Ctbc Financial Holding Co., Ltd. and Its Subsidiaries

1 Stock Code:2891

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES

Consolidated Financial Statements

With Independent Auditors’ Report For the Six Months Ended June 30, 2018 and 2017

Address: 27F and 29F, No.168, Jingmao 2nd Rd., Nangang Dist., Taipei City 115, Taiwan, R.O.C. Telephone: 886-2-3327-7777

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 9～19 (4) Summary of Significant Accounting Policies 19～48 (5) Primary Sources of Significant Accounting Judgments, Estimates and 48 Assumptions Uncertainty (6) Summary of Major Accounts 49～209 (7) Related-Party Transactions 210～223 (8) Pledged Assets 224 (9) Significant Contingent Liabilities and Unrecognized Contract 225～233 Commitment (10) Significant Catastrophic Losses 233 (11) Significant Subsequent Events 233 (12) Other 234～286 (13) Disclosures Required (a) Related information on significant transactions 287～290 (b) Related information on reinvestment 291～292 (c) Information on investment in Mainland China 293～294 (14) Segment Information 295 WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 3

Independent Auditors’ Report

To the Board of Directors of CTBC Financial Holding Co., Ltd.:

Opinion

We have audited the consolidated financial statements of CTBC Financial Holding Co., Ltd.(“the Company”) and its subsidiaries, which comprise the consolidated balance sheet as of June 30, 2018,December 31 and June 30, 2017, the consolidated statement of comprehensive income for the three and six months ended June 30,2018 and 2017 ,consolidated statement changes in stockholders' equity and cash flows for the six months ended June 30, 2018 and 2017, and notes to the consolidated interim financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated interim financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of June 30, 2018,December 31 and June 30, 2017, along with consolidated financial performance for the three and six months ended June 30,2018 and 2017 and consolidated cash flows for the six months ended June 30, 2018 and 2017 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 International Accounting Standard (IAS) 34 “Interim Financial Reporting” as accepted by Financial Supervisory Commission.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Certification of Financial Statements of Financial Institutions by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

Emphasis of Matter

The judicial cases as stated in Note 9(e) are still under investigation by the judiciary, and the results remain uncertain. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated interim financial statements for the six months ended June 30, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 3-1

1. Assessment of the fair value of financial instruments

Please refer to Note 4 (f) for the related accounting policies of the assessment of the fair value of financial instruments, Note 5 for the accounting assumptions and estimation uncertainty, and Note 6 (au) for the other details.

How the matter was addressed in our audit:

Parts of the financial instruments owned by the Company and its subsidiaries as of June 30, 2018 were valued via evaluation model due to the lack of public transaction prices, and parts of the referred input values could not be obtained from the public market. Thus, it demands significant professional judgments from the management by using different valuation techniques and assumptions for input values. Therefore, the assessment of fair value of financial instruments is one of the key audit matters.

Our principal audit procedures included: testing the management’s control procedures over the classification, measurement and disclosure of fair value of financial instruments, including evaluating how the management determines the classification of financial instruments and chooses the appropriate evaluation method and the prime parameter hypothesis, and confirming that the presentation and disclosure of financial instruments are in accordance with the International Financial Reporting Standards (IFRSs). For financial assets with active market prices, we used sampling test to assess the appropriateness of public quoted prices. As to financial assets using evaluation model to measure their fair value, we used sampling test to confirm the appropriateness of the evaluation method and the prime input values used by the management.

2. Impairment of loans and receivables

Please refer to Note 4 (f) for the related accounting policies of impairment of loans and receivables, Note 5 for the accounting assumptions and estimation uncertainty, and Note 6 (i), (j), (k) and (au) for the other details.

How the matter was addressed in our audit:

The management assessed the expected credit loss (ECL) of loans and receivables by identifying whether the credit risk of credit assets has significantly increased since initial recognition, then dividing ECL into 12- month ECL and lifetime ECL, and dividing them into collective assessment and individual assessment to measure them by using different impairment methods. For collective assessment, the impairment is calculated by establishing an impairment model and using the past loss experience, current market conditions and forward-looking estimation on assets with similar credit risk characteristic to form basic estimation. For individual assessment, the measurement is based on expected future recoverable cash flows. The aforementioned measurement methods involved significant professional judgments and estimation by the management; therefore, the impairment of loans and receivables is one of the key audit matters.

Our principal audit procedures included: understanding the methodology and related control procedures on how the management assesses and measures the impairment amount of loans and receivables. For collective assessment, we assessed the impairment model adopted by the management and reviewed the appropriateness of the calculation of the impairment parameters (including probability of default, loss given default, exposure at default and recovery rate) via sampling. For individual assessment, we used sampling test to assess the appropriateness of the estimation of future recoverable amounts and the value of collateral. Meanwhile, we assessed whether the allowance for loans and receivables meets the regulation requirements.

3. Provision of insurance liability

Please refer to Note 4 (s) for the related accounting policies of insurance liability, Note 5 for the accounting assumptions and estimation uncertainty, and Note 6 (aa) and (ae) for the other details of the provision of insurance liability. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 3-2

How the matter was address in our audit:

The estimation of the Company and its subsidiaries’ insurance liability is subject to future uncertainties. The assumption of life insurance reserve adopts a fixed cost basis, that is to say, the provision is calculated by a reserve rate upon the issuance of insurance policy. Provision of unearned premiums is calculated by actuaries according to each product’ s characteristic and its undue risk. The main assumptions of claim reserve are claim development factors and expected claims rates. To evaluate the adequacy of insurance liabilities, estimating the discounted future cash flows should take into consideration the future insurance payments, insurance income and related expenses. The aforementioned evaluation involved the professional judgments of the management which will affect the recognition amount of insurance liabilities. Therefore, evaluating the provision of insurance liabilities is one of the key audit matters.

Our principal audit procedures included: reviewing the analysis of movements in insurance liabilities, adopting the audit of insurance liabilities performed by our actuarial specialists, and inspecting whether the calculation and applied parameters are in accordance with the related ordinances, administrative interpretations and code of conduct announced by the Actuarial Institute of the Republic of China. Also, the assessment on the reasonableness of actuarial assumptions should be in conformity with the empirical data and product specification in order to build the model of evaluation of insurance liability, as well as the estimation on the reasonableness of the actuarial result adopted by the management should be based on our understanding of industry and market to make sure that the final provision of insurance liability has been properly recorded.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of 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 International Accounting Standards (“ IASs” ) 34 “ Interim Financial Reporting” , endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company and its subsidiaries ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including audit committee) are responsible for overseeing the Company and its subsidiaries financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 3-3

As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and its subsidiaries internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and its subsidiaries’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company and its subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, performance of the group audit and developing a group audit opinion. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 3-4

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Chen, Chun-Kuang and Wu, Lin.

KPMG

Taipei, Taiwan (Republic of China) August 29, 2018

Notes to Readers The accompanying consolidated financial statements are intended only to present the financial position, financial performance and its cash flows in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.

The 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 auditors’ report and financial statements, the Chinese version shall prevail. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 4 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Consolidated Balance Sheets June 30, 2018, December 31, 2017 and June 30, 2017 (Expressed in Thousands of New Taiwan Dollars)

June 30, 2018 December 31, 2017 June 30, 2017 June 30, 2018 December 31, 2017 June 30, 2017 ASSETS Amount % Amount % Amount % LIABILITIES AND EQUITY Amount % Amount % Amount % 11000 Cash and cash equivalents(Note 4 and 6(a)) $ 113,026,717 2 154,080,461 3 132,492,566 3 Liabilities: 11500 Due from the central bank and call loans to 266,666,653 5 281,195,765 5 298,354,150 6 21000 Deposits from the central bank and banks(Note 6(t)) $ 59,834,742 1 74,874,783 1 77,868,345 2 banks(Note 6(b), 7 and 8) 21500 Due to the central bank and banks(Note 6(u)) 16,957,916 - 15,470,633 - 15,051,345 - 12000 Financial assets measured at fair value through profit 346,121,032 6 175,690,858 3 174,503,886 4 22000 Financial liabilities measured at fair value through 118,068,280 2 68,406,471 1 74,531,268 1 or loss(Note 4, 6(c) and (v), 7 and 8) profit or loss(Note 4 and 6(c)) 12100 Available-for-sale financial assets-net(Note 4, 6(e) - - 478,234,096 9 748,691,754 15 22300 Derivative financial liabilities-hedging-net(Note 4 453,506 - 16,865 - 281,876 - and (v) and 8) and 6(g)) 12150 Financial assets measured at fair value through other 410,320,269 8 - - - - 22500 Securities sold under repurchase agreements(Note 4, 56,273,699 1 74,118,226 1 68,581,731 1 comprehensive income (Note 4, 6(d) and (v), and 6(v) and 7) 8) 22600 Commercial papers issued-net(Note 6(w)) 17,696,022 - 51,777,524 1 31,600,931 1 12200 Investments in debt instruments measured at 1,615,587,089 29 - - - - amortised cost(Note 4 and 6(f) and (v), and 8) 23000 Payables(Note 6(x) and 7) 105,888,121 2 87,184,528 2 105,136,110 2 12300 Derivative financial assets-hedging-net(Note 4 and 148,808 - 137,010 - 223,611 - 23200 Current income tax liabilities(Note 4) 4,574,993 - 6,230,722 - 5,261,994 - 6(g)) 23500 Deposits and remittances(Note 6(y) and 7) 3,076,643,805 56 2,944,973,167 55 2,826,426,634 56 12500 Securities purchased under resell agreements(Note 4 10,849,931 - 24,658,803 1 25,576,088 1 24000 Bonds payable(Note 6(c) and (g), and (z)) 110,833,235 2 112,212,447 2 114,693,780 2 and 6(h)) 24600 Provisions(Note 4, 6(aa), (ad) and (ae)) 1,464,222,860 27 1,370,665,257 26 1,252,267,684 25 13000 Receivables-net(Note 4, 6(i), (k) and (au), 7 and 8) 192,939,443 4 153,686,602 3 154,853,490 3 25500 Other financial liabilities(Note 4, 6(ab) and (ao)) 181,933,919 3 189,540,151 4 194,351,866 4 13200 Current income tax assets(Note 4) 1,560,667 - 1,740,877 - 1,909,130 - 29300 Deferred tax liabilities(Note 4) 2,258,821 - 4,198,632 - 2,755,343 - 13500 Loans-net(Note 4, 6(j), 6(k) and (au), and 7) 2,268,302,128 41 2,194,551,195 41 2,151,031,367 42 29500 Total other liabilities(Note 6(ac)) 15,612,658 - 20,079,967 - 14,850,009 - 13700 Reinsurance contract assets-net(Note 4 and 6(l)) 2,694,272 - 2,841,708 - 2,434,001 - Total liabilities 5,231,252,577 94 5,019,749,373 93 4,783,658,916 94 14500 Held-to-maturity financial assets-net(Note 4, 6(m) - - 737,471,741 14 349,812,943 7 Stockholders’ equity - parent company: and (v), and 8) 31100 Capital stock: 15000 Investment under equity method-net(Note 4 and 34,517,617 1 33,735,935 1 17,785,089 - 31101 Common stock(Note 6(ag)) 194,969,896 3 194,969,896 4 194,969,896 4 6(n)) 31103 Preferred stock(Note 6(ag)) 3,333,300 - 3,333,300 - - - 15500 Other financial assets-net(Note 4, 6(k), (o) and (ao), 74,141,739 1 911,595,514 17 820,207,622 16 31500 Capital surplus(Note 6(ag)) 50,368,539 1 50,366,018 1 33,717,244 1 and 8) 32000 Retained earnings: 18000 Investment property-net(Note 4 and 6(p)) 57,686,897 1 56,593,899 1 56,169,317 1 32001 Legal reserve 24,189,775 - 20,467,553 - 20,467,553 - 18500 Premises and equipment-net(Note 4 and 6(q)) 53,120,859 1 52,650,171 1 52,869,221 1 32003 Special reserve 29,719,062 1 30,688,581 1 30,688,579 1 19000 Intangible assets-net(Note 4 and 6(r)) 23,800,710 - 23,406,249 - 23,413,677 - 32011 Undistributed earnings(Note 6(ah)) 35,099,203 1 37,417,514 1 19,497,980 - 19300 Deferred income tax assets(Note 4) 14,853,529 - 13,909,970 - 13,082,287 - 32500 Other equity interest(Note 6(ag)) (25,000,524) - (15,759,469) - (15,062,549) - 19500 Other assets-net(Note 4, 6(s) and 8) 57,674,273 1 44,552,690 1 44,029,990 1 32600 Treasury stock(Note 4 and 6(ag)) - - (582,754) - (582,754) - 39500 Non-controlling interests 80,805 - 83,532 - 85,324 - Total equity 312,760,056 6 320,984,171 7 283,781,273 6 TOTAL ASSETS $ 5,544,012,633 100 5,340,733,544 100 5,067,440,189 100 TOTAL LIABILITIES AND EQUITY $ 5,544,012,633 100 5,340,733,544 100 5,067,440,189 100

