cash outflow $ 1,050,258,792 670,399,792 561,352,577 499,987,007 57,461,528 2,839,459,696 －Cash inflow 1,037,198,097 663,149,885 550,406,325 491,410,347 54,050,836 2,796,215,490 Derivative financial liabilities for hedging －Foreign exchange derivatives ─ Cash outflow 30,392,232 - - - - 30,392,232 ─ Cash inflow 30,132,819 - - - - 30,132,819 Cash outflow subtotal 1,080,651,024 670,399,792 561,352,577 499,987,007 57,461,528 2,869,851,928 Cash inflow subtotal 1,067,330,916 663,149,885 550,406,325 491,410,347 54,050,836 2,826,348,309 Net cash flow $ (13,320,108) (7,249,907) (10,946,252) (8,576,660) (3,410,692) (43,503,619)
(Continued) 170
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
f) Maturity analysis of off-balance-sheet items
Table below shows the maturity analysis of off-balance-sheet items for the Company and subsidiaries. The amount of the guarantee and committed credit lines will be allocated to the earliest period when such obligation can be exercised at anytime by clients. The amount disclosed is based on contractual cash flow and may be different from that included in the consolidated balance sheets.
June 30, 2019 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial guarantee contracts $ 72,074,265 - - - - 72,074,265 Unused amount of irrevocable loan 117,643,855 - - - 910,264 118,554,119 commitments Unused amount of irrevocable letter of 26,896,587 - - - - 26,896,587 credit Unused amount of irrevocable credit 534,187,224 - - - - 534,187,224 card commitments Total $ 750,801,931 - - - 910,264 751,712,195
December 31, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial guarantee contracts $ 60,516,495 - - - - 60,516,495 Unused amount of irrevocable loan 113,118,176 - - - 2,481,507 115,599,683 commitments Unused amount of irrevocable letter of 24,896,128 - - - - 24,896,128 credit Unused amount of irrevocable credit 537,641,080 - - - - 537,641,080 card commitments Total $ 736,171,879 - - - 2,481,507 738,653,386
June 30, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial guarantee contracts $ 56,971,217 - - - - 56,971,217 Unused amount of irrevocable loan 110,875,725 - - - 2,806,008 113,681,733 commitments Unused amount of irrevocable letter of 23,784,331 - - - - 23,784,331 credit Unused amount of irrevocable credit 521,865,565 - - - - 521,865,565 card commitments Total $ 713,496,838 - - - 2,806,008 716,302,846
Note: The total refers to the maximum credit risk exposure.
(Continued) 171
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
g) Disclosures required by the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies
i) Maturity analysis of the Company’s subsidiary CTBC Bank Co., Ltd.’s assets and liabilities in New Taiwan Dollars
June 30, 2019
Unit: In Millions of New Taiwan Dollars
Amount remaining to maturity date Total 0~10 days 11~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 2,569,267 304,114 246,039 252,927 219,238 283,297 1,263,652 Major cash outflow at maturity 2,836,075 160,540 245,760 391,568 348,749 610,303 1,079,155 Gap (266,808) 143,574 279 (138,641) (129,511) (327,006) 184,497
June 30, 2018
Unit: In Millions of New Taiwan Dollars
Amount remaining to maturity date Total 0~10 days 11~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 2,510,905 288,842 275,556 265,730 231,835 272,199 1,176,743 Major cash outflow at maturity 2,688,866 176,782 217,890 405,561 362,666 533,758 992,209 Gap (177,961) 112,060 57,666 (139,831) (130,831) (261,559) 184,534
Note: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. is denominated in New Taiwan Dollar.
ii) Maturity analysis of the Company’s subsidiary CTBC Bank Co., Ltd.’s assets and liabilities in U.S. Dollars
June 30, 2019
Unit: In Thousands of U.S. Dollars
Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 104,352,663 52,496,385 17,682,924 9,875,266 12,493,881 11,804,207 Major cash outflow at maturity 113,022,765 57,361,673 16,363,198 12,268,827 17,078,548 9,950,519 Gap (8,670,102) (4,865,288) 1,319,726 (2,393,561) (4,584,667) 1,853,688
June 30, 2018
Unit: In Thousands of U.S. Dollars
Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 68,400,767 26,393,365 17,193,395 8,985,349 6,821,092 9,007,566 Major cash outflow at maturity 81,334,495 33,524,123 18,413,808 9,157,878 10,042,243 10,196,443 Gap (12,933,728) (7,130,758) (1,220,413) (172,529) (3,221,151) (1,188,877)
Note: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. is denominated in U.S. Dollars.
(Continued) 172
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
iii) Maturity analysis of the Company’s subsidiary CTBC Bank Co., Ltd.’ s overseas branches’ assets and liabilities in U.S. Dollars
June 30, 2019
Unit: In Thousands of U.S. Dollars
Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 66,052,902 34,220,780 10,710,168 6,368,950 10,011,504 4,741,500 Major cash outflow at maturity 70,517,560 38,862,058 9,973,772 7,383,895 11,519,452 2,778,383 Gap (4,464,658) (4,641,278) 736,396 (1,014,945) (1,507,948) 1,963,117
June 30, 2018
Unit: In Thousands of U.S. Dollars
Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 28,309,869 10,323,036 8,103,049 3,215,348 2,781,659 3,886,777 Major cash outflow at maturity 36,073,198 19,302,660 7,270,065 3,709,420 3,014,953 2,776,100 Gap (7,763,329) (8,979,624) 832,984 (494,072) (233,294) 1,110,677
3) Market Risk Management Mechanism
a) Description and origin of market risk
Market risk is the risk that the earnings, capital or its ability to meet business objectives adversely affects the Company and subsidiaries by having volatile interest rate (including credit spread), foreign exchange rate, securities price and commodity price. The market correlation and liquidity of these types of instruments are also covered.
The Company and subsidiaries’ market risk exposures come from trading and non- trading portfolios. The trading portfolio includes positions arising from trading activities, which aim at benefiting from short-term price movements, such as proprietary trading and market making. The non-trading portfolios are held for obtaining capital gain in the long term.
b) Management procedures of market risk
Based on the Company’s Financial Risk Management Policy, the Company and subsidiaries set robust management procedures, facilitate market risk communication within the Company and subsidiaries and provide proper management.
An effective market risk management process begins at risk identification. The appropriate and consistent market risk measurement methodologies are defined in accordance with the business characteristics and risk source. The measurement results are applied to daily management and serve as the foundation of market risk planning, monitoring, and control.
(Continued) 173
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
To ensure that the actual risk profile can comply with the risk appetite requirements, the risk limit mechanism is established and further transmitted to operational level and translated into various management indicators, which can effectively help observe the risk profile changes, analyze the impacts, and form the management decisions promptly.
c) Measurement of market risk
i) Value at Risk (VaR)
Value at Risk measures the maximum potential loss under a particular confidence interval and a given holding period.
ii) Stress Testing
Stress testing is used to calculate a range of trading exposures which result from extreme market events or scenarios. Stress testing measures the impact of exceptional changes in market rate/price, volatility or correlation in the fair value of trading portfolios.
iii) Factor Sensitivity
Factor sensitivity is a measurement for monitoring the cross-product exposures within each risk type, including but not limited to foreign exchange, interest rate and equity price.
1. Interest Rate Risk
Interest rate risk, mostly arising from bonds and interest rate derivatives, is measured in different yield curves and currencies. PVBP, the change in fair value as the yield curves parallel shifts up by 0.01% (1bp), is used to measure interest rate risk exposures.
PVBP for the trading portfolio is illustrated as follow, and for PVBP for the non-trading one, please refer to (d) sensitivity analysis.
Unit：In Thousands of New Taiwan Dollars
June 30, December June 30, Yield curve parallel shift up by 1 b.p. Currency 2019 31, 2018 2018 CNY $ (275) (776) (1,527) EUR (26) (7) (18) HKD 49 (160) (9) JPY 245 (14) (7) NTD (575) (803) (1,027) USD (7,971) (1,318) (1,458) Others (434) (188) (161)
(Continued) 174
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2. Foreign Exchange Risk
Foreign exchange risk, mostly arising from spots, FX derivatives and other positions denominated in foreign currency, is measured in different currencies or currency pairs. FX delta, the change in net present value as the foreign exchange rate moves up by one unit, 1%, is used to measure foreign exchange risk exposures.
FX delta for the trading portfolio is illustrated as follow, and for FX delta for the non-trading one, please refer to (d) sensitivity analysis.
Unit：In Thousands of New Taiwan Dollars
June 30, December June 30, Underlying currency appreciate by 1% Currency 2019 31, 2018 2018 AUD $ (509) 124 4,433 CNY 9,044 16,878 (13,513) EUR 2,153 2,717 1,040 GBP (1,110) (1,516) (1,671) HKD (619) (3,631) (7,993) JPY (1,053) (553) (3,373) KRW (281) (86) 165 USD (14,528) (21,585) 53,844 Others 4,758 (845) 2,023
3. Equity Price Risk
Equity price risk, mostly arising from stocks and related derivatives, is measured in equity delta, the change in fair value as the underlying stock price or index price moves up by 1%. Equity delta for the trading portfolio is illustrated as follow, and for equity delta for the non-trading one, please refer to (d) sensitivity analysis. Unit: In Thousands of New Taiwan Dollars
Country/ June 30, December June 30, Commodity 2019 31, 2018 2018 Equity factor sensitivity Stock price upward movement by 1% Taiwan $ 8,783 30,128 64,895 US 414 106,756 131,100 HK - - 627 China 9,153 7,593 10,620 Japan - 14,744 - Others 59 5,594 62,558 Sensitivity of commodity risk Commodity price upward movement by 1% Crude Oil 553 - - Commodity price upward movement by 1% Gold 181 (53) (22) Sensitivity of credit risk premium Credit spread upward shift by 0.01% (370) (139) (1,685)
(Continued) 175
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
d) Sensitivity analysis
Sensitivity analysis of risk factors of the Company and subsidiaries’ non-trading purpose investment portfolio is summarized as follows:
June 30, 2019
Risk Items Movement Amount
Profit and Loss Equity
Interest Rate Risk Interest Rate Curve shift up by 1 bp $ 82,550 (310,011) Interest Rate Curve shift down by 1 bp (82,550) 310,011
Foreign Exchange Rate Risk Foreign Currency appreciate by 1% against NTD 1,782,354 840,820 Foreign Currency depreciate by 1% against NTD (1,782,354) (840,820)
Equity Price Risk Equity price appreciate by 1% 75,015 2,710,647 Equity price depreciate by 1% (75,015) (2,710,647)
December 31, 2018
Risk Items Movement Amount
Profit and Loss Equity
Interest Rate Risk Interest Rate Curve shift up by 1 bp $ (1,187) (221,266) Interest Rate Curve shift down by 1 bp 1,187 221,266
Foreign Exchange Rate Risk Foreign Currency appreciate by 1% against NTD 1,297,266 720,421 Foreign Currency depreciate by 1% against NTD (1,297,266) (720,421)
Equity Price Risk Equity price appreciate by 1% 245,674 1,929,801 Equity price depreciate by 1% (245,674) (1,929,801)
June 30, 2018
Risk Items Movement Amount
Profit and Loss Equity
Interest Rate Risk Interest Rate Curve shift up by 1 bp $ (125) (183,848) Interest Rate Curve shift down by 1 bp 125 183,848
Foreign Exchange Rate Risk Foreign Currency appreciate by 1% against NTD 1,534,231 923,997 Foreign Currency depreciate by 1% against NTD (1,534,231) (923,997)
Equity Price Risk Equity price appreciate by 1% 367,155 1,529,220 Equity price depreciate by 1% (367,155) (1,529,220)
(Continued) 176
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Note: For fair value hedges or hedges of a net investment in a foreign operation, changes in profit and loss would offset each other in hedge duration, leading to little influence on the Company and subsidiaries’ overall profit and loss, and hence, were not incorporated in the above aggregate positions.
e) Foreign exchange rate gap information
According to IFRS 7 “Financial Instruments” 34(a), an entity shall disclose summarized quantitative data about its exposure to that risk at the end of the reporting period. Significant foreign exchange rate risk exposure was as follows:
June 30, 2019 Foreign currency Spot rate NTD amount Financial assets Monetary items JPY $ 2,595,563,853 0.2887 749,339,232 USD 64,210,366 31.0720 1,995,144,445 CNY 46,311,156 4.5234 209,482,027 AUD 3,834,704 21.7970 83,585,049 HKD 13,225,587 3.9794 52,629,901 Non-monetary items JPY 17,106,402 0.2887 4,938,619 USD 2,043,260 31.0720 63,488,210 CNY 1,765,321 4.5234 7,985,090 HKD 1,834,127 3.9794 7,298,728 EUR 99,774 35.3817 3,530,180 Investments under equity method JPY 922,031 0.2887 266,190 CNY 296,618 4.5234 1,341,720 THB 17,874,194 1.0122 18,092,259 Financial liabilities Monetary items JPY $ 2,509,800,609 0.2887 724,579,436 USD 36,001,234 31.0720 1,118,630,357 CNY 31,992,267 4.5234 144,713,822 AUD 1,280,825 21.7970 27,918,143 HKD 7,707,809 3.9794 30,672,453
(Continued) 177
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Foreign currency Spot rate NTD amount Financial assets Monetary items JPY $ 2,559,347,254 0.2783 737,904,675 USD 28,570,412 30.7330 863,735,999 CNY 31,004,300 4.4854 130,840,200 CAD 2,107,217 22.5895 46,083,176 HKD 45,253,593 3.9239 1,044,172,180 Non-monetary items JPY 7,982,514 0.2783 9,103,705 USD 2,249,324 30.7330 9,707,418 CNY 17,547,815 4.4854 5,918,245 HKD 2,230,723 3.9239 67,316,277 AUD 69,082 21.6791 2,433,071 Investments under equity method JPY 1,003,444 0.2783 279,258 CNY 285,542 4.4854 1,280,772 THB 17,406,613 0.9491 16,520,616 Financial liabilities Monetary items JPY 2,518,835,211 0.2783 700,991,840 USD 35,230,404 30.7330 1,082,651,263 CNY 26,043,392 4.4854 116,815,030 HKD 7,348,418 3.9239 31,213,009 AUD 1,716,293 21.6791 37,207,688
(Continued) 178
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Foreign currency Spot rate NTD amount Financial assets Monetary items JPY $ 2,619,856,762 0.2756 722,032,523 USD 57,911,764 30.5000 1,766,308,817 CNY 26,869,987 4.6034 123,677,795 AUD 2,990,536 22.5304 67,377,981 HKD 15,138,269 3.8865 58,834,890 Non-monetary items JPY 39,474,811 0.2756 4,698,908 USD 1,816,399 30.5000 2,163,482 CNY 2,190,480 4.6034 1,157 HKD 2,130,882 3.8865 25,513 THB 17,255,600 0.9201 15,876,878 Investments under equity method JPY 895,187 0.2756 246,714 CNY 128,092 4.6034 589,659 THB 17,255,600 0.9201 15,876,878 Financial liabilities Monetary items JPY $ 2,541,378,403 0.2756 700,403,888 USD 26,794,730 30.5000 817,239,288 CNY 21,004,849 4.6034 96,693,721 HKD 9,974,776 3.8865 38,766,964 AUD 1,598,865 22.5304 36,023,068
Note: Foreign currency amount of overseas subsidiaries is disclosed by their functional currency.
(Continued) 179
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
4) Asset and Liability Management Mechanism
a) Description and origin of ALM mismatch risk
ALM mismatch risk refers to the risk that the earnings or capital that is adversely affected by different sensitivity of assets and liabilities to interest rate change, such as mismatches of reset timing and amount of asset and liability, varying magnitude of changes in short-term and long-term interest rates, and various interest rate indexes to which asset and liability are linked, or embedded options.
b) Management procedures of ALM mismatch risk
Based on the Company’s Financial Risk Management Policy, the Company and subsidiaries set robust management procedures and clearly define authorities and responsibilities, so that the Company and subsidiaries keep their finances and operations sound.
The appropriate and consistent measurement methodologies are adopted in accordance with the business characteristics and risk source. The measurement results are embedded to management procedures and become the reference when monitoring and reporting risk status.
The Company and subsidiaries can adjust the structures of assets and liabilities by means of derivatives. Prior to executing an external hedge, the hedge plans with specified hedged position, profit and loss analysis and detailed scheme are prepared and authorized. After executing hedge deals, the hedge effectiveness are periodically reviewed.
c) Measurement of ALM mismatch risk
The measurement of ALM mismatch risk includes:
i) Re-pricing Gap Report: This report measures the re-pricing gap between asset and liability by time buckets in order to understand interest rate mismatch.
ii) Interest rate sensitivity: This measures the impact of 1 basis point change in interest rate on net interest income (NII) and economic value of equity (EVE).
iii) Duration: This calculates the weighted-average term to maturity of rate- sensitive assets and liabilities.
iv) Stress Test：This evaluates the impact of a significant change in interest rate on economic value of equity.
The Company and subsidiaries should adopt appropriate measurements and apply proper management procedures by taking their respective characteristics/ complexity of assets and liabilities into account.
(Continued) 180
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
d) Disclosure items required by the “Regulations Governing The Preparation of Financial Reports by Financial Holding Company”
i) The Company’s subsidiary CTBC Bank Co., Ltd.’ s sensitivity analysis of interest rate for assets and liabilities. (New Taiwan Dollars)
June 30, 2019
Unit：In Thousands of New Taiwan Dollars，%
1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 1,626,748,642 139,464,396 157,281,275 130,866,306 2,054,360,619 assets Interest rate sensitive 576,449,111 1,071,154,414 168,634,565 60,514,811 1,876,752,901 liabilities Interest rate sensitivity 1,050,299,531 (931,690,018) (11,353,290) 70,351,495 177,607,718 gap Net worth 298,401,071 Ratio of interest rate sensitive assets to liabilities (%) 109.46 Ratio of interest rate sensitivity gap to net worth (%) 59.52
December 31, 2018
Unit：In Thousands of New Taiwan Dollars，%
1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 1,612,249,160 177,418,209 72,985,844 122,464,823 1,985,118,036 assets Interest rate sensitive 525,842,160 1,009,011,367 128,570,396 61,684,519 1,725,108,442 liabilities Interest rate sensitivity 1,086,407,000 (831,593,158) (55,584,552) 60,780,304 260,009,594 gap Net worth 295,738,873 Ratio of interest rate sensitive assets to liabilities (%) 115.07 Ratio of interest rate sensitivity gap to net worth (%) 87.92
June 30, 2018
Unit：In Thousands of New Taiwan Dollars，%
1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 1,532,292,512 137,140,733 143,915,044 125,825,814 1,939,174,103 assets Interest rate sensitive 503,061,581 971,225,558 127,087,634 63,557,470 1,664,932,243 liabilities Interest rate sensitivity 1,029,230,931 (834,084,825) 16,827,410 62,268,344 274,241,860 gap Net worth 280,286,781 Ratio of interest rate sensitive assets to liabilities (%) 116.47 Ratio of interest rate sensitivity gap to net worth (%) 97.84
(Continued) 181
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Note 1: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. are denominated in NTD, excluding contingent assets and liabilities.
Note 2: Interest rate sensitive assets and liabilities are the interest- earning asset or interest-bearing liabilities whose revenue or costs are affected by interest rate change.
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 (denominated in NTD).
ii) The Company’s subsidiary CTBC Bank Co., Ltd’s sensitivity analysis of the interest rate for assets and liabilities (U.S. Dollars)
June 30, 2019
Unit：In Thousands of U.S. Dollars, %
1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 12,620,998 517,830 179,984 5,474,878 18,793,690 assets Interest rate sensitive 8,857,371 11,850,997 2,421,125 1,450,071 24,579,564 liabilities Interest rate sensitivity 3,763,627 (11,333,167) (2,241,141) 4,024,807 (5,785,874) gap Net worth 9,603,536 Ratio of interest rate sensitive assets to liabilities (%) 76.46 Ratio of interest rate sensitivity gap to net worth (%) (60.25)
December 31, 2018
Unit：In Thousands of U.S. Dollars, %
1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 12,784,448 569,636 175,761 3,519,510 17,049,355 assets Interest rate sensitive 9,504,382 11,086,921 1,543,267 1,517,407 23,651,977 liabilities Interest rate sensitivity 3,280,066 (10,517,285) (1,367,506) 2,002,103 (6,602,622) gap Net worth 9,622,844 Ratio of interest rate sensitive assets to liabilities (%) 72.08 Ratio of interest rate sensitivity gap to net worth (%) (68.61)
(Continued) 182
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018
Unit：In Thousands of U.S. Dollars, %
1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 12,423,528 673,685 170,589 2,983,206 16,251,008 assets Interest rate sensitive 8,962,636 12,019,779 1,600,341 1,453,845 24,036,601 liabilities Interest rate sensitivity 3,460,892 (11,346,094) (1,429,752) 1,529,361 (7,785,593) gap Net worth 9,189,731 Ratio of interest rate sensitive assets to liabilities (%) 67.61 Ratio of interest rate sensitivity gap to net worth (%) (84.72)
Note 1: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. are denominated in U.S dollars, excluding contingent assets and liabilities.
Note 2: Interest rate sensitive assets and liabilities are the interest- earning asset or interest-bearing liabilities whose revenue or costs are affected by interest rate change.
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 (denominated in U.S. dollars.)
(Continued) 183
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(v) Transferred financial assets that are not fully derecognized
The transactions, relating to transferred financial assets not qualifying for full derecognition, the Company and subsidiaries conduct during daily operation mostly involve securities lending in accordance to repurchase agreements. Since the right to receive contractual cash flow has been transferred to others and the Company and subsidiaries’obligation to repurchase the transferred assets for a fixed price at a future date is recognized under liability, the said transferred assets are not fully derecognized.
June 30, 2019 Carrying Carrying amount of Fair value of amount of associated Fair value of associated transferred financial transferred financial Types of financial assets financial assets liabilities financial assets liabilities Net fair value Financial assets measured at fair value through profit or loss Repurchase agreements $ 14,661,289 14,588,871 14,661,289 14,585,871 72,418 Financial assets measured at fair value through other comprehensive income Repurchase agreements 72,541,828 69,479,937 72,541,828 69,479,937 3,061,891 Securities lending agreements 13,404,231 13,166,574 13,404,231 13,166,574 237,657 Financial assets at amortised cost Repurchase agreements 33,453,604 33,998,869 34,472,769 33,998,869 473,900
December 31, 2018 Carrying Carrying amount of Fair value of amount of associated Fair value of associated transferred financial transferred financial Types of financial assets financial assets liabilities financial assets liabilities Net fair value Financial assets measured at fair value through profit or loss Repurchase agreements $ 13,968,788 13,740,884 13,968,788 13,740,884 227,904 Financial assets measured at fair value through other comprehensive income Repurchase agreements 31,431,550 29,953,261 31,431,550 29,953,261 1,478,289 Securities lending agreements 14,733,891 19,337,702 14,733,891 19,337,702 (4,603,811) Financial assets at amortised cost Repurchase agreements 27,878,851 26,830,060 27,550,994 26,830,060 720,934
June 30, 2018 Carrying Carrying amount of Fair value of amount of associated Fair value of associated transferred financial transferred financial Types of financial assets financial assets liabilities financial assets liabilities Net fair value Financial assets measured at fair value through profit or loss Repurchase agreements $ 8,460,737 8,324,284 8,460,737 8,324,284 136,453 Financial assets measured at fair value through other comprehensive income Repurchase agreements 7,229,147 7,055,457 7,229,147 7,055,457 173,690 Securities lending agreements 13,570,843 13,425,161 13,570,843 13,425,161 145,682 Financial assets at amortised cost Repurchase agreements 41,454,214 40,893,959 42,001,825 40,893,959 1,107,866
(Continued) 184
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(vi) Offsetting financial assets and financial liabilities
The Company and subsidiaries have an exercisable master netting arrangement or similar agreement in place with counterparties. When both parties reach a consensus regarding net settlement, the aforesaid exercisable master netting arrangement or similar agreement can be net settled by offsetting financial assets and financial liabilities. If not, the transaction can be settled at total amount. In the event of default involving one of the parties, the other party can have the transaction net settled.
The following tables present the aforementioned offsetting financial assets and financial liabilities.
June 30, 2019 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amount Net amount of Amount not off set in the balance Gross amount of financial financial assets sheet (d) of recognized liabilities offset presented in Financial financial assets in the balance the balance instruments Cash collateral Net amount (a) sheet (b) sheet (c)=(a)-(b) (Note) received (e)=(c)-(d) Derivative financial assets $ 61,649,051 - 61,649,051 34,227,195 7,463,089 19,958,767
June 30, 2019 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Net amount of Gross amount financial Amount not off set in the balance Gross amount of financial liabilities sheet (d) of recognized assets offset in presented in Financial financial the balance the balance instruments Cash collateral Net amount liabilities (a) sheet (b) sheet (c)=(a)-(b) (Note) pledged (e)=(c)-(d) Derivative financial liabilities $ 79,974,064 - 79,974,064 34,021,789 8,997,476 36,954,799 Securities lending agreements 13,166,574 - 13,166,574 13,166,574 - - Total $ 93,140,638 - 93,140,638 47,188,363 8,997,476 36,954,799
December 31, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amount Net amount of Amount not off set in the balance Gross amount of financial financial assets sheet (d) of recognized liabilities offset presented in Financial financial assets in the balance the balance instruments Cash collateral Net amount (a) sheet (b) sheet (c)=(a)-(b) (Note) received (e)=(c)-(d) Derivative financial assets $ 42,550,883 - 42,550,883 27,542,424 3,774,671 11,233,788
December 31, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Net amount of Gross amount financial Amount not off set in the balance Gross amount of financial liabilities sheet (d) of recognized assets offset in presented in Financial financial the balance the balance instruments Cash collateral Net amount liabilities (a) sheet (b) sheet (c)=(a)-(b) (Note) pledged (e)=(c)-(d) Derivative financial liabilities $ 68,825,337 - 68,825,337 27,233,648 5,820,173 35,771,516 Securities lending agreements 19,337,702 - 19,337,702 14,733,891 - 4,603,811 Total $ 88,163,039 - 88,163,039 41,967,539 5,820,173 40,375,327
June 30, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amount Net amount of Amount not off set in the balance Gross amount of financial financial assets sheet (d) of recognized liabilities offset presented in Financial financial assets in the balance the balance instruments Cash collateral Net amount (a) sheet (b) sheet (c)=(a)-(b) (Note) received (e)=(c)-(d) Derivative financial assets $ 56,265,079 - 56,265,079 33,861,208 5,307,569 17,096,302
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Net amount of Gross amount financial Amount not off set in the balance Gross amount of financial liabilities sheet (d) of recognized assets offset in presented in Financial financial the balance the balance instruments Cash collateral Net amount liabilities (a) sheet (b) sheet (c)=(a)-(b) (Note) pledged (e)=(c)-(d) Derivative financial liabilities $ 80,062,192 - 80,062,192 33,407,283 11,126,378 35,528,531 Securities lending agreements 13,425,161 - 13,425,161 13,425,161 - - Securities sold under repurchase 10,789,077 - 10,789,077 - - 10,789,077 agreement Total $ 104,276,430 - 104,276,430 46,832,444 11,126,378 46,317,608
Note：Master netting arrangements and non-cash financial collaterals are included.
(vii) Capital management
1) Capital management goal and procedure
The goal of the Company’s capital management is to meet the regulatory requirement for different businesses on capital adequacy of the Company and subsidiaries and the organization’ s target of maximizing returns for shareholders by following capital management procedures and raising return on capital.
The Company’s group capital planning accounts for short-term and long-term capital requirements. The Company makes yearly capital planning based on operation planning, current and forecast future capital requirement, and promised returns for shareholders. The Company also makes back-up plan to meet capital requirement not included in the planning. The Company also regularly conducts stress tests and scenario simulation analyses to calculate different capital ratios, fully taking into account of external conditions and other factors, including potential risks, changes in financial markets, and other events impacting risk taking capabilities, to make sure that the Company can maintain adequate capital in case of detrimental events and huge market changes.
Planning for yearly earnings distribution follows the principles and ratios mandated by articles of incorporation and dividend policy, and are put into effect after being approved by the board of directors and shareholders’ meeting. The Company’s group capital adequacy, potential investment needs, and dividend amount of previous years are taken into account. The needs to maintain proper financial ratios and satisfy capital requirement of the parent company are also preconditions of the distribution.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Definition and regulation
The regulator of the Company is FSC of the Republic of China. FSC issued “Regulations Governing the Consolidated Capital Adequacy of Financial Holding Companies” and monitors and manages the Company’s group capital status on a consolidated basis. Subsidiaries in different businesses should also follow capital adequacy rules announced by regulators of their businesses.
The Company’s group capital adequacy ratio should not be lower than 100%. The group capital adequacy ratio refers to the group's net eligible capital divided by the group’ s statutory capital requirement. The group’ s net eligible capital and group’ s statutory capital requirement refers to the combined total of the eligible capital of a financial holding company and those of its subsidiaries calculated based on the financial holding company’s shareholding in the subsidiary less the amounts of legal deductions.
3) Eligible capital
The Company’s eligible capital refers to the sum of the common stocks, preferred stocks, subordinated debts, capital collected in advance, capital surplus, retained earnings, and other equity less the sum of goodwill, other intangible assets, deferred assets, and treasury stocks. Statutory capital requirement refers to total assets less cash (including cash equivalents), tax receivable (including tax refund receivable), prepaid taxes, the book value of the use of short-term funds set forth in Paragraph 1, Article 39 of Financial Holding Company Act, goodwill, other intangible assets, and deferred assets.
To maintain the quality of financial holding companies’ capital, the regulator also has rules in place regarding the terms and upper limit of hybrid capital instrument, preferred stocks, and subordinated debts that can be included in eligible capital.