See accompanying notes to financial statements. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 5 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements of Comprehensive Income For the six months ended June 30, 2018 and 2017 (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 2018 2017 2018 2017 Amount % Amount % Amount % Amount % 41000 Interest income(Note 6(ak) and 7) $ 31,699,439 46 27,100,551 36 61,611,595 42 53,528,695 32 51000 Less: Interest expenses(Note 6(ak) and 7) (6,517,014) (9) (4,992,198) (7) (12,421,691) (8) (9,801,363) (6) Net income of interest (Note 6(ak)) 25,182,425 37 22,108,353 29 49,189,904 34 43,727,332 26 Net non-interest income (loss) 49800 Service fee and commissions income(Note 6(al) and 7) 4,908,560 7 5,353,988 7 11,348,241 8 10,653,533 6 49810 Net insurance income(Note 6 (am)) 30,437,881 44 42,201,091 57 70,081,346 48 104,639,982 62 49820 Gains on financial assets measured at fair value through profit or loss(Note 6(an)) (20,675,995) (30) (388,908) (1) (9,049,846) (6) 27,744,753 16 49825 Gains on investment properties 154,119 - 192,372 - 381,323 - 329,209 - 49830 Realized gain on available-for-sale financial assets(Note 6(ag)) - - 2,184,674 3 - - 3,552,398 2 49840 Realized gain on held-to-maturity financial assets - - 3,578 - - - 3,667 - 49835 Realized gain on financial assets measured at other comprehensive income 1,706,655 3 - - 6,414,887 5 - - 49850 Gains on derecognition of financial assets measured at amortized cost 152,477 - - - 182,170 - - - 49870 Foreign exchange gains (losses) 26,781,973 39 2,342,371 3 13,463,756 9 (25,543,851) (15) 49880 Reversal of (provision for) impairment loss on assets 13,968 - (3,553) - 50,284 - (59,521) - 49890 Proportionate share of gains from associates or joint ventures under equity method(Note 321,256 - 78,437 - 657,865 - 173,616 - 6(n)) 49898 Gains on reclassification under the overlay approach(Note 6(l)) 1,740,087 3 - - 4,991,424 4 - - 49900 Net other non-interest incomes (1,291,195) (2) 2,149,842 3 (990,646) (1) 5,954,384 4 58099 Public-welfare lottery payment (424,426) (1) (422,701) (1) (1,580,710) (1) (1,540,543) (1) Net revenue 69,007,785 100 75,799,544 100 145,139,998 100 169,634,959 100 58100 Provisions for bad debt expenses, commitment and guarantee liability provision(Note (1,698,815) (3) (1,018,650) (1) (2,148,522) (1) (382,512) - 6(i)) 58300 Net change in provisions for insurance liabilities(Note 6(ap)) (38,255,184) (55) (48,554,294) (64) (85,360,448) (59) (116,240,313) (69) Operating expenses: 58501 Employee benefits expenses(Note 6(aq)) (9,400,885) (14) (8,989,817) (12) (18,518,319) (13) (17,787,798) (10) 58503 Depreciation and amortization expense(Note 6(ar)) (911,957) (1) (930,390) (1) (1,839,724) (1) (1,808,087) (1) 58599 Other general and administrative expenses(Note 6(at)) (5,768,535) (8) (5,799,870) (8) (11,076,222) (8) (11,133,438) (7) Total operating expenses (16,081,377) (23) (15,720,077) (21) (31,434,265) (22) (30,729,323) (18) Net income before tax from continuing operations 12,972,409 19 10,506,523 14 26,196,763 18 22,282,811 13 61003 Income tax expenses (Note 6(af)) (3,297,377) (5) (1,325,812) (2) (4,292,728) (3) (2,888,221) (2) Net Income 9,675,032 14 9,180,711 12 21,904,035 15 19,394,590 11 69500 Other comprehensive income: 69560 Items that will not be reclassified subsequently to profit or loss 69561 Remeasurement losses related to defined benefit plans - - (6,861) - (1,578) - (4,733) - 69565 Changes in designated as financial liabilities measured at fair value through profit or loss 363,474 - (284,711) - 252,236 - (633,329) - attributable to credit risk 69567 Unrealized gains from investments in equity instruments measured at fair value through 709,310 1 - - 795,983 1 - - other comprehensive income 69563 Proportionate share of other comprehensive income from associates or joint ventnres under 4,488 - - - 2,961 - 1,905 - the equity method -items that will not be reclassified to profit or loss 69569 Income tax related to items that will not be reclassified to profit or loss (100,681) - 2,370 - 145,446 - 2,013 - Subtotal 976,591 1 (289,202) - 1,195,048 1 (634,144) - 69570 Items that are or may be reclassified subsequently to profit or loss 69571 Exchange differences of overseas subsidiaries’ financial reports translation 1,657,332 2 406,528 1 1,465,571 1 (3,626,749) (3) 69572 Unrealized gains on available-for-sale financial assets - - 3,904,287 5 - - 6,265,390 4 69583 Losses from investments in debt instruments measured at fair value through other (4,993,110) (7) - - (17,369,623) (12) - - comprehensive income 69575 Proportionate share of other comprehensive (losses) income from associate or joint (182,538) - 10,061 - (205,048) - 6,392 - ventures under the equity method -items that may not be reclassified to profit or loss 69590 Other comprehensive losses on reclassification under the overlay approach (1,740,087) (2) - - (4,991,424) (3) - - 69579 Income tax related to items that are or may be reclassified to profit or loss 827,703 1 (435,879) (1) 3,473,292 2 (349,804) - Subtotal (4,430,700) (6) 3,884,997 5 (17,627,232) (12) 2,295,229 1 69500 Other comprehensive (losses) income (3,454,109) (5) 3,595,795 5 (16,432,184) (11) 1,661,085 1 Total comprehensive income $ 6,220,923 9 12,776,506 17 5,471,851 4 21,055,675 12 Net income attributable to: Parent company $ 9,674,688 14 9,179,695 12 21,902,491 15 19,393,303 11 Non-controlling interest 344 - 1,016 - 1,544 - 1,287 - $ 9,675,032 14 9,180,711 12 21,904,035 15 19,394,590 11 Comprehensive income attributable to: Parent company $ 6,220,186 9 12,775,375 17 5,473,568 4 21,058,983 12 Non-controlling interest 737 - 1,131 - (1,717) - (3,308) - $ 6,220,923 9 12,776,506 17 5,471,851 4 21,055,675 12 Earnings per share (unit: NT Dollars)(Note 6(aj)) $ 0.50 0.47 1.12 1.00

See accompanying notes to financial statements. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 6

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements of Changes in Stockholder’s Equity For the six months ended June 30, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

Stockholder's Equity - parent company Other equity interest Capital Stock Retained earnings Change in designated as Unrealized financial Exchange losses on liabilities differences of financial assets measured at overseas measured at Unrealized fair value subsidiaries fair value losses on through profit financial through other available-for- or loss Reserve of Stockholders' Non- Common Undistributed reports comprehensive sale financial attributable to overlay equity - parent controlling stock Preferred stock Capital surplus Legal reserve Special reserve earnings translation income assets credit risk approach Treasury stock Company interests Total equity Balance at January 1, 2017 $ 194,969,896 - 36,637,717 17,674,655 21,886,995 28,249,266 (4,414,363) - (11,997,483) (317,142) - (582,754) 282,106,787 88,632 282,195,419 Net Income - - - - - 19,393,303 ------19,393,303 1,287 19,394,590 Other comprehensive (losses) income - - - - - (759) (3,337,622) - 5,637,390 (633,329) - - 1,665,680 (4,595) 1,661,085 Total comprehensive income (losses) - - - - - 19,392,544 (3,337,622) - 5,637,390 (633,329) - - 21,058,983 (3,308) 21,055,675 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 2,792,898 - (2,792,898) ------Special reserve appropriated - - - - 8,801,584 (8,801,584) ------Cash dividends of ordinary share - - - - - (16,549,348) ------(16,549,348) - (16,549,348) Cash dividends from capital surplus - - (2,920,473) ------(2,920,473) - (2,920,473) Balance at June 30, 2017 $ 194,969,896 - 33,717,244 20,467,553 30,688,579 19,497,980 (7,751,985) - (6,360,093) (950,471) - (582,754) 283,695,949 85,324 283,781,273

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 of ordinary share - - - - - (21,056,749) ------(21,056,749) - (21,056,749) Cash dividends of preference share - - - - - (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 - - - - - (694,395) - 694,395 ------through other 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

See accompanying notes to financial statements. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 7 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements of Cash Flows For the six months ended June 30, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

For the six months ended June 30 2018 2017 Cash Flows from Operating Activities: Net Income Before Tax $ 26,196,763 22,282,811 Adjustments: Income and expenses items with no effect on cash flow: Depreciation expense 1,374,177 1,403,514 Amortization expense 624,814 587,767 Impairment losses on expected credit loss 2,148,522 382,512 Net losses (gains) on financial assets or liabilities measured at fair value through profit or loss 24,518,708 (6,015,040) Interest expense 12,421,691 9,801,363 Interest income (61,611,595) (53,528,695) Dividend income (1,306,092) (1,038,834) Net change in insurance liabilities 85,360,448 116,240,313 Net change in other provisions 74,127 (805,230) Proportionate share of gains from associates or joint ventures under the equity method (657,865) (173,616) Gains reclassified by applying overlay approach (4,991,424) - Losses on disposal and retirement of premises and equipment 27,136 11,254 Gains on disposal of investment properties (27,982) - Losses on disposal of intangible assets 76 853 Gains on disposal of stock investments under cost method - (9,163) (Reversal of) provision for impairment losses on financial assets (51,298) 57,296 Impairment losses on non-financial assets 1,014 2,225 Losses on disposal of foreclosed properties 1,410 1,106 Unrealized foreign exchange losses (gains) on insurance liabilities 6,975,343 (14,927,921) Other adjustments 1,132,636 (865,975) Subtotal of income and expense items with no effect on cash flows 66,013,846 51,123,729 Changes in Operating Assets and Liabilities: Net Changes in operating assets: Decrease (increase) in due from the central bank and call loans to banks 8,533,481 (4,238,540) (Increase) decrease in financial assets measured at fair value through profit or loss (58,786,333) 27,557,424 Decrease in financial assets measured at fair value through other comprehensive income 37,901,464 - Increase in investments in debt instruments measured at amortised cost (143,937,926) - Decrease in available-for-sale financial assets - 65,780,725 (Increase) decrease in hedging financial assets (11,798) 192,731 Increase in receivables (37,545,821) (22,427,515) Increase in loans (75,922,972) (37,982,984) (Increase) decrease in reinsurance contract assets (89,984) 398,504 Increase in held-to-maturity financial assets - (133,501,091) Increase in other financial assets (13,460,101) (77,592,623) Net changes in operating assets: (283,319,990) (181,813,369) Net Changes in Operating Liabilities: (Decrease) increase in deposits from the central bank and other banks (15,040,041) 14,369,662 Increase (decrease) in financial liabilities measured at fair value through profit or loss 45,299,256 (27,988,121) Increase (decrease) in hedging financial liabilities 436,641 (21,723) (Decrease) increase in payables (5,002,107) 5,304,632 Increase in deposits and remittances 131,670,638 78,007,380 Decrease in employee benefits reserve (65,538) (86,168) Increase (decrease) in liability reserve 1,234,383 (559,036) Decrease in other financial liabilities (8,257,429) (6,974,542) Net Changes in Operating Liabilities 150,275,803 62,052,084 Net Changes in Operating Assets and Liabilities (133,044,187) (119,761,285) Sum of Adjustments (67,030,341) (68,637,556)

See accompanying notes to financial statements. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 7-1 (English Translation of Consolidated Financial Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Consolidated Statements Of Cash Flows For the six months ended June 30, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

For the six months ended June 30 2018 2017 Cash Used in Operating Activities $ (40,833,578) (46,354,745) Interest received 60,179,056 52,413,777 Dividends received 1,436,864 747,594 Interest paid (10,245,330) (8,802,875) Income taxes paid (6,379,612) (2,026,669) Net Cash Flows Provided by (Used in) Operating Activities 4,157,400 (4,022,918) Cash Flows from Investing Activities: Purchase of financial assets at cost - (593,534) Disposal of financial assets at cost - 58,087 Return of capital from financial assets carried at cost - 198,170 Purchase of financial assets under equity method (708,777) (134,659) Increase in prepayments for investments (795,471) - Purchase of premises and equipment (1,264,111) (1,641,249) Disposal of property and equipment 8,660 13,125 Purchase of intangible assets (890,111) (609,679) Proceed from disposal of foreclosed collateral 3,638 4,935 Purchase of investment properties (1,645,221) (1,433,890) Proceeds from disposal of investment properties 194,379 103,477 Decrease in securities purchased under resell agreements 24,312,285 - Increase in receivables - (460,171) (Increase) Decrease in other assets (12,968,438) 4,920,616 Net Cash Flows Provided by Investing Activities 6,246,833 425,228 Cash Flows from Financing Activities: Increase (Decrease) in due to the central bank and banks 1,487,283 (701,143) (Decrease) increase in commercial papers payable (34,081,502) 3,352,832 Proceeds from issuing bank notes payable - 16,000,000 Repayments of bank notes payable (1,431,360) (570,360) (Decrease) Increase in notes and bonds issued under repurchase agreement (17,844,527) 19,090,647 Increase in financial liabilities designated at fair value through profit or loss 6,862,500 5,478,480 Increase in payables 475,041 466,821 Decrease in other liabilities (4,467,309) (4,252,641) Disposal of treasury stock 585,581 - Other financing activities (306) - Net Cash Flows (Used in) Provided by Financing Activities (48,414,599) 38,864,636 Effect of Exchange Rate Changes on Cash and Cash Equivalents 1,472,969 (2,626,447) (Decrease) Increase in Cash and Cash Equivalents (36,537,397) 32,640,499 Cash and Cash Equivalents at the Beginning of the Period 379,305,243 360,203,705 Cash and Cash Equivalents at the End of the Period $ 342,767,846 392,844,204 Composition of Cash and Cash Equivalents: Cash and cash equivalents recognized in balance sheet $ 113,026,717 132,492,566 Due from the central bank and call loans to bank which meet IAS 7 definition of cash and cash equivalents 218,891,198 234,775,550 Securities purchased under resell agreements which meet IAS 7 definition of cash and cash equivalents 10,849,931 25,576,088 Cash and Cash Equivalents at the End of the Period $ 342,767,846 392,844,204

See accompanying notes to financial statements. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 8 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements For the six months ended June 30, 2018 and 2017 (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).

(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 29, 2018.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 Company and its subsidiaries are required to conform to 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, 2018. In addition, based on the announcement issued by the FSC on December 12, 2017, the Company and its subsidiaries can, and therefore, elected to early adopt the amendments to IFRS 9 “Prepayment features with negative compensation” . The related new standards, amendments and interpretations are as follows:

Effective date New, Revised or Amended Standards and Interpretations per IASB Amendment to IFRS 2 “Clarifications of Classification and Measurement of January 1, 2018 Share-based Payment Transactions” Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 January 1, 2018 Insurance Contracts” IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 “Prepayment features with negative compensation” January 1, 2019 IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative” January 1, 2017 Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax Assets for January 1, 2017 Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” January 1, 2018 Annual Improvements to IFRS Standards 2014–2016 Cycle: Amendments to IFRS 12 January 1, 2017 Amendments to IFRS 1 and Amendments to IAS 28 January 1, 2018 IFRIC 22 “Foreign Currency Transactions and Advance Consideration” January 1, 2018

Except for the following items, the Company and its 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:

(i) IFRS 9 “Financial Instruments”

IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” which contains classification and measurement of financial instruments, impairment and hedge accounting.

As a result of the adoption of IFRS 9, the Company and its subsidiaries adopted the amendments to IFRS 7 “Financial Instruments: Disclosures” that are applied to disclosures information of the year of 2018, but generally it has not been applied to the comparative information.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

1) Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of available for sale, financial assets carried at cost, debt instruments without active markets and held to maturity. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Company and its subsidiaries classify and measure financial assets and accounts for related gains and losses under IFRS 9, please refer to Note 4(f).

The adoption of IFRS 9 did not have any significant impact on the Company and its subsidiaries’ accounting policies on financial liabilities.

2) Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward looking ‘expected credit loss’ (ECL) model. This will require considerable judgment as to how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model applies to financial assets measured at amortized cost, debt investments at FVOCI, loan commitment and financial guarantee contract. Under IFRS 9, credit losses are recognized earlier than they are under IAS 39, please refer to Note 4(f).

3) Hedge accounting

When initially applying IFRS 9, the Company and its subsidiaries may choose as its accounting policy to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9. The Company and its subsidiaries have chosen to continue to apply the hedge accounting requirements of IAS 39.

4) Transition

The adoption of IFRS 9 have been applied retrospectively, except as described below,

．Differences in the carrying amounts of financial assets resulting from the adoption of IFRS 9 are recognized in retained earnings and other equity interests as at January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.

．The Company and its subsidiaries will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 generally will be recognized in retained earnings and other equity interests as at January 1, 2018.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 11

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

‧ The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.

－The determination of the business model within which a financial asset is held.

－ The designation and revocation on previously designated as financial assets and financial liabilities measured at fair value through profit or loss.

－The designation of certain investments in equity instruments not held for trading as at FVOCI.

5) Classification of financial assets on the date of initial application of IFRS 9

The following table shows the original measurement categories under IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each class of the Company and its subsidiaries’ financial assets as of January 1, 2018. (The measurement categories and carrying amount of the financial liabilities have not changed.)

IAS 39 IFRS 9 Measurement Carrying Measurement Carrying categories Amount categories Amount Financial Assets

Cash and cash equivalents Amortized cost $ 154,080,461 Amortized cost $ 154,074,679

Due from Central Bank Amortized cost 281,195,765 Amortized cost 281,192,372 and call loans to banks

Financial assets measured Measured at fair value through 175,690,858 Measured at fair value through 175,690,858 at fair value through profit or loss profit or loss profit or loss

Available-for-sale Measured at fair value through 478,234,096 Measured at fair value through 102,923,772 financial assets other comprehensive income profit or loss (Note1)

Measured at fair value through 293,325,783 other comprehensive income (Note2 and 6)

Amortized cost (Note4) 78,126,740

Derivative financial assets Measured at fair value through 137,010 Measured at fair value through 137,010 －hedging－net profit or loss profit or loss

Receivables－net Amortized cost 153,686,602 Amortized cost 153,622,720

Loans－net Amortized cost 2,194,551,195 Amortized cost 2,194,465,753

Securities sold under resell Amortized cost 24,658,803 Amortized cost 24,658,803 agreements

Held-to-maturity financial Amortized cost 737,471,741 Measured at fair value through 19,413,753 assets－net other comprehensive income (Note3)

Amortized cost (Note4) 719,423,917

Debt investments without Amortized cost 841,910,122 Measured at fair value through 36,693,904 active market─net profit or loss (Note5)

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 12

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

IAS 39 IFRS 9 Measurement Carrying Measurement Carrying categories Amount categories Amount Debt investments without Amortized cost Measured at fair value through 140,412,372 active market─net other comprehensive income (Note3 and 6)

Amortized cost (Note4) 674,183,666

Equity investment under Amortized cost 9,798,417 Measured at fair value through 2,307,925 cost method─net profit or loss (Note5)

Measured at fair value through 8,533,496 other comprehensive income (Note6)

Other financial assets－net Amortized cost 59,886,975 Amortized cost 59,895,817

Other assets－Refundable Amortized cost 11,784,248 Amortized cost 11,783,702 deposits

Note 1 : The investment in financial instruments categorized as available-for-sale under IAS 39, have been classified as financial assets measured at fair value through profit or loss under IFRS 9. The increase of $245,868 in retained earnings and the decrease of $530,798 in other equity interests were recognized on the transition day on January 1, 2018.

Note 2 : The investment in debt instruments are categorized as available-for-sale under IAS 39. The Company and its subsidiaries assess that these securities are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling securities, and for which the contractual cash flows are fully paid for the principle and interests incurred. Consequently, these investments at the date of initial application are classified as financial assets measured at fair value through other comprehensive income. An allowance for impairment loss of $121,166 was recognized to decrease retained earnings and increase other equity interest upon transition to IFRS 9 on January 1, 2018.

Note 3: The investment in debt instruments that were previously classified as held-to- maturity and the debt investment without active market are now classified as financial assets measured at fair value through other comprehensive income under IFRS 9. The Company and its subsidiaries assess that these securities are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling securities, and for which the contractual cash flows are fully paid for the principle and interests incurred. An increase of $242 in retained earnings and $12,344,684 in other equity interests were recognized respectively, on January 1, 2018 upon transition to IFRS 9.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 13

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 4: The investment in debt instruments that were previously classified as available- for-sale, held-to-maturity and debt investment without an active market are now classified as investment in debt instruments at amortized cost. The Company and its subsidiaries assess that these securities are held within a business model whose objective is achieved by collecting the contractual cash flows, and for which the contractual cash flows are fully paid for the principle and interests incurred. Decreases of $872,757 and $3,572,871 were recognized in retained earnings and other equity interest respectively, on January 1, 2018 upon transition to IFRS 9.

Note 5:The equity investments measured at cost method and debt investment without active market were classified as investments measured at fair value through profit or loss and therefore recognized an increase of $81,273 in retained earnings and a decrease of $423,469 in other equity interest upon the transition to IFRS 9 on January 1, 2018.

Note 6: The investments that were previously classified as available-for-sale, cost method, debt investment without an active market are now designated to the classification of financial assets measured at fair value through other comprehensive income under IFRS 9. An increase of $1,003,547 in retained earnings and a decrease of $32,525 in other equity interest upon transition to IFRS 9 on January 1, 2018.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 14

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Financial assets under IAS 39 have transferred to IFRS 9, the following table reconciles the carrying amounts of financial assets on January 1, 2018.

2017.12.31 2018.1.1 2018.1.1 2018.1.1 IAS39 IFRS9 Retained earnings Other equity Carrying amount Reclassifications Remeasurements Carrying amount impacts interest impacts Note Measured at fair value through profit or loss From measured at fair value through profit or loss (IAS39) $ 175,827,868 - - - - Additions： From measured at fair value through other comprehensive income - 103,208,702 (284,930) 245,868 (530,798) (available-for-sale under IAS39) From amortized cost (debt investment without active markets and - 39,344,024 (342,195) 81,273 (423,469) measured at cost under IAS39) Total changes of fair value through profit or loss 175,827,868 142,552,726 (627,125) 317,753,469 327,141 (954,267) Measured at fair value through other comprehensive income Additions－debt instruments： From measured at fair value through other comprehensive income 398,988,420 - - (121,166) 121,166 (available-for-sale under IAS39) From amortized cost (held-to-maturity and debt investment without - 146,555,289 12,344,926 242 12,344,684 active markets under IAS39) Additions－equity instruments： From measured at fair value through other comprehensive income 79,245,676 - - 157,880 (157,880) (available-for-sale under IAS39) From amortized cost (measured at cost under IAS39) - 7,571,765 961,731 761,027 200,705 From amortized cost (debt investment without active markets under - 916,620 9,290 84,640 (75,350) IAS39) Deduction－debt and equity instruments： To measured at fair value through profit or loss (IFRS9) - (103,208,702) - - - To amortized cost (IFRS9) - (81,699,611) - - - Total changes of fair value through other comprehensive income 478,234,096 (29,864,639) 13,315,947 461,685,404 882,623 12,433,325 Amortized cost Additions： From amortized cost (held-to-maturity financial assets, debt investments 1,589,180,280 - (872,757) (872,757) - without active markets and equity instruments measured at cost are included) From measured at fair value through other comprehensive income - 81,699,611 (3,572,871) - (3,572,871) (available-for-sale under IAS39) Deductions： To measured at fair value through other comprehensive income (IFRS9) - (155,043,674) - - - To measured at fair value through profit or loss (IFRS9) - (39,656,266) - - - Total changes of amortized cost 1,589,180,280 (113,000,329) (4,445,628) 1,471,734,323 (872,757) (3,572,871) Total balance of financial assets, reclassification and remeasurement on $ 2,243,242,244 (312,242) 8,243,194 2,251,173,196 337,007 7,906,187 January 1, 2018 Note 1 : The number of retained earnings impacts are pre-tax amounts. Note 2 : The impact of reclassifying the hybrid instruments was included. As of December 31, 2017, the fair value of the embedded derivatives instruments was $312,242 under IAS39, accounted under financial liabilities measured at fair value through profit or loss.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 15

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For financial assets that have been reclassified to amortized cost category, the following table shows the fair value as of June 30, 2018 and the fair value gain or loss that would have been recognized if these financial assets had not been reclassified as part of the transition to IFRS 9. For the six months ended June 30, 2018 From available-for-sale to amortized cost Fair value as of June 30, 2018 $ 77,827,747 Fair value gain/loss that would have been recognized during (3,337,459) the six months if the financial assets had not been reclassified

The allowance of impairment losses identified by incurred loss model under IAS 39 were adjusted to the expected losses model under IFRS 9, the following table reconciles the balance of allowance of impairment losses upon the transition to IFRS 9 on January 1, 2018.

The balance of allowance of impairment loss under IAS39 and The balance of the amount of allowance of provision under impairment loss IAS37 Reclassifications Remeasurements under IFRS9 Loans and receivables (IAS39) / Financial assets measured at amortized cost (IFRS9) Receivables $ 2,795,525 - 139,723 2,935,248 Loans 13,061,746 - 691,738 13,753,484 Additional provision of impairment in accordance with regulations of each industry 14,872,923 - (682,137) 14,190,786 Subtotal 30,730,194 - 149,324 30,879,518 Cash and cash equivalents 5,172 - 5,782 10,954 Due from Central Bank and call loans to banks 18,726 - 3,393 22,119 Reinsurance contracts 17,621 - - 17,621 Other financial assets 274,348 - (8,842) 265,506 Other assets 3,519 - 546 4,065 Total 31,049,580 - 150,203 31,199,783 Available-for-sale financial assets (IAS39) / Financial assets measured at fair value through profit or loss (IFRS9) Available-for-sale financial assets 190,657 (190,657) - - Available-for-sale financial assets (IAS39) / Financial assets measured at fair value through other comprehensive income (IFRS9) Available-for-sale financial assets - - 83,546 83,546 Available-for-sale financial assets (IAS39) /Financial assets measured at amortized cost (IFRS9) Available-for-sale financial assets - - 37,620 37,620 Held-to-maturity (IAS39) / Financial assets measured at fair value through other comprehensive income (IFRS9) Held-to-maturity financial assets - - 5,919 5,919

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

The balance of allowance of impairment loss under IAS39 and The balance of the amount of allowance of provision under impairment loss IAS37 Reclassifications Remeasurements under IFRS9 Held-to-maturity (IAS39) / Financial assets measured at amortized cost (IFRS9) Held-to-maturity financial assets 11,870 - 40,741 52,611 Financial assets measured at cost (IAS39) / Financial assets measured at fair value through profit or loss (IFRS9) Financial assets measured at cost 523,481 (523,481) - - Financial assets measured at cost (IAS39) / Financial assets measured at fair value through other comprehensive income (IFRS9) Financial assets measured at cost 78,750 (78,750) - - Debt investments without active markets (Other financial assets) (IAS39) / Financial assets measured at fair value through other comprehensive income (IFRS9) Debt investments without active markets - - 190,319 190,319 Debt investments without active markets (Other financial assets) (IAS39) / Financial assets measured at amortized cost (IFRS9) Debt investments without active markets 24,736 - 635,778 660,514 Financing commitment and guarantee reserve Loans (Financing commitment) 54,852 - 49,399 104,251 Credit cards (Financing commitment) - - 161,776 161,776 Guarantee receivables 168,852 - 99,613 268,465 Letter of credit receivables - - 8,032 8,032 Additional provision of impairment loss in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrual Loans” 646,616 - (122,045) 524,571 Subtotal 870,320 - 196,775 1,067,095 Total $ 32,749,394 (792,888) 1,340,901 33,297,407

Note: The number of impacts are pre-tax amounts. (ii) Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”

The amendments provide two optional approaches (overlay approach and temporary exemption) to reduce the impact of the different effective dates of IFRS 9 and the forthcoming IFRS 17:

• Provide all companies that issue insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts Standard is issued; and

• Provide companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing IAS 39 “Financial Instruments : Recognition and Measurement”

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Please refer to Note 3 (a) (i) 5) for the disclosure regarding to the Company’s subsidiary, Taiwan Life Insurance Co., Ltd. and its subsidiaries applying overlay approach to reduce the impact of the different effective dates of IFRS 9 and the forthcoming IFRS 17.

Please refer to Note 6(n) 2) for the disclosure regarding the impacts that the Company’s subsidiary Taiwan Life Insurance Co., Ltd. due to its carrying amounts of contract liabilities within the scope of IFRS 4 were considered significant compared to the total carrying amount of all liabilities, applies the requirement of temporary exemption from applying IFRS 9.

(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, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018:

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 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

IFRS 16 “Leases”

IFRS 16 replaces the existing leases guidance, including 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.

IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of low-value items. The lessor accounting remains similar to the current standard – i.e. the lessors will continue to classify leases as finance or operating leases.