4) Capital adequacy ratio of CTBC Group
Unit：In Thousands of New Taiwan Dollars，%
June 30, 2019 Items Percentage of Group’s Net Group’s Statutory Company Ownership Eligible Capital Capital Requirement CTBC Financial Holding Co., Ltd. 100.00 % $ 373,597,941 420,984,579 CTBC Bank Co., Ltd. 100.00 % 255,234,934 193,061,553 CTBC Securities Co., Ltd. 100.00 % 6,334,999 2,461,532 Taiwan Life Insurance Co., Ltd. 100.00 % 108,426,303 67,305,236 CTBC Venture Capital Co., Ltd. 100.00 % 3,864,322 2,376,216 CTBC Security Co., Ltd. 100.00 % 56,726 49,164 CTBC Asset Management Co., Ltd. 100.00 % 5,337,506 3,829,958 Taiwan Lottery Co., Ltd. 100.00 % 964,640 606,254 CTBC Investments Co., Ltd. 100.00 % 489,819 303,922 Deduction (440,736,550) (420,054,051) Subtotal 313,570,640 270,924,363 Capital adequacy ratio of CTBC Group 115.74 %
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Unit：In Thousands of New Taiwan Dollars，%
December 31, 2018 Items Percentage of Group’s Net Group’s Statutory Company Ownership Eligible Capital Capital Requirement CTBC Financial Holding Co., Ltd. 100.00 % $ 316,503,251 373,027,105 CTBC Bank Co., Ltd. 100.00 % 263,317,969 171,536,546 CTBC Securities Co., Ltd. 100.00 % 6,352,540 1,570,641 Taiwan Life Insurance Co., Ltd. 100.00 % 89,049,027 66,528,936 CTBC Venture Capital Co., Ltd. 100.00 % 3,612,411 2,136,024 CTBC Security Co., Ltd. 100.00 % 58,965 56,910 CTBC Asset Management Co., Ltd. 100.00 % 5,432,932 3,832,092 Taiwan Lottery Co., Ltd. 100.00 % 763,303 517,803 CTBC Investments Co., Ltd. 100.00 % 482,477 309,104 Deduction (394,177,506) (372,444,351) Subtotal 291,395,369 247,070,810 Capital adequacy ratio of CTBC Group 117.94 %
Unit：In Thousands of New Taiwan Dollars，%
June 30, 2018 Items Percentage of Group’s Net Group’s Statutory Company Ownership Eligible Capital Capital Requirement CTBC Financial Holding Co., Ltd. 100.00 % $ 314,114,659 369,717,532 CTBC Bank Co., Ltd. 100.00 % 252,213,324 162,558,411 CTBC Securities Co., Ltd. 99.92 % 6,706,247 2,059,068 Taiwan Life Insurance Co., Ltd. 100.00 % 91,052,587 56,928,102 CTBC Venture Capital Co., Ltd. 100.00 % 3,877,805 2,184,696 CTBC Security Co., Ltd. 100.00 % 55,470 51,624 CTBC Asset Management Co., Ltd. 100.00 % 5,447,026 3,808,942 Taiwan Lottery Co., Ltd. 100.00 % 811,144 509,505 CTBC Investments Co., Ltd. 100.00 % 498,795 314,602 Deduction (391,412,523) (369,116,651) Subtotal 283,364,534 229,015,831 Capital adequacy ratio of CTBC Group 123.73 %
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
5) CTBC Financial Holding Co., Ltd.’s eligible capital
December 31, Items June 30, 2019 2018 June 30, 2018 Common stock 194,969,896 194,969,896 194,969,896 Capital surplus 58,686,089 50,368,539 50,368,539 Legal reserve 27,793,018 24,189,775 24,189,775 Special reserve 50,412,813 29,719,062 29,719,062 Accumulated profit or loss 24,175,372 48,945,112 35,099,203 Equity adjustments 1,613,582 (36,453,220) (25,000,524) Preferred stock meet under Net 4,999,900 3,333,300 3,333,300 additional Tier 1 Capital of the Bank Subordinated debentures 10,960,000 1,440,000 1,440,000 Less: Goodwill (6,844) (3,328) (1,404) Less: Deferred assets (5,885) (5,885) (3,188) Total eligible capital 373,597,941 316,503,251 314,114,659
(aw) Structured entities that are not included in consolidated financial reports
(i) The table below presents the types of structured entities that the Company and subsidiaries do not include in consolidated financial reports but in which they hold an interest.
Interests held by the Company and The types of structured entities Nature and purpose subsidiaries Asset-backed Securities Securitizing financial or non-financial assets Investing or lending in securities issued by and issuing them to raise funds. these entities. Private funds Raising funds to create investment Investing in funds issued by these entities. opportunities in a variety of assets. Special purpose entities Set up for participating in the program of Investing in stocks issued by the entities. “Kaohsiung City Hofa industrial park development, sell (bid) and management”, and for conducting the project of “Taichung Intercontinental Baseball Stadium extension, renovation and operation”
(ii) The scales of structured entities not included in consolidated financial reports were as follows.
December 31, June 30, 2019 2018 June 30, 2018 Asset-backed securities $ 174,792,357,496 167,831,370,778 166,006,932,170 Private funds 8,075,366,825 5,897,891,559 9,333,313,303 Special purpose entities 15,438,126 15,517,831 16,245,510
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) The carrying amounts of interests held by the Company and subsidiaries in these structured entities were as follows.
December 31, June 30, 2019 2018 June 30, 2018 Assets held by the Company and subsidiaries Financial assets measured at fair value $ 24,867,402 19,167,394 12,521,044 through profit or loss Financial assets measured at fair value 42,806,093 29,991,382 28,755,130 through other comprehensive income Loan—net - 900,940 1,024,506 Financial assets at amortised cost 56,047,831 25,061,457 26,607,952 Investments under equity method—net 13,898,537 13,794,992 14,707,299 Total assets held by the Company and $ 137,619,863 88,916,165 83,615,931 subsidiaries
December 31, June 30, 2019 2018 June 30, 2018 Liabilities held by the Company and subsidiaries Deposits and remittances $ - - 4,014
The maximum amount of risk exposures the Company and subsidiaries endure to a loss incurred from special purpose entities that are not included in consolidated financial reports is the carrying amount of interests held by the Company and subsidiaries.
(iv) As of June 30, 2019, December 31 and June 30, 2018, the Company and subsidiaries have not provided any financial support to their special purpose entities that are not included in consolidated financial reports.
(Continued) 190
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ax) Nature and scope of insurance contract risk
(i) Life insurance business
1) Evaluation and management of the scope of insurance risks from a corporate wide point of view
To properly manage the risks in different stages such as product design, pricing, issuance, policy approval, and payment for damage, the subsidiary CTBC Life Insurance Co., Ltd. has management mechanism as follows:
a) Management of risks associated with product design and pricing
Management of risks associated with product design and pricing result from inappropriateness, inconsistency, or unexpected changes relating to product design, insurance covenants, and pricing sources. The subsidiary Taiwan Life Insurance Co., Ltd. devises an “insurance product design standard process” before selling a product to make sure of the risk control before and after selling a product, to ensure compliance with regulations, and to strengthen internal control. The subsidiary Taiwan Life Insurance Co., Ltd. also adopts profit tests and sensitivity analyses to measure the risks for different product types and natures, and, at the same time, takes responsibility for auditing an insurance product. After selling a product, the relevant department will propose an inspection after selling report in the biannual insurance product management conference.
b) Management of risks associated with insurance approval
Management of risks associated with insurance approval refer to unexpected losses resulting from product promotion and approval, and related expenses. In order to control those risks, the subsidiary Taiwan Life Insurance Co., Ltd. puts in place standard approval procedures, guidelines, and manuals.
c) Management of risks associated with reinsurance
Management of risks associated with reinsurance result from the failure to arrange appropriate reinsurance or the incapacity of the reinsurer to fulfill its obligation which makes it impossible for the premium, payment for damage, and other expenses to be recovered. The subsidiary Taiwan Life Insurance Co., Ltd. has put in place a management plan for reinsurance risks which covers the management of retained risks, reinsured risks, and risks from selling reinsurance to other insurance companies. The subsidiary Taiwan Life Insurance Co., Ltd. will then evaluate its retention risk limits based on classification of risks and its ability to cover those risks. Also, it devises a set of procedures and criteria on the choice of reinsurers, and, after purchasing the reinsurance, monitors the credit ratings of reinsurers to avoid a default on the part of reinsurers.
(Continued) 191
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
d) Management of risks associated with catastrophe
Management of risks associated with catastrophe are associated with risk events that are of a magnitude significant enough to cause multiple losses for hazard units of a single or several sorts of insurance, and thus could affect the credit ratings and solvency of an insurance company. The subsidiary Taiwan Life Insurance Co., Ltd. measures and manages the catastrophe risks by means of catastrophic loss records to estimate possible amount of losses in cases of recurrence.
e) Management of risks associated with payment for damage
Management of risks associated with payment for damage result from the failure to properly process damage claims by the insured. The subsidiary Taiwan Life Insurance Co., Ltd. puts in place a standard procedure to reduce the risks.
f) Management of risks associated with reserves
Management of risks associated with reserves result from sales’ underestimate of liability, which renders the reserve provision insufficient for future obligation risks. The subsidiary Taiwan Life Insurance Co., Ltd. puts in place a standard procedure for reserve provision and conducts regular sufficiency analysis to reduce the risks.
2) Limits on and transfer of risk exposures, and prevention of inappropriate risk concentration
The subsidiary Taiwan Life Insurance Co., Ltd. puts in place a management plan for reinsurance risks which covers the management of retained risks, reinsured risks, risks from selling reinsurance to other insurance companies, and reinsurance risks within the Company and subsidiaries. The subsidiary Taiwan Life Insurance Co., Ltd. will then evaluate its retention risk limits based on classification of risks and its ability to cover those risks. Also, it devises a set of procedures and criteria on the choice of reinsurers, and, after purchasing the reinsurance, periodically monitors the credit ratings of reinsurers to avoid a default on the part of reinsurers and maintain the safety of the operation.
3) Asset and liability management
a) The Company’s subsidiary Taiwan Life Insurance Co., Ltd. has its own asset/liability management committee, who is responsible for reviewing and approving the overall investment and liability management decisions.
b) In compliance with asset and liability matching regulations, the match of asset and liability is routinely reviewed with its risk limit monitored to ensure alignment with the Company’s subsidiary Taiwan Life Insurance Co., Ltd.’ s objectives. If risk levels exceed the tolerance or in special circumstances, prompt mitigation plans are escalated to senior levels, followed by communications with the people in charge to propose improvement plans.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
4) Administration and control policies on additional debts or equity commitments required to undertake when acquiring or providing assets under certain circumstances.
To comply with regulations and strengthen capital base, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. routinely assesses its capital adequacy. If it falls below minimum capital requirements, instant alerts with required timeframe and projected amount will be reported to senior levels, followed by a capital strengthening proposal to fulfill regulatory requirements.
5) Information on insurance risk
a) Sensitivity of insurance risk-insurance contracts and financial instruments with a discretionary feature
For the six months ended June 30, 2019 Change Change in income Change in in assumption before tax stockholders’ equity Mortality/Morbidity Increase 5 % Decrease 145,417 Decrease 116,334 Rate of return Decrease 0.1 % Decrease 841,776 Decrease 673,420 Expense (fixed expense) Increase 5 % Decrease 413,110 Decrease 330,488 Decrement and lapse rate Increase 5 % Increase 33,980 Increase 27,184
For the six months ended June 30, 2018 Change Change in income Change in in assumption before tax stockholders’ equity Mortality/Morbidity Increase 5 % Decrease 131,414 Decrease 105,131 Rate of return Decrease 0.1 % Decrease 747,627 Decrease 598,102 Expense (fixed expense) Increase 5 % Decrease 431,551 Decrease 345,241 Decrement and lapse rate Increase 5 % Increase 31,238 Increase 24,990
i) The above profit or loss changes are the influence of assumptions on the Company’s subsidiary Taiwan Life Insurance Co., Ltd.’s pre-tax income for the six months ended June 30, 2019 and 2018. The influence on stockholders’ equity assumes that income tax is calculated at 20% of pre-tax income.
ii) The sensitivity test does not take how market changes affect operations into account.
iii) The underlying assumption is that the changes in each factor are not correlated.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
b) Concentration of insurance risks
The subsidiary Taiwan Life Insurance Co., Ltd. only operates in Taiwan and thus incurs geographical risk concentration. The subsidiary Taiwan Life Insurance Co., Ltd. reduces risk concentration via reinsurance contracts. To reduce the degree of risk concentration, the subsidiary Taiwan Life Insurance Co., Ltd. regularly reviews its profit and loss on claims, monitors risks, and evaluates the need to make adjustments to catastrophe insurance and the amount of self-retention of reinsurance.
According to the “Regulations Governing Insurance Enterprises for Setting Aside Various Reserves ” starting from January 1, 2011, the subsidiary Taiwan Life Insurance Co., Ltd. should set aside a special reserve after deducting income tax under stockholders’ equity each year for significant incidents and catastrophe. The special reserve for significant incidents is the provision for huge indemnity caused by future significant accidents. The special reserve for catastrophe is the provision for abnormal changes in loss ratios for each line of insurance and claims. After deducting income tax pursuant to IAS 12, the special reserves recognized under liabilities before December 31, 2012 shall be recognized under stockholders’ equity, starting from January 1, 2013, unless otherwise specified by the competent authority for monitoring purposes.
c) Claim development trend
i) Claims development from direct business
As of June 30, 2019, December 31 and June 30, 2018, the accumulated compensation amount which was reconciled to the balance sheet over the past years were as follows:
June 30, 2019 Development year Accident Claims year 1 2 3 4 5 6 7 8 reserve From July 1, 2010 1,596,712 1,693,038 1,705,024 1,718,450 1,725,638 1,727,676 1,728,385 1,729,334 752 to June 30, 2011 From July 1, 2011 1,603,272 1,698,546 1,744,370 1,747,324 1,747,462 1,749,847 1,750,955 1,752,138 1,183 to June 30, 2012 From July 1, 2012 1,669,391 1,777,263 1,798,352 1,802,624 1,831,136 1,888,384 1,889,644 1,890,905 2,521 to June 30, 2013 From July 1, 2013 1,777,731 1,919,107 1,937,790 1,941,994 1,947,777 1,950,351 1,951,766 1,953,184 5,407 to June 30, 2014 From July 1, 2014 1,847,778 1,982,265 1,998,893 2,007,130 2,018,496 2,021,174 2,022,743 2,024,315 17,185 to June 30, 2015 From July 1, 2015 2,039,293 2,214,109 2,277,342 2,291,147 2,304,915 2,308,118 2,309,956 2,311,796 34,454 to June 30, 2016 From July 1, 2016 2,097,819 2,610,558 2,642,343 2,657,808 2,673,198 2,676,864 2,679,028 2,681,196 70,638 to June 30, 2017 From July 1, 2017 2,625,202 2,856,177 288,736 2,901,861 2,916,274 2,920,141 2,922,697 2,925,257 307,055 to June 30, 2018 Not reported and not paid claim reserve 439,195 Add: Reported but not paid claims 767,197 Provision for not paid claims per other statutory requirement 226 Claims reserve 1,206,618
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Development year Accident Claims year 1 2 3 4 5 6 7 8 reserve 2011 1,604,776 1,658,047 1,671,486 1,677,554 1,676,058 1,678,655 1,680,193 1,682,627 - 2012 1,580,537 1,674,595 1,726,325 1,734,986 1,742,530 1,745,563 1,746,626 1,748,170 1,544 2013 1,654,500 1,745,064 1,765,499 1,767,906 1,779,614 1,781,532 1,783,280 1,784,958 3,426 2014 1,727,002 1,840,108 1,857,685 1,882,480 1,909,745 1,912,603 1,914,532 1,916,386 6,641 2015 1,851,932 1,992,332 2,001,600 2,014,455 2,020,256 2,023,238 2,025,395 2,027,401 12,946 2016 1,863,529 2,023,099 2,058,575 2,069,328 2,075,528 2,078,766 2,081,113 2,083,295 24,720 2017 1,951,241 2,389,001 2,413,082 2,425,734 2,433,011 2,436,866 2,439,676 2,442,281 53,280 2018 2,315,656 2,459,727 2,481,823 2,493,190 2,499,905 2,503,800 2,506,784 2,509,488 200,832 Not reported and not paid claim reserve 303,389 Add: Reported but not paid claims 547,791 Provision for not paid claims per other statutory requirement 175 Claims reserve 851,355
June 30, 2018 Development year Accident Claims year 1 2 3 4 5 6 7 8 reserve From July 1, 2010 1,624,372 1,693,762 1,699,122 1,702,786 1,705,542 1,709,041 1,711,008 1,713,133 207 to June 30, 2011
From July 1, 2011 1,596,712 1,693,038 1,705,024 1,718,450 1,725,638 1,727,676 1,728,385 1,729,111 726 to June 30, 2012
From July 1, 2012 1,603,272 1,698,546 1,744,370 1,747,324 1,747,462 1,749,847 1,751,154 1,751,929 2,082 to June 30, 2013
From July 1, 2013 1,669,391 1,777,263 1,798,352 1,802,624 1,831,136 1,832,412 1,833,889 1,834,780 3,644 to June 30, 2014
From July 1, 2014 1,777,731 1,919,107 1,937,790 1,941,994 1,945,093 1,946,670 1,948,279 1,949,277 7,283 to June 30, 2015
From July 1, 2015 1,847,778 1,982,265 1,998,893 2,005,376 2,008,337 2,010,022 2,011,784 2,012,871 13,978 to June 30, 2016
From July 1, 2016 2,039,293 2,214,109 2,238,824 2,246,530 2,250,170 2,252,190 2,254,287 2,255,642 41,533 to June 30, 2017
From July 1, 2017 2,097,819 2,211,153 2,233,930 2,241,678 2,245,467 2,247,762 2,249,909 2,251,328 153,509 to June 30, 2018
Not reported and not paid claim reserve 222,962 Add: Reported but not paid claims 526,639 Provision for not paid claims per other statutory requirement 104 Claims reserve 749,705
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The above table demonstrates the development trend of claims. The vertical axis represents the year in which the claim event occurred, and the horizontal axis represents the development years. Each horizontal axis figure represents the accumulated compensation amount at the end of each year. The compensation amount refers to the claims whether they are finalized or not. The table explains how Taiwan Life Insurance Co., Ltd. estimates the compensation amount for each year over time. The scenarios and trends which affect the provision of claims reserve may change in the future; therefore, the estimated future compensation amount is not able to be determined by the claim development trend.
ii) Claims development from retained business
The Company’s subsidiary Taiwan Life Insurance Co., Ltd. for the operating benchmark are balanced and conservative, and no longer get on the reinsurance cede business, since July 2016. The relevant development trend information for non-reported insurance claims reserve loss please look at the disclosure in claims development from direct business.
The Company’s subsidiary Taiwan Life Insurance Co., Ltd. provides a claim reserve based on the expected claims payment and relevant handling fee for RBNA and IBNR claims. Such provision involves vast uncertainty, estimates and judgments; hence, it is highly complicated. Any change in estimate or judgment is regarded as a change in accounting estimate; and the amount of change is recognized as current gains or losses. Some claimants may delay notifying Taiwan Life Insurance Co., Ltd. In addition, when estimating the potential IBNR claims, past loss experience and subjective judgment are involved; therefore, it is not certain that the estimated claims reserve on the Balance sheet date will be equal to the final compensation amount. The estimate of claims reserve is based on the information currently available; however, the final result may deviate from the original estimate due to subsequent developments.
Property insurance business:
1) Objectives, policies, procedures, and methods for managing risks arising from insurance contracts
In order to achieve the risk management objective to ensure solvency, enhance long-term competitiveness, and increase the value of equity, the sub-subsidiary TLG Insurance Co., Ltd. has established the “Risk Management Policy” as the prime guiding principle to properly identify, measure, response, and control risks. Insurance risk is one of the major risks, it originates from the risk transferred by the insured after the sub-subsidiary TLG Insurance Co., Ltd. receives premiums and thereby results in contractual obligations of insurance claim payment for damage caused by unforeseeable events. The sub-subsidiary TLG Insurance Co., Ltd. established effective management mechanism for each insurance risk as follows:
(Continued) 196
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
a) Risk from product design and pricing
These risks arise from improper product design, inconsistency between contract terms and the information used in pricing, or unexpected changes. The sub- subsidiary TLG Insurance Co., Ltd. has established the loss allocation model for each homogeneous insurance risk to quantitatively measure the expected value insurance risk loss and possible losses under different confidence levels. In the meanwhile, the sub-subsidiary TLG Insurance Co., Ltd. evaluates risks under qualitative basis and describes the possibility and the degree of influence. The possible controlling procedures according to each commodity characteristics are as follows:
i) Risk-transfer strategies: Take approaches to transfer all or part of risks depending on certain circumstances.
ii) Actuarial assumptions: The adopted actuarial assumptions for setting up expense rates could add up proper safety coefficient in conformity with regulations depending on certain circumstances.
iii) After-sales experience tracking: Periodically analyzing each actuarial assumption after sales, applying profit testing or sensitivity analysis to test and adjust commodity and rate-setting.
b) Risk from insurance underwriting:
These risks arise from unexpected loss risk of business solicitation, insurance underwriting, and other operating processes. The sub-subsidiary TLG Insurance Co., Ltd. established proper management mechanism for risk from insurance underwriting as follows:
i) Established internal underwriting systems and procedures for business solicitation, underwriting policy.
ii) Provided an insurance underwriting handbook to effectively maintain quality and reduce potential risk from insurance underwriting.
iii) Set indicators for insurance underwriting risk management and report periodically to management.
c) Risk from reinsurance:
These risks result from the failure to arrange appropriate reinsurance or the incapacity of the reinsurer to fulfill its obligation which makes it impossible for the premium, payment for damage, and other expenses to be recovered. The sub- subsidiary TLG Insurance Co., Ltd. established reinsurance risk management mechanism in conformity with relative regulations, and after purchasing the reinsurance, monitors the credit ratings of reinsurers to avoid a default on the part of reinsurers.
(Continued) 197
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
d) Risk from catastrophe:
The sub-subsidiary TLG Insurance Co., Ltd. identifies catastrophes that might cause material loss based on the characteristics of the products, regularly reviews the relation between the effect of cumulative risks and limits of risks for each insurance product under different assumed catastrophe, and evaluates whether its capital is sufficient to cover the capital requirement of catastrophe risk.
e) Risk of claim:
These risks result from the failure to properly process damage claims by the insured. The sub-subsidiary TLG Insurance Co., Ltd. has built a proper internal claim-handling process including the qualifications, responsibilities, quota of authorizes and scopes of authority of claim adjuster.
f) Reserve-related risk:
These risks result from sales’ underestimate of liability, which renders the reserve provision insufficient for future obligation risks. The sub-subsidiary TLG Insurance Co., Ltd. puts in place a standard procedure for reserve provision and risk controlling mechanism in accordance with different reserve-related risk incidence and the possible controlling procedures are as follows:
i) Risk-transfer strategies: Take approaches to transfer all or part of risks depending on certain circumstances.
ii) Plans for increase in reserve: Increase reserve when it is overrun or insufficient to cover the risk.
2) Information on insurance risk
a) Sensitivity of insurance risk:
For the six months ended June 30, 2019 Effects to net income as the expected loss rate increases (decreases) 5% Insurance Expected Before After Item Premium loss rate reinsurance reinsurance Fire insurance $ 221,664 61.4 % 10,635 4,135 Marine insurance 33,301 66.5 % 1,332 298 Miscellaneous casualty insurance 146,511 72.7 % 8,018 4,147 Personal accident and health 122,946 68.2 % 6,323 4,127 insurance Voluntary auto insurance 506,790 69.5 % 25,701 25,684 Compulsory auto TPL insurance 191,816 Not applicable Not applicable Not applicable
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Effects to net income as the expected loss rate increases (decreases) 5% Insurance Expected Before After Item Premium loss rate reinsurance reinsurance Fire insurance $ 211,354 52.2 % 10,456 4,016 Marine insurance 31,412 64.7 % 1,369 229 Miscellaneous casualty insurance 113,247 71.6 % 6,858 3,110 Personal accident and health 133,973 68.4 % 7,067 4,311 insurance Voluntary auto insurance 529,148 69.5 % 26,488 26,411 Compulsory auto TPL insurance 212,506 Not applicable Not applicable Not applicable
b) Description of insurance risk concentration
The sub-subsidiary TLG Insurance Co., Ltd. establishes risk limits based on each risk unit and each insured event and transfers the over-limit risk by reinsurance to reduce the effect of insurance risk concentration.
i) Business concentration
For the three months ended June 30, 2019 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 114,434 19.86 % 44,852 10.44 % Marine insurance 4,631 0.80 % 1,671 0.39 % Miscellaneous casualty insurance 45,400 7.88 % 21,621 5.04 % Personal accident and health insurance 64,491 11.19 % 41,156 9.58 % Voluntary auto insurance 250,444 43.46 % 249,118 58.00 % Compulsory auto TPL insurance 96,839 16.81 % 71,077 16.55 % Total $ 576,239 100.00 % 429,495 100.00 %
For the three months ended June 30, 2018 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 105,118 17.87 % 43,272 9.83 % Marine insurance 10,153 1.73 % 2,275 0.52 % Miscellaneous casualty insurance 47,983 8.16 % 23,662 5.37 % Personal accident and health insurance 66,784 11.35 % 42,558 9.67 % Voluntary auto insurance 251,865 42.82 % 251,026 57.01 % Compulsory auto TPL insurance 106,277 18.07 % 77,495 17.60 % Total $ 588,180 100.00 % 440,288 100.00 %
For the six months ended June 30, 2019 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 221,664 18.13 % 78,558 9.18 % Marine insurance 33,301 2.72 % 6,100 0.71 % Miscellaneous casualty insurance 146,511 11.98 % 47,683 5.57 % Personal accident and health insurance 122,946 10.05 % 77,771 9.09 % Voluntary auto insurance 506,790 41.44 % 504,988 59.01 % Compulsory auto TPL insurance 191,816 15.68 % 140,676 16.44 % Total $ 1,223,028 100.00 % 855,776 100.00 %
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 211,354 17.16 % 75,282 8.48 % Marine insurance 31,412 2.55 % 4,844 0.55 % Miscellaneous casualty insurance 113,247 9.19 % 40,812 4.60 % Personal accident and health insurance 133,973 10.88 % 85,735 9.66 % Voluntary auto insurance 529,148 42.97 % 527,606 59.41 % Compulsory auto TPL insurance 212,506 17.25 % 153,627 17.30 % Total $ 1,231,640 100.00 % 887,906 100.00 %
ii) Loss concentration
Self–claim as of Self–claim as of Self–claim as of June 30, 2019 December 31, 2018 June 30, 2018 Item Amount % Amount % Amount % Fire insurance $ 18,997 3.10 % 20,648 3.30 % 14,091 2.31 % Marine insurance 5,558 0.91 % 5,965 0.95 % 6,102 1.00 % Miscellaneous casualty insurance 58,136 9.51 % 64,053 10.24 % 57,193 9.36 % Personal accident and health insurance 41,087 6.72 % 38,122 6.10 % 30,248 4.95 % Voluntary auto insurance 314,969 51.51 % 316,431 50.60 % 321,577 52.63 % Compulsory auto TPL insurance 172,731 28.25 % 180,137 28.81 % 181,785 29.75 % Total $ 611,478 100.00 % 625,356 100.00 % 610,996 100.00 %
iii) Trends in claims development
1. Claims development from direct business and arrange reinsurance business
The sub-subsidiary TLG Insurance Co., Ltd.'s claims development from direct business and arrange reinsurance business, the cumulative claims over the past years were as follows:
June 30, 2019 Development year For the six months Accident ended June Cumulative Reported Claim year 2010 2011 2012 2013 2014 2015 2016 2017 2018 30, 2019 claims paid but unpaid Unpaid reserve ≦2010 7,735,749 2,862,422 2,885,993 2,884,507 2,869,331 2,869,133 2,868,879 2,873,676 2,870,998 2,872,463 2,869,612 2,851
2011 859,809 1,078,873 1,114,607 1,120,276 1,130,005 1,129,171 1,132,362 1,129,436 1,130,054 1,123,992 6,062
2012 885,653 1,088,513 1,139,401 1,141,031 1,140,165 1,139,363 1,135,624 1,139,016 1,137,335 1,681
2013 815,688 994,571 1,043,050 1,050,437 1,054,039 1,048,848 1,051,553 1,045,362 6,191
2014 1,031,688 1,226,439 1,265,429 1,279,183 1,275,842 1,275,470 1,258,227 17,243
2015 1,081,950 1,198,254 1,205,616 1,202,002 1,208,856 1,203,451 5,405
2016 1,103,788 1,271,401 1,290,246 1,296,141 1,276,491 19,650
2017 993,289 1,197,458 1,245,699 1,187,825 57,874
2018 1,075,384 1,211,340 1,066,717 144,623
For the six 446,262 207,526 238,736 months ended June 30, 2019
Total 500,316 374,605 874,921
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Development year Accident Cumulative Reported Claim year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 claims paid but unpaid Unpaid reserve ≦2009 5,083,381 1,921,143 1,974,432 1,968,341 1,959,136 1,946,966 1,947,920 1,947,612 1,949,861 1,950,157 1,949,292 865
2010 731,225 887,990 917,652 925,371 922,365 921,213 921,267 923,815 920,841 919,640 1,201
2011 859,809 1,078,873 1,114,607 1,120,276 1,130,005 1,129,171 1,132,362 1,129,436 1,123,954 5,482
2012 885,653 1,088,513 1,139,401 1,141,031 1,140,165 1,139,363 1,135,624 1,134,452 1,172
2013 815,688 994,571 1,043,050 1,050,437 1,054,039 1,048,848 1,045,386 3,462
2014 1,031,688 1,226,439 1,265,429 1,279,183 1,275,842 1,256,435 19,407
2015 1,081,950 1,198,254 1,205,616 1,202,002 1,198,584 3,418
2016 1,103,788 1,271,401 1,290,246 1,263,997 26,249
2017 993,289 1,197,458 1,102,517 94,941
2018 1,075,384 705,952 369,432
Total 525,629 386,747 912,376
June 30, 2018 Development year For the six months Accident ended June Cumulative Reported Claim year 2009 2010 2011 2012 2013 2014 2015 2016 2017 30, 2018 claims paid but unpaid Unpaid reserve ≦2009 5,083,381 1,921,143 1,974,432 1,968,341 1,959,136 1,946,966 1,947,920 1,947,612 1,949,861 1,950,695 1,949,475 1,220
2010 731,225 887,990 917,652 925,371 922,365 921,213 921,267 923,815 921,871 919,689 2,182
2011 859,809 1,078,873 1,114,607 1,120,276 1,130,005 1,129,171 1,132,362 1,130,233 1,123,992 6,241
2012 885,653 1,088,513 1,139,401 1,141,031 1,140,165 1,139,363 1,136,922 1,134,578 2,344
2013 815,688 994,571 1,043,050 1,050,437 1,054,039 1,052,622 1,045,790 6,832
2014 1,031,688 1,226,439 1,265,429 1,279,183 1,276,957 1,255,080 21,877
2015 1,081,950 1,198,254 1,205,616 1,205,160 1,193,845 11,315
2016 1,103,788 1,271,401 1,310,979 1,242,994 67,985
2017 993,289 1,107,717 965,412 142,305
For the six 483,416 228,873 254,543 months ended June 30, 2018
Total 516,844 597,341 1,114,185
(Continued) 201
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2. Claims development from retained business
The sub-subsidiary TLG Insurance Co., Ltd.'s claims development from retained business, the cumulative claims over the past years were as follows:
June 30, 2019 Development year For the six months Accident ended June Cumulative Reported Claim year 2010 2011 2012 2013 2014 2015 2016 2017 2018 30, 2019 claims paid but unpaid Unpaid reserve ≦2010 4,976,831 1,898,380 1,920,483 1,909,416 1,906,071 1,906,580 1,906,819 1,905,371 1,905,003 1,905,698 1,904,010 1,688
2011 319,488 434,055 452,541 456,646 460,523 460,177 462,873 460,001 460,630 459,003 1,627
2012 322,156 430,261 463,422 461,614 460,802 462,417 458,929 461,095 460,298 797
2013 309,566 389,766 413,261 415,501 420,720 417,022 418,220 416,079 2,141
2014 339,270 405,799 428,001 443,771 440,224 441,259 436,224 5,035
2015 427,366 486,185 493,026 489,687 495,593 492,922 2,671
2016 664,691 755,956 785,122 788,681 776,840 11,841
2017 823,289 950,364 975,809 948,151 27,658
2018 868,689 955,897 851,058 104,839
For the six 393,684 175,752 217,932 months ended June 30, 2019
Total 376,229 235,158 611,387
Cumulative impairment loss 91 - 91
$ 376,320 235,158 611,478
December 31, 2018 Development year Accident Cumulative Reported Claim year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 claims paid but unpaid Unpaid reserve ≦2009 3,208,720 1,295,166 1,348,014 1,341,408 1,332,982 1,326,753 1,327,469 1,327,653 1,323,987 1,326,271 1,325,496 775
2010 472,945 550,366 579,075 576,434 579,318 579,111 579,166 581,384 578,732 578,151 581
2011 319,488 434,055 452,541 456,646 460,523 460,177 462,873 460,001 458,974 1,027
2012 322,156 430,261 463,422 461,614 460,802 462,417 458,929 458,985 (56)
2013 309,566 389,766 413,261 415,501 420,720 417,022 416,131 891
2014 339,270 405,799 428,001 443,771 440,224 434,910 5,314
2015 427,366 486,185 493,026 489,687 490,041 (354)
2016 664,691 755,956 785,122 769,345 15,777
2017 823,289 950,364 890,893 59,471
2018 868,689 565,668 303,021
Total 386,447 238,817 625,264
Cumulative impairment loss 92 - 92
$ 386,539 238,817 625,356
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Development year For the six months ended June Accident 30, Cumulative Reported Claim year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 claims paid but unpaid Unpaid reserve ≦2009 3,208,720 1,295,166 1,348,014 1,341,408 1,332,982 1,326,753 1,327,469 1,327,653 1,323,987 1,326,699 1,325,679 1,020
2010 472,945 550,366 579,075 576,434 579,318 579,111 579,166 581,384 579,720 578,201 1,519
2011 319,488 434,055 452,541 456,646 460,523 460,177 462,873 461,430 459,034 2,396
2012 322,156 430,261 463,422 461,614 460,802 462,417 460,529 459,062 1,467
2013 309,566 389,766 413,261 415,501 420,720 419,544 416,398 3,146
2014 339,270 405,799 428,001 443,771 440,604 433,486 7,118
2015 427,366 486,185 493,026 495,418 487,068 8,350
2016 664,691 755,956 783,024 753,012 30,012
2017 823,289 881,039 784,049 96,990
For the six 399,318 186,756 212,562 months ended June 30, 2018
Total 364,580 246,320 610,900
Cumulative impairment loss 96 - 96
$ 364,676 246,320 610,996
The sub-subsidiary TLG Insurance Co., Ltd. recognizes the claims reserve based on expected future claims, including both reported and unreported claims. Because the recognition of this kind of reserve involves many uncertainties, estimations, and judgments, it contains high complexity. Any changes in estimations and judgments are regarded as changes in accounting estimates, and the effect of the changes will be recognized in the net income of the current period. Some claims might have a delay in reporting to the sub-subsidiary TLG Insurance Co., Ltd. In addition, estimating the expected possible claims of unreported claims might involve previous claim experience and subjective judgment. Therefore, the claims reserve recognized at the balance sheet date may not be the same as the final claim payments. Claims reserve recognized is estimated based on the currently available information. However, the final result may depart from the initial estimation due to the subsequent development of claims.