So far, the Company and its subsidiaries’ related plan for future application of IFRS 16 is still in progress. Therefore, the Company and its subsidiaries does not expect the adoption of IFRS 16 to have any impact on the financial report in 2019.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 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 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. 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. (Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 19

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

The impact of applying new standards on the financial position and financial performance of the Company and its subsidiaries is under evaluation. Once the evaluation is completed, the Company and its 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”)

(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 (applicable from January 1, 2018)

(iii) Available-for-sale financial assets measured at fair value (applicable before January 1, 2018);

(iv) Hedging financial instruments measured at fair value;

(v) Cash-settled share-based payment agreements liability measured at fair value; and

(vi) 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.

(vii) 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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 its subsidiaries may be indicated if the following criteria are met simultaneously.

1) The Company and its 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 its subsidiaries are exposed to the entity's business risks;

3) The Company and its subsidiaries are capable of using leverage over the entity to influence the benefits of the entity.

(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 2018 31, 2017 2017 Description The Company CTBC Bank Co., Ltd. (“CTBC Bank”) Commercial banking and 100.00 % 100.00 % 100.00 % (Note 1) financing business " CTBC Securities Co., Ltd. (“CTBC Securities”) Securities and futures 99.92 % 99.92 % 99.92 % 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 " 99.00 % 99.00 % 99.00 % " CTBC Bank Corp. (Canada) " 100.00 % 100.00 % 100.00 % " The Tokyo Star Bank, Ltd. " 100.00 % 100.00 % 100.00 % " CTBC Capital Corp. Investment business 100.00 % 100.00 % 100.00 % (Note 3) 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 2) Asset-backed security that is secured by mortgage /NPL Collection

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of Shareholding Investor June 30, December June 30, Company Name of Subsidiary Primary Business 2018 31, 2017 2017 Description The Tokyo Star Credit Linked Notes A security with an - % - % - % (Note 2) Bank, Ltd. embedded credit default swap " SPE Consolidation Asset-back Securities Consumer loan - % - % - % (Note 2) 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 4) 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 CTBC CTBC Securities Investment Service Co., Ltd. Securities investment 100.00 % 100.00 % 100.00 % Securities consultant business 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 2018 31, 2017 2017 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., Athleticsand recreational 99.00 % 99.00 % 99.00 % 〃 Ltd. sports stadium

Note 1: On May 26, 2017, the Company’s subsidiary CTBC Bank as resolved by the shareholders’ meeting, decided to transfer $9,559,984 of undistributed earnings to capital increase in 955,998 thousand shares, with September 9, 2017 as its baseline for capital increase.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 2: 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, 2018, 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.

Note 3: CTBC Capital Corp. remitted US$173,000 thousand in capital surplus and US$57,000 thousand in retained earnings on December 19, 2017.

Note 4: The Company is under liquidation.

(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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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 its 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.

(f) Financial instruments

Financial assets held by the Company and its 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 (applicable from January 1, 2018)

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

d) The entire hybrid contract which has a host that is an asset within the scope of IFRS 9.

e) 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.

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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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.

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 its 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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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.

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.

As the purpose of holding those creditor’s rights has changed, these loans held for sale are accounted for under “other financial assets” and will be valued using the lower-of-cost-or-market method in the future.

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 Assetsand 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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.

4) Financial asset impairment

The Company and its 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(au).

5) Derecognition of financial assets

The Company and its subsidiaries shall derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire or when the Company and its 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 its 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 its subsidiaries still retained partial risks.

6) Reclassification of financial assets

The Company and its 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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Financial assets (applicable before January 1, 2018) The fincial assets of the Company and its subsidiaries under IAS39 were as follow： 1) Financial assets measured at fair value through profit or loss Financial assets are classified as held for trading if they have been acquired principally for the purpose of selling or repurchasing in the near term. The derivative financial instruments held by the Company and its subsidiaries, except for those designated as hedging instruments, are classified under these accounts. The Company and its subsidiaries designate financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: a) Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; b) Performance of the financial assets is evaluated on a fair value basis; c) Hybrid instruments contain one or more embedded derivatives. Financial assets in this category are measured at fair value on balance sheet date. Changes in fair value are recognized in profit or loss as incurred. 2) Available-for-sale financial assets－net On each balance sheet date, the fair value is remeasured, and the resulting gain or loss from such remeasurement is recognized directly in other comprehensive income. Interest on a debt instrument classified as available-for-sale is accrued; the relevant premium/discount is amortized by using the effective-interest-rate method. If there is objective evidence that an available-for-sale financial asset is impaired, the carrying amount of the asset is reduced, and impairment loss is recognized. If, in a subsequent period, the amount of the impairment loss of the available-for-sale equity securities decreases, the impairment loss recognized in profit or loss shall not be reversed through profit or loss. If, in a subsequent period, the amount of the impairment loss of the available-for-sale debt securities 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 or the depreciated or amortized balance of the assets assuming no impairment loss was recognized. A gain or loss on available-for-sale financial assets is recognized directly in other comprehensive income, except for impairment losses and 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

3) 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. 4) Loans and receivables At initial recognition, loans and receivables include incremental direct transaction costs, and 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. a) Collection of payment of principal or interest accrued is considered highly unlikely; or b) Payment of principal or interest accrued is over 3 or 6 months past due; or c) Payment of principal, interest accrued and other suspense account of credit card is over 90 days past due. As the purpose of holding those creditor’s rights has changed, these loans held for sale are accounted for under “other financial assets” and will be valued using the lower-of- cost-or-market method in the future. With regards to loans and receivables, the objective evidence shall be identified first to reveal any impairment existing for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If no objective evidence of impairment exists for an individually assessed financial asset, it shall be included in a set of financial assets with similar credit risk characteristics and collectively assessed for impairment. Assets that are individually assessed for impairment are not required to be collectively assessed because impairment is or continues to be recognized. Non-accrual account deemed uncollectible are written off upon approval of the board of directors; reinsurance recovery receivables and due from reinsurers and ceding companies are reclassified as non-performing loans when they are past due over 9 months. The recovery of written-off loans and accounts receivable is accounted for under the reversal of the allowance for credit losses. Reserves for guarantees are appropriately provided based on an estimate of probable losses inherent in the ending balances of guarantees, acceptances receivable, and commercial paper.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Another estimate will also be reached following “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” and “ Regulations Governing the Procedures for the Insurance Industry to Evaluate Assets and Deal with Non-Performing and Non-Accrued Loans” , which are both issued by the FSC. Final provision will be based on the higher of the two estimates. 5) Held-to-maturity financial assets－net

The amortized cost and interest income of held-to-maturity financial assets are determined by using the effective-interest-rate method. If there is an objective evidence that a held-to-maturity financial asset is impaired, the carrying amount of the asset is reduced, and impairment loss is recognized. If, in a subsequent period, the amount of 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 or the depreciated or amortized balance of the assets assuming no impairment loss was recognized.

6) Financial assets carried at cost

Equity instruments with no quoted market price are initially recognized at whose fair value plus transaction costs. At each balance sheet date, fair value can be reliably measured if either of the following conditions is met:

a) The variability in the range of reasonable fair value estimates is not significant for that instrument; or

b) The probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value. If the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed, it is not permissible to measure the instrument at fair value; instead, the instrument shall be carried at cost.

7) Debt investments without active markets

The amortized cost and interest income of debt investments without an active market are determined by using the effective-interest rate method. When there is objective evidence that an impairment loss on financial assets has been incurred, impairment loss is recognized. If, in a subsequent period, the amount of 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 or the depreciated or amortized balance of the assets assuming no impairment loss was recognized.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

8) Financial assets initially classified as measured at fair value through profit or loss (other than derivative financial assets and those designated as assets measured at fair value through profit or loss) may be reclassified into other categories if those financial assets are no longer held for the purpose of selling and meet the criteria listed below; financial assets initially classified as available-for-sale that would have met the definition of held- to-maturity financial assets or loans and receivables may be reclassified out of the available-for-sale category to the loans and receivables. The accounting treatments on the date of reclassification are summarized as follows:

a) When financial assets initially classified as measured at fair value through profit or loss have met the definition of loans and receivables and the entity has the intention and ability to hold the financial assets for the foreseeable future or until maturity, they shall be reclassified at their value on the date of reclassification, which will become their new cost or amortized cost, as applicable. Any previous gain or loss already recognized in profit or loss shall not be reversed.

b) Financial assets initially classified as measured at fair value through profit or loss which do not meet the preceding criterion may be reclassified out of the fair value through profit or loss category only in rare circumstances and shall be reclassified at their fair value on the date of reclassification, which will become their new cost or amortized cost, as applicable. Any previous gain or loss already recognized in profit or loss shall not be reversed.

c) When financial assets initially classified as available-for-sale have met the definition of held-to-maturity financial assets or loans and receivables and the entity has the intention and ability to hold the financial assets for the foreseeable future or until maturity, they shall be reclassified at their value on the date of reclassification, which will become their new cost or amortized cost, as applicable.

d) For any previous gain or loss on a financial asset that has been recognized directly under owners’ equity, if the financial asset has a fixed maturity, the gain or loss shall be amortized to current profit or loss over the remaining life of the financial asset; if not, the gain or loss remains under owners’ equity.

9) Financial asset impairment

If there is an objective evidence that an impairment loss on financial assets has been incurred, the amount of the loss is recognized and measured as the difference between the asset’ s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate; the amount of the loss shall be recognized in profit or loss in the current period. The estimation of future cash flows includes the recoverable amount of collateral and related insurance when determining the amount of the loss.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

The aforesaid objective evidence includes:

a) Significant financial difficulty of the issuer or obligor;

b) A breach of contract, such as a default or delinquency in interest or principal payments;

c) The lender, for economic or legal reasons relating to the borrower’ s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

d) It is becoming probable that the borrower will enter bankruptcy or other financial reorganization;

e) The disappearance of an active market for that financial asset because of the issuer’ s financial difficulties;

f) Adverse changes in the payment status of the borrower; and

g) Changes in national or local economic conditions that correlate with defaults on the assets.

10) Derecognition of financial assets

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Financial liabilities The financial liability held by the Company and its 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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Derecognition of a financial liability

The Company and its 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 its 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 its subsidiaries shall not reclassify any financial liability.

(iv) 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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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.

(v) Financial guarantee contracts

The Company and its subsidiaries recognize financial guarantee liabilities initially at their fair value at the date of providing guarantee. The Company and its 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 its 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.

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

After the date of acquisition, the Company and its 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. (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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 its 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 its 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 its subsidiaries have obligations to dismantle, remove and restore the property and equipment, the obligation for which the Company and its 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

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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 its subsidiaries use cost model to proceed subsequently measurement.

(ii) Goodwill

The Company and its 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.

(p) Lease

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 its subsidiaries recognized lease payments or receivables under an operating lease as current profit or loss using a straight-line method over the lease term.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

As lessors, the Company and its 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. As lessees, the Company and its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(s) Provisions

The Company and its 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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 at least once within 3 years. 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.

(v) Revenue recognition

(i) The income of the Company and its subsidiaries is recognized on an accrual basis.

(ii) Please refer to Note 4(f)(i)3). Loans and receivables for more information on interest income from receivables and loans.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 43

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 44

CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 its 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 its 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 its 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 Public Banks, when 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. (Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 45

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 its 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 its 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.

(y) Compensations of employees and directors

The Company and its 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.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 46

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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 its 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.

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.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 47

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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 its 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 its 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

(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.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 48

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 its 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 its 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. (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, International Financial Report Standards (IFRS) 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 its 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 2017 annual consolidated financial statements.

Impairement of financial assets

The impairement of financial assets of the Company and its subsidiaries was evaluated by identifying the credit risk of financial assets have significantly increased or not at the reporting date if the credit risk of financial asset has not significant incurred, the 12-month expected credit loss should be adopted to evaluate, or the lifetime credit loss evaluation should be adopted. To evaluate the expected credit losses for 12-month and lifetime, the Company and its subsidiaries consider the default probability (Probability of default, "PD") of financial assets or issuers or counterparties, and loss given default rate ("LGD") multiplying the exposure at default (“EAD”), taking into account the time value of money as well evauate 12-month and lifetime loss. The Company and its subsidiaries consider historical experiences, current market conditions and forward-looking estimates to the assumptions and input values to be used in determining the impairment loss. For the details of the relevant assumptions and input values, please refer to Note 6(au).

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 49

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(6) Summary of Major Accounts:

(a) Cash and Cash equivalents

December 31, June 30, 2018 2017 June 30, 2017 Cash on hand $ 30,473,015 28,219,047 26,015,628 Petty cash and revolving fund 24,048 24,063 23,953 Checks for clearance 3,923,097 4,034,062 1,987,605 Cash in transit 4,639,811 7,660,131 4,917,647 Due from other banks 73,800,987 113,757,373 99,389,329 Cash equivalents 165,759 385,785 158,404 Total $ 113,026,717 154,080,461 132,492,566

(b) Due from Central Bank and call loans to banks

December 31, June 30, 2018 2017 June 30, 2017 Required reserve—Account A $ 25,191,257 32,983,852 62,224,711 Required reserve—Account B 47,849,113 47,876,260 45,492,113 Required reserve—Foreign Currency 152,500 - - Due from Central Bank 129,113,815 110,874,646 107,724,866 Call loans to banks 64,359,968 89,461,007 82,912,460 Total $ 266,666,653 281,195,765 298,354,150

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.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 50

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, June 30, 2018 2017 June 30, 2017 Designated as financial assets measured at fair value through profit or loss Government bonds $ - 14,835,334 15,065,274 Corporate bonds - 2,958,933 271,600 Linked deposits - 100,000 100,000 Other securities and bonds 1,136,850 1,125,825 1,188,250 Valuation adjustment of financial assets 9,639 (62,227) 155,240 Subtotal 1,146,489 18,957,865 16,780,364 Mandatorily measured at fair value through profit or loss Commercial papers 97,402,718 Negotiable certificate of deposits 8,000,491 Other securities and bonds 20,662,833 Government bonds 2,310,132 Corporate bonds 9,171,073 Convertible bonds 1,454,852 Financial debentures 25,924,028 Asset-backed securities 953,931 Listed and OTC securities 66,146,695 Beneficiary certificates 61,370,686 Linked deposits 100,000 Derivative financial assets 56,116,271 Treasury bills 5,015 Valuation adjustment of financial assets (4,644,182) Subtotal 344,974,543

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 51

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, June 30, 2018 2017 June 30, 2017 Financial assets held for trading Commercial papers 71,070,961 65,709,363 Negotiable certificate of deposits 3,000,000 - Treasury bills - 148,185 Government bonds 2,194,336 3,922,436 Corporate bonds 4,547,296 5,542,234 Financial debentures 1,937,292 1,091,136 Convertible bonds 2,379,668 2,895,629 Other securities and bonds 211,947 188,141 Listed and OTC securities 22,632,090 12,348,476 Asset-backed securities 12,003,226 24,012,887 Fund investments and beneficiary 1,226,740 3,029,977 certificates Derivative financial assets 33,743,557 37,913,382 Valuation adjustment of financial assets 1,785,880 921,676 Subtotal 156,732,993 157,723,522 Total $ 346,121,032 175,690,858 174,503,886

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.

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, 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 $123,948,871.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 52

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the three months ended and six months ended June 30, 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 For the six months ended months ended June 30, 2018 June 30, 2018 The amounts reported in profit or loss for the designated $ 2,623,526 1,370,050 financial assets as applying IFRS 9 Less:The amounts that would have been reported in profit or 4,363,613 6,361,474 loss for the designated financial assets as applying IAS 39 Losses of the reclassification to other comprehensive income $ (1,740,087) (4,991,424) under the overlay approach

Due to the adjustment of the overlay approach, the 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 $24,504,928 and $16,844,422 to $22,764,841 and $11,852,998 for the three months ended and six months ended June 30, 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 the six months ended June 30, 2018, or cancel the designated application.

Financial liabilities measured at fair value through profit or loss of the Company and its subsidiaries were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Derivative financial liabilities $ 79,608,686 34,309,143 41,415,688 Financial liabilities designated at fair value 38,452,906 34,090,353 33,115,580 through profit or loss Borrowed listed and OTC securities 6,688 6,975 - Total $ 118,068,280 68,406,471 74,531,268

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, 2018 2017 June 30, 2017 Financial debentures at fair value $ 38,452,906 34,090,353 33,115,580 Cumulative changes in fair value that is 1,170,714 1,422,950 950,471 attributable to changes in the credit risk The difference between book value and the 5,528,094 2,234,663 3,925,032 amount payable upon maturity as specified in the contract

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 53

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 six months ended June 30, 2018 and 2017, 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 2018 2017 January 1 $ 3,545,835 3,522,038 Current increase 1,256,405 1,160,587 Current decrease (3,108,338) (441,793) Foreign exchange gains (losses) 44,055 (190,531) June 30 $ 1,737,957 4,050,301

(d) Financial assets measured at fair value through other comprhensive income

June 30, 2018 Debt instruments measured at fair value through other comprehensive income Negotiable certificate of deposits $ 13,524,156 Treasury bills 3,777,934 Government bonds 116,438,026 Corporate bonds 63,798,236 Financial debentures 104,418,089 Asset-backed securities 29,472,422 Other securities and bonds 1,220,022 Valuation adjustment of financial assets (4,725,167) Subtotal 327,923,718 Equity investments measured at fair value through other comprehensive income Listed and OTC securities 77,679,826 Unlisted and non-OTC securities 8,528,667 Valuation adjustment of financial assets (3,811,942) Subtotal 82,396,551 Total $ 410,320,269

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 54

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

During the three months ended and six months ended June 30, 2018, the dividends of the Company and its subsidiaries related to amounts derecognized during the reporting period and held by the end of the reporting period were as follows:

For the three For the six months ended months ended June 30, 2018 June 30, 2018 Amounts derecognized during the reporting period $ - - Amounts held by the end of the reporting period 552,432 734,648 Total $ 552,432 734,648

For the three months ended and six months ended June 30, 2018, the Company and its 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 .

During the six months ended June 30, 2018, the gains or losses on dispoal of the Company and its subsidiaries related to equity investments at fair value through other comprehensive income were as follows:

The fair value at the date of derecognition Gain (loss) on dispoal For the six For the three For the six months ended months ended months ended June 30, 2018 June 30, 2018 June 30, 2018 Listed securities $ 2,921,610 (374,348) (791,459)

The changes in allowance for credit losses attribute to the financial assets above were as follows:

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) New financial assets originated or purchased 28,141 - - - - 28,141 Foreign exchange and other movement (91,451) - (7,287) - - (98,738) Ending balance $ 144,550 - - - - 144,550

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 55

CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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) Available-for-sale financial assets－net

December 31, 2017 June 30, 2017 Commercial papers $ 1,679,510 2,498,982 Negotiable certificate of deposits 11,439,890 307,600,017 Treasury bills 2,427,358 3,681,578 Government bonds 112,324,701 122,946,671 Corporate bonds 80,204,023 72,639,057 Financial debentures 97,067,878 76,875,490 Fund investments and beneficiary certificates 70,639,817 56,204,151 Listed and OTC securities 73,626,226 79,540,013 Asset backed securities 27,726,893 25,958,531 Other securities and bonds 3,233,749 3,109,962 Valuation adjustment of financial assets (2,135,949) (2,362,698) Total $ 478,234,096 748,691,754

Please refer to Note 6 (v) and 8 for information with regard to the repurchase conditions for, or restrictions on available-for-sale financial assets shown above.

(f) Investment in debt instruments at amortized cost

June 30, 2018 Negotiable certificate of deposits $ 409,418,091 Treasury bills 8,653,661 Government bonds 273,721,994 Corporate bonds 430,671,534 Financial debentures 461,789,397 Asset-backed securities 26,610,376 Others 5,559,165 Less: Loss allowance (837,129) Total $1,615,587,089

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 56

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company and its subsidiaries derecognized investments in debt instruments measured at amortized cost for the purpose of fund management and mandatory redemption of issuer for the six months ended June 30, 2018, the information of derecognition of carrying amounts and disposal gains (losses) were as follows:

The carrying amount at the date of derecognition Accumulated gains (losses) of dispoal For the six For the three For the six months ended months ended months ended June 30, 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

The changes in allowance for credit losses attribute to the above assets were as follows:

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(g) Financial instruments－hedging

Hedging derivative financial assets of the Company’s subsidiary CTBC Bank Co., Ltd. were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Fair value hedge: Interest rate swaps $ 10,198 27,455 44,875 Non-delivery forwards - 10,736 11,111 Hedge of a net investment in a foreign operation: Currency swaps 138,610 98,819 167,625 Total $ 148,808 137,010 223,611

Hedging derivative financial liabilities of the Company’s subsidiary CTBC Bank Co., Ltd. were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Fair value hedge: Non-delivery forwards $ 55,764 - 988 Hedge of a net investment in a foreign operation: Currency swaps 397,742 16,865 280,888 Total $ 453,506 16,865 281,876

(i) For the six months ended June 30, 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 2018 31, 2017 2017 Financial debentures in NTD Interest rate swaps $ 10,198 27,455 44,875 Capital of international Non-delivery forwards (55,764) 10,736 10,123 banking department in USD

For the three months ended and six months ended June 30, 2017, the Company's subsidiary CTBC Bank Co., Ltd. and its subsidiarie’ s recognize net (losses) gains from the hedging derivative financial instruments were $(4,217) and $12,767, respectively and net losses from the hedged items were $32,277 and $74,086, respectively.

The information of the Company’s subsidiary CTBC Bank Co., Ltd. designated as the hedged items on 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, 2018 Fair value hedge: Interest rate $ - 8,909,756 - 9,756 Financial - - swaps debentures Currency swaps 1,033,155 - 34,345 - Cash and cash - - equivalents (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 2018 31, 2017 2017 CTBC Bank Co., Ltd.-Ho Chi Minh Currency swaps $ (25,474) 4,585 (13,978) City Branch CTBC Capital Corp. 〞 (76,811) 13,100 (121,215) CTBC Bank Corp. (Canada) 〞 (546) (4,508) (11,240) The Tokyo Star Bank, Ltd. 〞 (156,301) 68,777 33,170

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

The amounts applicable to the hedge accounting that affects the statement of comprehensive income statement for the six months ended June 30, 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, 2018 Hedge of net investment Currency swaps －Hedge of a net $ (596,959) - - - - investment in a foreign operations

(iv) The amounts, timing and uncertainty of the aforementioned hedging instruments affecting the the Company's subsidiary CTBC Bank Co., Ltd.'s future cash flow are as follows:

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 1.07~1.145% 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

(h) Securities purchased under resell agreements

December 31, June 30, 2018 2017 June 30, 2017 Securities purchased under resell agreements $ 10,849,931 24,658,803 25,576,088 Face value of securities $ 10,415,560 23,655,900 24,786,692

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Receivables－net

December 31, June 30, 2018 2017 June 30, 2017 Notes receivable $ 275,995 301,887 363,384 Accounts receivable 93,954,965 78,850,538 84,838,044 Accounts receivable factoring 19,934,715 16,750,776 17,457,277 Interest receivable 21,130,241 19,795,087 17,956,766 Acceptances receivable 9,860,724 9,863,773 7,970,007 Accrued income 544,427 207,409 716,024 Securities margin loan receivable 3,635,058 3,510,405 3,234,993 Securities receivable 7,523,940 1,212,642 2,763,186 Financial leasing receivable 10,899,889 10,221,784 9,529,577 Interbank clearing receivable 1,969,665 2,042,802 1,812,283 Premium receivable 14,694,887 4,366,818 4,636,957 Separate account of investment products 923,577 1,006,977 516,676 receivable Installment accounts receivable 6,626,098 4,697,316 2,371,661 Other receivables 4,155,707 3,921,718 3,997,645 Subtotal 196,129,888 156,749,932 158,164,480 Less: Allowance for credit losses (3,190,445) (3,063,330) (3,310,990) Total $ 192,939,443 153,686,602 154,853,490

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(au) for credit risk and the market risk information on June 30, 2018.

Receivables of the Company and its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Adjustment of discount and Allowance for Items Receivables premium credit losses With objective evidence of Individual assessment $ 2,060,316 - 1,374,390 impairment Collective assessment 3,352,410 - 445,107 Without objective evidence Collective assessment 124,666,738 - 1,243,833 of impairment Total $ 130,079,464 - 3,063,330

June 30, 2017 Adjustment of discount and Allowance for Items Receivables premium credit losses With objective evidence of Individual assessment $ 1,970,491 - 1,328,406 impairment Collective assessment 3,423,112 - 454,520 Without objective evidence Collective assessment 129,594,971 - 1,528,064 of impairment Total $ 134,988,574 - 3,310,990

(j) Loans－net

December 31, June 30, 2018 2017 June 30, 2017 Corporate loans $ 517,600,234 521,578,372 527,533,094 Micro business loans 10,519,694 10,374,280 12,349,974 Mortgage loans 604,152,481 571,135,554 551,675,427 Automobile loans 7,861,752 10,031,129 12,983,800 Consumer loans 110,790,797 109,068,536 106,995,609 Life insurance loans 19,596,213 18,977,259 18,692,781 Automatic premium loans 3,249,028 3,114,879 2,990,383 Subtotal of NTD loans 1,273,770,199 1,244,280,009 1,233,221,068 Foreign currency loans 1,016,300,179 970,591,124 937,289,778 Non-accrual loans 9,019,614 8,674,909 9,512,245 Subtotal 2,299,089,992 2,223,546,042 2,180,023,091 Less: Allowance for credit losses (29,557,266) (27,666,864) (27,552,750) Less: Adjustment of discount and premium (1,252,610) (1,358,950) (1,483,717) Fair value adjustment resulting from 22,012 30,967 44,743 acquisition Total $2,268,302,128 2,194,551,195 2,151,031,367

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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(au) 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, 2018 2017 June 30, 2017 Non-performing loans $ 9,373,618 8,872,330 10,065,275

The Company’s subsidiary CTBC Bank Co., Ltd. and its 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 2018 2017 2018 2017 Suspended interest on non- $ 5,883 2,954 34,794 35,562 performing loans

For the six months ended June 30, 2018 and 2017, 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(au) for credit risk and market risk information on June 30, 2018.

Loans should be included in the total amounts of assessment of impairment to determine the allowance for credit losses, which was as follows:

December 31, 2017 Adjustment of discount and Allowance for Items Loans premium credit losses With objective evidence of Individual assessment $ 13,454,107 (409) 4,174,744 impairment Collective assessment 18,086,066 4,253 3,243,236 Without objective evidence Collective assessment 2,192,005,869 (1,362,794) 20,248,884 of impairment Total $ 2,223,546,042 (1,358,950) 27,666,864

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Adjustment of discount and Allowance for Items Loans premium credit losses With objective evidence of Individual assessment $ 13,899,087 1,223 4,387,937 impairment Collective assessment 18,920,538 3,858 3,464,246 Without objective evidence Collective assessment 2,147,203,466 (1,488,798) 19,700,567 of impairment Total $ 2,180,023,091 (1,483,717) 27,552,750

(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, 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”.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Loans

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, 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Financing commitment and guarantee reserve

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

For the six months ended June 30, 2017 Receivables Loans Inherent risk of Default risk of Inherent risk of Default risk of overall claims specific claims Total overall claims specific claims Total Other (Note) Total Beginning balance $ 1,565,409 1,828,360 3,393,769 20,104,158 9,243,592 29,347,750 505,850 33,247,369 Current provision (reversal) 43,897 132,702 176,599 (107,036) 140,409 33,373 176,419 386,391 Current write off - (659,228) (659,228) (599) (2,111,488) (2,112,087) (45,868) (2,817,183) Recovery of bad debts - 471,937 471,937 - 667,263 667,263 727 1,139,927 Non-accrual loans - 12,517 12,517 - - - (12,517) - transferred from non- loan financial assets Exchange rate effects (81,242) (3,362) (84,604) (295,956) (87,593) (383,549) 14,990 (453,163) Ending balance $ 1,528,064 1,782,926 3,310,990 19,700,567 7,852,183 27,552,750 639,601 31,503,341

Note: Including other financial assets and provision of guarantee reserves, etc.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(l) Reinsurance assets－net

December 31, June 30, 2018 2017 June 30, 2017 Claims recoverable from reinsurers $ 659,528 549,217 488,071 Due from reinsurers and ceding companies 514,382 534,840 431,238 Less: Allowance for credit losses (17,851) (17,621) (17,558) Subtotal 1,156,059 1,066,436 901,751 Reinsurance reserve assets : Ceded unearned premium reserve 1,004,454 1,167,240 1,114,294 Ceded claim reserve 533,759 608,032 402,955 Ceded premium deficiency reserve - - 15,001 Subtotal 1,538,213 1,775,272 1,532,250 Total $ 2,694,272 2,841,708 2,434,001

As of June 30, 2018, December 31 and June 30, 2017, non-performing loans of due from reinsures and ceding companies were $20,404, $17,683 and $17,565 respectively, and the bad debts allowance were $17,851, $17,621 and $17,558, respectively.