(Continued) 203
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(7) Related-Party Transactions:
(a) Names of related parties and relationship with the Company
Name of related party Relationship with the Company CTBC Security Co., Ltd. An investee company carried under the equity method. King Dragon Life Insurance Co., Ltd. 〃 Hofa Land Development Co., Ltd. 〃 Wu Tzu Development Co., Ltd. 〃 Star Shining Energy Co., Ltd. 〃 Top Taiwan IX Venture Capital Co., Ltd. 〃 Giga Green Energy Co., Ltd. 〃 LH Financial Group Public Company Limited 〃 Xiamen Jinmeixin Consumer Finance Co., Ltd. 〃 Grand Bills Finance Corporation 〃 CTBC Investments Trust Funds A securities investment trust fund managed by the Company’s subsidiary CTBC Investments Co., Ltd. Taiwan Institute of Economic Research The Company’s subsidiary contributed over 1/3 of its total funds. CTBC Business School 〃 CTBC Charity Foundation 〃 CTBC Culture Foundation 〃 CTBC Anti-Drug Education Foundation 〃 Kainan High School of Commerce and The Chairman of the Company is its body Industry corporate representative. Heng Da Culture Foundation The Director of the Company is its body corporate representative. CTBC Financial Park Management authority The Director of the Company’s subsidiary is its body corporate representative. CTBC Technology Building Management 〃 authority Pei sheng Culture Foundation 〃 Jing Kwan Investment Co., Ltd. The Chairman of the Company’s subsidiary is its chairman. Shin Wen investment Co., Ltd. 〃 Financial Information Service Co., Ltd. The Vice-Chairman of the Company’s subsidiary is its director. Taiwan Relo Club, Ltd. The Director of the Company’s subsidiary is its chairman.
(Continued) 204
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Name of related party Relationship with the Company Taipei Medical University The Director of the Company's subsidiary's investee company carried under the equity method is its body corporate representative. Yi Chuan Investment Co., Ltd. The Institutional Director of the Company. Chung Yuan Investment Co., Ltd. 〃 Hewei Investment Co., Ltd. The Chairman of the Company is its director. Sunghung Investment Co., Ltd. 〃 Weihong Investment Co., Ltd. 〃 Fenglu Development & Investment Co., Ltd. 〃 Taiwan Sports Lottery Co., Ltd. Within the second-degree relative of the Chairman of the Company is its chairman. Chuan Wei Investment Co., Ltd. 〃 Yan Yuan Investment Co., Ltd. The Director of the Company’s subsidiary is its general manager. Nan Ya Plastics Corporation The Chairman of the Company’s subsidiary is its director. Formosa Sumco Technology Corporation 〃 Showa Denko HD Trace Corp. 〃 Taipei Financial Center Corporation 〃 Brothers Entertaining Co., Ltd. The Director of the Company’s subsidiary is its director. Prince Pharmaceutical Co., Ltd. The general manager of the Company’s subsidiary is its director Kinpo Electronics Co., Ltd. The Chairman of the Company’s sub-subsidiary is its director Growww Media Co., Ltd. 〃 Hon Hai Precision Industry Co., Ltd. 〃 Hong Chang Precision Industrial Co., Ltd. The second-degree relative of the Chief Investment Officer of the Company is its chairman. Chailease Finance Co., Ltd. Related party in substance. Sungbo Co., Ltd. 〃 Jungguan Investment Co., Ltd. 〃 Kuan Ho Development Co., Ltd. 〃 CTC Group Inc. 〃 Chung-Chie Property Management Co., Ltd. 〃 Chinatrust Real Estate Co., Ltd. 〃 APEX Credit Solution Inc. 〃 Kae Lee Investment Ltd. 〃
(Continued) 205
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Name of related party Relationship with the Company Chia Shih Investment Co., Ltd. Related party in substance. Yi Huao Investment Co., Ltd. 〃 Yi Kao Investment Co., Ltd. 〃 Sungyong Investment Co., Ltd. 〃 Chailease Auto Rental Co., Ltd. 〃 Fina Finance & Trading Co., Ltd. 〃 Chailease Holding Company Limited 〃 (Cayman) Ronghua Investment Co., Ltd. 〃 Shin Ing Technology Co., Ltd. 〃 Chung Cheng Investment Ltd. 〃 Other related parties The directors of the Company and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
(b) Significant transactions between related parties and the Company
(i) Lease
1) The Company's subsidiary, CTBC Bank Co., Ltd. is as a lessor
For the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018, the rental revenue that the Company's subsidiary CTBC Bank Co., Ltd. received from related parties for the rental of buildings, parking spaces, and safe deposit boxes amounted to $69,174, $66,568, $136,854 and $134,759, respectively, constituting 53.59%, 54.36%, 53.08% and 54.03%, respectively, of total rental income.
As of June 30, 2019, December 31 and June 30, 2018, deposits of the Company's subsidiary CTBC Bank Co., Ltd. for renting safe boxes to related parties amounted to $150, $7 and $5, respectively, the rents received in advance from related parties amounted to $8,429, $11,534 and $11,424, respectively. The guarantee deposit for the use of space and machinery received from related parties amounted to $69,738, $67,121 and $65,613, respectively.
(Continued) 206
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) The Company's subsidiary, CTBC Bank Co., Ltd. is as a lessee
Lease liabilities The initial application date of IFRS 16 or the lease commencement Name of related party Summary date June 30, 2019 Chailease Finance Co., Ltd. Leasing of official vehicles and $ 1,567 936 offices Chailease Auto Rental Co., Ltd. Leasing of official vehicles 6,517 5,430 $ 8,084 6,366
For the three months ended June 30 For the six months ended June 30 Name of related party Summary 2019 2018 2019 2018 Chailease Finance Co., Leasing of official $ 74 974 826 1,621 Ltd. vehicles and offices Chailease Auto Rental Leasing of official 632 552 1,185 790 Co., Ltd. vehicles $ 706 1,526 2,011 2,411
The lease term and the collection of the rental are conducted
Note: The amount of right-of-use assets was the same as lease liabilities on the inception of lease.
(ii) Donations
For the three months ended June 30 For the six months ended June 30 Related party 2019 2018 2019 2018 CTBC Culture Foundation $ 44,000 44,000 44,000 44,000 CTBC Charity Foundation 54,000 54,000 54,000 54,000 CTBC Anti-Drug 23,500 47,000 23,500 47,000 Educational Foundation CTBC Business School 95,360 37,244 95,360 117,244 Total $ 216,860 182,244 216,860 262,244
(Continued) 207
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) Loans
June 30, 2019 Settlement status Number/name of Maximum Ending Normal Overdue Loan Categories related parties balance balance loans loans Collateral conditions Consumer loan—employee 44 $ 20,135 6,672 6,672 - None None Home loan mortgage 530 2,678,730 2,438,046 2,438,046 - Real estate/ others 〃 Others Hon Hai Precision Industry 10,903,680 3,000,000 3,000,000 - None 〃 Co., Ltd. 〃 Nan Ya Plastics Corporation 2,808,201 1,579,312 1,579,312 - Real estate/ plant/ 〃 machinc room 〃 CTC Group Inc. 390,832 385,834 385,834 - Real estate 〃 〃 Jungguan Investment Co., 350,000 350,000 350,000 - Land 〃 Ltd. 〃 Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate 〃 Ltd. 〃 Others 266,507 206,194 206,194 - Real estate 〃
December 31, 2018 Settlement status Number/name of Maximum Ending Normal Overdue Loan Categories related parties balance balance loans loans Collateral conditions Consumer loan—employee 43 $ 20,620 15,125 15,125 - None None Home loan mortgage 519 2,739,317 2,500,001 2,500,001 - Real estate/ others 〃 Others Nan Ya Plastics Corporation 3,346,842 3,346,842 3,346,842 - Real estate/ plant/ 〃 machine room
〃 CTC Group Inc. 396,456 386,568 386,568 - Real estate 〃 〃 Jungguan Investment Co., 350,000 350,000 350,000 - Land 〃 Ltd. 〃 Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate 〃 Ltd. 〃 Others 253,234 236,320 236,320 - Real estate 〃
June 30, 2018 Settlement status Number/name of Maximum Ending Normal Overdue Loan Categories related parties balance balance loans loans Collateral conditions Consumer loan—employee 38 $ 14,900 8,647 8,647 - None None Home loan mortgage 447 2,372,870 2,250,074 2,250,074 - Real estate/ others 〃 Others Nan Ya Plastics Corporation 2,904,620 2,875,731 2,875,731 - Real estate/ plant/ 〃 machine room 〃 CTC Group Inc. 393,450 388,544 388,544 - Real estate 〃 〃 Jungguan Investment Co., 350,000 350,000 350,000 - Real estate 〃 Ltd. 〃 Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate 〃 Ltd. 〃 Others 412,932 160,193 160,193 - Real estate 〃
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iv) Deposits
June 30, 2019 Interest Interest expenses expenses (For the three (For the six Maximum Ending Range of months ended months ended Related party balance balance interest rates June 30) June 30) Hofa Land Development Co., $ 2,210,078 2,210,078 0~0.50% 1,238 1,997 Ltd. Showa Denko Hd Trace Corp 2,320,812 2,142,447 0~2.98% 7,944 17,166 Sungyong Investment Co., Ltd. 1,281,449 1,243,123 0~0.01% 31 63 CTBC Charity Foundation 1,190,399 1,045,690 0~1.07% 1,484 2,948 Financial Information Service 1,018,143 1,002,648 0.01~1.07% 5,171 5,171 Co., Ltd. Taiwan Sports Lottery Co., 1,892,215 749,758 0~0.01% 20 59 Ltd. Chuan Wei Investment Co., 884,303 606,120 0~0.01% 19 25 Ltd. Taiwan Institute of Economic 508,523 415,352 0~1.09% 535 1,019 Research Kuan Ho Development Co., 398,353 384,317 0~0.01% 8 14 Ltd.. Yi Huao Investment Co., Ltd. 383,308 370,550 0~0.01% 10 19 Chia Shih Investment Co., Ltd. 380,903 327,936 0~0.01% 9 18 Shin Wen investment Co., Ltd. 394,665 314,665 0~0.01% 3 3 Yan Yuan Investment Co., Ltd. 1,853,257 309,788 0~0.06% 46 72 Kainan High School of 284,500 263,261 0~1.04% 512 1,019 Commerce and Industry Chinatrust Real Estate Co., 232,876 192,664 0~1.80% 482 955 Ltd. Brothers Entertaining Co., Ltd. 186,786 186,786 0~0.26% 4 4 Pei Sheng Culture Foundation 453,088 185,578 0~0.05% 24 49 CTBC Business School 185,307 185,307 0~1.09% 39 78 Wu Tzu Development Co., Ltd. 175,994 173,632 0~1.00% 190 377 Ronghua Investment Co., Ltd. 211,977 161,926 0~0.01% 4 8 Hon Hai Precision Industry 188,110 143,400 0~2.74% 1,239 1,239 Co., Ltd. Chung Yuan Investment Co., 166,950 137,353 0.01% 3 6 Ltd. Sunghung Investment Co., Ltd. 147,408 136,978 0~0.01% 3 7 Chailease Holding Company 160,300 129,433 0~0.26% 13 33 Limited (Cayman) Chung Cheng Investment Ltd. 123,482 123,482 0~0.01% 3 6 Kae Lee Investment Co., Ltd.. 121,724 120,578 0~0.01% 3 6 Hewei Investment Co., Ltd. 127,784 116,784 0~0.01% 3 6 Shin Ing Technology Co., Ltd. 114,360 114,360 0~1.07% - 36 Weihong Investment Co., Ltd. 102,282 102,282 0.01% 5 5 Others 14,620,871 8,702,281 12,489 24,149 Total $ 32,320,207 22,298,557 31,534 56,557
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Maximum Ending Range of Interest Related party balance balance interest rates expenses Showa Denko HD Trace Corp. $ 2,544,117 2,316,988 0~2.98% 35,729 Yan Yuan Investment Co., Ltd. 2,991,684 1,853,257 0~0.01% 161 Taiwan Sports Lottery Co., Ltd. 1,609,508 1,597,219 0~0.01% 82 Hofa Land Development Co., Ltd. 3,493,926 1,596,213 0~0.45% 10,651 Sungyong Investment Co., Ltd. 1,302,000 1,281,396 0~0.01% 72 CTBC Charity Foundation 1,109,917 983,674 0~1.07% 5,934 Taiwan Institute of Economic Research 545,524 477,163 0~1.09% 2,399 Yi Huao Investment Co., Ltd. 383,346 383,308 0~0.01% 23 Chia Shih Investment Co., Ltd. 380,945 380,903 0~0.01% 19 Kainan High School of Commerce and Industry 319,913 289,487 0~1.04% 2,060 Kuan Ho Development Co., Ltd. 261,334 261,334 0~0.01% 20 Chuan Wei Investment Co., Ltd. 478,310 259,611 0~0.01% 24 Ronghua Investment Co., Ltd. 212,072 211,977 0~0.01% 10 Chinatrust Real Estate Co., Ltd. 214,052 209,920 0~1.80% 1,812 Pei Sheng Culture Foundation 566,588 203,714 0~0.05% 167 Wu Tzu Development Co., Ltd. 174,368 169,239 0~1% 164 Chailease Holding Company Limited (Cayman) 4,599,750 159,930 0~0.22% 74 Jungguan Investment Co., Ltd. 286,982 159,157 0.01% 9 CTBC Business School 197,283 148,572 0~1.09% 223 Chung Yuan Investment Co., Ltd. 149,965 143,737 0.01% 8 Sunghung Investment Co., Ltd. 145,437 143,265 0~0.01% 13 Yi Chuan Investment Co., Ltd. 212,242 128,054 0~0.01% 14 Hewei Investment Co., Ltd. 128,935 127,784 0~0.01% 11 Fenglu Development & Investment Co., Ltd. 216,213 124,143 0~0.01% 21 Kae Lee Investment Co., Ltd. 121,930 121,724 0~0.01% 12 Shin Ing Technology Co., Ltd. 111,125 111,125 0~1.07% 308 Chung Cheng Investment Co., Ltd. 113,720 110,978 0~0.01% 8 Heng Da Culture Foundation 106,657 105,216 0~3.15% 1,082 Others 19,883,792 7,621,802 42,193 Total $ 42,861,635 21,680,890 103,303
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Interest Interest expenses expenses (For the three (For the six Maximum Ending Range of months ended months ended Related party balance balance interest rates June 30) June 30) Hofa Land Development Co., $ 3,015,263 3,015,263 0~0.45% 2,775 5,741 Ltd. Showa Denko HD Trace 2,362,618 2,354,327 0~2.57% 9,215 17,397 Corp. Yan Yuan Investment 2,991,684 2,089,307 0~0.01% 44 60 Co.,Ltd. Sungyong Investment Co., 1,302,000 1,301,612 0~0.01% 5 7 Ltd. CTBC Charity Foundation 1,109,917 989,991 0~1.07% 1,481 2,944 Taiwan Sports Lottery Co., 975,621 546,496 0~0.01% 10 27 Ltd. Taiwan Institute of Economic 469,409 436,260 0~1.09% 586 1,141 Research Kainan High School of 319,913 272,460 0~1.04% 512 1,023 Commerce and Industry Quanwei Investment Co., Ltd. 478,310 197,693 0~0.01% 6 13 Fenglu Development & 216,213 194,057 0~0.01% 5 10 Investment Co., Ltd. Chinatrust Real Estate Co., 210,342 188,936 0~1.25% 459 847 Ltd. Kuan Ho Development Co., 201,326 182,022 0~0.01% 5 10 Ltd. CTBC Business School 189,625 178,985 0~1.09% 70 129 Yi Chuan Investment Co., 170,012 163,510 0~0.01% 3 5 Ltd. Yi Huao Investment Co., Ltd. 159,445 149,145 0~0.01% 4 8 Sunghung Investment Co., 127,674 122,516 0~0.01% 3 6 Ltd. Kae Lee Investment Co., Ltd. 121,930 121,873 0~0.01% 3 6 Wu Tzu Development Co., 119,162 110,355 0~0.01% 2 5 Ltd. Chung Yuan Investment Co., 105,479 103,229 0~0.01% 1 1 Ltd. Others 13,739,682 7,679,070 10,591 20,133 Total $ 28,385,625 20,397,107 25,780 49,513
(v) Call Loans to Banks
For the six months ended June 30, 2019 Interest revenues Interest revenues (for the three (for the six Range of months ended months ended Related party Ending balance interest rates June 30) June 30) Grand Bills Finance Corporation $ - 0.38~0.65% 433 585
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(vi) Securities transactions
For the six months ended June 30, 2019 Related party Securities bought Securities sold Hon Hai Precision Industry Co., Ltd. $ 13,869,063 -
(vii) Derivative financial commodity trading
June 30, 2019 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Money market 02.26.2019~ USD 117,250 98,390 (Note) 98,390 Investments swap 12.04.2019 Trust Funds 〃 Spot foreign 06.27.2019~ NTD 2,642,183 882 〃 882 exchange 07.01.2019
December 31, 2018 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Money market 08.31.2018~ USD 117,250 2,939 (Note) 2,939 Investments swap 03.04.2019 Trust Funds
June 30, 2018 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Money market 06.04.2018~ USD 121,250 113,968 (Note) 113,968 Investments swap 09.05.2018 Trust Funds
Note: Financial assets measured at fair value through profit or loss.
(viii) Funds
December 31, Related party Content June 30, 2019 2018 June 30, 2018 CTBC Securities Co., CTBC Investments $ 387,341 - - Ltd. ETFs 〞 CTBC Investments 40,902 155,915 235,108 Trust Funds CTBC Investments Co., 〞 27,746 25,613 27,808 Ltd. Taiwan Life Insurance 〞 4,106,638 1,837,396 1,805,207 Co., Ltd. Total $ 4,562,627 2,018,924 2,068,123
(Continued) 212
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ix) Stocks issued by the related parties that are being held by the Company and subsidiaries:
December 31, Related party June 30, 2019 2018 June 30, 2018 Nan Ya Plastics Corporation $ 1,185,077 1,171,361 1,171,361 Growww Media Co., Ltd. 61,555 - - Hon Hai Precision Industry Co., Ltd. 2,389,075 - - Prince Pharmaceutical Co., Ltd. - - 40,000 Taipei Financial Center Corporation 1,592,100 956,880 1,013,040 Formosa Sumco Technology Corporation 248,068 247,692 268,707 Total $ 5,475,875 2,375,933 2,493,108
(x) Others
1) Income generated between the Company’s subsidiary CTBC Bank Co., Ltd. and related parties.
For the three months ended June 30 For the six months ended June 30 Related party Summary 2019 2018 2019 2018 Grand Bills Finance Commission income, the $ 2,522 94,517 $ 2,941 94,960 Corporation remunerations to directors,resignation income and transportation allowance Taipei Financial Center Commission income and 37,542 36,096 69,725 36,096 Corporation remunerations to directors Sungbo Co., Ltd. Commission income 1,300 1,193 2,277 1,193 Kinpo Electronics, Inc. Commission income - 620 - 1,112 Chailease Finance Co., Ltd Financial advisory income 2,000 - 2,000 - Hon Hai Precision Industry Commission income 1,130 - 1,130 - Co., Ltd. CTBC Charity Foundation Commission income and 39 - 851 - allocation of information Individuals Fund investment income 1,730 772 3,168 3,675 $ 46,263 133,198 82,092 137,036
Foregoing transactions, accounts receivable balances were as follows:
Related party Summary June 30, 2019 June 30, 2018 Grand Bills Finance Corporation Commission income, the $ - 77 remunerations to directors, resignation income and transportation allowance Kinpo Electronics, Inc. Commission income - 200 Hon Hai Precision Industry Co., Commission income 200 - Ltd. $ 200 277
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Expenses generated between the Company’s subsidiary CTBC Bank Co., Ltd. and related parties.
For the three months ended June 30 For the six months ended June 30 Related party Summary 2019 2018 2019 2018 Brothers Entertaining Co., Sponsorship, marketing $ 140,822 104,318 286,963 199,488 Ltd. feedback fund and gift expenses CTBC Financial Park Head office general 31,267 32,825 67,267 67,825 Management authority administration expenses CTBC Security Co., Ltd. Security fees 35,483 35,083 70,354 60,235 Taipei Financial Center Sponsorship, joint-brand 19,633 16,143 23,481 19,976 Corporation credit card payment, ATM utilities and and redeemed rewards points Taiwan Relo Club, Ltd. Marketing fees, gift 6,436 7,583 13,990 15,581 expenses and and redeemed rewards points APEX Credit Solutions Inc. Collection assistance fees 4,546 3,674 7,362 6,849 Taiwan Institute of Expense for domestic 2,750 3,550 5,500 7,100 Economic Research economics research and business consulting commissioned research Fina Finance & Trading Business service expenses 1,744 5,924 4,426 14,310 Co., Ltd. Chailease Finance Co., Ltd. Business service expenses 547 493 752 1,129 CTBC Technology Building Administration fees 1,158 - 1,158 - Management authority Sungbo Co., Ltd. Administration expenses, 836 1,024 1,061 1,295 catering fees and gifts expenses Chung-Chie Property Cleaning fees and 634 756 1,010 1,047 Management Co., administration expenses Ltd. CTBC Business School Commissioned research - - 640 - Chinatrust Real Estate Co., Agency service fees 501 978 501 978 Ltd. $ 246,357 212,351 484,465 395,813
Foregoing transactions, accounts payable balances were as follows:
Related party Summary June 30, 2019 June 30, 2018 CTBC Financial Park Management authority Head office general administration expenses $ 24,000 24,000 CTBC Security Co., Ltd. Security fees 25,825 4,140 Fina Finance & Trading Co., Ltd. Business service expenses 795 2,810 Taiwan Institute of Economic Research Expense for domestic economics research 5,500 5,000 and business consulting commissioned research APEX Credit Solution Inc. Collection assistance fees 1,585 1,280 Chailease Finance Co., Ltd. Business service fees 36 161 $ 57,741 37,391
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
3) Others
June 30, 2019 Income statement Balance sheet Trading Company Related party Summary accounts Amount accounts Amount CTBC Bank Co., Ltd. Chailease Finance Co., Released undue - $ - Other receivables 2,619 Ltd. loans (Note) 〞 Fina Finance & Trading 〞 - - 〞 73,609 Co., Ltd. CTBC Securities Co., CTBC Financial Park Cleaning fees, Other general 4,040 Other payables 2,165 Ltd. Management security fees and administration authority utilities expenses expenses 〞 CTBC Investments Brokerage income Service fees and 538 - - Trust Funds commission income CTBC Investments Co., Funds managed by the Management fees Service fees and 290,619 Management 34,207 Ltd. Company and sales fees commission receivables income Taiwan Life Insureance CTBC Financial Park Cleaning fees, Other general 14,342 Other payables 5,841 Co., Ltd. Management security fees and administration authority utilities fees expenses TLG Capital Co., Ltd Hong Chang Precision Leasing interest Interest revenue 131 Leasing receivables 6,211 Industrial Co., Ltd. revenue CTBC Venture Capital CTBC Security Co., Security fees Other general 1,442 Accrued expenses - Co., Ltd. Ltd. administration expenses Taiwan Lottery Co., CTBC Financial Park Cleaning fees, Other general 1,848 Accrued expenses 600 Ltd. Management security fees, administration authority utilities expenses expenses and management fees $ 312,960 125,252
December 31, 2018 Income statement Balance sheet Trading Company Related party Summary accounts Amount accounts Amount CTBC Bank Co., Ltd. Chailease Finance Co., Released undue - $ - Other receivables 6,296 Ltd. loans (Note) 〞 Fina Finance & Trading 〞 - - 〞 140,082 Co., Ltd. 〞 Others Affiliates Advance payment for - - 〞 8,002 utilities expenses, security fees, training fees and postage expense CTBC Securities Co., CTBC Financial Park Cleaning fees, Other general 8,168 Other payables 2,140 Ltd. Management security fees and administration authority utilities expenses expenses 〞 Chung-Chie Property Cleaning fees and 〞 729 - - Management Co., administration Ltd. expenses 〞 CTBC Investments Brokerage income Service fees and 3,640 - - Trust Funds commision income CTBC Investments Co., Funds managed by the Management fees Service fees and 540,455 Management 47,621 Ltd. Company and sales fees commision receivables income CTBC Venture Capital CTBC Security Co., Security fees Other general 2,811 Accrued expenses 117 Co., Ltd. Ltd. administration expenses 〞 CTBC Financial Park Utilities and Other general 1,152 〞 185 Management administrative administration authority expenses expenses Taiwan Life Insurance CTBC Financial Park Cleaning fees, Other general 35,374 - - Co., Ltd. Management security fees and administration authority utilities expenses expenses 〞 Taipei Medical Premium income Insurance income 10,029 - - University TLG Capital Co., Ltd. Hong Chang Precision Leasing interest Interest revenue 353 Leasing receivables 7,794 Industrial Co., Ltd. revenue Taiwan Lottery Co., CTBC Financial Park Utilities and Other general 3,719 Accrued expenses 620 Ltd. Management administrative administration authority expenses expenses $ 606,430 212,857
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Income statement Balance sheet Trading Company Related party Summary accounts Amount accounts Amount CTBC Bank Co., Ltd. Chailease Finance Co., Released undue - $ - - 12,530 Ltd. loans (Note) 〞 Fina Finance & Trading 〞 - - - 250,260 Co., Ltd. 〞 Others Affiliates Advance payment for - - Other receivables 756 utilities expenses, security fees, training fees and postage expenses CTBC Securities Co., CTBC Financial Park Cleaning fees, Other general 3,428 Other payables 1,191 Ltd. Management security fees and administration authority utilities expenses expenses 〞 CTBC Investments Brokerage income Service fees and 1,726 - - Trust Fund commision income CTBC Investments Co., Funds managed by the Management fees Management 232,512 Management 57,492 Ltd. Company revenue receivables CTBC Venture Capital CTBC Security Co., Security fees Other general 1,402 - - Co., Ltd. Ltd. administration expenses 〞 CTBC Financial Park Utilities and Other general 352 - - Management administrative administration authority expenses expenses Taiwan Life Insurance CTBC Financial Park Cleaning fees, Other general 17,372 - - Co., Ltd. Management security fees and administration authority utilities expenses expenses TLG Capital Co., Ltd. Hong Chang Precision Leasing interest Interest revenue 189 Other receiables 9,345 Industrial Co., Ltd. revenue $ 256,981 331,574
Note: The Company’s subsidiary CTBC Bank Co., Ltd. signed strategic alliance agreements with Fina Finance & Trading Co., Ltd. and Chailease Finance Co., Ltd. agreeing loans will be released directly to Fina and Chailease’s clients, and Fina and Chailease pledged to buyback and settle all debts once any delay arises.
No significant discrepancy in transaction terms found between related party transaction and non-related party transaction.
(c) Key management personnel compensation in total
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Salary and other short-term employee $ 407,947 530,672 978,728 1,069,738 benefits Post-employment benefits 3,167 7,334 10,270 14,924 Share-based payment 241,999 104 358,462 842,687 Termination benefits - 38 - 76 Total $ 653,113 538,148 1,347,460 1,927,425
(Continued) 216
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(8) Pledged Assets:
Pledged assets of the Company and subsidiaries were as follows:
Unit: In Thousands of New Taiwan Dollars
Assets June 30, 2019 December 31, 2018 June 30, 2018 Purpose of collateral CTBC Financial Holding Co., Ltd. Time deposits $ 6,600 - - Bid for company card guarantee Subsidiary—CTBC Bank Co., Ltd. and its subsidiaries Bonds 14,997,230 18,256,725 23,842,533 Guarantee amount of overdrafts, pledged assets, Line of credit of Federal Reserve Bank, repurchase agreement pledge, Trust funds reserve, Bond settlement reserves, deposit for litigation and others, Guarantee deposits of Futures transactions, other guarantee deposits, other legal reserve and other (Bid bond), etc. Negotiable certificates of deposit 30,251,000 30,291,000 30,291,000 Guarantee fulfillment of long term prepaid rent, Daytime overdrafts of Central Bank, deposits for bills, dealer deposits for calling loans in foreign currency, call loan liquidation account in U.S. dollars and call loan liquidation account in JPY. Time deposits 369,570 368,742 383,814 Operational guarantee deposit for securities dealer, CPC Corporation, Taiwan guarantee fulfillment and public welfare walkway guarantee fulfillment. Receivables 1,300 1,300 3,800 Guarantee for all the debts and other guarantee deposits Subsidiary—CTBC Securities Co., Ltd. and its subsidiaries Restricted time deposits 781,084 780,810 780,622 Guarantee for all the debts Subsidiary—CTBC Investments Co., Ltd. Restricted time deposits 75,000 55,000 55,000 Operation guarantee deposits Subsidiary—Taiwan Life Insurance Co., Ltd. and its subsidiaries Time deposits 473,264 476,921 233,033 Compliance guarantee deposits Accounts Receivable 290,495 404,576 699,503 Short-term borrowings Government bonds 9,353,564 8,817,045 7,335,990 Compliance guarantee deposits and other guarantee deposits
As of June 30, 2019, December 31 and June 30, 2018, the deposits for public welfare lottery issuance of the Company’s subsidiary CTBC Bank Co., Ltd.’s irrevocable standby letter of credit were all $1,050,000.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(9) Significant Contingent Liabilities and Unrecognized Contract Commitment:
(a) Major commitments and contingencies
December 31, June 30, 2019 2018 June 30, 2018 CTBC Financial Holding Co., Ltd. Promissory notes of short term borrowing and $ 96,500,000 91,000,000 77,000,000 other financing Subsidiary—CTBC Bank Co., Ltd. and its subsidiaries Contingent liabilities from guarantee and letter of 98,970,852 85,412,623 80,755,548 credit business Promissory note to Central Bank for bank’s 198,968 575,110 575,110 clearance Client notes in custody 92,885,799 94,305,146 92,679,532 Marketable securities and debts in custody 3,056,075,722 2,939,919,751 2,827,000,325 Consigned travelers’ checks in custody 254,301 268,568 276,170 Designated purpose trust accounts 1,167,475,534 1,005,007,104 946,993,641 Other items in custody 357,925 487,664 427,079 $ 4,512,719,101 4,216,975,966 4,025,707,405
As of June 30, 2019, December 31 and June 30, 2018, the credit amount of the cancellable loan commitments of the Company’s subsidiary CTBC Bank Co., Ltd. and its subsidiaries were $1,340,754,438, $1,316,824,268 and $1,345,692,461, respectively.