(m) Held-to-maturity financial assets－net

December 31, 2017 June 30, 2017 Commercial papers $ - 300,358 Negotiable certificates of deposits 493,095,078 139,733,188 Treasury bills 3,663,716 3,321,419 Government bonds 180,366,824 157,515,027 Corporate bonds 28,497,036 18,746,693 Financial debentures 31,368,172 29,634,032 Asset backed securities 480,915 427,517 Other securities - 134,709 Total $ 737,471,741 349,812,943

Please refer to Notes 6(v) and 8 for information with regard to the repurchase conditions for, or restrictions on, held to maturity financial assets shown above.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(n) Investment under equity method－net

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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 % Book value Investment in associates: Grand Bills Finance Corporation 21.15 $ 1,956,376 (original investment at 1,010,880 thousand) AZ-Star Co., Ltd. 40.00 4,163 (original investment at JPY 12,000 thousand) AZ Star no. 1 Investment Limited Partnership 43.98 249,232 (original investment at JPY 1,874,068 thousand) LH Financial Group Public Company Limited 35.62 15,663,621 (original investment at THB 16,598,915 thousand) CTBC Security Co., Ltd. 100.00 58,071 (original investment at 58,839 thousand) Hofa Land Development Co., Ltd. 90.00 12,556,081 (original investment at 12,251,513 thousand) Wu Tzu Development Co., Ltd. 99.00 2,061,822 (original investment at 2,101,144 thousand) Top Taiwan IX Venture Capital Co., Ltd. 25.00 223,607 (original investment at 200,000 thousand) Star Shining Energy Co., Ltd. 30.00 299,313 (original investment at 300,000 thousand) Investment in joint ventures: King Dragon Life Investment Co., Ltd. 50.00 663,649 (original investment at 1,646,486 thousand) Total $ 33,735,935

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 % Book value Investment in associates: Grand Bills Finance Corporation 21.15 $ 1,878,536 (original investment at 1,010,880 thousand) AZ-Star Co., Ltd. 40.00 3,379 (original investment at JPY 12,000 thousand) AZ Star no. 1 Investment Limited Partnership 43.98 453,760 (original investment at JPY 1,874,068 thousand) CTBC Security Co., Ltd. 100.00 54,681 (original investment at 58,839 thousand) Hofa Land Development Co., Ltd. 90.00 12,433,328 (original investment at 12,251,513 thousand) Wu Tzu Development Co., Ltd. 99.00 2,066,534 (original investment at 2,101,144 thousand) Top Taiwan IX Venture Capital Co., Ltd. 25.00 222,416 (original investment at 200,000 thousand) Investment in joint ventures: King Dragon Life Investment Co., Ltd. 50.00 672,455 (original investment at 1,646,486 thousand) Total $ 17,785,089

For the three months ended and six months ended June 30, 2018 and 2017, 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 2018 2017 2018 2017 Investment in associates $ 348,204 103,868 735,584 196,680 Investment in joint ventures (26,948) (25,431) (77,719) (23,064) Total $ 321,256 78,437 657,865 173,616

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Investment in associates

1) Information of significant associates:

On July 27, 2017, the Company’s subsidiary CTBC Bank Co. Ltd., acquired 35.62% of the shares of LH Financial Group Public Company Limited for $15,044,568, and has significant influence on it. The relevant information was as follows:

Main operating Nature of location/Registered Percentage of ownership Relationship with Country of the June 30, December Name of Associates the Company Company 2018 31, 2017 LH Financial Group Public Investment under Thailand 35.62 % 35.62 % Company Limited equity method

The fair value of associates listed on the Stock Exchange (over the counter) which are material to the Company and its Subsidiaries were as follows:

December 31, June 30, 2018 2017 LH Financial Group Public Company Limited $ 10,064,978 11,667,151

Summarized financial Information of LH Financial Group Public Company Limited was as follows:

December 31, June 30, 2018 2017 Total assets $ 210,752,244 213,296,979 Total liabilities (174,875,718) (178,019,203) Net assets $ 35,876,526 35,277,776

For the three For the six months ended months ended June 30, 2018 June 30, 2018 Net revenue $ 1,010,751 2,176,250 Net income from continuing operations $ 751,010 1,466,580 Other comprehensive income (421,267) (465,492) Comprehensive income $ 329,743 1,001,088

June 30, 2018 Proportionate share of net assets of associates as of $ 12,778,142 June 30, 2018 Add: Premium on the investment under equity method 3,098,736 Book value of associates as of June 30, 2018 $ 15,876,878

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Information of insignificant associates:

As of June 30, 2018, December 31 and June 30, 2017, 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, 2018, December 31 and June 30, 2017, 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 its 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 2018 2017 2018 2017 Net income from $ 79,586 102,817 210,780 194,098 continuing operations Other comprehensive 2,806 11,472 (2,514) 10,872 losses Comprehensive $ 82,392 114,289 208,266 204,970 income

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Investment in joint venture

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, 2018, 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 CNY$700,000 thousand.

The financial information for investments in individually insignificant joint venture accounted for using equity method of Taiwan Life Insurance Co. is shown below. The financial information has reflected the adjustments of the difference of the accounting policy when the 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. The amount of the investments in individually insignificant joint venture included in the consolidated financial statement are shown below:

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Net losses from $ (26,948) (25,431) (77,719) (23,064) continuing operations Other comprehensive (6,154) 12,274 3,730 (28,242) (losses) income $ (33,102) (13,157) (73,989) (51,306)

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:

The Changes in the Fair Value The Fair Value on from January 1 to June 30, 2018 June 30, 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

The carrying amount of the financial assets under IAS 39 above were as follows:

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, 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(o) Other financial assets－net

December 31, June 30, 2018 2017 June 30, 2017 Short-term advances $ 194,720 1,497,797 160,788 Less: allowance for credit losses－short-term (43,688) (42,260) (26,779) advances Deposits pledged 696,756 665,525 704,253 Investment in debt instruments without active - 841,910,122 760,207,747 markets—net Investment in equity instruments measured at - 9,798,417 9,729,122 cost—net Non-accrual loans transferred from non-loan 269,784 272,681 320,078 financial assets Less: Allowance for credit losses—non- (230,965) (232,088) (267,452) accrual loans transferred from non-loan financial assets Separate insurance products 71,273,280 56,484,072 48,946,471 Customer margin deposit 339,656 295,220 256,750 Prepayments for investments 795,471 - - Others 846,725 946,028 176,644 Total $ 74,141,739 911,595,514 820,207,622

The aforementioned prepayments for investments is Xiamen JMX Consumer Finance Co., Ltd., which is jointly invested by the Company’s subsidiary CTBC Bank Co., Ltd., GOME Holdings Group Co., Ltd. and Xiamen Jin Yuan Financial Holding Co., Ltd. The Company’s subsidiary CTBC Bank Co., Ltd. has 34% ownership of the joint venture and with the investment amounted to RMB 170,000, which has already been approved by China Banking Insurance Regulatory Commission and Financial Supervisory Commission R.O.C(Taiwan) on April 27 and May 11, 2018, respectively. As at June 30, 2018, the joint venture has not yet been completely established.

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(ao) 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(p) Investment property－net

June 30, 2018 Accumulated Accumulated Asset Cost depreciation impairment Book value 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

December 31, 2017 Accumulated Accumulated Asset Cost depreciation impairment Book value Land $ 41,749,056 - 244,099 41,504,957 Buildings 12,418,981 996,938 100,264 11,321,779 Construction in progress 3,706,741 - - 3,706,741 Prepayment for land 60,422 - - 60,422 Total $ 57,935,200 996,938 344,363 56,593,899 Fair value $ 60,699,572

June 30, 2017 Accumulated Accumulated Asset Cost depreciation impairment Book value Land $ 41,741,166 - 231,510 41,509,656 Buildings 12,515,254 884,150 94,323 11,536,781 Construction in progress 3,069,831 - - 3,069,831 Prepayment for land 53,049 - - 53,049 Total $ 57,379,300 884,150 325,833 56,169,317 Fair value $ 60,212,178

Changes in the cost were as follows:

January 1, 2018 Current increase Current decrease Others June 30, 2018 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

January 1, 2017 Current increase Current decrease Others June 30, 2017 Land $ 34,503,385 7,626,044 388,263 - 41,741,166 Buildings 11,308,769 1,471,769 265,284 - 12,515,254 Construction in progress 1,994,975 1,079,115 4,259 - 3,069,831 Prepayment for land 57,082 530,074 534,107 - 53,049 Total $ 47,864,211 10,707,002 1,191,913 - 57,379,300

Changes in accumulated depreciation were as follows:

January 1, 2018 Current increase Current decrease Others June 30, 2018 Buildings $ 996,938 171,718 67,849 - 1,100,807

January 1, 2017 Current increase Current decrease Others June 30, 2017 Buildings $ 656,233 357,965 130,048 - 884,150

Changes in accumulated impairment losses were as follows:

January 1, 2018 Current increase Current decrease Others June 30, 2018 Land $ 244,099 - 431 - 243,668 Buildings 100,264 - 251 - 100,013 Total $ 344,363 - 682 - 343,681

January 1, 2017 Current increase Current decrease Others June 30, 2017 Land $ 149,316 82,194 - - 231,510 Buildings 48,725 45,603 5 - 94,323 Total $ 198,041 127,797 5 - 325,833

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 its subsidiaries were as follows:

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Rental income from investment $ 262,316 318,698 619,561 582,130 property Direct operating expense arising $ 144,055 134,403 281,938 260,069 from investment property that generated rental income during the period Direct operating expense arising $ 1,759 1,191 2,614 2,362 from investment property that did not generate rental income during the period

The Company and its subsidiaries have no pledged investment properties.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(q) Premises and equipment－net

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

Accumulated Accumulated December 31, 2017 Cost depreciation impairment Net Land $ 17,442,101 - 41,383 17,400,718 Buildings 30,569,006 6,049,733 23,590 24,495,683 Transportation equipment 97,497 66,141 - 31,356 Miscellaneous equipment 8,747,368 4,588,429 - 4,158,939 Construction in progress 1,023,229 - - 1,023,229 Prepayment for equipment 94,615 - - 94,615 Prepayment for land and buildings 4,644,205 - - 4,644,205 Leased premises 1,270,176 468,750 - 801,426 Total $ 63,888,197 11,173,053 64,973 52,650,171

Accumulated Accumulated June 30, 2017 Cost depreciation impairment Net Land $ 17,463,548 - 41,383 17,422,165 Buildings 30,589,499 5,626,313 23,584 24,939,602 Transportation equipment 99,567 62,941 - 36,626 Miscellaneous equipment 8,418,519 4,194,443 - 4,224,076 Construction in progress 901,392 - - 901,392 Prepayment for equipment 48,937 - - 48,937 Prepayment for land and buildings 4,644,933 - - 4,644,933 Leased premises 1,146,459 494,969 - 651,490 Total $ 63,312,854 10,378,666 64,967 52,869,221

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Changes in the cost were as follows:

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

Others (exchange January 1, 2017 Current increase Current decrease difference) June 30, 2017 Land $ 23,389,333 1,263,640 7,175,682 (13,743) 17,463,548 Buildings 31,572,068 1,023,905 1,888,273 (118,201) 30,589,499 Transportation equipment 105,371 7,425 8,009 (5,220) 99,567 Miscellaneous equipment 8,361,742 588,811 452,683 (79,351) 8,418,519 Construction in progress 565,088 611,578 274,453 (821) 901,392 Prepayment for equipment 48,079 80,289 79,431 - 48,937 Prepayment for land and 5,691,414 358,745 1,405,226 - 4,644,933 buildings Leased premises 1,144,393 43,146 29,027 (12,053) 1,146,459 Total $ 70,877,488 3,977,539 11,312,784 (229,389) 63,312,854

Changes in accumulated depreciation were as follows:

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

Others (exchange January 1, 2017 Current increase Current decrease difference) June 30, 2017 Buildings $ 5,590,551 687,103 608,063 (43,278) 5,626,313 Transportation equipment 62,215 8,755 5,558 (2,471) 62,941 Miscellaneous equipment 4,149,244 549,983 445,335 (59,449) 4,194,443 Leased premises 419,272 100,196 21,612 (2,887) 494,969 Total $ 10,221,282 1,346,037 1,080,568 (108,085) 10,378,666

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Changes in accumulated impairment were as follows:

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

Others (exchange January 1, 2017 Current increase Current decrease difference) June 30, 2017 Land $ 123,577 - 82,194 - 41,383 Buildings 69,182 5 45,603 - 23,584 Total $ 192,759 5 127,797 - 64,967

(r) Intangible assets－net

December 31, June 30, 2018 2017 June 30, 2017 Goodwill $ 18,015,340 18,015,340 18,015,340 Computer software 5,090,555 4,687,750 4,703,864 The acquisition value of insurance policies 645,166 652,983 659,283 Others 49,649 50,176 35,190 Total $ 23,800,710 23,406,249 23,413,677

Goodwill of the Company and its 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.