The Company’s subsidiary CTBC Bank Co., Ltd. renewed the services contract of information resources with International Business Machines, authorizing a five years and four months contract term commencing from September 1, 2017, and ending on December 31, 2022, in the amount of $2,670,000, which comprises a host computer lease fee, an authorization fee, and an annual software maintenance fee.
The Company’s subsidiary CTBC Bank Co., Ltd. was designated by the Ministry of Finance (the “MOF”) as the issuing institution for the fourth term of public welfare lottery. The period is from January 1, 2014 to December 31, 2023. The Company’s subsidiary CTBC Bank Co., Ltd. was authorized to arrange and issue traditional lottery, scratch and win lottery, and computerized lottery tickets. For the fourth term of public welfare lottery, the Company’s subsidiary CTBC Bank Co., Ltd. receives a commission for issuing lottery tickets, representing 4.35% of the total lottery sales amount. The commission will be settled monthly. The Company’ s subsidiary CTBC Bank Co., Ltd.’ s profit will be what remains after a fixed payment of $2,700,000 to the MOF per year. Furthermore, in order to ensure that the lottery prize payout rate is not greater than 60% of the lottery issuing amount, not only did the Company’s subsidiary CTBC Bank Co., Ltd. created a transitional monitoring account-provision for the lottery prize, but also has already adopted appropriate risk control strategies.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
On May 31, 2013, the Company’s subsidiary CTBC Bank Co., Ltd. signed a renewed contract for lottery software, hardware purchase and establishment and maintenances services amounting to $2,322,756 (within which $1,633,851 was for maintenance service). The maintenance service started from May 31, 2013 to December 2023, and may take the obligation in consider to be fulfilled only after the accounts are settled, the hardware are transferred and all post events are carried out.
The Company’s subsidiary CTBC Bank Co., Ltd. entrusted the Company’s subsidiary Taiwan Lottery Co., Ltd. to operate the public welfare lottery’ s ticket issuing, sales, promotion, drawing, payment of prize, and management, with a contract period from November 11, 2013, and ending on June 30, 2024. The Company’s subsidiary CTBC Bank Co., Ltd. will disburse 4.35% of the total lottery sales amount as commission to The Company’s subsidiary Taiwan Lottery Co., Ltd. The Company’s subsidiary CTBC Bank Co., Ltd. agreed that Taiwan Lottery Co., Ltd. can receive a reward, amounting to the commission revenue after the deduction of value-added tax (VAT), rebates and direct costs incurred for the lottery business, and the addition of marginal benefits, if the balance is positive. Otherwise, The Company’s subsidiary Taiwan Lottery Co., Ltd. should pay for the discrepancy, if the balance is negative. An amendment regarding not adding marginal benefits toward the said entrusted benefits has been made on May 20, 2015, with an effective date traced back to January 1, 2015.
As of June 30, 2019, due to the procurement contract and the storage contract for lottery tickets, the Company’s subsidiary Taiwan Lottery Co., Ltd. had requested contractors to create and deposit the guarantee notes, which are accounted for under guarantee notes payable amounting to $23,000.
As of June 30, 2019, the Taxation Administration Ministry of Finance entrusted the Company’s subsidiary Taiwan Lottery Co., Ltd. to conduct the procurement of five-year-period deposit insurance and an allowance for computerized lottery agents to switch to another career. The insurance company that won the tender transferred and deposited unregistered central government bonds amounting to $5 million in the Company’s subsidiary Taiwan Lottery Co., Ltd.
To help CTBC Leasing Co., Ltd., the Company's sub-subsidiary obtaining financing facility, a Letter of Comfort was issued to financial institutions to request a credit limit of RMB573,279 thousand and US$20,000 thousand as of June 30, 2019, in order to declare that the operation of the company is actively supported by the Company.
To help CTBC Leasing Co., Ltd., the Company’s sub-subsidiary obtaining financing facility, a Letter of Comfort to financial institution was issued by CTBC Asset Management Co., Ltd. to request a credit limit of US$117,000 thousand and RMB557,000 thousand as of June 30, 2019.
On November 6, 2015, the Company's subsidiary CTBC Bank Co., Ltd. signed with Zile Development Co., Ltd.(BVI) and Shuohe Development Co., Ltd. a contract of joint construction for a building on the land, zone 18 at Xinyi section 4, Xinyi District, Taipei City. The Bank will retain 5% of the rights of the land for joint construction, get 5% of the whole construction area of the new building and the corresponding land, and burden 5% of the costs of construction based on purchase contract and joint construction contract. The Bank expects to invest $530 million of the total costs of the construction. As of June 30, 2019, the Bank has paid $181,963.
As of June 30, 2019, the outstanding balance of the signed contract and property acquisition of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries amounted to $15,233,642.
(Continued) 219
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
As of June 30, 2019, the outstanding balance of the committed investment facility of signed private fund contract of the Company and subsidiaries amounted to JPY$4,791,154 thousand, USD$1,444,815 thousand, EUR$218,532 thousand and DKK$50,452 thousand, respectively.
As if June 30, 2019, the outstanding balance of the new insurance information core system contract of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. amounted to $2,129,857.
(b) The below information is shown based on the disclosure requirements of Enforcement Rules of the Trust Enterprise Act, Article 17.
Balance Sheet of Trust Accounts
June 30, 2019 and 2018
Trust Assets June 30, 2019 June 30, 2018 Trust Liabilities June 30, 2019 June 30, 2018 Cash $ 34,200,015 32,583,939 Payables 570,810,805 347,438,139 Bonds 25,956,575 16,725,542 Other liabilities 50,992 26,831 Stocks 176,018,408 192,107,151 Trust capital 554,689,785 543,283,506 Mutual funds 291,610,352 291,662,216 Miscellaneous reserves 40,966,361 55,410,512 and accumulated earnings Structured products 20,885,717 19,347,717 Other investments 2,114,326 738,572 Receivables 336,989 355,586 Real estates－net 45,165,430 45,770,734 Securities in custody 570,199,853 346,837,253 Other assets 30,278 30,278 Total trust assets $1,166,517,943 946,158,988 Total trust liabilities 1,166,517,943 946,158,988
Note: As of June 30, 2019 and 2018, the Company's subsidiary CTBC Bank’ s Offshore Banking Unit invested in foreign securities under specific purpose trust accounts amounting to $3,829,791 and $3,081,931, respectively.
(Continued) 220
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Properties Catalog of Trust Accounts
June 30, 2019 and 2018
Investments June 30, 2019 June 30, 2018 Cash $ 34,200,015 32,583,939 Bonds 25,956,575 16,725,542 Stocks 176,018,408 192,107,151 Mutual funds 291,610,352 291,662,216 Structured products 20,885,717 19,347,717 Other investments 2,114,326 738,572 Receivables 336,989 355,586 Real estates－net Lands 45,106,392 45,710,267 Buildings 59,038 60,467 Subtotal 45,165,430 45,770,734 Securities in custody 570,199,853 346,837,253 Other assets Prepaid other payments 97 97 Long-term prepaid rent 30,181 30,181 Subtotal 30,278 30,278 Total $ 1,166,517,943 946,158,988
Income Statement of Trust Accounts
For the six months ended June 30, 2019 and 2018
For the six months ended June 30 2019 2018 Trust revenues $ 1,432,044 1,217,987 Trust expenses (590,072) (606,385) Earnings before tax 841,972 611,602 Less: Income tax 4,161 2,795 Net profits $ 837,811 608,807
(Continued) 221
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(c) Operating lease
Total amount of minimum future irrevocable operating lease payment were as below:
December 31, 2018 June 30, 2018 Less than 1 year $ 1,361,680 1,143,249 1 year to 5 years 1,764,428 1,946,601 More than 5 years 677,948 834,629 Total $ 3,804,056 3,924,479
(d) Lessor
The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries and CTBC Asset Management Co., Ltd. lease their investment property and rental assets under operating leases; please refer to Note 6(o) and 6(s). Non-cancellable operating lease rentals receivable were as follows:
December 31, June 30, 2019 2018 June 30, 2018 Less than 1 year $ 1,496,987 1,501,237 1,517,705 1 year to 5 years 4,589,776 4,453,621 4,151,320 More than 5 years 9,944,109 10,208,773 10,541,206 Total $ 16,030,872 16,163,631 16,210,231
On January 18, 2019, The Company' s subsidiary Taiwan Life Insurance Co., Ltd. signed with Mitsui Fudosan Co., Ltd. (hereafter “Mitsui Fudosan”) a leasing contract to rent out the superficies of lot 15 at Jingmao Section, Nankang District, Taipei City. After the completion and delivery of the building at Jingmao Section, Nankang District, Taipei City, the mall will be on lease to Mitsui Fudosan with an annual rental of 772,000, excluding the component of variable lease payments. The duration of lease is 20 years.
(e) Other significant litigation or legal matters
(i) Structured notes case
During September to December in 2005, Hong Kong Branch of the Company’s subsidiary CTBC Bank, with approval of the board of directors, purchased structured notes (“ oversea structured notes”) from Barclays Bank PLC at par value US$390 million. In the year 2006, the Company intended to invest Mega Financial Holding Company. To comply with the requirement specified in the Banking Act of The Republic of China, which requires that a commercial bank shall not invest more than five percent (5%) shares of a company, Hong Kong Branch of the Company’s subsidiary CTBC Bank sold the above oversea structured notes at market price to Red Fire, a special purpose vehicle acquired by the former President of the Company’s subsidiary CTBC Bank’s Institutional Banking division, Mr. Chen. A profit of US$8,448 thousand incurred due to the disposal. Subsequently, Red Fire filed an application of redemption to Barclays Bank PLC and incurred a profit amounting to US$30.47 million. The opening balance of US$9.50 million was embezzled by Mr. Chen with malicious intent, while (Continued) 222
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
the rest of the amount (US$20.90 million) was remitted to the Company’s overseas sub- subsidiary. In considerations of maintaining operations, the institutional director of the Company remitted an advance payment of US$ 30.47 million to CTBC Bank in accordance to the request from the FSC. No loss had incurred since the remitted amount of US$ 30.47 million was far greater than US$ 9.50 million, which was not remitted to the Company’s overseas sub-subsidiary. On April 28, 2011, the Company’s subsidiary CTBC Bank received a letter from Chung Cheng Investment and Kuan Ho Construction & Development, the institutional directors of the Company, informed that according to the Analysis Report on the Sale of Structured Notes to Red Fire by CTBC Bank’ s Hong Kong Branch (the “Analysis Report” ), the attachment of the letter from the Company with Chung Hsin Chin No. 1002243570005, dated March 10, 2011, the Company’s subsidiary CTBC Bank did not sustain loss from the sale of the structured notes. Based on the aforesaid Analysis Report, the premise of the Company’s subsidiary CTBC Bank sustaining damages no longer stands for the prior execution of the contract dated February 9, 2009 by and among the Company, Chung Cheng Investment, and Kuan Ho Construction & Development. Therefore, the Company’s subsidiary CTBC Bank has been requested to negotiate with Chung Cheng Investment and Kuan Ho Construction & Development for reasonable resolution. On August 16, 2011, the Company’s subsidiary CTBC Bank sent a letter to Chung Cheng Investment and Kuan Ho Construction & Development requesting the institutional directors of the Company to withdraw the right of recourse regarding the advance payment of US$30.47 million to the Company’s subsidiary CTBC Bank. The institutional directors of the Company responded on August 18, 2011, agreeing to the request and wishing that the Company’s subsidiary CTBC Bank spends US$20.90 million of the advance payment on emergency assistance and public welfare loans and pays US$9.57 million to the Company as recovery for the investment income which originally should have been recognized by the Company. The latter amount was considered to be the investment loss of CT Opportunity Investment Company, a sub-subsidiary of the Company. The Company’s subsidiary CTBC Bank has not yet fulfilled the aforementioned requirement, and the institutional directors still insisted the amount of US$20.90 million should be designated as the fund of welfare loans for emergency salvage. The matter will be proceeded once both parties reach agreement. Cited from the internal investigation and the opinion letter from the attorney designated by the Company, Red Fire is believed to be the Company’ s SPV, since the ultimate profit and loss attribution belonged to the Company. In addition, from the perspective of cash flow, Mr. Koo, the former Chairman of the Company’s subsidiary CTBC Bank, and the three involved employees did not obtain any personal benefits through the case.
After appealing for the third instance, the Supreme Court of Republic of China revoked the original second verdict of August 2014 and urged Taiwan High Court to remand its verdict. The first verdict of the case has been modified by Taiwan High Court that partial parties are guilty as of September 12, 2018, and the others are not. All of the guilty parties and Taiwan High Prosecutors Office have already filed the appeal. Thus, the case has not yet finished. According to the legal opinion issued by the counsel retained by the Company, “Red Fire have remitted the profits from the Structured notes-around US$ 20.9 million of the book value, to the CT Opportunity Company, which is the overseas sub-subsidiary of CTBC Holding. At the same time, the shareholders of CTBC Holding have reimbursed US$ 30,474,717 to CTBC Bank. As the total amount of the aforementioned reimbursement and the remittance have already exceeded the profits of the book value from the redemption of the Structured notes, CTBC Holding has not suffered from the damage. Furthermore, regarding the legal liability, the aforementioned case is deemed as a criminal case, and considering the fact that CTBC (Continued) 223
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Holding is a corporate entity, the employees’ individual criminal liability will not have any influence on CTBC Holding. Meanwhile, the case has not yet finished. Therefore, there should be no significant negative effects on the financial or business operations of CTBC Holding, and the fact that CTBC Holding has not suffered from the damage would not be affected as well.” The Company evaluates that this case is expected to have no significant impact on operation and shareholders’ equity of its subsidiary CTBC Bank and the Company.
Taiwan High Prosecutors Office has filed a motion to Taiwan High Court on July 6, 2016 against the Company to pursue the illegal proceed of $261,696 arising from the claimed manipulation of securities price. Taiwan High Court has noticed the Company to participate in the judiciary proceeding as a third party. The Company declares that no manipulation of securities price has been conducted by such personnel and the Company did not obtain or withhold any illegal proceeds therefrom. The Company has appointed external legal counsel to represent it during the judiciary proceeding. So far, Taiwan High Court has pronounced that there is no confiscation and compulsory collection of the Company’s property on September 12, 2018. The reason of the judgment was briefly concluded that as there was not any illegal behavior of manipulation of security prices, so the Company did not withhold any illegal proceeds therefrom.
(ii) Others
As for the real estate and non-performing loans transactions among the Company’s subsidiary CTBC Bank Co., Ltd., Tectonics Laboratories Co., Ltd. and other related parties during 2005 and 2006, some employees were accused in violations of Banking Act and Securities and Exchange Act for engaging in such transactions and not disclosing related-party transactions. As for the public prosecution of real estate and non-performing loans transactions accused by the prosecutor of Taipei District Prosecutors Office as of August 26, 2019, currently there is no indictment or press release published by prosecutor that could be served as confirmation. Furthermore, as per the internal information of the Bank, the Bank and the Company have not suffered any damages due to the aforementioned transactions. As a result, so far the case is expected to have no significant impact on the Company’s subsidiary CTBC Bank Co., Ltd. or the Company’s operation and shareholders’ equity.
According to the press release of Supreme Prosecutors Office on October 5, 2016, Mr. Koo, the former chairman of the Company’s subsidiary CTBC Bank Co., Ltd., has been involved in the controversy of oversea investment case amounting to US$300 million during 2004 to 2007. Taiwan Taipei District Court has sentenced Mr. Koo, the former chairman of the Company’s subsidiary CTBC Bank Co., Ltd., and Mr. Chang, the current employee, both not guilty on August 23, 2019. The opinion letter of the Company’ s external legal counsel states that “According to the consolidated financial statement of CTBC Holding for 2006, the oversea investment balance of CT Opportunity Investment Company (“CTO”), which is the subsidiary of CTBC Asset Management Co., Ltd. and a sub-subsidiary of the Company, amounted to US$339.31 million at the end of 2005. Then, CTO recovered US$304.988 million in 2006, which had surpassed the aforementioned amount of US$300 million in the press release. At the end of liquidation of CTO, since the amount remitted for the investment is fully recovered, CTBC Holding and CTBC Asset Management did not suffer from the damage. Therefore, there should be no significant impact on the finances of CTBC Asset Management and CTBC Holding.” Moreover, the supplement report issued by the counsel stated that “According to the criminal judgment press release of “Gim Zon Su No. 8 (2016)” and “Gim Zon Su No. 10 (2018)” , announced by Taiwan Taipei District Court on August 23, 2019, “ The individual (Continued) 224
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
resigned from the Company has been sentenced guilty of embezzlement by criminal judgment; however, the judgement is not binding on CTBC Asset Management Co., Ltd. and the Company. Moreover, even if CTO’s investment funds once had been embezzled by Mr. Chen just as the court identified, the Company has already recovered all the investment funds and even made a profit of US$41,454,896.72. Hence, even if the individual resigned from the Company had embezzled CTO’s investment funds, the Company has not suffered any damage eventually. Therefore, the conclusion of our previous analysis opinion remains unchanged, the aforementioned judgment has no significant impact on the Company’s subsidiary CTBC Asset Management Co., Ltd. or the Company’s financial and business operation.”According to the aforementioned opinion of external counsel, this case has no significant impact on the Company’s subsidiary CTBC Asset Management Co., Ltd. or the Company’s operation and stockholders’ equity.
According to the press release of Supreme Prosecutors Office on October 5, 2016, the Company’s subsidiary CTBC Life Insurance Co., Ltd. has involved in the controversy of Gobo Group’ s property acquisition case before merging Taiwan Life Insurance. Taiwan Taipei District Court has sentenced Mr. Koo, the former chairman of the Company’ s subsidiary CTBC Bank Co., Ltd., and Mr. Chang, the current employee, both not guilty on August 23, 2019. The opinion letter of the Company’s external legal counsel states that “According to the information provided by CTBC Life Insurance, the acquisition price of the second floor of the Asia Plaza Building was lower than the appraised prices provided by two independent appraisal institutions and the maximum purchase amount approved by the Board of Directors of CTBC Life Insurance. The acquisition price should be reasonable since such price did not surpass the appraised prices provided by independent appraisal institutions, without clear evidence showing that the appraisal reports of the independent appraisal institutions were unconvincing. This transaction should cause no impairment to either the interest of CTBC Life Insurance or which of CTBC Holding.” Moreover, the supplement report issued by the counsel stated that “According to the criminal judgment press release of “Gim Zon Su No. 8 (2016)” and “Gim Zon Su No. 10 (2018)”, announced by Taiwan Taipei District Court on August 23, 2019, the court identified that “it was reasonable that CTBC Life Insurance Co., Ltd. agreed Gobo Group to offer the real estate located at the second floor of Asia Plaza Building as collateral to extend credit, and it was also reasonable that CTBC Life Insurance Co., Ltd. participated in the tender with the price of $2,000,268 per square feet and required Gobo Group to be the guarantor for a lease with $6,125 per square feet in two years. The transactions did not cause CTBC Life Insurance Co., Ltd. damages.” The conclusion of the judgement was consistent with the legal analysis opinions of the counsel, therefore CTBC Life Insurance Co., Ltd. has indeed not suffered damage from the aforementioned transactions.” Based on the opinions of the external counsel, this case has no significant impact on the Company’ s subsidiary of Taiwan Life Insurance Co., Ltd. and the Company’s operation and stockholders’ equity.
Regarding the prosecution made on January 12, 2017 and the additional prosecution on January 4, 2018 by Taipei District Prosecutors Office against employees of the Company’s subsidiary CTBC Bank Co., Ltd.( “the Bank”) involving earning unjust price gains from the transaction of the land at Zone 15-2, Ankang Section, Neihu Dist., Taipei City and two buildings for computer facilities and administration building, respectively, at Zone 13-1 and 13-7, Ankang Section, Neihu Dist., Taipei City, Taipei District Court has pronounced that all defendants are guilty of the aforementioned prosecution on October 11, 2018. All defendants have already filed the appeal. Meanwhile, the additional prosecution is still on the trial.
(Continued) 225
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the aforementioned judgment of the transactions of the two buildings, which was pronounced that the Company and the Bank have suffered from the damage, according to the legal opinion issued by the counsel retained by the Company, “The purchases of the two buildings have all been approved by the Board of Directors of the Bank, and the Bank has appointed professional appraisal institutions to provide the appraised values of the two buildings as reference. Despite the fact that Taipei District Court determined that the appointed appraisal institutions had lost objectivity concerning the above transactions, the judgment did not deny the conclusion of the appraisal reports prepared by the appraisal institutions. The acquisition prices of the two buildings were lower than the appraisal prices provided by the appraisal institutions, and both of the acquisition prices did not exceed the authorized amount set by the Board of the Directors of the Bank. Considering the aforementioned facts, the acquisition prices of CTBC Bank should be commensurate with the reasonable prices by that time. Meanwhile, the persons in charge of the transactions also followed the resolution of the board, which were not illegal. Therefore, the transactions did not cause any damages to the Bank. Furthermore, regarding the legal liability, the aforementioned case is deemed as a criminal case, and considering the fact that CTBC Holding is a corporate entity, the employees’ individual criminal liability will not have any influence on CTBC Holding. Meanwhile, the case has not yet finished. Thus, there should be no significant disadvantageous effects on the financial or business operations of the Bank or CTBC Holding.”
In addition, for the aforementioned judgment which determined that the trade between Yongyue Development Co., Ltd. and the Bank was a related- party transaction, and should be revealed in the financial reports of the Company and the Bank, the board of directors of the Company assigned the management departments to coordinate with external legal counsel to analyze the case. According to the analysis report, “Mr. Chang was not a substantial responsible person of the company, and he did not have decision-making power over the Bank’ s business. The procedure and the acquisition prices of the two transactions with regard to the Bank purchasing the land at Zone 15-2, Ankang Section, Neihu Dist., Taipei City, and the land and the buildings at Zone 13-1 and 13-7, at the Ankang Section, Neihu Dist., Taipei City, were in compliance with legal procedures. Moreover, Mr. Chang did not attend the board meeting, which resolved to purchase of the aforementioned real estates. Mr. Chang did not participate in the decision-making procedures.” Besides, according to the legal opinion issued by the external counsel, “Based on the definitions and explanations from the regulations that were effective at that time including Regulations Governing the Acquisition and Disposal of Assets by Public Companies, Paragraph 1, Article 45 of Financial Holding Company Act, Regulations governing the transactions other than credit extension by the quasi-interested party of CTBC Bank that amended by the Bank on July 31, 2013, Regulations Governing the Preparation of Financial Reports by Securities Issuers, Regulations Governing the Preparation of Financial Reports by Public Banks, or IAS 24 and related regulation or explanation, etc., which should apply to the transactions of computer facilities building and administration building. Mr. Chang should not be considered as an interested party or a quasi-interested party of the Bank in formal or in substantial.”
“Ms. Wu, the shareholder and the ultimate beneficiary person of Yongyue Development Co., is the spouse of the man whose brother is Mr. Chang, the senior executive officer of CTBC Bank (viz. second-degree by marriage in law), but Ms. Wu does not take on any duties with decision- making power over the business of the company specified in the aforementioned regulations. Meanwhile, she did not occupy any positions as defined in the Section 9 of IAS 24(Part A). Thus, Ms. Wu is not an interested party or quasi- interested party of CTBC Bank, either.”
(Continued) 226
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Cited from the aforesaid analysis report and legal opinion, Mr. Chang is not the substantial responsible person in charge of the Bank, and not an interested party or a quasi-interested party of the Bank in formal or in substantial. Suppose that Mr. Chang was the substantial person in charge of the Bank, his second-degree relatives by marriage should not be considered as the interested party or quasi-interested party of the Bank in accordance with Section 9 of IAS 24(Part A). Therefore, Ms. Wu must not be the interested party or quasi-interested party of the Bank as well.
Besides, according to the legal opinion mentioned above, “Regardless the trial is not finished, the current evidence in the verdict is not strong enough to support the point that Mr. Chang substantially ran Yongyue Development Co., and the investment profits of Yongyue Development Co. are also not related to Mr. Chang. Judging from the above information, since the transactions between the Bank and Yongyue Development Co. should not be considered as related-party transactions, it is unnecessary to reveal such information in the financial reports.”
“In addition, according to the objective evidence revealed from the reason for the decision, there is no evidence to determine that Mr. Chang was a substantially-managing person of Yongyue Development Co. as mentioned above, and Mr. Chang and Ms. Wu are not the interested parties or quasi- interested parties of CTBC Bank. In view of this, we could judge that Yongyue Development Co. must not be considered as related-party or quasi-interested party of CTBC Bank. Since the purchases of the two buildings of CTBC Holding and the Bank were not related to related-party transactions, CTBC Holding did not need to reveal such information as transactions with related-parties in its quarterly financial reports and annual financial reports, which means that there were no misstatements in the financial reports.”
According to the above opinion of legal counsel, the acquisition prices of the two buildings were reasonable at that time. The persons in charge of the transactions were also in compliance with the resolution by the board, which were not illegal. Thus, the Bank did not suffer from the damage of the transactions of two real estates. Besides, neither of Mr. Chang and Yongyue Development Co. is the related-party or quasi- interested party of CTBC Bank so the Company is not required to reveal these as related-parties transactions in its quarterly and annual financial reports, which means that there are no misstatements in the financial reports. So far, the Company evaluates that this case is expected to have no significant impact on operation and shareholders’ equity of CTBC Bank and the Company.
Regarding the event that the Company’s subsidiary CTBC Bank Co., Ltd. sold the real estate located on Beimen Road, Tainan City in 2012, the Bank's related personnel are interrogated by Taipei District Prosecutors Office. This case is currently under investigation by prosecutors and is expected to have no significant impact on operation and shareholders’ equity of CTBC Bank to date.
Regarding the event that the Company’s subsidiary CTBC Bank Co., Ltd. sold 95% shares of the original Xinyi head office land ownership on November 6, 2015, the Bank's related personnel are interrogated by Taipei District Prosecutors Office. This case is currently under investigation by prosecutors and is expected to have no significant impact on operation and shareholders’ equity of CTBC Bank to date.
(Continued) 227
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(10) Significant Catastrophic Losses:None
(11) Significant Subsequent Events:
(a) Regarding the events that the Company’ s subsidiary CTBC Bank Co., Ltd. sold the real estate located on Beimen Road, Tainan City, in 2012, and the original Xinyi head office land ownership in 2015, are still under investigation by Taipei District Prosecutors Office and are expected to have no significant impact on operation and shareholders’ equity of the Company’s subsidiary CTBC Bank Co., Ltd. Please refer to Note 9(e).
(b) Regarding the transactions of real estate and non performing loans among the Company’s subsidiary CTBC Bank Co., Ltd., Tectonics Laboratories Co., Ltd. and other related parties during 2005 and 2006, this case has been prosecuted by Taipei District Prosecutors Office on August 26, 2019. So far, it is expected to have no significant impact on operation and shareholders’ equity of the Company’s subsidiary CTBC Bank Co., Ltd. Please refer to Note 9(e).
(c) Regarding the case that the Company’ s subsidiary CTBC Asset Management Co., Ltd. has been involved in the controversy of oversea investment of CT Opportunity Investment Company, Taiwan Taipei District Court has found Mr. Koo, the former chairman of the Company’s subsidiary CTBC Bank Co., Ltd., and Mr. Chang, the current employee, not guilty on August 23, 2019. It is expected to have no significant impact on operation and shareholders’ equity of the Company’s subsidiary CTBC Asset Management Co., Ltd. or the Company. Please refer to Note 9(e).
(d) Regarding the dispute that the CTBC Life Insurance Co., Ltd. has involved in the controversy of Gobo Group’ s property acquisition case before merging Taiwan Life Insurance, Taiwan Taipei District Court has found Mr. Koo, the former chairman of the Company’s subsidiary CTBC Bank Co., Ltd., and Mr. Chang, the current employee, not guilty on August 23, 2019. It is expected to have no significant impact on operation and shareholders’ equity of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. or the Company. Please refer to Note 9(e).