Changes in intangible assets were as follows:

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

Others (exchange January 1, 2017 Current increase Current decrease difference) June 30, 2017 Goodwill $ 18,015,340 - - - 18,015,340 Computer software 4,666,623 773,817 690,098 (46,478) 4,703,864 The acquisition value of 665,266 - 5,983 - 659,283 insurance policies Others 36,065 - 875 - 35,190 Total $ 23,383,294 773,817 696,956 (46,478) 23,413,677

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(s) Other assets－net

December 31, June 30, 2018 2017 June 30, 2017 Prepayments $ 7,522,945 8,003,653 6,793,707 Deferred charges 25,298 31,024 18,864 Foreclosed properties received－net 147,493 144,736 149,752 Temporary payments 171,550 64,448 183,671 Refundable deposits－net 25,576,828 11,784,248 12,425,725 Long-term prepaid rent 16,822,872 17,024,229 17,225,586 Cash surrender value of life insurance 1,790,673 1,728,728 1,738,453 Clients’ position-debit 1,890,450 2,008,972 1,873,363 Rental assets 1,511,389 1,535,956 1,492,086 Others 2,214,775 2,226,696 2,128,783 Total $ 57,674,273 44,552,690 44,029,990

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, 2018, the account balance was $220,000.

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. 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 and accounted under long-term prepaid rent. Please refer to Note 8 for information on guarantee deposits.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(t) Deposits from Central Bank and other banks

December 31, June 30, 2018 2017 June 30, 2017 Deposits from Central Bank $ 167,292 216,674 203,197 Deposits from other banks 23,709,578 22,151,951 24,587,362 Deposits from post offices 720,662 1,147,904 1,405,244 Overdraft on banks 1,049,458 1,137,347 613,588 Call loans from banks 34,187,752 50,220,907 51,058,954 Total $ 59,834,742 74,874,783 77,868,345

(u) Due to Central Bank and other banks

December 31, June 30, 2018 2017 June 30, 2017 Financing from Central Bank $ 4,260,267 1,608,414 1,651,029 Financing from other banks 4,268,484 6,633,105 6,185,641 Long-term borrowings 8,429,165 7,229,114 7,214,675 Total $ 16,957,916 15,470,633 15,051,345

Financing from Central Bank:

(i) CTBC Bank Co., Ltd.

December 31, June 30, 2018 2017 June 30, 2017 Borrowings (USD) $ 19,355 25,806 32,258 Interest rate 2.18% 1.45% 1.36% 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) The Tokyo Star Bank, Ltd.

December 31, June 30, 2018 2017 June 30, 2017 Borrowings (JPY) $ 13,316,200 3,164,000 2,464,000 Interest rate 0%~2.48% 1.46%~1.66% 1.26%~1.42% Maturity date June 4, 2019 December 4, September 5, 2018 2017 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, 2018 2017 June 30, 2017 Inter bank borrowings (USD) $ 45,000 65,000 75,000 Interest rate 1.97%~2.96% 0.96%~2.96% 0.91%~2.96% Maturity date December 31, December 31, December 31, 2020 2020 2020

(ii) PT. Bank CTBC Indonesia

December 31, June 30, 2018 2017 June 30, 2017 Inter bank borrowings (IDR) $ 99,795,650 352,315,972 42,194,865 Interest rate 2.89%~7.50% 1.77%~6.55% 1.60%~1.81% Maturity date November 2, March 28, 2018 November 2, 2018 2018

(iii) CTBC Securities Co., Ltd.

December 31, June 30, 2018 2017 June 30, 2017 Inter bank borrowings (NTD) $ 82,257 427,643 656,585 Interest rate 2.59%~2.81% 0.90%~2.20% 0.90%~1.89% Maturity date July 26, 2018 January 22, July 6, 2017 2018

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) TLG Capital Co., Ltd.

December 31, June 30, 2018 2017 June 30, 2017 Inter bank borrowings (NTD) $ 2,150,000 3,020,000 2,850,000 Interest rate 1.05%~1.22% 1.07%~1.31% 1.15%~1.31% Maturity date April 16, 2019 November 16, March 28, 2018 2018

(v) CTBC Venture Capital Co., Ltd.

December 31, June 30, 2018 2017 June 30, 2017 Inter bank borrowings (NTD) $ 450,000 450,000 300,000 Interest rate 1.25% 1.25% 1.27% Maturity date July 13, 2018 January 15, August 28,2017 2018

Long-term borrowings:

(i) CTBC Leasing (China)

December 31, June 30, 2018 2017 June 30, 2017 Borrowings (CNY) $ 863,571 809,607 784,448 Borrowings (USD) 146,500 117,750 121,500 Interest rate LIBOR+1.5%~ LIBOR+1.5%~ LIBOR+1.5%~ 6.41% 5.52% 5.23% Maturity date June 28, 2021 November 20, January 17, 2020 2020 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(v) Securities sold under repurchase agreements

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

December 31, 2017 Selling price Designated Designated Assets Par value (Note) repurchase amount repurchase date Financial assets measured at $ 21,298,120 21,163,275 21,182,199 Prior to March 13, fair value through profit or 2018 loss Available-for-sale financial 5,322,505 5,179,055 5,187,884 Prior to March 8, assets－net 2018 Held-to-maturity financial 47,334,100 47,775,896 47,832,827 Prior to March 27, assets－net 2018 Total $ 73,954,725 74,118,226 74,202,910

June 30, 2017 Selling price Designated Designated Assets Par value (Note) repurchase amount repurchase date Financial assets measured at $ 29,135,410 29,363,510 29,387,044 Prior to August 21, fair value through profit or 2017 loss Available-for-sale financial 4,221,772 4,203,479 4,205,579 Prior to August 17, assets－net 2017 Held-to-maturity financial 34,402,600 35,014,742 35,020,960 Prior to October 20, assets－net 2017 Total $ 67,759,782 68,581,731 68,613,583

Note: Recognized under securities sold under repurchase agreements.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(w) Commercial paper payable－net

The information of commercial paper payable issued by the Company and its subsidiaries is as below:

December 31, Issuer June 30, 2018 2017 June 30, 2017 Commercial paper payable $ 17,705,000 51,826,000 31,680,000 Less: discount on commercial paper payable (8,978) (48,476) (79,069) Total $ 17,696,022 51,777,524 31,600,931 Rate range 0.37%~1.13% 0.40%~1.21% 0.40%~1.21% Duration January 19, April 12.2017~ January 10, 2018~ June 25.2018 2017~ December 24, April 18, 2017 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.

(x) Payables

December 31, June 30, 2018 2017 June 30, 2017 Accounts payable $ 4,330,166 8,446,820 3,825,537 Accounts payable factoring 4,449,129 3,508,696 5,359,584 Accrued expenses 17,150,227 21,584,394 14,488,470 Interest payable 9,081,687 7,505,710 7,087,792 Acceptances payable 9,834,586 9,699,440 7,933,924 Collection payable 4,610,599 3,921,168 4,290,692 Other tax payable 2,933,840 2,751,742 2,426,581 Dividends and bonuses payable 21,184,808 190,278 16,642,897 Checks for clearance 3,617,687 3,988,688 1,870,383 Miscellaneous lottery accounts payable 11,081,244 8,668,370 12,303,388 Commission payable 1,339,929 2,406,282 1,612,532 Claims payable 4,027,124 3,611,567 3,347,398 Due to reinsurers and ceding companies 1,246,926 1,033,619 900,044 Securities payable 4,994,013 2,195,178 13,217,976 Separate account of investment products 647,211 2,956,551 1,441,483 payables Other payables 5,358,945 4,716,025 8,387,429 Total $ 105,888,121 87,184,528 105,136,110

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(y) Deposits and remittances

December 31, June 30, 2018 2017 June 30, 2017 NTD deposits Checking accounts $ 7,664,582 9,484,584 6,741,504 Demand deposits Demand deposits 185,607,379 169,993,792 160,914,004 Demand savings deposits 703,190,249 677,104,314 653,533,790 Public treasury deposits 8,956,357 10,073,470 10,082,716 Subtotal of demand deposits 897,753,985 857,171,576 824,530,510 Time deposits Time deposits 182,894,844 196,621,072 193,058,018 Time savings deposits 436,590,723 431,511,895 432,259,995 Negotiable certificates of deposit 1,006,500 1,266,500 1,227,600 Public treasury deposits 23,270,850 26,050,000 25,850,000 Others 9,201,000 10,312,500 14,059,500 Subtotal of time deposits 652,963,917 665,761,967 666,455,113 Subtotal of NTD deposits 1,558,382,484 1,532,418,127 1,497,727,127 Foreign currency deposits 1,517,303,632 1,409,817,277 1,327,936,505 Stored value cards 167 167 167 Remittances under custody 37,429 111,378 38,338 Remittances outstanding 920,093 2,626,218 724,497 Total $3,076,643,805 2,944,973,167 2,826,426,634

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(z) Bonds Payable

December 31, Bonds June 30, 2018 2017 June 30, 2017 2008-1 $ 2,000,000 2,000,000 2,000,000 2009-1 800,000 800,000 800,000 2009-2 150,000 150,000 150,000 2011-1 12,900,000 12,900,000 12,900,000 2012-1 12,000,000 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) 7,838,500 7,670,936 7,822,052 2015-1(unsecured ordinary corporate bonds) 15,000,000 15,000,000 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) 23,790,000 23,281,440 23,740,080 2017-1(financial debentures) (Note3) 5,490,000 5,372,640 5,478,480 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 (Note 3) 6,862,500 - - No.13 Callable Unsecured Bond - - 1,629,600 No.14 Callable Unsecured Bond - - 543,200 No.15 Callable Unsecured Bond - - 271,600 No.16 Callable Unsecured Bond - 291,390 298,760 No.17 Callable Unsecured Bond - 1,086,090 1,113,560 Adjustment for fair value increase of hedged 9,756 28,322 46,409 transactions Unamortized discount (26,521) (43,355) (59,349) Less: financial liability designated at fair value (43,981,000) (36,325,016) (37,040,612) through profit or loss (Note 3) Total $ 110,833,235 112,212,447 114,693,780

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 03/29/2018 03/29/2048 0% (Note 3) 〞 No.13 Callable Unsecured Bond 09/28/2012 09/28/2022 4.50% an interest is payable semi annually Unsecured subordinated financial debentures No.14 Callable Unsecured Bond 10/26/2012 10/26/2022 3.80% an interest is payable semi annually 〞 No.15 Callable Unsecured Bond 12/14/2012 12/14/2022 3.50% an interest is payable semi annually 〞 No.16 Callable Unsecured Bond 03/13/2013 03/13/2023 3.28% an interest is payable semi annually 〞 No.17 Callable Unsecured Bond 06/06/2013 06/06/2023 3.46% an interest is payable semi annually 〞

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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(g) for the information on the hedging of bonds shown above.

(aa) Provisions

December 31, June 30, 2018 2017 June 30, 2017 Settlement compensation provision $ 243,178 240,175 106,530 Employee benefits provision 4,481,378 4,546,916 4,638,896 Guarantee provision 848,790 870,320 288,396 Insurance provision 1,450,336,701 1,358,085,089 1,240,092,457 Provisions to insurance policy provision 3,442 3,193 2,754 FX rate fluctuation provision 1,965,103 730,720 803,704 Financing commitment provision 218,202 - - Other provision 275,438 210,872 210,572 Fair value adjustment 5,850,628 5,977,972 6,124,375 Total $1,464,222,860 1,370,665,257 1,252,267,684

Please refer to Note 6(ae) for more information on provisions to insurance policy reserves and FX rate fluctuation reserve.

(ab) Other financial liabilities

December 31, June 30, 2018 2017 June 30, 2017 Futures trader’s equity $ 335,980 294,923 256,366 Lease payable 725,180 785,608 630,766 Structured commodity principal 96,174,318 101,319,263 112,967,468 Guarantee deposits received-securities lending 13,425,161 30,656,153 31,550,628 transaction Separate insurance products 71,273,280 56,484,072 48,946,471 Others - 132 167 Total $ 181,933,919 189,540,151 194,351,866

Please refer to Note 6(ao) for information on separate insurance products.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ac) Other liabilities

December 31, June 30, 2018 2017 June 30, 2017 Amount received in advance $ 1,780,540 3,613,835 2,073,118 Custody payable 654,561 559,212 1,031,814 Deferred income 802,805 1,082,314 689,983 Guarantee deposits 8,305,043 8,543,432 5,910,826 Temporary receipt 2,000,906 3,935,604 3,203,896 Credits recognized when accepting orders to 1,888,737 2,003,988 1,683,511 trade Others 180,066 341,582 256,861 Total $ 15,612,658 20,079,967 14,850,009

(ad) Employee benefits

(i) Defined contribution plan

The Company and its 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 its subsidiaries have no legal or constructive obligation to make other payments after the Company and its subsidiaries make the fixed amount of contribution to the Bureau of Labor Insurance.

For the three months ended and the six months ended June 30, 2018 and 2017, the pension expenses under defined contribution plan of the Company and its subsidiaries amounted to $231,244, $225,544, $430,208 and $446,032, 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 its subsidiaries in the consolidated balance sheet were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Defined benefits plan $ 3,686,842 3,790,345 4,045,103 Retiree deposits with favorable rates and 397,260 394,818 237,004 other post-employment benefits Total $ 4,084,102 4,185,163 4,282,107

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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, 2017 and 2016 by the Company and its subsidiaries.

1) Defined benefits plan

The Company and its 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 ended and the six months ended June 30, 2018 and 2017, the Company and its subsidiaries have recognized $35,500, $45,723, $71,964 and $90,326, respectively, as expenses in profit or loss.