(12) Other:
(a) Business segment financial information For the three months ended June 30, 2019 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 14,039,687 10,422 13,832,229 (17,390) 27,864,948 Non-interest income 10,319,065 332,294 9,615,480 239,674 20,506,513 Net revenue 24,358,752 342,716 23,447,709 222,284 48,371,461 (Provisions) reversal for bad debt (1,231,054) 83 9,666 (121,509) (1,342,814) expenses and guarantee reserve Net changes in insurance liability - - (17,752,423) - (17,752,423) reserve Operating expenses (14,817,838) (235,927) (1,254,911) (911,088) (17,219,764) Net income (loss) before tax 8,309,860 106,872 4,450,041 (810,313) 12,056,460 Income tax expense (2,111,148) (13,485) (326,231) (283,282) (2,734,146) Net income (loss) 6,198,712 93,387 4,123,810 (1,093,595) 9,322,314
(Continued) 228
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the three months ended June 30, 2018 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 12,979,514 31,101 12,168,223 3,587 25,182,425 Non-interest income 9,817,021 494,933 33,298,964 214,442 43,825,360 Net revenue 22,796,535 526,034 45,467,187 218,029 69,007,785 Provisions for bad debt expenses (1,679,498) (49) (5,961) (13,307) (1,698,815) and guarantee reserve Net changes in insurance liability - - (38,255,184) - (38,255,184) reserve Operating expenses (13,531,798) (268,573) (1,470,015) (810,991) (16,081,377) Net income (loss) before tax 7,585,239 257,412 5,736,027 (606,269) 12,972,409 Income tax expense (1,492,899) (35,636) (717,880) (1,050,962) (3,297,377) Net income (loss) 6,092,340 221,776 5,018,147 (1,657,231) 9,675,032
For the six months ended June 30, 2019 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 27,824,243 22,277 27,257,926 (61,200) 55,043,246 Non-interest income 21,344,204 659,908 51,048,533 682,947 73,735,592 Net revenue 49,168,447 682,185 78,306,459 621,747 128,778,838 Provisions for bad debt expenses, (2,385,844) (430) (5,346) (98,240) (2,489,860) commitments and guarantee reserve Net changes in insurance liability - - (67,288,624) - (67,288,624) reserve Operating expenses (28,720,375) (460,944) (2,360,284) (1,754,258) (33,295,861) Net income (loss) before tax 18,062,228 220,811 8,652,205 (1,230,751) 25,704,493 Income tax expense (4,178,898) (24,929) (457,975) (645,941) (5,307,743) Net income (loss) 13,883,330 195,882 8,194,230 (1,876,692) 20,396,750
(Continued) 229
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
For the six months ended June 30, 2018 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 25,584,054 59,007 23,549,428 (2,585) 49,189,904 Non-interest income 20,868,491 832,068 73,566,716 682,819 95,950,094 Net revenue 46,452,545 891,075 97,116,144 680,234 145,139,998 Reversal of (provisions for) bad (2,069,561) (40,908) 2,944 (40,997) (2,148,522) debt expenses and guarantee reserve Net changes in insurance liability - - (85,360,448) - (85,360,448) reserve Operating expenses (26,584,711) (489,134) (2,655,023) (1,705,397) (31,434,265) Net income (loss) before tax 17,798,273 361,033 9,103,617 (1,066,160) 26,196,763 Income tax expense (2,951,315) (35,496) (267,816) (1,038,101) (4,292,728) Net income (loss) 14,846,958 325,537 8,835,801 (2,104,261) 21,904,035
(b) Public notices pursuant to Financial Holding Company Law, Article 46
The aggregate amount of credit extended, guarantees given, or any other transactions conducted by all subsidiaries of the financial holding company to, for, or with the same person, same related person, or same affiliate, disclosure of which is required under Article 46 of the Financial Holding Company ACT:
June 30, 2019
Unit: In Thousands of New Taiwan Dollars; %
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth A. The same person CENTRAL BANK OF REPUBLIC OF CHINA(TAIWAN) $ 387,870,000 106.95 % PERSONAL CLIENT OF THE TOKYO STAR BANK, LTD. 246,109,000 67.86 % TAIWAN GOVERNMENT 202,747,149 55.91 % SERVICE INDUSTRY CLIENT OF THE TOKYO STAR BANK, LTD. 144,318,000 39.80 % GOVERNMENT AGENCIES CLIENT OF THE TOKYO STAR BANK, LTD. 137,556,000 37.93 % TAIWAN POWER COMPANY 67,013,431 18.48 % REAL ESTATE INDUSTRY CLIENT OF THE TOKYO STAR BANK, LTD. 60,481,000 16.68 % (Continued) 230
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth US GOVERNMENT $ 48,798,687 13.46 % FINANCIAL INSTITUTION CLIENT OF THE TOKYO STAR BANK, LTD. 48,481,000 13.37 % REAL ESTATE INDUSTRY CLIENT OF THE CTBC CAPITAL CORP. 46,219,000 12.74 % PERSONAL CLIENT OF THE CTBC CAPITAL CORP. 40,215,000 11.09 % GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 34,820,561 9.60 % TAIWAN RAILWAYS ADMINISTRATION 34,370,966 9.48 % BANK OF AMERICA 32,174,714 8.87 % CITIGROUP INC. 32,156,479 8.87 % GOLDMAN SACHS GROUP INC. 31,293,018 8.63 % MORGAN STANLEY 31,144,961 8.59 % FINANCE BUREAU OF KAOHSIUNG CITY GOVERNMENT 24,318,710 6.71 % JP MORGAN CHASE & CO 23,947,901 6.60 % AT&T INC 22,373,967 6.17 % SAUDI ARABIAN GOVERNMENT 21,948,321 6.05 % CENTRAL TAIWAN SCIENCE PARK BUREAU 20,000,000 5.51 % TAICHUNG CITY GOVERNMENT 19,000,000 5.24 % VERIZON COMMUNICATIONS INC 18,945,931 5.22 % DEUTSCHE BANK AG 18,931,321 5.22 % MAUFACTURING INDUSTRY CLIENT OF THE TOKYO STAR BANK, LTD. 18,670,000 5.15 % CHINA DEVELOPMENT BANK 18,390,638 5.07 % BNP PARIBAS SA 17,967,628 4.95 % OTHER INDUSTRY CLIENT OF THE TOKYO STAR BANK, LTD. 17,894,000 4.93 % BANK OF CHINA LIMITED 16,949,912 4.67 % RUSSIAN GOVERNMENT 16,782,924 4.63 % COMISION FED DE ELECTRIC 16,409,171 4.52 % RABOBANK NEDERLAND 16,276,406 4.49 %
(Continued) 231
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth MEXICAN GOVERNMENT $ 16,258,731 4.48 % INDONESIAN GOVERNMENT 15,517,844 4.28 % COMCAST CORP 15,509,300 4.28 % QATAR GOVERNMENT 15,432,989 4.26 % ADCB FINANCE CAYMAN LTD. 15,021,986 4.14 % HON HAI PRECISION INDUSTRY CO., LTD. 14,644,907 4.04 % MAUFACTURING INDUSTRY CLIENT OF THE PT. BANK CTBC INDONESIA 14,520,000 4.00 % FUBON SECURITIES EQUITY INVESTMENT CO., LTD. 14,398,451 3.97 % HSBC HOLDINGS PLC 14,162,404 3.91 % ELECTRICITE DE FRANCE S.A. 13,977,717 3.85 % NATIXIS 13,124,565 3.62 % CREDIT AGRICOLE SA 13,049,434 3.60 % UBS LONDON (CCP) 12,795,114 3.53 % YUANTA FUNDS CO., LTD. 12,165,029 3.35 % FIRST ABU DHABI BANK PJSC 12,124,185 3.34 % TAINAN CITY GOVERNMENT 12,115,900 3.34 % CITIC LTD. 11,935,375 3.29 % HOFA LAND DEVELOPMENT CO., LTD. 11,909,946 3.28 % BANK OF TOKYO-MITSUBISHI UFJ 11,845,591 3.27 % WELLS FARGO & CO 11,738,841 3.24 % COMMONWEALTH BANK OF AUSTRALIA 11,541,152 3.18 % CAPITAL INVESTMENT TRUST CORP. 11,270,174 3.11 % QNB FINANCE LTD 10,888,128 3.00 % CREDIT SUISSE 10,626,568 2.93 % SOCIETE GENERALE SA 10,610,210 2.93 % CATHAY SECURITIES INVESTMENT TRUST CO., LTD. 10,572,181 2.92 % ANZ BANKING GROUP LTD 10,515,680 2.90 % TAIPEI FUBON COMMERCIAL BANK CO., LTD. 10,422,335 2.87 % YUANTA SECURITIES CO., LTD. 10,236,500 2.82 %
(Continued) 232
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth NATIONAL AUSTRALIA BANK LIMITED $ 10,075,585 2.78 % TAIWAN COOPERATIVE BANK CO., LTD. 10,057,208 2.77 % TAIWAN CEMENT LTD. 10,041,806 2.77 % ROYAL BANK OF CANADA 9,986,548 2.75 % CHUNGHWA TELECOM CO., LTD. 9,768,750 2.69 % THE EXPORT-IMPORT BANK OF CHINA 9,763,489 2.69 % LLOYDS BANK PLC. 9,712,590 2.68 % ENEL FINANCE INTERNATION NV 9,600,540 2.65 % FRENCH GOVERNMENT 9,572,466 2.64 % BARCLAYS BANK PLC 9,401,192 2.59 % SERVICE INDUSTRY CLIENT OF THE CTBC CAPITAL CORP. 9,111,000 2.51 % WESTPAC BANKING CORP. 9,082,865 2.50 % ANHEUSER-BUSCH INBEV SA/NV 9,070,671 2.50 % HUA NAN COMMERCIAL BANK., LTD. 8,858,001 2.44 % PETROLEOS MEXICANOS 8,492,807 2.34 % BANK OF NOVA SCOTIA, TORONTO 8,345,837 2.30 % MANULIFE FINANCIAL CORP. 8,206,840 2.26 % APPLE INC 8,163,910 2.25 % FREDDIE MAC 8,020,797 2.21 % STANDARD CHARTERED PLC. 7,983,277 2.20 % MEGA FINANCIAL HOLDING CO., LTD. 7,981,848 2.20 % BARCLAYS PLC. 7,801,889 2.15 % AGRICULTURAL DEVELOPMENT BANK OF CHINA 7,768,908 2.14 % EXPORT-IMPORT BANK OF KOREA 7,562,140 2.09 % CHANG HWA COMMERCIAL BANK LTD. 7,407,107 2.04 % NEXEN ENERGY ULC 7,284,022 2.01 % AU OPTRONICS CORP. 7,263,937 2.00 % FIRST COMMERCIAL BANK CO., LTD. 7,251,055 2.00 % MINISTRY OF FINANCE 6,985,839 1.93 % TAISHIN FINANCIAL HOLDING CO., LTD 6,984,907 1.93 %
(Continued) 233
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth TAIWAN MOBILE CO., LTD. $ 6,869,813 1.89 % COLOMBIA GOVERNMENT 6,802,557 1.88 % HSBC BANK MIDDLE EAST LTD. 6,704,859 1.85 % CELGENE CORP. 6,685,373 1.84 % ASIA CEMENT(CHINA) HOLDINGSCORP 6,656,810 1.84 % ABN AMRO BANK NV 6,652,419 1.83 % BANK OF MONTREAL 6,619,438 1.83 % UNITED OVERSEAS BANK LTD. 6,611,017 1.82 % MALAYAN BANKING BERHAD 6,609,915 1.82 % SERVICE INDUSTRY CLIENT OF THE CTBC BANK (PHILIPPINES) CORP. 6,596,000 1.82 % PEOPLES REPUBLIC OF CHINA GOVERNMENT 6,561,576 1.81 % AMGEN INC 6,528,181 1.80 % UBS AG 6,527,625 1.80 % BPCE SA 6,385,001 1.76 % NAN SHAN LIFE INSURANCE CO., LTD. 6,322,671 1.74 % SOUTHERN POWER COMPANY 6,246,479 1.72 % LLOYDS BANKING GROUP PLC 6,230,139 1.72 % CPC CORPORATION, TAIWAN 6,198,862 1.71 % KAI RONG CO., LTD. 6,193,747 1.71 % GOVERNMENT AGENCIES CLIENT OF THE PT. BANK CTBC INDONESIA 6,157,000 1.70 % FUHUA TRUST CO., LTD. 6,156,548 1.70 % AIG INC. 6,148,058 1.70 % BRAZIL GOVERNMENT 6,134,668 1.69 % FINANCIAL INSTITUTION CLIENT OF THE CTBC BANK (PHILIPPINES) CORP. 6,110,000 1.68 % DP WORLD LTD 6,090,971 1.68 % FORMOSA PLASTIC CORPORATION 6,088,959 1.68 % HSBC BANK PLC. 6,022,609 1.66 % AMERICA MOVIL SAB DE CV 6,010,502 1.66 %
(Continued) 234
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth FINANCIAL INSTITUTION CLIENT OF THE PT. BANK CTBC INDONESIA $ 5,881,000 1.62 % ARES CAPITAL CORP 5,831,113 1.61 % HUARONG FINANCE 2017 CO LTD 5,804,949 1.60 % NOMURA INTERNATIONAL FUNDING PTE LTD 5,762,666 1.59 % VODAFONE GROUP PLC. 5,741,810 1.58 % CREDIT SUISSE GROUP FUNDING GUERNSEY LTD 5,705,102 1.57 % INDUSTRIAL AND COMMERCIAL BANK OF CHINA 5,516,523 1.52 % FORMOSA HA TINH (CAYMAN) LIMITED 5,499,744 1.52 % INNOLUX CORPORATION 5,459,792 1.51 % E.SUN COMMERCIAL BANK, LTD. 5,445,900 1.50 % BANK OF COMMUNICATIONS CO., LTD 5,387,386 1.49 % GRUPO TELEVISA SA-SPON ADR 5,359,273 1.48 % EMIRATES NBD PJSC 5,344,356 1.47 % TAOYUAN CITY GOVERNMENT 5,306,000 1.46 % SUMITOMO MITSUI FINANCIAL GROUP INC. 5,285,025 1.46 % CHINA CONSTRUCTION BANK CORPORATION 5,270,028 1.45 % FIRST FINANCIAL HOLDING CO., LTD. 5,229,428 1.44 % PINGTUNG COUNTY GOVERNMENT 5,160,000 1.42 % ING GROEP NV 5,064,663 1.40 % LAND BANK OF TAIWAN CO., LTD. 5,063,149 1.40 % QUANTA COMPUTER CO., LTD. 5,032,766 1.39 % TAIWAN BUSINESS BANK CO., LTD. 5,032,431 1.39 % ABBVIE INC 5,003,606 1.38 % CHINA CINDA FINANCE 4,959,957 1.37 % DEPARTMENT OF RAPID TRANSIT SYSTEMS, TAIPEI CITY GOVERNMENT 4,956,000 1.37 % ASIA CEMENT CORPORATION 4,928,791 1.36 % NORDEA BANK AB 4,885,707 1.35 % (Continued) 235
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth GAZPROM VIA GAZ CAPITAL SA $ 4,872,280 1.34 % PERTAMINA PERSERO PT 4,863,005 1.34 % FINANCIAL INSTITUTION CLIENT OF THE CTBC CAPITAL CORP. 4,834,000 1.33 % VALE OVERSEAS LIMITED 4,814,656 1.33 % NATIONAL BANK OF CANADA 4,805,642 1.33 % MASTERLINK SECURITIES CO., LTD. 4,726,449 1.30 % HONGKONG GOVERNMENT 4,700,228 1.30 % DA-FU MEDIA CORP. 4,619,021 1.27 % THE SHANGHAI COMMERCIAL & SAVINGS BANK, LTD. 4,608,699 1.27 % WALT DISNEY COMPANY 4,608,345 1.27 % FORMOSA CHEMICALS & FIBRE CORPORATION 4,582,379 1.26 % REPUBLIC OF KOREA GOVERNMENT 4,567,680 1.26 % REPUBLIC OF SINGAPORE 4,539,894 1.25 % MANUFACTURING INDUSTRY CLIENT OF THE CTBC BANK (PHILIPPINES) CORP. 4,496,000 1.24 % MACQUARIE BANK LIMITED 4,495,180 1.24 % CANADIAN IMPERIAL BK OF COMM 4,470,165 1.23 % HUAKU DEVELOPMENT CO., LTD. 4,451,736 1.23 % SHIN KONG BANK CO., LTD. 4,432,877 1.22 % HONGKONG ELECTRIC FINANCE LTD 4,429,127 1.22 % SANTANDER INTERNATIONAL PRODUCT PLC. 4,370,175 1.21 % CHINA STATE GRID CORPORATION OF CHINA 4,368,612 1.20 % BANK OF AMERICA MERRILL 4,323,791 1.19 % CHINA OVERSEAS FINANCE CAYMA 4,278,579 1.18 % BAYER US FINANCE II LLC 4,266,261 1.18 % SHINHAN BANK 4,253,841 1.17 % PERSONAL CLIENT OF THE CTBC BANK (PHILIPPINES) CORP. 4,180,000 1.15 % KEB HANA BANK 4,171,665 1.15 % (Continued) 236
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth CATCHER TECHNOLOGY CO., LTD. $ 4,122,223 1.14 % GOLDMAN SACHS INTERNATIONAL 4,118,255 1.14 % TAQA ABU DHABI NATL ENER 4,084,849 1.13 % PHILLIPS 66 4,046,820 1.12 % ANHEUSER-BUSCH INBEV WORLDWIDE INC. 3,992,656 1.10 % FANNIE MAE 3,979,740 1.10 % KOREA DEVELOPMENT BANK, THE, SEOUL 3,950,959 1.09 % SUNCOR ENERGY INC 3,933,464 1.08 % PERSONAL CLIENT OF THE CTBC BANk CORP.(CANADA) 3,932,000 1.08 % AXA SA 3,885,402 1.07 % HIGH TECHNOLOGY INDUSTRY CLIENT OF THE TOKYO STAR BANK, LTD. 3,869,000 1.07 % PERUSAHAAN LISTRIK NEGARA PT 3,850,313 1.06 % ENBRIDGE INC. 3,779,457 1.04 % SULTANATE OF OMA 3,779,339 1.04 % SANTANDER UK PLC 3,724,625 1.03 % ALIBABA GROUP HOLDING LTD 3,719,682 1.03 % CHINA NATIONAL PETROLEUM CORPORATION 3,692,217 1.02 % BIOGEN INC. 3,684,735 1.02 % MORGAN STANLEY AND CO. INTERNATIONAL PLC (FOREIGN) 3,677,540 1.01 % BANK SINOPAC CO., LTD. 3,657,794 1.01 % NATIONWIDE BUILDING SOCIETY 3,632,046 1.00 % INDONESIA EXIMBANK 3,619,888 1.00 % SOUTHERN COPPER CORP 3,601,261 0.99 % OVERSEA CHINESE BANKING CORPORATION LIMITED 3,563,282 0.98 % ROGERS COMMINICATIONS INC. 3,472,776 0.96 % CORP NACIONAL DEL COBRE 3,434,277 0.95 % POWERTECH TECHNOLOGY INC. 3,422,548 0.94 % (Continued) 237
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth NB AlTERNATIVES ADVISERS LLC $ 3,412,499 0.94 % MORGAN STANLEY FINANCE LLC 3,407,915 0.94 % CHINA NETWORK SYSTEMS CO., LTD 3,353,426 0.92 % SANTANDER UK GROUP HOLDINGS 3,351,320 0.92 % PRUDENTIAL PLC. 3,327,231 0.92 % TENCENT HOLDING CO., LTD 3,318,062 0.91 % UNIMICRON TECHNOLOGY CORP. 3,296,475 0.91 % CHINA CINDA FINANCE 2017 I LTD 3,289,700 0.91 % CATHAY UNITED BANK., LTD 3,269,354 0.90 % WOORI BANK GROUP 3,265,313 0.90 % CSI FINANCIAL PRODUCTS LTD 3,265,295 0.90 % E. ON INTERNATIONAL FINACE BV 3,257,814 0.90 % MOROCCO GOVERNMENT 3,242,101 0.89 % SHIN KONG LIFE INSURANCE CO., LTD. 3,204,926 0.88 % TORONTO-DOMINION BANK 3,183,382 0.88 % FAR EAS TONE TELECOMMUICATIONS CO., LTD. 3,180,984 0.88 % ANHEUSER-BUSCH COS LLC / ANH 3,178,301 0.88 % TAIWAN FINANCE CORPORATION 3,176,279 0.88 % SHELL INTERNATIONAL FIN. 3,175,798 0.88 % RELIANCE INDUSTRIES LTD 3,174,979 0.88 % KAZMUNAYGAZ NATIONAL CO JSC 3,166,023 0.87 % SEMPRA ENERGY 3,163,516 0.87 % REAL ESTATE CLIENT OF THE CTBC Bank CORP.(CANADA) 3,136,000 0.86 % THE BANK OF YOKOHAMA, LTD. 3,107,278 0.86 % MIZUHO SECURITIES CO., LTD. 3,089,605 0.85 % ALTRIA GROUP INC 3,076,374 0.85 % ECOPETROL SA 3,069,551 0.84 % UNITEDHEALTH GROUP INCORPORATED 3,057,044 0.84 % FUBON SECURITIES CO., LTD. 3,046,910 0.83 % AIA GROUP LTD (HK) 3,016,600 0.83 %
(Continued) 238
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth INFRAESTRUCTURA ENERGETICA NOVA SAB DE CV $ 3,016,444 0.83 % TURKEY GOVERNMENT 3,015,528 0.83 % GOVERNMENT AGENCIES CLIENT OF THE CTBC BANK (PHILIPPINES) CORP. 3,009,000 0.83 % HSINCHU COUNTY GOVERNMENT 3,000,000 0.83 % CHANGHUA COUNTY GOVERNMENT 3,000,000 0.83 % B. The same related person Mr./Ms. Lu 15,062,066 4.15 % Mr./Ms. Wu 13,542,830 3.73 % Mr./Ms. Wang 11,069,130 3.05 % Mr./Ms. Chang 10,177,782 2.81 % Mr./Ms. Lee 9,776,612 2.70 % Mr./Ms. Du 6,822,671 1.88 % Mr./Ms. Wu 4,540,433 1.25 % Mr./Ms. Jhuang 4,371,181 1.21 % Mr./Ms. Liao 4,121,670 1.14 % Mr./Ms. Lee 4,078,984 1.12 % Mr./Ms. Chan 3,778,165 1.04 % Mr./Ms. Chan 3,778,165 1.04 % Mr./Ms. Chan 3,778,165 1.04 % Mr./Ms. Yu 3,762,038 1.04 % Mr./Ms. Chen 3,762,038 1.04 % Mr./Ms. Lee 3,639,484 1.00 % Mr./Ms. Lee 3,639,484 1.00 % Mr./Ms. Yang 3,639,484 1.00 % Mr./Ms. Jhuang 3,468,424 0.96 %
(Continued) 239
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth C. The same affiliate FANNIE MAE GROUP $ 46,821,098 12.91 % MERRILL LYNCH GROUP 39,858,580 10.99 % MORGANSTANLEY GROUP 39,239,097 10.82 % SHIN KONG GROUP 38,399,460 10.59 % GOLDMAN SACHS GROUP 36,185,603 9.98 % CITIGROUP GROUP 35,189,542 9.70 % HSBC HOLDINGS GROUP 33,741,152 9.30 % FUBON GROUP 32,844,148 9.06 % THE FAR EASTERN GROUP 31,012,983 8.55 % HON HAI FOXCONN GROUP 27,267,890 7.52 % JP MORGAN CHASE GROUP 26,696,784 7.36 % KAOHSIUNG CITY GOVERNMENT GROUP 24,618,783 6.79 % CITIC GROUP 24,204,375 6.67 % YUANTA FINANCIAL HOLDING GROUP 23,831,110 6.57 % CHINA DEVELOPMENT BANK GROUP 20,084,184 5.54 % NATIXIS GROUP 19,509,566 5.38 % UBS AG GROUP 19,331,970 5.33 % BOC GROUP 19,009,591 5.24 % CREDIT SUISSE GROUP 18,847,952 5.20 % LINYUAN GROUP 18,166,368 5.01 % RABOBANK NEDERLAND GROUP 17,736,715 4.74 % BARCLAYS BANK PLC GROUP 17,203,081 4.74 % ANHEUSER-BUSCH GROUP 16,917,092 4.66 % COMCAST CORP GROUP 16,465,438 4.54 % LLOYDS BANKING GROUP 15,942,729 4.40 % REPUBLIC OF INDONESIA GROUP 15,609,275 4.30 % TAIWAN CEMENT GROUP 14,849,535 4.09 % TAIWAN COOPERATIVE FINANCIAL HOLDING GROUP 14,776,035 4.07 % NATIONAL BANK OF ABU DHABI GROUP 14,289,957 3.94 % FIRST FINANCIAL HOLDING GROUP 14,151,836 3.90 %
(Continued) 240
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth FCFC GROUP $ 13,687,380 3.77 % CREDIT AGRICOLE SA GROUP 13,489,871 3.72 % MITSUBISHI UFJ FG GROUP 13,094,508 3.61 % TAIWAN TELECOM GROUP 12,685,902 3.50 % SOCIETE GENERALE GROUP 12,365,973 3.41 % WELLS FARGO & CO GROUP 12,079,510 3.33 % STANDARD CHARTERED GROUP 11,558,719 3.19 % BANCO SANTANDER GROUP 11,446,120 3.16 % THE CAPITAL SECURITIES GROUP 11,278,376 3.11 % ANZ BANKING GROUP 11,268,505 3.11 % MEGA HOLDING GROUP 11,176,536 3.08 % UMC GROUP 11,035,384 3.04 % YULON GROUP 10,866,040 3.00 % SOUTHERN POWER COMPANY GROUP 10,174,438 2.81 % CNOOC GROUP 10,018,860 2.76 % CHINA CINDA GROUP 9,960,537 2.75 % ENEL SPA GROUP 9,953,573 2.74 % NOMURA HOLDINGS INC. GROUP 9,834,451 2.71 % HONTAI GROUP 9,823,002 2.71 % ICBC GROUP 9,731,127 2.68 % AIG GROUP 9,265,616 2.55 % AUO GROUP 8,992,800 2.48 % HUA NAN FINANCIAL HOLDING GROUP 8,902,644 2.45 % ING BANK GROUP 8,326,643 2.30 % MANULIFE FIN GROUP 8,207,375 2.26 % PHOENIX PROPERTY INVESTORS GROUP 7,929,510 2.19 % RUENTEX GROUP 7,822,698 2.16 % CHINA HUARONG ASSET MANAGEMENT GROUP 7,617,121 2.10 % UNITED OVERSEAS BANK GROUP 7,503,762 2.07 %
(Continued) 241
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth SINOPEC GROUP $ 7,436,400 2.05 % PRUDENTIAL FINANCIAL INC. GROUP 7,283,946 2.01 % SUMITOMO MITSUI BANKING CORPORATION GROUP 6,945,962 1.92 % ENBRIDGE INC GROUP 6,852,532 1.89 % CPC GROUP 6,598,862 1.82 % BANK OF COMMUNICATIONS GROUP 6,466,631 1.78 % FORMOSA GROUP 6,353,763 1.75 % CHINA OVERSEAS LAND & INVESTMENT GROUP 6,330,427 1.75 % CHINA DEVELOPMENT BANK GROUP 6,325,557 1.74 % LITEON GROUP 6,102,393 1.68 % GAW CAPITAL GROUP 5,968,501 1.65 % CCB GROUP 5,887,349 1.62 % TING HSIN INTERNATIONAL GROUP 5,828,701 1.61 % CHINA STEEL GROUP 5,796,967 1.60 % RELIANCE INDUSTRIES LTD GROUP 5,792,017 1.60 % ROYAL BANK OF SCOTLAND GROUP 5,627,395 1.55 % THE SHANGHAI COMMERCIAL & SAVINGS GROUP 5,625,960 1.55 % E.SUN FINANCIAL HOLDING GROUP 5,507,093 1.52 % WALSIN LIHWA GROUP 5,405,826 1.49 % PERUSAHAAN LISTRIK NEGARA GROUP 5,239,193 1.44 % KINGSTON GROUP 5,210,630 1.44 % QUANTA COMPUTER GROUP 5,038,904 1.39 % VILC GROUP 4,944,463 1.36 % NEW CHARM GROUP 4,675,569 1.29 % CHINA STATE GRID CORP. GROUP 4,510,379 1.24 % EVERGREEN GROUP 4,407,902 1.22 % SPORTS CITY INTERNATIONAL GROUP 4,355,607 1.20 % MIZUHO BANK GROUP 4,324,321 1.19 %
(Continued) 242
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth CNPC GROUP $ 4,320,364 1.19 % HFF GROUP 4,270,185 1.18 % CATCHER GROUP 4,202,141 1.16 % SAN MIGUEL GROUP 4,201,520 1.16 % GVL GROUP 4,160,957 1.15 % UNI-PRESIDENT GROUP 4,099,679 1.13 % SINOPAC FINANCIAL HOLDING GROUP 4,049,292 1.12 % WOORI BANK GROUP 3,886,753 1.07 % AXA SA GROUP 3,885,418 1.07 % ASUS GROUP 3,764,312 1.04 % SALIM GROUP 3,669,618 1.01 % YUANLIH GROUP 3,596,788 0.99 % KEELUNG CITY GOVERNMENT GROUP 3,593,300 0.99 % ASE GROUP 3,590,364 0.99 % SINOCHEM GROUP 3,584,790 0.99 % ALLIANZ GROUP 3,527,919 0.97 % ROYAL DUTCH SH-A GROUP 3,452,971 0.95 % BEIJING ENTERPRISES HOLDINGS GROUP 3,382,296 0.93 % FCL GROUP 3,362,390 0.93 % TOPMSO GROUP 3,343,766 0.92 % SPEASPAN GROUP 3,339,037 0.92 % THE BANK OF EAST ASIA GROUP 3,248,218 0.90 % IBT LEASING GROUP 3,205,724 0.88 % CKHH GROUP 3,101,009 0.86 % WINLINK FASTENERS GROUP 3,041,185 0.84 % CHINA ORIENT ASSET MANAGEMEN GROUP 3,003,491 0.83 %
(Continued) 243
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Note: 1. If the aggregate amount of credit extended, guarantees given, or any other transactions conducted by all subsidiaries of the financial holding company to, for, or with the same person, same related person or same affiliate is greater than the lower of 5% of net worth of the financial holding company or NT$3 billion, the related transaction information needs to be filed according to the table refer above. 2. Credit includes loans, discounts, overdrafts, acceptances, guarantees and other lines of business operations designated by the Central Competent Authority. 3. Guarantees here are indicative of endorsements and guarantees of bills finance corporations. 4. Other transactions with the same person, same related person, or same affiliate (thereinafter referred to as “the affiliates”) here are indicative of the transactions listed below: (1) Investment in or purchase of securities issued by any of the affiliates mentioned in the preceding paragraph; (2) Purchase of real estate or other assets from any of the affiliates mentioned in the preceding paragraph; (3) Sale of securities, real estate or other assets to any of the affiliates mentioned in the preceding paragraph; (4) Entering into agreements regarding payment of money or provision of services with any of the affiliates mentioned in the preceding paragraph; (5) Arrangements involving any of the affiliates mentioned in the preceding paragraph acting as an agent or broker of a financial holding company or its subsidiaries or providing other services which charge commission or fees; (6) Engaging in transactions with third parties having a relationship with any of the affiliates mentioned in the preceding paragraph or engaging in transactions with third parties in which the affiliates mentioned in the preceding paragraph are involved; and (7) The amount of the transactions with the affiliates mentioned in the preceding paragraph shall not include negotiable certificates of deposit issued by a bank subsidiary.
(Continued) 244
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
CTBC Financial Holding Co., Ltd. BALANCE SHEETS June 30, 2019, December 31, 2018 and June 30, 2018 (Expressed in Thousands of New Taiwan Dollars)
(c) Financial statements of the Parent company
June 30, 2019 December 31, 2018 June 30, 2018 June 30, 2019 December 31, 2018 June 30, 2018 Assets Amount ％ Amount ％ Amount ％ Liabilities and Equity Amount % Amount % Amount % 11000 Cash and cash equivalents $ 242,586 - 148,138 - 807,225 - Liabilities： 12150 Financial assets measured at fair value through other 15,029,530 3 478,440 - 506,520 - 22600 Commercial papers payable-net $ 32,830,570 8 31,668,251 9 7,649,256 2 comprehensive income 23000 Payables 21,237,842 5 1,441,369 - 22,265,319 6 12500 Securities purchased under resell agreements 6,055,308 1 - - - - 23200 Current income tax liabilities 576,585 - 1,354,931 - 1,354,931 - 13000 Receivables-net 4,040 - 12 - 3 - 24000 Bonds payable 24,200,000 6 23,800,000 7 27,000,000 7 13200 Current income tax assets 264 - 379,438 - 427,406 - 24600 Provisions 18,288 - 20,058 - 7,995 - 15000 Investments under equity method-net 420,054,051 96 372,444,351 100 369,116,651 100 26000 Lease liabilities 14,992 - - - - - 15500 Other financial assets-net 6,600 - - - - - 29300 Deferred income tax liabilities - - 9 - 3 - 18500 Premises and equipment-net 76,089 - 78,127 - 79,864 - 29500 Other liabilities - - 206,812 - - - 18600 Right-of-use of assets-net 14,737 - - - - - Total Liabilities 78,878,277 19 58,491,430 16 58,277,504 15 19000 Intangible assets-net 6,844 - 3,328 - 1,404 - Stockholders’ Equity - Parent Company： 19300 Deferred income tax assets 5,885 - 5,885 - 3,188 - Capital stock： 19500 Other assets-net 33,013 - 26,175 - 14,494 - 31101 Common stock 194,969,896 44 194,969,896 52 194,969,896 53 31103 Preferred stock 4,999,900 1 3,333,300 1 3,333,300 1 31500 Capital surplus 58,686,089 14 50,368,539 14 50,368,539 14 Retained earnings： 32001 Legal reserve 27,793,018 6 24,189,775 6 24,189,775 7 32003 Special reserve 50,412,813 11 29,719,062 8 29,719,062 8 32011 Undistributed earnings 24,175,372 5 48,945,112 13 35,099,203 9 32500 Other equity interest 1,613,582 - (36,453,220) (10) (25,000,524) (7) Total Equity 362,650,670 81 315,072,464 84 312,679,251 85 Total assets $ 441,528,947 100 373,563,894 100 370,956,755 100 Total Liabilities and Equity $ 441,528,947 100 373,563,894 100 370,956,755 100
(Continued) 245
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
CTBC FINANCIAL HOLDING CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME For the three and six months ended June 30, 2019 and 2018 (Expressed In Thousands of New Taiwan Dollars)
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Amount ％ Amount ％ Amount % Amount % Income： Proportionate share of gains $ 10,224,030 100 11,230,470 100 22,013,411 100 23,849,226 100 from associates or joint ventures under equity method Other income 6,372 - 4,189 - 86,809 - 58,812 - Expenses and Losses： Operating expenses (445,171) (4) (389,713) (3) (820,374) (4) (764,662) (3) Other expenses and losses (137,214) (1) (127,604) (1) (293,423) (1) (272,544) (1) Net Income before Tax 9,648,017 95 10,717,342 96 20,986,423 95 22,870,832 96 Less: Income tax expense 326,603 3 1,042,654 9 591,420 3 968,341 4 Net Income 9,321,414 92 9,674,688 87 20,395,003 92 21,902,491 92 Other comprehensive income 14,044,220 137 (3,454,502) (31) 37,454,647 169 (16,428,923) (69) (losses) (net amount after tax) Total Comprehensive Income $ 23,365,634 229 6,220,186 56 57,849,650 261 5,473,568 23
Basic EPS (in NT dollars) $ 0.44 0.50 1.01 1.12
(Continued) 246
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements
CTBC FINANCIAL HOLDING CO., LTD. Statements of Changes in Stockholder's Equity For the six months ended June 30, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars)
Share capital Retained earnings Total other equity interest Changes in Unrealised (losses) designated as Exchange gains on financial financial liabilities Other differences of assets measured at measured at fair comprehensive overseas fair value through Unrealized (losses) value through income on subsidiaries’ other gains on available- profit or loss reclassification Common Capital Legal Special Undistributed financial reports comprehensive for-sale attributable to under the overlay stock Preferred share surplus reserve reserve earnings translation income financial assets credit loss approach Treasury stock Total equity Balance at January 1, 2018 $ 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,417,514 (8,728,029) - (5,608,490) (1,422,950) - (582,754) 320,900,639 Effects of retrospective application of new standards - - - - - 276,540 (804) (646,184) 5,608,490 - 1,552,859 - 6,790,901
Balance at January 1, 2018 after adjustments 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,694,054 (8,728,833) (646,184) - (1,422,950) 1,552,859 (582,754) 327,691,540 Net income - - - - - 21,902,491 ------21,902,491 Other comprehensive income (losses) - - - - - 20,888 1,502,870 (13,751,657) - 252,236 (4,453,260) - (16,428,923) Total comprehensive income (losses) - - - - - 21,923,379 1,502,870 (13,751,657) - 252,236 (4,453,260) - 5,473,568 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 3,722,222 - (3,722,222) ------Cash dividends - common stock - - - - - (21,056,749) ------(21,056,749) Cash dividends - preferred stock - - - - - (14,383) ------(14,383) Reversal of special reserve - - - - (969,519) 969,519 ------Disposal of investments in equity instruments designated at fair - - - - - (694,395) - 694,395 - - - - - value through other comprehensive income Others - - (306) ------(306) Disposal of treasury stock - - 2,827 ------582,754 585,581 Balance at June 30, 2018 $ 194,969,896 3,333,300 50,368,539 24,189,775 29,719,062 35,099,203 (7,225,963) (13,703,446) - (1,170,714) (2,900,401) - 312,679,251
Balance at January 1,2019 $ 194,969,896 3,333,300 50,368,539 24,189,775 29,719,062 48,945,112 (6,844,471) (18,434,666) - (310,604) (10,863,479) - 315,072,464 Net income - - - - - 20,395,003 ------20,395,003 Other comprehensive income (losses) - - - - - (7,375) 2,760,635 21,034,140 - 2,180,513 11,486,734 - 37,454,647 Total comprehensive Income (losses) - - - - - 20,387,628 2,760,635 21,034,140 - 2,180,513 11,486,734 - 57,849,650 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 3,603,243 - (3,603,243) ------Special reserve appropriated - - - - 20,693,751 (20,693,751) ------Cash dividends - common stock - - - - - (19,496,990) ------(19,496,990) Cash dividends - preference share - - - - - (749,992) ------(749,992) Issuance of preferred stock - 1,666,600 8,315,380 ------9,981,980 Share-based payment - - 2,170 ------2,170 Disposal of investments in equity instruments designated at fair - - - - - (604,780) - 604,780 - - - - - value through other comprehensive income Others - - - - - (8,612) ------(8,612) Balance at June 30, 2019 $ 194,969,896 4,999,900 58,686,089 27,793,018 50,412,813 24,175,372 (4,083,836) 3,204,254 - 1,869,909 623,255 - 362,650,670
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
CTBC FINANCIAL HOLDING CO., LTD. Statements of Cash Flows For the six months ended June 30, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars)
For the six months ended June 30 2019 2018 Cash Flows from Operating Activities: Net Income before Tax $ 20,986,423 22,870,832 Adjustments: Income and expenses items with no effect on cash flow: Adjustments to reconcile profit (loss) Depreciation expense 6,195 3,044 Amortization expense 998 228 Interest expenses 293,423 272,558 Interest income (8,843) (6,716) Share based payment transactions 51 - Proportionate share of gains from associates or joint ventures under equity method (22,013,411) (23,849,226) Subtotal of income and expense items with no effect on cash flows (21,721,587) (23,580,112) Changes in Operating Assets and Liabilities： Net Changes in Operating Assets： (Increase) decrease in financial assets at fair value through other comprehensive (14,233,688) 1,679,510 income Decrease(increase) in receivables 6 (3) (Increase)decrease in other assets (6,838) 4,422 Net Changes in Operating Assets (14,240,520) 1,683,929 Net Changes in Operating Liabilities： Decrease in payables (444,325) (186,998) Decrease in employee benefits liabilities (1,770) (634) Decrease in other liabilities (206,812) (171,569) Net Changes in Operating Liabilities (652,907) (359,201) Net Changes in Operating Assets and Liabilities (14,893,427) 1,324,728 Total Adjustments (36,615,014) (22,255,384) Interest received 4,809 6,725 Dividends received 21,534,226 18,085,663 Interest paid (97,047) (170,189) Income tax paid (990,601) - Income tax refund - 315,265 Net Cash Provided by Operating Activities 4,822,796 18,852,912 Cash Flows from Investing Activities： Purchase of premises and equipment (1,156) (821) Disposal of premises and equipment 31 - Purchase of intangible assets (4,514) - Purchase of securities under resell agreements (6,055,308) - Increase in other financial assets (6,600) - Net Cash Used in Investing Activities (6,067,547) (821) Cash Flows from Financing Activities： Increase (decrease) in commercial paper payable 1,162,319 (37,107,710) Issuance of corporate bonds 10,000,000 - Repayments of bonds (9,600,000) - Repayments of lease liabilities principal (2,777) - Issuance of preferred stock 9,981,817 - Disposal of treasury stock - 585,581 Purchase of subsidiarys' equity (9,999,600) - interest paid (202,560) (202,560) Other - (306) Net Cash Provided by (Used in) Financing Activities 1,339,199 (36,724,995) Net Increase (Decrease) in Cash and Cash Equivalents 94,448 (17,872,904) Cash and Cash Equivalents, at the Beginning of the Period 148,138 18,680,129 Cash and Cash Equivalents, at the End of the Period $ 242,586 807,225
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(d) The condensed balance sheets and condensed comprehensive income statements of financial holding company’s subsidiaries (i) CTBC Bank Co., Ltd. 1) Condensed Balance Sheets Unit: In Thousands of New Taiwan Dollars June 30, 2019 June 30, 2018 Cash and cash equivalents $ 80,346,167 73,000,777 Due from Central Bank and call loans to banks 156,404,388 128,827,282 Financial assets measured at fair value through profit or 145,670,751 158,493,884 loss Financial assets measured at fair value through other 242,991,193 153,146,557 comprehensive income Investments in debt instruments at amortised cost 641,997,719 595,204,441 Financial instruments－hedging－net 189,815 148,808 Securities purchased under resell agreements 1,313,271 741,879 Receivables－net 166,124,072 146,877,638 Current income tax assets 791,669 458,524 Loans－net 1,770,965,163 1,630,737,935 Investments under equity method－net 95,893,866 84,846,205 Other financial assets－net 1,609,904 1,367,240 Premises and equipment－net 45,822,473 44,558,477 Right-of-use assets－net 13,836,312 - Investment property－net 1,724,951 1,849,974 Intangible assets－net 13,062,149 12,611,944 Deferred income tax assets 3,821,509 4,759,344 Other assets－net 20,368,130 17,962,159 Total assets 3,402,933,502 3,055,593,068 Deposits from Central Bank and other banks 49,747,677 57,649,796 Due to Central Bank and other banks 200,465 590,322 Financial liabilities measured at fair value through profit 95,445,720 88,149,130 or loss Financial instruments－hedging－net 47,038 453,506 Securities sold under repurchase agreements 105,431,423 45,484,622 Payables 76,077,478 63,362,404 Current income tax liabilities 2,762,547 2,622,901 Deposits and remittances 2,671,820,095 2,423,046,344 Financial debentures 58,999,974 67,909,752 Other financial liabilities 13,036,447 10,965,458 Provisions 4,869,230 5,126,261 Lease liabilities 11,315,173 - Deferred income tax liabilities 2,129,473 987,061 Other liabilities 12,649,691 8,958,730 Total liabilities 3,104,532,431 2,775,306,287 Common stock 140,685,719 140,685,719 Provision for capital increase 3,413,035 - Capital surplus 29,790,291 29,788,688 Retained earnings 123,658,063 119,130,489 Other equity interest 853,963 (9,318,115) Total equity 298,401,071 280,286,781 Total liabilities and equity 3,402,933,502 3,055,593,068
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Interest revenues $ 32,368,364 74 27,839,812 68 Less: Interest expenses (12,861,332) (29) (10,014,478) (24) Net interest income 19,507,032 45 17,825,334 44 Non-interest income－net 24,134,228 55 22,882,136 56 Net revenue 43,641,260 100 40,707,470 100 Provisions for bad debt expenses, (2,255,457) (5) (1,870,850) (5) commitments and guarantee reserve Operating expenses (22,709,105) (52) (20,814,760) (51) Net income before tax from continuing 18,676,698 43 18,021,860 44 operations Less: Income tax expenses 3,401,366 8 2,035,946 5 Net income 15,275,332 35 15,985,914 39 Other comprehensive income 8,488,121 19 1,314,080 3 Total comprehensive income 23,763,453 54 17,299,994 42 EPS—net income (after tax) (in NT dollars) 1.09 1.14
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) CTBC Securities Co., Ltd.
1) Condensed Balance Sheets
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Current assets $ 25,139,681 22,407,334 Financial assets measured at fair value through other 34,560 32,836 comprehensive income－non-current Investments under equity method－net 563,867 241,953 Premises and equipment－net 88,224 81,002 Right-of-use assets 23,026 - Investment property－net 47,119 47,526 Intangible assets－net 57,561 54,650 Deferred income tax assets 113,713 115,063 Other non-current assets 433,634 436,042 Total assets 26,501,385 23,416,406 Current liabilities 18,857,280 15,753,037 Provisions－non-current liabilities 48,869 60,639 Lease liabilities－non-current 23,174 - Deferred income tax liabilities - 10,122 Other non-current liabilities 220 - Total liabilities 18,929,543 15,823,798 Common stock 6,027,140 6,027,140 Capital surplus 796,261 796,191 Retained earnings 764,678 843,754 Other equity interest (16,237) (74,477) Total equity 7,571,842 7,592,608 Total liabilities and equity 26,501,385 23,416,406
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Revenues $ 708,937 100 932,004 100 Service fee expenses (30,460) (4) (34,704) (4) Employee benefits expenses (277,656) (39) (310,439) (33) Proportionate share of gain (losses) from 27,078 4 (3,136) - associates or joint ventures under equity method Operating expenses (200,933) (29) (221,530) (24) Net income before tax from continuing 226,966 32 362,195 39 operations Less: Income tax expense 24,929 4 35,024 4 Net income 202,037 28 327,171 35 Other comprehensive income (losses) 47,146 7 (4,876) - Total comprehensive income 249,183 35 322,295 35 EPS—net income (after tax) (in NT dollars) 0.34 0.54
(iii) CTBC Venture Capital Co., Ltd.
1) Condensed Balance Sheets
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Current assets $ 496,656 273,895 Financial assets measured at fair value through profit or 4,191,579 4,047,527 loss Investments under equity method－net 24,191 23,816 Premises and equipment－net 4,613 5,090 Intangible assets 229 - Deferred income tax assets 33,934 17,517 Other non-current assets 1,237 1,578 Total assets 4,752,439 4,369,423 Current liabilities 887,919 491,548 Deferred income tax liabilities 198 70 Total liabilities 888,117 491,618 Common stock 3,519,581 3,245,169 Capital surplus 1,085 1,081 Retained earnings 343,697 631,274 Other equity interest (41) 281 Total equity 3,864,322 3,877,805 Total liabilities and equity 4,752,439 4,369,423
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Operating revenues $ 418,698 100 385,304 100 Operating costs (147,461) (35) (6,117) (2) Operating expenses (46,591) (11) (50,728) (13) Operating income 224,646 54 328,459 85 Non-operating income and expense 5,268 1 3,595 1 Net income before tax from continuing 229,914 55 332,054 86 operations Less: Income tax (benefit) expense (21,786) (5) 12,056 3 Net income 251,700 60 319,998 83 Other comprehensive income 206 - 75 - Total comprehensive income 251,906 60 320,073 83 EPS－net income (after tax) (in NT dollars) 0.72 0.91
(iv) CTBC Asset Management Co., Ltd.
1) Condensed Balance Sheets
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Current assets $ 75,187 44,286 Financial assets measured at fair value through profit or 527,380 671,919 loss Investments under equity method－net 1,418,443 1,472,663 Premises and equipment－net 1,026 1,032 Right-of-use assets 4,442 - Investment properties－net 5,576,695 5,379,630 Intangible assets－net 157 167 Deferred income tax assets 55,386 44,332 Other non-current assets 1,200 3,855 Total assets 7,659,916 7,617,884 Current liabilities 2,279,531 2,148,409 Lease liabilities 4,461 - Deferred income tax liabilities 72 21,785 Other non-current liabilities 38,346 664 Total liabilities 2,322,410 2,170,858 Common stock 5,358,820 5,358,820 Capital surplus 450 448 Retained earnings 28,021 118,711 Other equity interest (49,785) (30,953) Total equity 5,337,506 5,447,026 Total liabilities and equity 7,659,916 7,617,884
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Operating revenues $ 59,196 100 86,412 100 Operating costs (19,340) (33) (25,756) (30) Operating expenses (40,168) (68) (34,123) (39) Operating (losses) income (312) (1) 26,533 31 Non-operating income and expenses (15,527) (26) 70,347 81 Net income before tax from continuing (15,839) (27) 96,880 112 operations Less: Income tax expense 1,584 3 9,559 11 Net (losses) income (17,423) (30) 87,321 101 Other comprehensive income 12,389 21 5,306 6 Total comprehensive (losses) income (5,034) (9) 92,627 107 EPS—net (losses) income (after tax) (in NT (0.03) 0.16 dollars)
(v) CTBC Security Co., Ltd.
1) Condensed Balance Sheets
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Current assets $ 95,027 99,539 Premises and equipment－net 1,917 2,229 Other non-current assets 666 666 Deferred income tax assets 718 814 Total assets 98,328 103,248 Current liabilities 29,833 31,672 Other non-current liabilities 11,769 16,106 Total liabilities 41,602 47,778 Common stock 47,695 47,695 Capital surplus 743 739 Retained earnings 8,288 7,036 Total equity 56,726 55,470 Total liabilities and equity 98,328 103,248
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Operating revenues $ 115,255 100 115,729 100 Operating costs (102,063) (89) (104,240) (90) Operating expenses (9,172) (8) (8,391) (7) Operating income 4,020 3 3,098 3 Non-operating income and expenses 246 - 246 - Net income before tax from continuing 4,266 3 3,344 3 operations Less: Income tax expense 970 1 715 1 Net income 3,296 2 2,629 2 Total comprehensive income 3,296 2 2,629 2 EPS－net income (after tax) (in NT dollars) 0.69 0.55
(vi) Taiwan Lottery Co., Ltd.
1) Condensed Balance Sheets
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Current assets $ 1,032,565 843,152 Premises and equipment－net 95,809 118,777 Intangible assets－net 25,900 29,966 Deferred income tax assets 7,231 6,819 Other non-current assets 51,002 20,296 Total assets 1,212,507 1,019,010 Current liabilities 247,707 206,106 Other non-current liabilities 160 1,760 Total liabilities 247,867 207,866 Common stock 500,000 500,000 Capital surplus 9,895 9,865 Retained earnings 454,745 301,279 Total equity 964,640 811,144 Total liabilities and equity 1,212,507 1,019,010
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Operating revenues $ 970,253 100 818,016 100 Operating expenses (579,149) (60) (600,179) (73) Operating income 391,104 40 217,837 27 Non-operating income and expenses 5,698 1 923 - Net income before tax from continuing 396,802 41 218,760 27 operations Less: Income tax expense 79,900 8 42,481 5 Net income 316,902 33 176,279 22 Total comprehensive income 316,902 33 176,279 22 EPS－net income (after tax) (in NT dollars) 6.34 3.53
(vii) Taiwan Life Insurance Co., Ltd.
1) Condensed Balance Sheets
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Cash and cash equivalents $ 64,973,776 52,605,683 Receivables 23,087,042 20,630,062 Current income tax assets 2,284,464 516,220 Financial assets measured at fair value through profit or 251,226,171 152,928,372 loss Financial assets measured at fair value through other 230,185,255 182,665,622 comprehensive income Financial assets at amortised cost 1,061,040,177 998,722,371 Investments under equity method－net 18,689,805 19,073,599 Other financial assets－net 2,089,314 2,906,785 investment properties 70,749,234 54,230,111 Loans 51,464,486 50,899,386 Reinsurance assets 1,456,505 1,760,759 Premises and equipment 4,642,777 4,399,779
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2019 June 30, 2018 Right-od-use assets $ 94,853 - Intangible assets 7,085,791 6,862,311 Deferred income tax assets 3,571,837 6,919,938 Other assets 11,047,456 23,239,330 Separated account insurance product assets 86,970,082 71,273,280 Total assets 1,890,659,025 1,649,633,608 Payables 15,455,034 13,221,188 Current income tax liabilities 135,552 348,647 Financial liabilities measured at fair value through profit or 13,584,773 18,660,760 loss Bonds payables 15,126,438 15,923,483 Other financial liabilities 155,360 - Lease liabilities 1,180,980 - Insurance liabilities 1,641,458,003 1,447,777,874 Reserve for insurance policies with financial instrument 2,616 3,442 features Foreign exchange rate fluctuation reserves 2,930,940 1,965,103 Provisions 111,286 160,504 Deferred income tax liabilities 2,698,121 1,230,865 Other liabilities 1,082,361 1,809,473 Separated account insurance product liabilities 86,970,082 71,273,280 Total liabilities 1,780,891,546 1,572,374,619 Common stock 45,124,335 31,944,991 Stock dividend to be distributed - 9,846,144 Capital surplus 33,946,149 27,279,200 Retained earnings 22,871,980 16,477,260 Other equity interest 7,825,015 (8,288,606) Total equity 109,767,479 77,258,989 Total liabilities and equity 1,890,659,025 1,649,633,608
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Operating revenues $ 153,248,476 100 157,870,553 100 Operating costs (144,838,205) (94) (148,391,611) (94) Operating expenses (2,119,348) (1) (2,379,549) (1) Operating income 6,290,923 5 7,099,393 5 Non-operating revenues and expenses 21,109 - (47,399) - Net income before tax from continuing 6,312,032 5 7,051,994 5 operations Less: Income tax expense 439,722 - 256,729 - Net Income 5,872,310 5 6,795,265 5 Other comprehensive income (losses) 28,590,920 19 (17,759,301) (12) Total comprehensive income (losses) 34,463,230 24 (10,964,036) (7) EPS—net income (after tax) (in NT dollars) 1.36 1.63
(viii) CTBC Investments Co., Ltd.
1) Condensed Balance Sheets
Unit: In Thousands of New Taiwan Dollars
June 30, 2019 June 30, 2018 Current assets $ 410,932 494,875 Financial assets measured at fair value through profit or 27,746 27,808 loss Premises and equipment－net 18,669 20,223 Right-of-use assets 1,051 - Intangible assets 17,855 16,730 Deferred income tax assets 6,215 14,804 Other non-current assets 123,149 57,725 Total assets 605,617 632,165 Current liabilities 114,740 133,370 Lease liabilities 1,059 - Total liabilities 115,799 133,370 Common stock 425,000 425,000 Capital surplus 155,967 155,950 Accumulated deficits (91,149) (82,155) Total equity 489,818 498,795 Total liabilities and equity 605,617 632,165
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Condensed Comprehensive Income Statement
Unit: In Thousands of New Taiwan Dollars
For the six months ended June 30 2019 % 2018 % Operating revenues $ 300,888 100 241,150 100 Operating expenses (291,658) (97) (253,749) (105) Operating income (losses) 9,230 3 (12,599) (5) Non-operating revenues and expenses 1,631 1 3,038 1 Net income (losses) before tax from 10,861 4 (9,561) (4) continuing operations Less: Income tax expense (benefit) 3,536 1 (7,922) (3) Net income (losses) 7,325 3 (1,639) (1) Total comprehensive income 7,325 3 (1,639) (1) EPS—net income (losses) (after tax) (in NT 0.17 (0.04) dollars)
(e) Profitability of the Company
Unit: %
Items June 30, 2019 June 30, 2018 Return on assets ratio (annual) Before income tax 10.30 11.95 After income tax 10.01 11.45 Return on equity ratio (annual) Before income tax 12.39 14.44 After income tax 12.04 13.83 Net income ratio 93.53 92.67
Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.
Note 2: Return on equity ratio = Net income before/after income tax ÷ average total equity.
Note 3: Return on common equity ratio = (Net income before/after income tax－preferred stock dividend) ÷ average total common equity. As of June 30, 2019, the Company’s return on common equity ratio (annual) before and after income tax were 13.13% and 12.76%, respectively. As of June 30, 2018, the Company’ s return on common equity ratio (annual) before and after income tax were 15.41% and 14.75%, respectively.
Note 4: Net income ratio = Net income after income tax ÷ Net revenue.
Note 5: Return on assets ratio, Return on equity ratio and Return on common equity ratio are annualized ratios.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(f) Profitability of the Company and subsidiaries Unit: % Items June 30, 2019 June 30, 2018 Return on assets ratio (annual) Before income tax 0.86 0.96 After income tax 0.68 0.80 Return on equity ratio Before income tax 15.17 16.54 (annual) After income tax 12.04 13.83 Net income ratio 15.84 15.09
Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets. Note 2: Return on equity ratio = Net income before/after income tax ÷ average total equity. Note 3: Return on common equity ratio = (Net income before/after income tax－preferred stock dividend) ÷ average total common equity. As of June 30, 2019, the Company’s return on common equity ratio (annual) before and after income tax were 16.14% and 12.76%, respectively. As of June 30, 2018, the Company’ s return on common equity ratio (annual) before and after income tax were 17.65% and 14.75%, respectively. Note 4: Net income ratio = Net income after income tax ÷ Net revenue. Note 5: Return on assets ratio, Return on equity ratio and Return on common equity ratio are annualized ratios.
(g) Profitability of the Company’s subsidiaries
(i) Profitability of CTBC Bank Co., Ltd. and subsidiaries
Unit: %
Items June 30, 2019 June 30, 2018 Return on assets ratio (annual) Before income tax 0.95 0.99 After income tax 0.75 0.84 Return on equity ratio (annual) Before income tax 13.10 13.53 After income tax 10.28 11.42 Net income ratio 29.59 32.97
Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets. Note 2: Return on common equity ratio = Net income before/after income tax ÷ average total equity. Note 3: Net income ratio = Net income after income tax ÷ Net revenue. Note 4: Net income before/after tax represented accumulated income of the current year. Note 5: Both Return on assets ratio and Return on equity ratio are annualized ratios.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) Profitability of CTBC Securities Co., Ltd. and subsidiaries
Unit: %
Items June 30, 2019 June 30, 2018 Return on assets ratio (annual) Before income tax 1.91 2.97 After income tax 1.70 2.68 Return on equity ratio (annual) Before income tax 6.01 9.69 After income tax 5.35 8.75 Net income ratio 28.56 35.92
Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.
Note 2: Return on common equity ratio = Net income before/after income tax ÷ average total equity.
Note 3: Net income ratio = Net income after income tax ÷ Net revenue.
Note 4: Net income before/after tax represented accumulated income of the current year.
Note 5: Both Return on assets ratio and Return on equity ratio are annualized ratios.
(iii) Profitability of Taiwan Life Insurance Co., Ltd. and subsidiaries
Unit: %
Items June 30, 2019 June 30, 2018 Return on assets ratio (annual) Before income tax 0.72 0.88 After income tax 0.66 0.85 Return on equity ratio (annual) Before income tax 15.10 17.74 After income tax 13.92 17.07 Net income ratio 7.71 7.12
Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.
Note 2: Return on common equity ratio = Net income before/after income tax ÷ average total equity.
Note 3: Net income ratio = Net income after income tax ÷ Net revenue.
Note 4: Net income before/after tax represented accumulated income of the current year.
Note 5: Both Return on assets ratio and Return on equity ratio are annualized ratios.
(Continued) 261
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(h) Related information of its subsidiaries’ investments in Mainland China: Please refer to Note 13(c).
(i) Significant commitments and contingencies of its subsidiaries: Please refer to Note 9.
(j) Significant catastrophic losses of its subsidiaries: None.
(k) Significant subsequent events of its subsidiaries: Please refer to Note 11.
(l) Related party transactions of the Company’s subsidiaries of $100 million or more are summarized as follow:
(i) CTBC Bank Co., Ltd.
1) Names of related parties and their relationship
Name of related party Relationship with the Bank CTBC Financial Holding Co., Ltd. Parent company of the Bank. CTBC Bank (Philippines) Corp. An investee company carried under equity method by the Bank. PT Bank CTBC Indonesia 〃 CTBC Bank Corp. (Canada) 〃 CTBC Capital Corp. 〃 The Tokyo Star Bank, Ltd. 〃 LH Financial Group Public Company Limited 〃 Grand Bills Finance Corporation 〃 Xiamen Jinmeixin Consumer Finance Co., Ltd. 〃 CTBC Bank Corp. (USA) An investee company carried under equity method by CTBC Capital Corp. Tokyo Star Business Finance, Ltd. An investee company carried under equity method by The Tokyo Star Bank, Ltd. TSB Servicer, Ltd. 〃 Taiwan Institute of Economic Research The Bank contributed over 1/3 of its total funds. CTBC Charity Foundation 〃 CTBC Culture Foundation 〃 CTBC Anti-Drug Education Foundation 〃 CTBC Business School The company which is controlled by the same company as the Bank contributed over 1/3 of its total funds. Showa Denko HD Trace Corp. The Chairman of the Bank is its director. Finace Information Service Co., Ltd. The Vice-Chairman of the Bank is its director. Kinpo Electronics Co., Ltd. The Chairman of the Bank's subsidiary is its director. Hon Hai Precision Industry Co., Ltd. 〃 CTBC Securities Co., Ltd. Controlled by the same company as the Bank. (Continued) 262
CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Name of related party Relationship with the Bank CTBC Asia Limited Controlled by the same company as the Bank. CTBC Securities Venture Capital Co., Ltd. 〃 CTBC Venture Capital Co., Ltd. 〃 CTBC Asset Management Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 CTBC Investments Co., Ltd. 〃 Taiwan Life Insurance Co., Ltd. 〃 TLG Capital Co., Ltd. 〃 TLG Insurance Co., Ltd. 〃 Wu Tzu Development Co., Ltd. An investee company carried under equity method controlled by the same company as the Bank. Hofa Land Development Co., Ltd. 〃 CTBC Investments Trust Funds A securities investment trust fund managed by the company which is controlled by the same company as the Bank. Yi Chuan Investment Co., Ltd. The director of the parent company. Chung Yuan Investment Co., Ltd. 〃 Hewei Investment Co., Ltd. The Chairman of the Bank's parent company is its director. Weihong Investment Co., Ltd. 〃 Sunghung Investment Co., Ltd. 〃 Fenglu Development & Investment Co., Ltd. 〃 Taiwan Sports Lottery Co., Ltd. The second-degree relative of the Chairman of the Bank’s parent company is its Chairman. Chuan Wei Investment Co., Ltd. 〃 Kainan High School of Commerce and Industry The Chairman of the Bank’s parent company is its body corporate representative. Heng Da Cultural and Educational Foundation The director of the Bank’s parent company is its body corporate representative. CTBC Financial Park Management authority The director of the company which is controlled by the same company as the Bank is its body corporate representative. CTBC Technology Building Management 〃 authority Pei Sheng Culture Foundation 〃 Jing Kwan Investment Co., Ltd. The Chairman of the company which is controlled by the same company as the Bank is its Chairman. Shin Wen Investment Co., Ltd. 〃
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Name of related party Relationship with the Bank Taipei Financial Center Corporation The Chairman of the company which is controlled by the same company as the Bank is its director. Nan Ya Plastics Corporation 〃 Taiwan Relo Club, Limited The director of the company which is controlled by the same company as the Bank is its Chairman. Brothers Entertaining Co., Ltd. The director of the company which is controlled by the same company as the Bank is its director. Yan Yuan Investment Co., Ltd. The director of the company which is controlled by the same company as the Bank is its general manager. Chailease Finance Co., Ltd. Related party in substance. Sungyong Investment Co., Ltd. 〃 Sungbo Co., Ltd. 〃 Jungguan Investment Co., Ltd. 〃 Kuan Ho Development Co., Ltd. 〃 CTC Group Inc. 〃 APEX Credit Solution Inc. 〃 Yi Huao Investment Co., Ltd. 〃 Yi Kao Investment Co., Ltd. 〃 Chinatrust Real Estate Co., Ltd. 〃 Chia Shih Investment Co., Ltd. 〃 Kae Lee Investment Ltd. 〃 Chung-Chie Property Management Co., 〃 Ltd. Chailease Auto Rental Co., Ltd. 〃 Fina Finance & Trading Co., Ltd. 〃 Chailease Holding Company Limited (Cayman) 〃 Ronghua Investment Co., Ltd. 〃 Shin Ing Technology Co., Ltd. 〃 Chung Cheng Investments Co., Ltd. 〃 Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Significant transactions between related parties and the Bank
a) Loans
June 30, 2019 Settlement status Number/name of Maximum Ending Normal Loan Categories related parties balance balance loans Overdue loans Collateral conditions Home loan mortgage 530 $ 2,678,730 2,438,046 2,438,046 - Real estate/ Note others Others Hon Hai Precision 10,903,680 3,000,000 3,000,000 - None 〃 Industry Co., Ltd. 〃 Nan Ya Plastics 2,808,201 1,579,312 1,579,312 - Real estate/ 〃 Corporation plant/ machine room 〃 CTC Group Inc.. 390,832 385,834 385,834 - Real estate 〃
〃 Jungguan Investment 350,000 350,000 350,000 - Land 〃 Co., Ltd. 〃 Kuan Ho 245,000 245,000 245,000 - Real estate 〃 Development Co., Ltd. 〃 PT Bank CTBC 2,330,400 2,330,400 2,330,400 - None 〃 Indonesia 〃 CTBC Bank 2,330,400 2,330,400 2,330,400 - None 〃 (Philippines) Corp.
December 31, 2018 Settlement status Number/name of Maximum Ending Normal Loan Categories related parties balance balance loans Overdue loans Collateral conditions Home loan mortgage 519 $ 2,739,317 2,500,001 2,500,001 - Real estate/ Note others Others Nan Ya Plastics 3,346,842 3,346,842 3,346,842 - Real estate/ 〃 Corporation plant/ machine room 〃 CTBC Bank 2,304,975 2,304,975 2,304,975 - None 〃 (Philippines) Corp. 〃 PT Bank CTBC 1,444,451 1,444,451 1,444,451 - None 〃 Indonesia 〃 CTC Group Inc. 396,456 386,568 386,568 - Real estate 〃
〃 Jungguan Investment 350,000 350,000 350,000 - Land 〃 Co., Ltd. 〃 Kuan Ho 245,000 245,000 245,000 - Real estate 〃 Development Co., Ltd.
June 30, 2018 Settlement status Number/name of Maximum Ending Normal Loan Categories related parties balance balance loans Overdue loans Collateral conditions Home loan mortgage 447 $ 2,372,870 2,250,074 2,250,074 - Real estate/ Note others Others Nan Ya Plastics 2,904,620 2,875,731 2,875,731 - Real estate/ 〃 Corporation plant/ machine room 〃 PT Bank CTBC 1,067,500 1,067,500 1,067,500 - None 〃 Indonesia 〃 CTC Group Inc. 393,450 388,544 388,544 - Real estate 〃
〃 Jungguan Investment 350,000 350,000 350,000 - Land 〃 Co., Ltd. 〃 Kuan Ho 245,000 245,000 245,000 - Real estate 〃 Development Co., Ltd. Note: The terms of loans between related and non-related parties are identical.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
b) Deposits
June 30, 2019 Interest Interest expenses expenses (For the three (For the six Maximum Range of months ended months ended Related party balance Ending balance interest rates June 30, 2019) June 30,2019) Taiwan Life Insurance Co., Ltd. $ 39,538,760 21,200,481 0~0.50% 5,020 9,904 Hofa Land Development Co., 2,210,078 2,210,078 0~0.50% 1,238 1,997 Ltd. CTBC Securities Co., Ltd. 4,444,462 2,171,721 0~1.06% 3,346 6,731 Showa Denko Hd Trace Corp. 2,320,812 2,142,447 0~2.98% 7,944 17,166 Sungyong Investment Co., Ltd. 1,281,449 1,243,123 0~0.01% 31 63 CTBC Charity Foundation 1,190,399 1,045,690 0~1.07% 1,484 2,948 Financial Information Service 1,018,143 1,002,648 0.01~1.07% 5,171 5,171 Co., Ltd. Taiwan Sports Lottery Co., Ltd 1,892,215 749,758 0~0.01% 20 59 Chuan Wei Investment Co., Ltd. 884,303 606,120 0~0.01% 19 25 Taiwan Lottery Co., Ltd. 686,793 544,838 0~0.12% 133 267 CTBC Venture Capital Co., Ltd. 454,859 454,859 0~0.26% 73 88 CTBC Investments Co., Ltd. 489,963 450,238 0~0.48% 413 824 Taiwan institute of Economic 508,523 415,352 0~1.09% 535 1,019 Research Kuan Ho Development Co., Ltd. 398,353 384,317 0~0.01% 8 14 Yi Hua Investment Co., Ltd. 383,308 370,550 0~0.01% 10 19 Chia Shih Investment Co., Ltd. 380,903 327,936 0~0.01% 9 18 Shin Wen Investment Co., Ltd. 394,665 314,665 0~0.01% 3 3 Yan Yuan Investment Co., Ltd. 1,853,257 309,788 0~0.06% 46 72 Kainan High School of 284,500 263,261 0~1.04% 512 1,019 Commerce and Industry CTBC Securities Venture Capital 298,647 255,276 0~1.07% 606 1,245 Co., Ltd. CTBC Financial Holding Co., 21,762,985 249,020 0~0.26% 64 90 Ltd. Chinatrust Real Estate Co., Ltd. 232,876 192,664 0~1.80% 482 955 CTBC Asia Limited 346,152 192,568 0~2.77% 809 1,623 Brothers Entertaining Co., Ltd. 186,786 186,786 0~0.26% 4 4 Pei Sheng Culture Foundation 453,088 185,578 0~0.05% 24 49 CTBC Business School 185,307 185,307 0~1.09% 39 78 Wu Tzu Development Co., Ltd. 175,994 173,632 0~1.00% 190 377 Ronghua Investment Co., Ltd. 211,977 161,926 0~0.01% 4 8 Hon Hai Precision Industry Co., 188,110 143,400 0~2.74% 1,239 1,239 Ltd. Chung Yuan Investment Co., 166,950 137,353 0.01% 3 6 Ltd. Sunghung Investment Co., Ltd. 147,408 136,978 0~0.01% 3 7 Chailease Holding Company 160,300 129,433 0~0.26% 13 33 Limited (Cayman) Chung Cheng Investments Co., 123,482 123,482 0~0.01% 3 6 Ltd. Kae Lee Investment Co., Ltd. 121,724 120,578 0~0.01% 3 6 Hewei Investment Co., Ltd. 127,784 116,784 0~0.01% 3 6 Shin Ing Technology Co., Ltd. 114,360 114,360 0~1.07% - 36 Weihong Investments Co., 102,282 102,282 0.01% 5 5 Ltd. Total $ 85,721,957 39,115,277 29,509 53,180
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
December 31, 2018 Interest expenses (For the year Maximum Range of ended Related party balance Ending balance interest rates December 31) Taiwan Life Insurance Co., Ltd. $ 44,868,913 15,241,564 0~0.50% 20,248 Showa Denko HD Trace Corp. 2,544,117 2,316,988 0~2.98% 35,729 CTBC Securities Co., Ltd. 3,463,253 2,129,633 0~1.07% 12,132 Yan Yuan Investment Co., Ltd. 2,991,684 1,853,257 0~0.01% 161 Taiwan Sports Lottery Co., Ltd. 1,609,508 1,597,219 0~0.01% 82 Hofa Land Development Co., Ltd. 3,493,926 1,596,213 0~0.45% 10,651 Sungyong Investment Co., Ltd. 1,302,000 1,281,396 0~0.01% 72 CTBC Charity Foundation 1,109,917 983,674 0~1.07% 5,934 Taiwan Lottery Corporation 1,015,780 676,307 0~0.12% 593 Taiwan Institute of Economic Research 545,524 477,163 0~1.09% 2,399 CTBC Investments Co., Ltd. 503,096 441,185 0~0.48% 1,558 Yi Hua Investment Co., Ltd. 383,346 383,308 0~0.01% 23 Chia Shih Investment Co., Ltd. 380,945 380,903 0~0.01% 19 CTBC Securities Venture Capital Co., Ltd. 299,281 298,642 0.01~1.07% 488 Kainan High School of Commerce and 319,913 289,487 0~1.04% 2,060 Industry Kuan Ho Development Co., Ltd. 261,334 261,334 0~0.01% 20 Chuan Wei Investment Co., Ltd. 478,310 259,611 0~0.01% 24 Ronghua Investment Co., Ltd. 212,072 211,977 0~0.01% 10 Chinatrust Real Estate Co., Ltd. 214,052 209,920 0~1.80% 1,812 Pei Sheng Culture Foundation 566,588 203,714 0~0.05% 167 CTBC Asia Limited 797,989 180,184 0~2.77% 2,710 Wu Tzu Development Co., Ltd. 174,368 169,239 0~1% 164 Chailease Holding Company Limited 4,599,750 159,930 0~0.22% 74 (Cayman) Jing Kwan Investment Co., Ltd. 286,982 159,157 0.01% 9 CTBC Business School 197,283 148,572 0~1.09% 223 CTBC Financial Holding Co., Ltd. 17,594,183 148,137 0~0.22% 73 Chung Yuan Investment Co., Ltd. 149,965 143,737 0.01% 8 Sunghung Investment Co., Ltd. 145,437 143,265 0~0.01% 13 Yi Chuan Investment Co., Ltd. 212,242 128,054 0~0.01% 14 Hewei Investment Co., Ltd. 128,935 127,784 0~0.01% 11 Fenglu Development & Investment Co., Ltd. 216,213 124,143 0~0.01% 21 Kae Lee Investment Co., Ltd. 121,930 121,724 0~0.01% 12 Shin Ing Technology Co., Ltd. 111,125 111,125 0~1.07% 308 Chung Cheng Investments Co., Ltd. 113,720 110,978 0~0.01% 8 Heng Da Cultural Foundation 106,657 105,216 0~3.15% 1,082 Total $ 91,520,338 33,174,740 98,912
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
June 30, 2018 Interest Interest expenses expenses (For the three (For the six Maximum Range of months ended months ended Related party balance Ending balance interest rates June 30, 2018) June 30,2018) Taiwan Life Insurance Co., Ltd. $ 43,009,786 16,777,315 0~0.30% 5,601 12,077 Hofa Land Development Co., 3,015,263 3,015,263 0~0.45% 2,775 5,741 Ltd. Showa Denko HD Trace Corp. 2,362,618 2,354,327 0~2.57% 9,215 17,397 Yan Yuan Investment Co., Ltd. 2,991,684 2,089,307 0~0.01% 44 60 CTBC Securities Co., Ltd. 3,385,100 1,992,862 0~1.07% 3,010 5,606 Sung Young Investment Co., Ltd. 1,302,000 1,301,612 0~0.01% 5 7 CTBC Charity Foundation 1,109,917 989,991 0~1.07% 1,481 2,944 CTBC Financial Holding Co., 17,594,183 805,788 0~0.22% 23 63 Ltd. Taiwan Sports Lottery Co., Ltd. 975,621 546,496 0~0.01% 10 27 Taiwan Lottery Corporation 1,015,780 460,873 0~0.12% 187 371 Taiwan Institute of Economic 469,409 436,260 0~1.09% 586 1,141 Research CTBC Investments Co., Ltd. 465,462 434,005 0~0.45% 381 753 Kainan High School of 319,913 272,460 0~1.04% 512 1,023 Commerce and Industry CTBC Venture Capital Co., Ltd. 293,060 232,841 0~0.22% 13 32 Chuan Wei Investment Co., Ltd. 478,310 197,693 0~0.01% 6 13 Fenglu Development & 216,213 194,057 0~0.01% 5 10 Investment Co., Ltd. Chinatrust Real Estate Co., Ltd. 210,342 188,936 0~1.25% 459 847 CTBC Asia Limited 790,261 186,868 0~2.05% 645 1,134 Kuan Ho Development Co., Ltd. 201,326 182,022 0~0.01% 5 10 CTBC Business School 189,625 178,985 0~1.09% 70 129 Yi Chuan Investment Co., Ltd. 170,012 163,510 0~0.01% 3 5 Yi Huao Investment Co., Ltd. 159,445 149,145 0~0.01% 4 8 Sunghung Investment Co., Ltd. 127,674 122,516 0~0.01% 3 6 Kae Lee Investment Co., Ltd. 121,930 121,873 0~0.01% 3 6 Wu Tzu Development Co., Ltd. 119,162 110,355 0~0.01% 2 5 Chung Yuan Investment Co., 105,479 103,229 0.01% 1 1 Ltd. Total $ 81,199,575 33,608,589 25,049 49,416
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
c) Call loans to banks
For the six months ended June 30, 2018 Ending Range of Interest Related party balance interest rates revenues CTBC Bank(Philippines) Corp. $ 1,080,963 1.91~2.55% 17,397 The Tokyo Star Bank, Ltd. 4,575,000 2.22~3.01% 22,141 Total $ 5,655,963 39,538
d) Call loans from banks
For the six months ended June 30, 2018 Ending Range of Interest Related party balance interest rates revenues The Tokyo Star Bank, Ltd. $ 551,200 0.06% 205
e) Due from other banks
December 31, Related party June 30, 2019 2018 June 30, 2018 CTBC Bank Corp. (USA) $ 6,132,462 6,108,691 4,123,251
f) Derivative financial instruments
June 30, 2019 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Investments Money market 02.26.2019~ USD 117,250 98,390 (Note 1) 98,390 Trust Funds swap 12.04.2019 〃 Spot foreign 06.27.2019~ NTD 2,642,183 882 (Note1) 882 exchange 07.01.2019
December 31, 2018 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Investments Money market 08.31.2018~ USD 117,250 2,939 (Note1) 2,939 Trust Funds swap 03.04.2019
June 30, 2018 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Investments Money market 06.04.2018~ USD 121,250 113,968 (Note 1) 113,968 Trust Funds swap 09.05.2018
Note 1: Financial assets measured at fair value through profit or loss.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
g) Securities transactions
For the six months ended June 30, 2019 Related party Securities bought Securities sold Hon Hai Precision Industry Co., Ltd. $ 13,869,063 -
h) Others
i) Commission and other income
For the three months ended June 30 Related party Summary 2019 2018 CTBC Life Insurance Co., Ltd. Commission for joint sales, $ 1,052,583 950,892 income from group catering and commission income
For the six months ended June 30 Related party Summary 2019 2018 Taiwan Life Insurance Co., Ltd. Commission for joint sales, $ 2,377,725 2,131,811 income from group catering, allocation of information and commission income The balance of accounts receivable for foregoing transactions were as follows:
June 30, June 30, Related party Summary 2019 2018 Taiwan Life Insurance Commission for joint sales, income from $ 142,504 227,163 Co.,Ltd. group catering, commission income and allocation of information
ii) Handling fees and other general administration expenses
For the three months ended June 30 Related party Summary 2019 2018 Taiwan Lottery Co., Ltd. Lottery service fees $ 254,436 202,732 Brothers Entertaining Co., Ltd. Sponsorship, marketing feedback 140,822 104,318 fund and gift expenses $ 395,258 307,050
For the six months ended June 30 Related party Summary 2019 2018 Taiwan Lottery Co., Ltd. Lottery service fees $ 978,174 859,453 Brothers Entertaining Co.,Ltd Sponsorship, marketing feedback 286,963 199,488 fund and gift expenses $ 1,265,137 1,058,941
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
The balance of accounts payable for foregoing transactions were as follows:
June 30, June 30, Related party Summary 2019 2018 Taiwan Lottery Co., Ltd. Lottery service fees $ 473,110 338,826
iii) Others
December 31, June 30, Related party Summary June 30, 2019 2018 2018 Taipei Financial Center Balance of share holdings $ 796,050 478,440 506,520 Corporation Fina Finance & Trading Co., Referral maturity fees (Note1) 73,609 140,082 250,260 Ltd.
$ 869,659 618,522 756,780
Note 1: The Company’s subsidiary CTBC Bank Co., Ltd. signed a strategic alliance agreement with Fina Finance & Trading Co., Ltd. agreeing loans will be released directly to Fina's clients, and Fina pledged to buyback and settle all debts once any delay arises.
No significant discrepancy in transaction terms found between related party transaction and non-related party transaction.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(ii) CTBC Securities Co., Ltd.
1) Names of related parties and relationship
Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same parent company as the Company. CTBC Venture Capital Co., Ltd. 〃 CTBC Asset Management Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 CTBC Investments Co., Ltd. 〃 Taiwan Life Insurance Co., Ltd. 〃 TLG Insurance Co., Ltd. 〃 TLG Capital Co., Ltd. 〃 CTBC Investments Trust Funds A securities investment trust fund managed by the company which is controlled by the same company as the Company. CTBC (Mauritius) Holding Co., Ltd. An investee company carried under equity method. CTBC Investment Service Co., Ltd. 〃 CTBC Securities Venture Capital Co., 〃 Ltd. CTBC Asia Limited An investee company carried under equity method by CTBC (Mauritius) Holding Co., Ltd. CTBC Financial Park Management The Director of the company which is controlled by authority the same company as the Company is its body corporate representative. CTBC Technology Building 〃 Management authority Chung-Chie Property Management Co., Related party in substance. Ltd. Other related parties The representative of the Company’s director, etc.
2) Significant transactions with related parties
Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.
Please refer to Note 7(b)(vii) for transactions with CTBC Investments Co., Ltd.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) CTBC Venture Capital Co., Ltd.
1) Names of the related parties and relationship
Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Securities Co., Ltd. 〃 CTBC Asset Management Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 CTBC Investments Co., Ltd. 〃 Taiwan Life Insurance Co., Ltd. 〃 TLG Insurance Co., Ltd. 〃 CTBC Capital International Co., Ltd. An investee company carried under equity method. CTBC Venture Capital Investment An investee company carried under equity method by Management (Shanghai) Co., Ltd. CTBC Capital International Co., Ltd. CTBC Financial Park Management The Director of the company which is controlled by authority the same company as the Company is its body corporate representative. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
2) Significant transactions with related parties
Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iv) CTBC Asset Management Co., Ltd.
1) Names of the related parties and relationship
Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Securities Co., Ltd. 〃 CTBC Venture Capital Co., Ltd. 〃 CTBC Investments Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 Taiwan Life Insurance Co., Ltd. 〃 TLG Insurance Co., Ltd. 〃 CTBC International Co., Ltd. An investee company carried under equity method. CTBC Leasing Co., Ltd. An investee company carried under equity method by CTBC International Co., Ltd. CTBC Financial Park Management The Director of the company which is controlled by authority the same company as the company is its body corporate representative. Chailease Auto Rental Brokers Co., Ltd. Related party in substance. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
2) Significant transactions with related parties
Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(v) CTBC Security Co., Ltd.
1) Names of the related parties and relationship
Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Venture Capital Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 CTBC Charity Foundation The company which is controlled by the same company as the Company contributed over 1/3 of its total funds. Chuan Wei Investment Co., Ltd. The second-degree relative of the Chairman of the parent company is its chairman. Chung Yuan Investment Co., Ltd. The Institutional Director of the parent company. Yi Chuan Investment Co., Ltd. 〃 Changchi Investment Ltd. 〃 Yi Kao Investment Co., Ltd. Related party in substance. Bo Yu Investment Co., Ltd. 〃 Jungguan Investment Co., Ltd. 〃 Kuan Ho Development Co., Ltd. 〃 Chung-Chie Property Management Co., 〃 Ltd. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
2) Significant transactions with related parties
Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(vi) Taiwan Lottery Co., Ltd.
1) Names of the related parties and relationship
Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Securities Co., Ltd. 〃 CTBC Venture Capital Co., Ltd. 〃 CTBC Investments Co., Ltd. 〃 CTBC Asset Management Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 Taiwan Life Insurance Co., Ltd. 〃 TLG Insurance Co., Ltd. 〃 TLG Capital Co., Ltd. 〃 CTBC Business School The Chairman of the company which is controlled by the same company as the Company is its director. CTBC Anti-Drug Educational The Company contributed over 1/3 of its total funds. Foundation CTBC Financial Park Management The Chairman of the company which is controlled by authority the same company as the Company is its body corporate representative. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
2) Significant transactions with related parties
Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(vii) Taiwan Life Insurance Co., Ltd.
1) Names of the related parties and relationship
Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Securities Co., Ltd. 〃 CTBC Venture Capital Co., Ltd. 〃 CTBC Asset Management Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 CTBC Investments Co., Ltd. 〃 CTBC Investments Trust Funds A securities investment trust fund managed by the company which is controlled by the same company as the Company. TLG Insurance Co., Ltd. A subsidiary company of the Company. TLG Capital Co., Ltd. 〃 Hofa Land Development Co., Ltd. An investee company carried under equity method by the Company. Wu Tzu Development Co., Ltd. 〃 Star Shining Energy Co., Ltd. 〃 Top Taiwan IX Venture Capital Co., Ltd. 〃 King Dragon Life Insurance Co., Ltd. 〃 Giga Green Energy Co., Ltd. 〃 CTBC Financial Park Management The Director of the company which is controlled by authority the same company as the Company is its body corporate representative. Nan Ya Plastics Corporation The Chairman of the company which is controlled by the same company as the Company is its director. Formosa Sumco Technology Corporation 〃 Growww Media Co., Ltd. 〃 Hon Hai Precision Industry Co., Ltd. 〃 Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
2) Significant transactions with related parties
a) The following table presents the commission by the company and its related parties：
For the three months ended June 30 For the six months ended June 30 Related party 2019 2018 2019 2018 CTBC Investments $ 49,186 53,089 117,616 84,837 Co., Ltd.
b) The following table presents the ending balance of the discretionary account invested by the related parties：
December 31, Related party June 30, 2019 2018 June 30, 2018 CTBC Investments Co., Ltd. $ 64,619,069 68,321,825 67,708,679
c) The following table presents information regarding stocks issued by the related party that are being held by the Company：
December 31, Related party June 30, 2019 2018 June 30, 2018 Nan Ya Plastics Corporation $ 1,185,077 1,171,361 1,171,361 Formosa Sumco Technology 248,068 247,692 268,907 Corporation Hon Hai Precision Industry Co., 2,388,547 - - Ltd. Total $ 3,821,692 1,419,053 1,440,268
Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.
Please refer to Note 7(b)(vii) for transactions with CTBC Investments Co., Ltd.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(viii) CTBC Investments Co., Ltd.
1) Names of the related parties and relationship
Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Securities Co., Ltd. 〃 CTBC Venture Capital Co., Ltd. 〃 CTBC Asset Management Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 Taiwan Life Insurance Co., Ltd. 〃 TLG Insurance Co., Ltd. 〃 CTBC Investments Trust Funds A securities investment trust fund managed by the Company. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.
2) Significant transactions with related parties
Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.
Please refer to Note 7(b)(vii) for funds investment transactions with CTBC Investments Co., Ltd.
(m) Significant contracts: Please refer to Note 9(a).
(n) The income and expenses arising from the joint marketing operation and information interoperability amongst the Financial Holding Company’s subsidiaries were allocated as follows:
The Company’s subsidiary CTBC Bank Co., Ltd. (“CTBC Bank”) and Taiwan Life Insurance Co., Ltd.(“Taiwan Life”) have gained from the joint business promotion. The bonus for joint marketing with CTBC Bank and Taiwan Life shared based on annual commission rate agreed between all parties for each insurance product.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(o) The movement of compulsory auto and motorcycle insurance reserves (retained business) for the Company’s sub-subsidiary TLG insurance Co., Ltd.:
For the six months ended June 30, 2019 Beginning Current Current Ending Compulsory auto insurance balance provision recovery balance Unearned premium reserve $ 67,703 64,366 67,703 64,366 Claim reserve 127,723 120,687 127,723 120,687 Special reserve (195,043) - 8,090 (203,133) Total $ 383 185,053 203,516 (18,080)
For the six months ended June 30, 2018 Beginning Current Current Ending Compulsory auto insurance balance provision recovery balance Unearned premium reserve $ 73,470 71,048 73,470 71,048 Claim reserve 136,327 134,228 136,327 134,228 Special reserve (203,462) - 2,205 (205,667) Total $ 6,335 205,276 212,002 (391)
For the six months ended June 30, 2019 Beginning Current Current Ending Compulsory moto insurance balance provision recovery balance Unearned premium reserve $ 63,412 62,785 63,412 62,785 Claim reserve 52,414 52,044 52,414 52,044 Special reserve 256,545 - 7,477 249,068 Total $ 372,371 114,829 123,303 363,897
For the six months ended June 30, 2018 Beginning Current Current Ending Compulsory moto insurance balance provision recovery balance Unearned premium reserve $ 64,819 64,586 64,819 64,586 Claim reserve 54,285 47,557 54,285 47,557 Special reserve 259,201 - 5,969 253,232 Total $ 378,305 112,143 125,073 365,375
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(p) The information of segmentation of specific assets of the Company’s sub-subsidiary TLG Insurance Co., Ltd.:
(i) The Company’s sub-subsidiary TLG Insurance Co., Ltd is engaged in compulsory auto TPL insurance (hereinafter referred to as “this insurance” ), in accordance with “Compulsory Automobile Liability Insurance Law”, The Company’s sub-subsidiary TLG Insurance Co., Ltd. build an independent account to record the operation and financial activities of the insurance. As of June 30, 2019, December 31 and June 30, 2018, assets and liabilities of the Company’s sub-subsidiary TLG Insurance Co., Ltd. operated on this insurance were as below:
December 31, June 30, 2019 2018 June 30, 2018 Assets Cash and cash equivalents $ 328,842 355,356 349,275 Notes receivable 2,501 2,589 2,698 Premiums receivable 3,557 4,030 4,878 Claims recoverable from reinsurers 8,490 11,088 9,065 Due from reinsurers and ceding 11,880 12,046 12,310 companies Ceded unearned premiums reserve 64,546 69,030 73,116 Ceded claim reserve 97,850 105,048 102,649 Temporary payments and suspense 291 43 310 accounts Total Assets $ 517,957 559,230 554,301 Liabilities Notes payable $ 1,119 505 458 Due to reinsurers and ceding 8,622 11,876 13,068 companies Unearned premium reserve 191,697 200,145 208,750 Claim reserve 270,581 285,185 284,434 Special reserve 45,935 61,502 47,565 Temporary receipts and suspense - 14 14 accounts Other liabilities 3 3 12 Total liabilities $ 517,957 559,230 554,301
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
According to the article 5 of “Regulations for Deposit and Management of the Reserve of Compulsory Automobile Liability Insurance Article”, special reserves provided shall deposit in financial institutions as time deposits, once insurer has reported and gotten the approval of the competent authority, it may purchase domestic securities. As of June 30, 2019, December 31 and June 30, 2018, the amount of time deposits the Company’s sub-subsidiary TLG Insurance Co., Ltd. placed in financial institutions described in preceding paragraph were $45,935, $61,502 and $47,565, respectively. Additionally, according to article 6 of “Regulations for Deposit and Management of the Reserve of Compulsory Automobile Liability Insurance” , except for the aforesaid special reserve provided, funds (including reserves, payables, and suspense accounts to carry forward) shall be deposited in financial institutions in the form of demand deposits and time deposits, but as funds provided that with the approval of the competent authority, an insurer may purchase domestic securities. The Company’s sub- subsidiary TLG Insurance Co., Ltd. placed deposits in financial institutions to support the expenditures of the insurance, as of June 30, 2019, December 31 and June 30, 2018, the amount of demand deposits were $52,008, $88,943 and $52,065, respectively, note deposits were $834, $413 and $410, respectively, and time deposits were $230,065, $204,498 and $249,235, respectively.
(ii) The information of the Company’s sub-subsidiary TLG Insurance Co., Ltd. for the insurance revenue and cost:
For the three months ended June 30 For the six months ended June 30 2019 2018 2019 2018 Operating revenue Premium (containing $ 78,465 85,775 155,199 170,185 reinsurance premium) Less: Reinsurance (25,762) (28,782) (51,140) (58,879) expense Net change in 2,434 1,433 3,964 2,655 unearned premiums reserve Retained earned premium 55,137 58,426 108,023 113,961 Interest income 159 143 318 288 $ 55,296 58,569 108,341 114,249 Operating costs Insurance claim payment $ 134,263 84,275 199,976 182,768 (contain reinsurance indemnity) Less: Claims recoverable (46,798) (28,296) (68,662) (51,518) from reinsurers Retained claim payment 87,465 55,979 131,314 131,250 Net change in claim (4,355) (8,868) (7,406) (8,827) reserve Net change in special (27,814) 11,458 (15,567) (8,174) claim reserve $ 55,296 58,569 108,341 114,249
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) According to the article 11 of “Regulations for the Management of the Various Reserve for Compulsory Automobile Liability Insurance” when an insurer suspends or terminates its operations, reserves of the insurance shall transfer into the reserves provided by the other insurer that assume the business. If in a situation that there is no any insurer to assume the insurance business and the balance of the special reserve is positive, it shall transfer the assets corresponding to the special reserve to the Motor Vehicle Accident Compensation Fund.
When an insurer has been duly ordered to suspend business and undergo rehabilitation, ordered to dissolve, or its permission to operate the insurance business has been revoked, and no other insurer is to assume this insurance business, and there is no outstanding liability under the insurance and the balance of the special reserve is positive, the assets corresponding to the special reserve shall be transferred to the Motor Vehicle Accident Compensation Fund.
(q) The Company’s sub-subsidiary TLG Insurance Co., Ltd. reinsured its business to BEST RE (L) Ltd. directly or by other reinsurers, although the main contract was expired, the responsibility of compensate was still effective. In accordance with the “Regulations Governing Insurance Enterprises Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms” , since the rating of BEST RE (L) Ltd.’s was downgraded to B plus by Standard & Poor's, it has become an unauthorized reinsurance company on October 22, 2013. For the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018, the income for reinsurance corporate with BEST RE (L) Ltd. were $0,$0,$23 and $26, respectively. As of June 30, 2019, December 31 and June 30, 2018, the amount of unauthorized insurance reserve the Company’s sub-subsidiary TLG Insurance Co., Ltd. should increase to meet the supervisory report request were $91, $92 and $96, respectively. The component of the preceding amount includes unearned premium reserve amounted to $0, claims recoverable from reinsurers which were reported but unpaid amounted to $91,$92 and $96, respectively, and claims recoverable from reinsurers of paid claims overdue in nine months amounted to $0.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(13) Disclosures Required:
(a) Related information on significant transactions:
For the six months ended June 30, 2019, according to the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, the related information on significant transactions by the Company and subsidiaries that should be further disclosed as follows:
(i) Loans to other businesses or individuals:
Unit: In Thousands of New Taiwan Dollars Collateral The limit The reason amount of The highest Ending Nature of Amount of for short- Provision for individual Total limit of Number Interaction Related balance in balance Actual Loan Interest rate the loan business term bad debt loan loan (Note 1) Creditor Debtor account party the period (Note 2) balance fluctuation (Note 3) contact borrowing allowance Item Value (Note 4) (Note 5) 1 CTBC Buynow Story Entrusted No 30,174 25,845 25,845 6.5% 1 45,229 Actual 517 - 296,162 592,325 Leasing Co., Electronic Ltd, loans/other business Ltd. Shanghai income contact 2 CTBC CTBC Capital Receivables Yes 613 613 613 3.83% 2 - Support - - 1,444,965 1,806,206 Venture International from related operating Capital Co., Co., Limited parties expenses Ltd.
Note 1：Serial number is determined as follows: (1) 0 represents parent company. (2) Subsidiaries are numbered in a sequence of Arabic numerals from 1 based on company category. Note 2：Those ending balances are effective credit/amount as of the reporting date. Note 3：The natures of loans are determined as follows: (1) Please fill 1 if the category belongs to business relation (2) Please fill 2 if the category belongs to short-term loan (3) The natures of the leasing of the sub-subsidiary Note 4：The limit to the individual borrower: 10% of the creditor’s net worth. Note 5：The total limit of the loan: 40% of the creditor’s net worth. (ii) Endorsements and guarantees for others:
Unit: In Thousands of New Taiwan Dollars Ratio of Counter-party of accumulated guarantee and amounts of Parent Subsidiary Endorsements/ endorsement Limitation on Highest Balance of Amount of guarantees and company endorsements/ guarantees to amount of balance for guarantees property endorsements to endorsements/ guarantees third parties guarantees and guarantees and and Actual usage pledged for net worth of the Maximum guarantees to to third parties on behalf of endorsements endorsements endorsements amount guarantees latest amount for third parties on on behalf of companies in Name of Reason for a specific during as of during the and financial guarantees and behalf of parent Mainland No. guarantor Name (Note 2) enterprise the period reporting date period endorsements statements endorsements subsidiary company China 1 CTBC CTBC Asia 5 384,617 100,000 100,000 - - 1.30 % 3,076,938 Y N N Securities Limited. Co., Ltd.
Note 1：Serial number is determined as follows: (1) 0 represents parent company. (2) Subsidiaries are numbered in a sequence of Arabic numerals from 1 based on company category. Note 2：The reasons recognized between the securities-industry subsidiaries and endorsees or guarantees are as follow: (1) Overseas subsidiary of securities firm is required to perform underwriting business. (2) Overseas subsidiary issues call (put) warrants overseas. (3) Overseas subsidiary acting as the offshore structured product issuing institution or guarantor sells the products inside the ROC in accordance with the Regulations Governing Offshore Structured Products, and its domestic parent company acts as the general agent. (4) Overseas subsidiary is required for the issuance of corporate bonds. (5) Overseas subsidiary is financed from local financial institutions for the business needs. (6) Endorsements and guarantees between the overseas subsidiaries of securities firms. (7) Others (please indicate the reasons).
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iii) Marketable securities held as of June 30, 2019 (the associates of invested subsidiaries and joint controlled organizations are excluded): Not applicable to bank, securities, and insurance subsidiaries; others:
Unit: In Thousands of New Taiwan Dollars/ Thousands of Shares Marketable Relationship Ending balance Name of company securities type with the securities Fair value holding securities and name issuer Account Number of shares Carrying amount Shareholding ratio (Note 1) Note CTBC Venture Capital HIM International Music - Financial assets 2,061 262,737 3.89 % 262,737 Co., Ltd. Inc. measured at fair value through profit or loss 〃 Fusheng Precision Co., - 〃 1,500 297,000 1.14 % 297,000 Ltd. 〃 Others (Note2) - 〃 - 3,631,842 - % 3,631,842 CTBC Asset Privately Offered Fund – - 〃 - 527,380 - % 527,380 Management Co., Ltd. CVI Credit Value Fund B III CTBC Investments Co., Beneficiary Certificate – Securities 〃 1,806 19,931 - % 19,931 Ltd. CTBC Hwa-win Money investment trust Market Fund fund managed by CTBC Investments Co., Ltd. 〃 Beneficiary Certificate – 〃 〃 257 3,309 - % 3,309 CTBC Taiwan Small-cap Fund 〃 Beneficiary Certificate – 〃 〃 204 2,059 - % 2,059 CTBC Global Short Duration High Yield Bond Fund A 〃 Beneficiary Certificate – 〃 〃 6 259 - % 259 CTBC Bloomberg Barclays USD 〃 Beneficiary Certificate – 〃 〃 5 235 - % 235 CTBC Bloomberg Barclays Banking Senior Year Bond 〃 Beneficiary Certificate – 〃 〃 7 312 - % 312 CTBC China Corporate USD IG Bond 〃 Beneficiary Certificate – 〃 〃 6 239 - % 239 CTBC China Treasury + Policy Bank 7-10 Year Bond 〃 Beneficiary Certificate – 〃 〃 7 320 - % 320 CTBC U.S. Treasury 20+ Year Bond 〃 Beneficiary Certificate– 〃 〃 7 160 - % 160 CTBC China 50 Fund 〃 Beneficiary Certificate– - 〃 40 922 - % 922 CTBC China 50 Fund ETF TLG Capital Co., Ltd. Cathay Financial Holding - 〃 1,666 106,624 0.01 % 106,624 Co., Ltd. Preferred Stock (2882A) 〃 Union Bank of Taiwan - 〃 4,000 218,000 0.14 % 218,000 (2838A) 〃 Formosa Chemicals & - Financial assets 273 28,119 - % 28,119 Fibre Corporation measured at fair value through other comprehensive income 〃 Taiwan Mobile - 〃 429 52,553 0.01 % 52,553 Corporation 〃 Formosa Plastic - 〃 685 78,433 0.01 % 78,433 Corporation 〃 Mega Finance Holding - 〃 1,442 44,558 0.01 % 44,558 Co., Ltd. 〃 Far EasTone - 〃 119 9,318 - % 9,318 Telecommunications Co., Ltd. 〃 Quanta Computer Co., - 〃 561 33,884 0.01 % 33,884 Ltd. 〃 Taiwan Telecom Co., Ltd. - 〃 182 20,566 - % 20,566 〃 Fubon Financial Holding - 〃 92 4,218 - % 4,218 Co., Ltd. 〃 Sinopac Financial Holding - 〃 513 6,695 - % 6,695 Co., Ltd. 〃 Taishin Holdings Preferred - 〃 1,511 83,558 0.01 % 83,558 Stock(2887E) 〃 Far EasTone New Century - 〃 752 25,192 0.01 % 25,192 Co., Ltd. 〃 Liteon Co., Ltd. - 〃 310 14,105 0.01 % 14,105 〃 Taiwan Cement Co., Ltd. - 〃 230 10,592 - % 10,592
Note 1：Listed/OTC companies are measured at fair value. The net worth for a non-listed/ OTC company is calculated based on the proportion of total stockholders’ equity on hand. The net value of listed/ OTC companies’ preferred shares is based on the liquidation price plus dividends in arrears.
Note 2：Those account balances are less than 5% of ending balance.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(iv) Accumulative purchases or sales of the same investee's capital stock up to $300,000 or over 10% of paid-in capital:
Unit: In Thousands of New Taiwan Dollars/Thousands Shares Marketable Beginning Acquisition Disposition Ending Acquiring/ securities selling type and Number of Number of Number of Gain/loss Number of company name Account Counterparty Relationship shares Amount shares Amount shares Sell price Book value on disposal shares Amount CTBC Asset Beneficiary Financial Taishin - - 26,244 355,000 26,244 355,024 355,000 24 - - Management Certificate– assets Securities Co., Ltd. Taishin 1699 measured at Investment Money fair value Trust Co., Market through Ltd. profit or loss
(v) Acquisition of real estate up to $300,000 or 10% of paid-in capital:
Unit: In Thousands of New Taiwan Dollars Price Previous transfer of related party determination and Relationship supporting Company of Triggering Transaction Status of with the Date of reference Purpose of Other acquisition Property date price payment Counter-party Relationship Owner issuer transfer Amount materials acquisition commitment Taiwan Life Land: Lot No. 26-5, The 1,793,889 The total Easy Finder Non-related Not Not Not - Appraisal Real estate Insurance 26-7 at Jiuzong subsidiary amount of the Publishing parties applicable applicable applicable report investment in Co., Ltd. Section, Neihu signed the contract price Ltd. accordance District, Taipei contract in has been with the City; Buidling: November, paid. Insurance Law No.1934~1973, 2018, and 2615 at Jiuzong gained the Section, Neihu ownership in District, Taipei City February, (including 120 2019. parking spaces) Taiwan Life Land: Lot No. 82-7 The 475,000 Down Three people Non-related Not Not Not - Appraisal Real estate Insurance at Qianjin Section, subsidiary payment: parties applicable applicable applicable report investment in Co., Ltd. Qianjin District, signed the contract accordance Kaohsiung City; contract in payment, with the Buidling: No.100 at June, 2019. 20% of the Insurance Law Zhongzheng 4th transaction Rd., Qianjin Dist., price Kaohsiung City 2nd installment: duty paid payment, 20% of the transaction price 3rd installment: final payment, 60% of the transaction price
(vi) Disposal of real estate up to $300,000 or 10% of paid-in capital:
Units: In Thousands of New Taiwan Dollars Name of Type of Transaction Acquisition Carrying Transaction Gain on Nature of Purpose of company property date date amount price Status of receipt disposal Counter-party relationship disposal Price reference Other terms CTBC Asset 18F., No. 11, June 18, 2019 August 490,315 530,110 As of June, 2019 36,480 The Lee family Non-related Main operating Appraisal None Management Songgao Rd., 30,2017 had charged 20% (Note 2) investment parties activities report Co., Ltd. Xinyi Dist., of the total price, Co., Ltd. Taipei City 110 amounted to 106,022 and remitted to the performance guarantee account according to the contract specification Taiwan Life Land: Lot No. The subsidiary December 1, 523,182 851,580 The price has 319,878 Individual Non-related Real estate Appraisal None Insurance 20, Wenshang signed the contract 2010 fully recovered. (Note 1) parties investment in report Co., Ltd. Section, Situn in November, 2018, accordance District, and transfer the with the Taichung City ownership in Insurance Law January, 2019.
Note 1 : Gain from disposal for the subsidirary Taiwan Life Insurance Co., Ltd. is deducting related expense $8,520.
Note 2: Gain from disposal for the subsidirary CTBC Asset Management Co., Ltd. is deducting related expense $3,315 in settlment on July 29, 2019.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(vii) Discount on commission fees for transaction with related parties up to $5,000: None.
(viii) Receivables from related parties up to $300,000 or over 10% of paid-in capital:
(In Thousands of New Taiwan Dollars) Subsequent Account receivable Balance due from Turnover Overdue from related party collections provision for creditor Counterparty Relationship related party rate Amount Disposal from related party bad debts Taiwan Lottery Co., Ltd. CTBC Bank Co., Ltd. Controlled by the 473,110 - % - - 95,238 - same company as Taiwan Lottery Co., Ltd.
(ix) Financial derivative transactions: Not applicable to bank subsidiaries; others: Please refer to Note 6(av).
(x) Information on NPL disposal transaction:
1) Summary table of NPL disposal:
Unit: In Thousands of JPY Gains (losses) Trade date Counterparty Debt component Book value Sale price on disposal Additional term Relationship January 18, 2019 N.H.C Sixteen Co., Ltd Non-secured loan JPY 150,000 JPY 150,000 JPY - None Non-related party May 24, 2019 Yamada-Servicer.co.jp Secured loan JPY 31,721 JPY 31,287 JPY (434)None Non-related party May 24, 2019 Aozora Servicing, Ltd Secured loan JPY 33,772 JPY 33,772 JPY - None Non-related party May 24, 2019 Millennium Servicing, Secured loan JPY 14,760 JPY 14,760 JPY - None Non-related party Ltd June 26, 2019 I.R Servicing., Ltd. Non-Secured loan JPY 226,508 JPY 208,746 JPY (17,762)None Non-related party
2) Disposal of a single batch of NPL up to $1,000,000 and information on each transaction: None.
(xi) Types of securitization instruments approved to be issued pursuant to financial assets securitization rules or real estate securitization rules and other relevant information: None.
(xii) Business relationships and material transaction between the parent company and subsidiaries:
Unit: In Thousands of New Taiwan Dollars Transaction status for the six months ended June 30, 2019 Percentage of consolidated net No. revenue or consolidated (Note) Party Counterparty Relationship Account Amount Terms total assets 0 CTBC Financial CTBC Bank Co., Ltd. Parent company Cash and cash 242,420 The terms of loans between -% Holding Co., Ltd. to subsidiary equivalents / related and non-related Deposits and parties are identical. remittances 1 CTBC Bank Co., CTBC Securities Co., Subsidiary to Deposits and 300,000 〃 -% Ltd. Ltd. subsidiary remittances / Other asset 〃 〃 〃 〃 Deposits and 756,000 〃 0.01% remittances / Other financial asset 〃 〃 〃 〃 Deposits and 878,336 〃 0.01% remittances / Cash and cash equivalents 〃 〃 CTBC Investments Co., 〃 〃 400,238 〃 0.01% Ltd. 〃 〃 Taiwan Lottery Co., Ltd. 〃 〃 544,268 〃 0.01% 〃 〃 〃 〃 Payables / 473,110 〃 0.01% Receivables 〃 〃 〃 〃 Other general and 949,301 〃 0.74% administrative expenses / Service income 〃 〃 CTBC Venture Capital 〃 Deposits and 454,859 〃 0.01% Co., Ltd. remittances / Cash and cash equivalents 〃 〃 Taiwan Life Insurance 〃 〃 18,601,149 〃 0.30% Co., Ltd. 〃 〃 〃 〃 Receivables / 261,425 〃 -% Payables
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Transaction status for the six months ended June 30, 2019 Percentage of consolidated net No. revenue or consolidated (Note) Party Counterparty Relationship Account Amount Terms total assets 1 CTBC Bank Co., Taiwan Life Insurance Subsidiary to Service fee and 2,285,905 The terms of loans between 1.78% Ltd. Co., Ltd. subsidiary commission related and non-related income / Service parties are identical. fee and commission expenses 〃 〃 CTBC Bank Corp.(USA) Subsidiary to sub- Cash and cash 6,133,293 〃 0.10% subsidiary equivalents / Deposits and remittances 〃 〃 CTBC Bank (Philippines) 〃 Loans / Due to 2,330,400 〃 0.04% Corp. Central Bank and other banks 〃 〃 PT Bank CTBC Indonesia 〃 Loans / Due to 2,330,400 〃 0.04% Central Bank and other banks 〃 〃 CTBC Asia Limited. 〃 Deposits and 181,791 〃 -% remittances /Cash and cash equivalents 〃 〃 CTBC Securities Venture 〃 Deposits and 255,276 〃 -% Capital Co., Ltd. remittances /Cash and cash equivalents 2 Taiwan Life CTBC Investments Co., Subsidiary to Service fee and 112,177 〃 0.09% Insurance Co., Ltd. Ltd. subsidiary commission income / Service fee and commission expenses
Note: Serial number is determined as follows: 1. 0 represents parent company. 2. Subsidiaries are numbered in a sequence of Arabic numerals from 1 based on company category. (xiii) Other significant transactions that may have substantial influence upon the decisions made by financial report users: None.
(b) Related information on reinvestment:
The following is the information on investees for the six months ended June 30, 2019 (excluding information on investees in Mainland China):
(Unit: In Thousands of New Taiwan Dollars/Thousands Shares) Aggregate shareholding of the Company and subsidiaries Name of Main Investment Number of Total investee business Shareholding Carrying gain(loss) Number of pro forma Number of Shareholding company Address scope ratio amount recognized shares shares shares ratio Note CTBC Bank No.166, 168, 170, Commercial banking 100.00% 295,895,977 15,277,956 14,409,875 - 14,409,875 100.00% The investment has Co., Ltd.. 186, 188 Jingmao and financing been eliminated 2nd Road, Taipei business when preparing the consolidated financial statements. CTBC Securities 3F., No.168, Jingmao Securities and futures 100.00% 7,590,357 202,037 602,714 - 602,714 100.00% " Co., Ltd. 2nd Road,Taipei business CTBC Venture 21F., No.168, Venture capital 100.00% 3,864,322 251,700 351,958 - 351,958 100.00% " Capital Co., Ltd. Jingmao 2nd investment Road,Taipei CTBC Asset 19F., No.168, Asset management 100.00% 5,337,506 (17,424) 535,882 - 535,882 100.00% " Management Jingmao 2nd business Co., Ltd. Road,Taipei CTBC Security 5F., No.188, Jingmao Protection, fire and 100.00% 56,726 3,295 4,770 - 4,770 100.00% Co., Ltd. 2nd Road,Taipei life safety services Taiwan Lottery 15F., No.188, Operate the public 100.00% 964,640 316,901 50,000 - 50,000 100.00% " Co., Ltd. Jingmao 2nd welfare lottery for Road,Taipei the issuing, sale, promotion, drawing, payment of prize and management CTBC 12F., No.188, Investment and trust 100.00% 669,875 7,325 42,500 - 42,500 100.00% " Investments Jingmao 2nd business Co.,Ltd. Road,Taipei Taiwan Life 8F., No.188, Jingmao Insurance business 100.00% 105,674,648 5,971,621 4,512,433 - 4,512,433 100.00% " Insurance Co., 2nd Road,Taipei Ltd.
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate shareholding of the Company and subsidiaries Name of Main Investment Number of Total investee business Shareholding Carrying gain(loss) Number of pro forma Number of Shareholding company Address scope ratio amount recognized shares shares shares ratio Note CTBC Bank 16th to 19th Floors, Commercial banking 99.60% 4,863,350 108,372 246,496 - 246,496 99.60% The investment has (Philippines) Fort Legend and financing been eliminated Corp. Towers 31st Street business when preparing the corner 3rd consolidated Avenue Bonifacio financial Global City, Taguig statements. City, 1634 Philippines PT Bank CTBC Tamara Center, Commercial banking 99.00% 6,227,133 123,707 1 - 1 99.00% " Indonesia 15th~17th F1, JI and financing Jenderal Sudirman business Kev. 24 Jakarta 12920 Indonesia CTBC Bank 1518 West Broadway, Commercial banking 100.00% 1,646,452 80,326 2,746 - 2,746 100.00% " Corp. (Canada) Vancouver, and financing B.C., Canada, business V6J1W8 CTBC Capital 801 S. Figueroa Investment business 100.00% 16,533,712 709,689 6 - 6 100.00% " Corp. Street, Suite 2300, Los Angeles, CA 90017, USA Grand Bills 11F., No. 560, Sec. 4, Proprietary trading of 21.15% 1,980,035 65,659 114,399 - 114,399 21.15% Finance Jhongsiao E. short-term bills and Corporation Rd.,Taipei securities CTBC Bank 801 S. Figueroa Commercial banking 100.00% 15,795,406 716,915 Common shares- - Common shares- 100.00% The investment has Corp. (USA) Street, Suite 2300, and financing 3 3 been eliminated Los Angeles, CA business Preferred shares- Preferred shares- when preparing the 90017, USA 100 100 consolidated financial statements. The Tokyo Star 2-3-5 Akasaka, Commercial banking 100.00% 45,775,805 1,384,475 700 - 700 100.00% " Bank, Ltd. Minato-Ku, Tokyo, and financing 107-8480, Japan business Tokyo Star 2-7-1,Nishi Shinjuku, Financing and 100.00% 3,419,490 90,185 1,936 - 1,936 100.00% " Business Shinjuku,Tokyo assurance business Finance, Ltd. TSB Servicer, 2-2-17,Akasaka, Debts management 100.00% 616,972 27,058 - - - 100.00% " Ltd. Minato,Tokyo business CTBC 3rd Floor,Raffles Holding company 100.00% 199,123 (9,473) 17,363 - 17,363 100.00% "(Note 1) (Mauritius) Tower,19 Cybercity Holding Co., Ebene ,Republic of Ltd. Mauritius. CTBC Securities 14F., No.188, Security investment 100.00% 49,874 (209) 5,000 - 5,000 100.00% " Investment Jingmao 2nd consultant company Service Co., Ltd.Road,Taipei CTBC Securities 14F., No.188, Venture capital 100.00% 335,499 36,760 30,000 - 30,000 100.00% " Venture Capital Jingmao 2nd investment company Co., Ltd. Road,Taipei CTBC Asia Suite 2809, 28F., Two Securities company 100.00% 196,923 (9,452) 134,526 - 134,526 100.00% " Limited International Finance Centre, 8 Finance Street, Central, Hong Kong CTBC Capital Romm 511, 5F, Holding company 100.00% 24,191 (140) 2,060 - 2,060 100.00% " International Tower 1 Silvercord Co., Limited Centre No.30 Canton Road Tsim Sha Tsui, Hong Kong CTBC Romm 511, 5F, Holding company 100.00% 1,418,443 (29,190) 70,000 - 70,000 100.00% " International Tower 1 Silvercord Co., Limited Centre No.30 Canton Road Tsim Sha Tsui, HongKong CTCB Venture 12F., No.1386 Venture capital 100.00% 896 115 - - - 100.00% "(Note 2) Capital Wenguang Building, management and Investment Hongqiao Road, consulting Management Changning District, (Shanghai) Co., Shanghai Ltd. CTBC Leasing 12F., No.1386 Financial leasing 100.00% 1,392,730 (29,066) - - - 100.00% " Co., Ltd. Wenguang Building, Hongqiao Road, Changning District, Shanghai TLG Insurance 18F-1, No.17, Property insurance 100.00% 1,788,506 (9,243) 200,000 - 200,000 100.00% " Co., Ltd. Xuchang St., business Zhongzheng Dist., Taipei City, Taiwan
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Aggregate shareholding of the Company and subsidiaries Name of Main Investment Number of Total investee business Shareholding Carrying gain(loss) Number of pro forma Number of Shareholding company Address scope ratio amount recognized shares shares shares ratio Note TLG Capital 17F., No.17, Xuchang Installment, leasing 100.00% 1,039,558 50,463 77,187 - 77,187 100.00% The investment has Co., Ltd. St., Zhongzheng Dist., and account been eliminated Taipei City, receivable factoring when preparing the Taiwan business, etc. consolidated financial statements. King Dragon 27F., Xiamen Lixin Insurance business 50.00% 566,600 35,670 350,000 - 350,000 50.00% Life Insurance Square Lake Road Company No. 90 in Fujian Province Top Taiwan IX 8F., No.99, Sec.1, Venture Capital 25.00% 216,378 11,454 20,000 - 20,000 25.00% Venture Capital Xinsheng S. Rd., Da Investment Co., Ltd. an Dist., Taipei City, Taiwan AZ-Star Co., 3-2-7, Kudan-minami, Fund management 40.00% 27,375 5,958 - - - 40.00% Ltd. Chiyodaku,Tokyo business AZ-Star First 3-2-7, Kudan-minami, Equity investment 43.98% 105,232 (4,158) 3 - 3 43.98% Investment Chiyodaku,Tokyo business Limited Partnership AZ-Star Third 3-2-7, Kudan-minami, Equity investment 26.04% 133,583 (11,399) 3 - 3 26.04% Investment Chiyodaku,Tokyo business Limited Partnership LH Financial 1Q. House Lumini Investment business 35.62% 18,092,259 547,169 7,544,961 - 7,544,961 35.62% Group Public Building, 5th Floor, Company South Sathon Road, Limited Thungmahamek, Sathon, Bangkok 10120 Xiamen Xiamen International Consumer financial 34.00% 775,120 5,791 - - - 34.00% Jinmeixin Financial Central 6th business Consumer Floor, No.82, Finance Co., Hongzhan Load, Ltd. SimingDist., XiamenCity,China(P. R.C) Hofa Land 4F-2, NO.80, Szu Wei Premises development 90.00% 11,909,946 121,167 11,123,488 - 1,123,488 90.00% Development 3rd, Kaohsiung City, and transaction Co., Ltd. Taiwan Wu Tzu 3F., No.2-7, Luchuan Athletics and 99.00% 1,988,591 (17,621) 192,060 - 192,060 99.00% Development W. St., WestDist., recreational sports Co., Ltd. Taichung City, stadium Taiwan Star Shining 4F., N0. 20-1, Energy Services 30.00% 909,318 8,298 90,000 - 90,000 30.00% Energy Co., Ltd. Guangfu N. Rd., Company Hukou Township, Hsinchu County, Taiwan Giga Green 1F., No. 3, Gongye Energy Services 30.00% 335,821 8,861 32,700 - 32,700 30.00% Energy Co., Ltd. 1st Rd., Hukou Company Township, Hsinchu County, Taiwan
Note 1: The carrying amount includes accumulated impairment loss amounted to $20,629.
Note 2: The Company has been liquidated on August 8, 2019.
(c) Related information on Investments in Mainland China:
(i) Related information on investee companies in Mainland China:
Unit: In Thousands of New Taiwan Dollars/US Dollars/Chinese Yuan Accumulated Investment flows Accumulated outflow of outflow of Investment gains Accumulated Name of investee Method of investment from investment from (losses) by an Percentage of Investment inward remittance company in Mainland Total amount investment Taiwan as of Taiwan as of investee ownership for direct or gains (losses) Book value as of of earnings as of China Main businesses of paid-in capital (Note 1) January 1, 2019 Outflow Inflow June 30, 2019 (Note 2) indirect investment (Note 2) June 30, 2019 June 30, 2019 CTBC Bank Co., Ltd., Commercial 6,194,068 ( 3 ) 6,194,068 - - 6,194,068 (28,463)A branch in Shanghai; (28,463) 6,847,017 None Shanghai Branch banking USD 206,045 USD 206,045 USD 206,045 CNY (5,920)not an investee CTBC Bank Co., Ltd., " 4,114,056 ( 3 ) 4,114,056 - - 4,114,056 299,996 A branch in 299,996 4,679,444 None Guangzhou Branch USD 130,531 USD 130,531 USD 130,531 CNY 66,229 Guangzhou; not an investee CTBC Bank Co., Ltd., " 4,081,960 ( 3 ) 4,081,960 - - 4,081,960 88,335 A branch in Xiamen; 88,335 4,053,044 None Xiamen Branch CNY 800,000 CNY 800,000 CNY 800,000 CNY 19,445 not an investee CTBC Bank Co., Ltd. " 1,351,890 ( 3 ) 1,351,890 - - 1,351,890 (7,258)A branch in (7,258) 1,351,900 None Shenzhen Branch CNY 100,000 CNY 100,000 CNY 100,000 CNY (1,500)Shenzhen; not an USD 29,395 USD 29,395 USD 29,395 investee Xiamen Jinmeixin Financing business 795,471 ( 1 ) 795,471 - - 795,471 17,033 34.00% 5,791 775,120 None Consumer Finance Co., CNY 170,000 CNY 170,000 CNY 170,000 CNY 3,737 Ltd. CTBC Leasing Co., Financial leasing 2,071,728 ( 2 ) 2,071,728 - - 2,071,728 (29,066) 100.00% (29,066) 1,392,730 None Ltd. CNY 433,802 CNY 433,802 CNY 433,802 CNY (6,378)
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
Accumulated Investment flows Accumulated outflow of outflow of Investment gains Accumulated Name of investee Method of investment from investment from (losses) by an Percentage of Investment inward remittance company in Mainland Total amount investment Taiwan as of Taiwan as of investee ownership for direct or gains (losses) Book value as of of earnings as of China Main businesses of paid-in capital (Note 1) January 1, 2019 Outflow Inflow June 30, 2019 (Note 2) indirect investment (Note 2) June 30, 2019 June 30, 2019 CTBC Venture Capital Venture capital 58,612 ( 2 ) 58,612 - - 58,612 115 100.00% 115 896 None Investment management CNY 12,578 CNY 12,578 CNY 12,578 CNY 25 Management and consulting (Shanghai) Co., Ltd. King Dragon Life Life insurance 3,529,890 ( 1 ) 1,646,486 - - 1,646,486 (285,137) 50.00% 35,670 566,600 None Insurance Co., Ltd. business CNY 700,000 CNY 350,000 CNY 350,000 CNY (63,302)
Note 1: Three methods of investment are as below:
1. Invest in Mainland China companies directly.
2. Re-invest in Mainland China companies through another investee in a third area. (The investees in the third area are as follows: CTBC International Co., Limited and CTBC Capital International Co., Limited)
3. Other method: set up new overseas branches.
Note 2: For the column of “Investment gains (losses)”:
1. If the company is still in the preparation process, and does not have any investment gain or loss, please specify.
2. The bases for recognition of investment income or loss.
a. The audited financial reports that are issued by an international accounting firm which is connected to an accounting firm in Taiwan: CTBC Leasing Co., Ltd., CTBC Venture Capital Investment Management (Shanghai) Co., Ltd. and King Dragon Life Insurance Co., Ltd.
b. The audited financial reports that are issued by the Taiwanese parent company’s designated accounting firm: None.
c. Others: Individual gains (losses) from overseas branches of CTBC Bank Co., Ltd.
3. Please specify if information regarding current gains or losses of an investee is not accessible.
(ii) Upper limit on investment in Mainland China:
Unit: In Thousands of New Taiwan Dollars/US Dollars/Chinese Yuan Accumulated outflow of investment Investment amounts authorized Upper limit on investment from Taiwan to Mainland China as of by Investment Commission, authorized by Investment Name of investor company June 30, 2019 MOEA Commission, MOEA CTBC Bank Co., Ltd. 16,537,445 16,885,234 179,089,517 (USD 365,971 ) (CNY 3,370,000 ) (CNY 1,070,000 ) CTBC Asset Management Co., Ltd. 2,071,728 2,071,728 3,202,504 (CNY 433,802 ) (CNY 433,802 ) (USD 69,110 ) (USD 69,110 ) CTBC Venture Capital Co., Ltd. 58,612 58,612 2,318,593 (CNY 12,578 ) (CNY 12,578 ) Taiwan Life Insurance Co., Ltd. 1,646,486 1,646,486 65,860,487 (USD 26,724 ) (USD 26,724 ) (CNY 170,000 ) (CNY 170,000 )
(iii) Significant transactions with investee companies in Mainland China: None
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CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
(14) Segment Information:
The Company and subsidiaries provide their chief operating decision maker with necessary information according to the characteristics of the business, to facilitate the assessment of performance and allocation of operational resources. The disclosures of assets, profits and losses are the same as the summary of significant accounting policies described in Note 4.
According to IFRS 8 “Operating Segments”, reportable segments are as follows:
The major operating activities of Institutional Banking are commercial banking and capital market activities which provide clients with flexible and tailor-made financing services and the design, supply, and propriety trading of various financial products.
The major operating activity of Retail Banking is providing target clients with relevant financial services, including wealth management, credit cards, secured loans, and unsecured individual loans, etc.
The major operating activity of Life Insurance is providing various sorts of life insurance services.
The major operating activities of other segments are investing and general administration. As of June 30, 2019 and 2018, the above operating segments did not meet the criteria for reportable segments when applying quantitative thresholds.
(a) Segment information:
For the three months ended June Consolidated Consolidated retail Adjustments and 30, 2019 institutional banking banking Insurance Others eliminations Total Net interest income $ 8,841,050 5,127,338 13,837,203 59,357 - 27,864,948 Net non-interest income 4,606,054 6,227,371 8,702,632 1,351,654 (381,198) 20,506,513 Net revenue 13,447,104 11,354,709 22,539,835 1,411,011 (381,198) 48,371,461 Net Income (loss) before Tax $ 5,446,267 4,605,120 3,428,313 (1,423,240) - 12,056,460
For the three months ended June Consolidated Consolidated retail Adjustments and 30, 2018 institutional banking banking Insurance Others eliminations Total Net interest income $ 8,042,242 4,824,821 12,173,669 141,693 - 25,182,425 Net non-interest income 4,793,027 5,575,906 32,431,333 1,318,748 (293,654) 43,825,360 Net revenue 12,835,269 10,400,727 44,605,002 1,460,441 (293,654) 69,007,785 Net Income (loss) before Tax $ 5,074,802 4,334,552 4,764,908 (1,201,853) - 12,972,409
For the six months ended June 30, Consolidated Consolidated retail Adjustments and 2019 institutional banking banking Insurance Others eliminations Total Net interest income $ 17,340,760 10,318,779 27,267,786 115,921 - 55,043,246 Net non-interest income 9,744,651 12,242,280 48,912,558 4,074,061 (1,237,958) 73,735,592 Net revenue 27,085,411 22,561,059 76,180,344 4,189,982 (1,237,958) 128,778,838 Net Income before Tax $ 11,239,814 9,538,462 6,328,991 (1,402,774) - 25,704,493
Total assets $ 3,112,291,251 1,024,185,815 1,901,660,976 152,413,703 (25,439,207) 6,165,112,538
For the six months ended June 30, Consolidated Consolidated retail Adjustments and 2018 institutional banking banking Insurance Others eliminations Total Net interest income $ 15,947,100 9,404,385 23,561,377 277,042 - 49,189,904 Net non-interest income 9,962,671 11,690,566 71,712,048 3,611,330 (1,026,521) 95,950,094 Net revenue 25,909,771 21,094,951 95,273,425 3,888,372 (1,026,521) 145,139,998 Net Income before Tax $ 11,023,438 9,196,649 7,063,080 (1,086,404) - 26,196,763
Total assets $ 2,870,736,701 926,306,707 1,662,413,178 105,915,247 (21,359,200) 5,544,012,633
(b) Geographic segment information: Not applicable to the interim financial statements.
(c) Information on major customers: Not applicable to the interim financial statements.