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 ended and the six months ended June 30, 2018 and 2017, expenses recognized by the Company’s subsidiary CTBC Bank Co., Ltd. in profit and loss amounted of $4,584, $1,844, $9,168 and $3,688, 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, 2018 2017 June 30, 2017 Defined benefits plan $ 397,276 361,753 356,789

For the three months ended and the six months ended June 30, 2018 and 2017, expenses recognized by overseas branches and subsidiaries in profit and loss amounted to $38,289, $35,238, $76,805 and $70,280, respectively.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ae) 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, 2018 2017 June 30, 2017 Reserve for unearned premiums $ 3,843,345 3,850,187 3,627,648 Claim reserve 1,863,890 1,967,659 1,700,414 Insurance reserve 1,435,568,540 1,342,333,683 1,225,016,974 Special reserve 584,422 1,166,909 742,231 Premium deficiency reserve 8,476,504 8,766,651 9,005,190 Total $1,450,336,701 1,358,085,089 1,240,092,457

Life Insurance Business:

1) The details of reserve for unearned premium were as follows:

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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 303,955 - 303,955 Individual injury 588,708 - 588,708 Individual health 1,407,546 - 1,407,546 Annuity insurance - 1 1 Group insurance 233,049 - 233,049 Investment linked 22,433 - 22,433 Total 2,555,691 1 2,555,692 Less: reserve for unearned premiums Individual life 172,943 - 172,943 Individual injury 174,020 - 174,020 Individual health 419,390 - 419,390 Group insurance 56,324 - 56,324 Investment linked Insurance 1,321 - 1,321 Total 823,998 - 823,998 Net value $ 1,731,693 1 1,731,694

June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 319,559 - 319,559 Individual injury 519,495 - 519,495 Individual health 1,215,301 - 1,215,301 Annuity insurance - 1 1 Group insurance 242,391 - 242,391 Investment linked 23,264 - 23,264 Total 2,320,010 1 2,320,011 Less: reserve for unearned premiums Individual life 139,476 5,185 144,661 Individual injury 179,739 - 179,739 Individual health 371,008 - 371,008 Group insurance 68,225 - 68,225 Investment linked Insurance 1,498 - 1,498 Total 759,946 5,185 765,131 Net value $ 1,560,064 (5,184) 1,554,880

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

For the six months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 3,077,730 222 3,077,952 Current provision 322,491 (221) 322,270 Reversal of provision (1,080,159) - (1,080,159) Foreign exchange losses (52) - (52) Ending balance 2,320,010 1 2,320,011

Less: reserve for unearned premiums Beginning balance—net 1,163,172 - 1,163,172 Current decrease (402,585) 5,185 (397,400) Foreign exchange losses (641) - (641) Ending balance—net 759,946 5,185 765,131 Ending balance $ 1,560,064 (5,184) 1,554,880

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2) The details of claim reserve were as follows:

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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life -reported but not paid $ 226,611 - 226,611 -not reported and not paid 605 - 605 Individual injury -reported but not paid 44,051 - 44,051 -not reported and not paid 120,163 - 120,163 Individual health -reported but not paid 236,500 - 236,500 -not reported and not paid 98,886 - 98,886 Annuity insurance -reported but not paid 1,174 409 1,583 -not reported and not paid - - - Group insurance -reported but not paid 53,491 - 53,491 -not reported and not paid 23,643 - 23,643 Total 805,124 409 805,533 Less: reserve for claim reserve Individual life 18,420 - 18,420 Individual injury 28,024 - 28,024 Individual health 24,893 - 24,893 Group insurance 10,402 - 10,402 Total 81,739 - 81,739 Net value $ 723,385 409 723,794

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life -reported but not paid $ 220,523 - 220,523 -not reported and not paid 1,860 - 1,860 Individual injury -reported but not paid 52,593 - 52,593 -not reported and not paid 107,555 - 107,555 Individual health -reported but not paid 187,016 - 187,016 -not reported and not paid 90,217 - 90,217 Annuity insurance -reported but not paid 331 3,384 3,715 -not reported and not paid - - - Group insurance -reported but not paid 53,031 - 53,031 -not reported and not paid 25,321 - 25,321 Total 738,447 3,384 741,831 Less: reserve for claim reserve Individual life 20,975 - 20,975 Individual injury 29,561 - 29,561 Individual health 21,758 - 21,758 Investment insurance 7,544 - 7,544 Group insurance 240 - 240 Total 80,078 - 80,078 Net value $ 658,369 3,384 661,753

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

For the six months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 670,163 2,487 672,650 Current provision 403,930 2,228 406,158 Reversal of provision (335,082) (1,243) (336,325) Foreign exchange losses (564) (88) (652) Ending balance 738,447 3,384 741,831 Less: reserve for claim reserve Beginning balance－net 92,073 - 92,073 Current decrease (11,991) - (11,991) Foreign exchange losses (4) - (4) Ending balance—net 80,078 - 80,078 Ending balance $ 658,369 3,384 661,753

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Details of insurance reserves were as follows:

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 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

December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 1,228,472,759 2,939,312 1,231,412,071 Individual health 77,034,167 - 77,034,167 Annuity insurance 5,880,382 27,643,679 33,524,061 Group insurance 160,394 - 160,394 Investment insurance 116,240 - 116,240 Incremental reserve 35,833 - 35,833 Transfer from operating loss reserve 43,665 - 43,665 Recovery of special catastrophe 7,252 - 7,252 reserve Total $ 1,311,750,692 30,582,991 1,342,333,683

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 1,116,239,786 3,170,116 1,119,409,902 Individual health 72,512,753 - 72,512,753 Annuity insurance 5,748,475 27,078,733 32,827,208 Group insurance 68,615 - 68,615 Investment insurance 111,746 - 111,746 Incremental reserve 35,833 - 35,833 Transfer from operating loss reserve 43,665 - 43,665 Recovery of special catastrophe 7,252 - 7,252 reserve Total $ 1,194,768,125 30,248,849 1,225,016,974

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 2018 2017 2018 2017 Cumulative interest $ 13,122,872 11,435,866 25,925,245 22,451,947 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, 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the six months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 1,092,241,295 30,389,653 1,122,630,948 Current provision 136,496,539 2,156,596 138,653,135 Reversal of provision (19,545,553) (1,980,793) (21,526,346) Foreign exchange losses (14,424,156) (316,607) (14,740,763) Ending balance $ 1,194,768,125 30,248,849 1,225,016,974

4) Special reserve liabilities:

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

December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Reserve for policyholder dividend $ 732,434 - 732,434 Reserve for bonus risk 217,412 - 217,412 Revaluation appreciation on real estate 57,891 - 57,891 Total $ 1,007,737 - 1,007,737

June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Reserve for policyholder dividend $ 202,182 - 202,182 Reserve for bonus risk 319,778 - 319,778 Revaluation appreciation on real estate 57,891 - 57,891 Total $ 579,851 - 579,851

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

For the six months ended June 30, 2017 Reserve for Revaluation policyholder Reserve appreciation on dividend for bonus risk real estate Total Beginning balance $ 319,938 667,485 57,891 1,045,314 Current provision 1,079,202 - - 1,079,202 Reversal of provision (1,196,958) (347,707) - (1,544,665) Ending balance $ 202,182 319,778 57,891 579,851

5) The details of premium deficiency reserve were as follows:

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

December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 8,661,832 - 8,661,832 Individual health 82,952 - 82,952 Annuity insurance 70 - 70 Total $ 8,744,854 - 8,744,854

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 8,878,384 - 8,878,384 Individual health 90,194 - 90,194 Annuity insurance 71 - 71 Total $ 8,968,649 - 8,968,649

The changes and adjustments of the aforesaid premium deficiency reserve were as follows:

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 losses 46,454 - 46,454 Ending balance $ 8,462,478 - 8,462,478

For the six months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 9,294,763 - 9,294,763 Current provision 16,382 - 16,382 Reversal of provision (156,048) - (156,048) Foreign exchange losses (186,448) - (186,448) Ending balance $ 8,968,649 - 8,968,649

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

6) The details of liability adequacy reserve were as follows:

Insurance contracts and financial instruments with discretionary December 31, participation feature June 30, 2018 2017 June 30, 2017 Unearned premium reserve $ 2,557,593 2,555,692 2,320,011 Claim reserve 749,705 805,533 741,831 Insurance reserve 1,435,568,540 1,342,333,683 1,225,016,974 Premium deficiency reserve 8,462,478 8,744,854 8,968,649 Total 1,447,338,316 1,354,439,762 1,237,047,465 Less: intangible asset (645,166) (652,983) (659,283) Book value of related insurance $1,446,693,150 1,353,786,779 1,236,388,182 liabilities Current estimate of future cash $1,207,746,236 1,108,382,898 994,763,833 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, 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant (1) Insurance contract information: As of December 31, 2017, 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 2016 is adopted. The assumed rate beyond 30 years remains unchanged.

June 30, 2017 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant (1) Insurance contract information: As of June 30, 2017, 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 2016 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, 2018, December 31 and June 30, 2017 the details of reserves for insurance contract of the nature of financial products and their adjustments are as follows:

December 31, June 30, 2018 2017 June 30, 2017 Annuities $ 3,442 3,193 2,754

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the six months ended June 30 2018 2017 Beginning balance $ 3,193 2,763 Net provision for statutory reserve for the period 3,947 1,061 Insurance claims payment for the period (3,716) (1,064) Exchange number 18 (6) Ending balance $ 3,442 2,754

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, 2018, December 31 and June 30, 2017, major risk exposure on foreign exchange are all from US dollar assets, amounted to USD17,912,345 thousand, USD15,969,205 thousand and USD14,693,463 thousand, respectively, without hedge positions, and risk exposure of it are amounted to USD2,941,765 thousand, USD2,461,714 thousand and USD1,835,296 thousand, respectively.

b) As of June 30, 2018, December 31 and June 30, 2017, foreign exchange rate fluctuation reserves of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. amounted to $1,965,103, $730,720 and $803,704, respectively.

Changes in foreign exchange rate fluctuation reserves:

For the six months ended June 30 2018 2017 Beginning balance $ 730,720 1,362,740 Current provision Mandatory provision 447,095 310,710 Extra provision 1,311,194 - Subtotal 1,758,289 310,710 Current recovery (523,906) (869,746) Ending balance $ 1,965,103 803,704

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 Foreign exchange rate $ - 1,965,103 (1,965,103) fluctuation reserves Stockholders’ equity 77,956,356 77,258,989 697,367 December 31, 2017 Foreign exchange rate - 730,720 (730,720) fluctuation reserves Stockholders’ equity 81,619,411 81,909,550 (290,139) June 30, 2017 Foreign exchange rate - 803,704 (803,704) fluctuation reserves Stockholders’ equity 75,447,047 75,676,609 (229,562)

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

For the three months ended June 30, 2017 For the six months ended June 30, 2017 Not Not Items applicable Applicable Effect applicable Applicable Effect Profit (loss) after tax $ 3,206,950 2,766,091 440,859 3,726,265 4,190,265 (464,000) Earnings per share 0.77 0.66 0.11 0.89 1.00 (0.11)

9) Special reserve

Special reserves on the Company’s subsidiary Taiwan Life Insurance Co., Ltd. were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Recovery of special reserve for $ 2,963,625 2,853,030 2,853,030 catastrophe Special reserves for significant 1,531,417 1,531,417 1,576,624 incidents and catastrophe Foreign exchange rate fluctuation 2,359,283 1,338,783 1,338,783 reserves Recovery of revaluation appreciation 231,566 231,566 231,566 reserves on real estate Provision on profit testing of insurance 69,564 134,400 134,400 products Deduction of other shareholders’ equity - 2,749,377 2,749,377 Employees training transfer program 73,672 24,670 24,670 $ 7,229,127 8,863,243 8,908,450

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 $69,564 in accordance with the results of the insurance product profit testing on June 30, 2018.

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 $73,672 to assist insurance employees to transform and protect their rights on June 30, 2018.

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Property insurance business:

a) Unearned premium reserve and ceded unearned premium reserve

i) The reserve for unearned premiums of the Company’s sub-subsidiary TLG insurance Co., Ltd. was as follows:

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

December 31, 2017 Ceded unearned Unearned premium reserve premium reserve Reinsurance Reinsurance cede Retained Direct business assumed business business business Fire insurance $ 255,959 10,530 127,173 139,316 Marine insurance 15,974 586 14,838 1,722 Miscellaneous casualty 97,449 7,029 73,153 31,325 insurance Personal accident and 132,051 952 51,815 81,188 health insurance Voluntary auto insurance 559,411 2 - 559,413 Compulsory auto TPL 127,097 87,455 76,263 138,289 insurance Total $ 1,187,941 106,554 343,242 951,253

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Ceded unearned Unearned premium reserve premium reserve Reinsurance Reinsurance cede Retained Direct business assumed business business business Fire insurance $ 273,928 11,235 134,741 150,422 Marine insurance 18,960 809 17,605 2,164 Miscellaneous casualty 95,935 6,377 69,669 32,643 insurance Personal accident and 130,456 868 50,206 81,118 health insurance Voluntary auto insurance 554,954 16 - 554,970 Compulsory auto TPL 128,215 85,884 76,942 137,157 insurance Total $ 1,202,448 105,189 349,163 958,474

ii) The movements in reserve for unearned premiums and reserve for unearned premiums (cede) were as follows:

For the six months ended June 30, For the six months ended June 30, 2018 2017 Unearned Unearned Unearned premium Unearned premium premium reserve reserve cede premium reserve reserve cede Beginning balance $ 1,294,495 343,242 1,266,291 325,490 Current provision 1,285,752 340,766 1,307,637 349,163 Current recovery (1,294,495) (343,242) (1,266,291) (325,490) Ending balance $ 1,285,752 340,766 1,307,637 349,163

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, 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Notes payable Claims (claims) payable Claim reserve Reported but Reported to be paid unpaid Not reported Total Fire insurance $ 4,463 - 39,633 9,505 49,138 Marine insurance - - 4,975 3,394 8,369 Miscellaneous casualty 413 - 102,565 93,184 195,749 insurance Personal accident and 2,966 - 29,466 52,097 81,563 health insurance Voluntary auto insurance 2,435 - 301,624 218,408 520,032 Compulsory auto TPL 403 - 70,380 236,895 307,275 insurance Total $ 10,680 - 548,643 613,483 1,162,126

June 30, 2017 Notes payable Claims (claims) payable Claim reserve Reported but Reported to be paid unpaid Not reported Total Fire insurance $ - - 56,177 8,202 64,379 Marine insurance - - 5,551 3,428 8,979 Miscellaneous casualty 687 - 87,195 25,272 112,467 insurance Personal accident and 553 - 23,234 52,655 75,889 health insurance Voluntary auto insurance 3,261 - 320,284 71,114 391,398 Compulsory auto TPL 351 - 69,261 236,210 305,471 insurance Total $ 4,852 - 561,702 396,881 958,583 ii) Reinsurance assets－ the insurance ceded business for the policy holders with reported but unpaid or not reported claims.

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 81,503 77,566 159,069 insurance 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Reported but unpaid Not reported Total Fire insurance $ 20,734 6,941 27,675 Marine insurance 2,533 (474) 2,059 Miscellaneous casualty 70,641 71,912 142,553 insurance Personal accident and health 12,513 32,567 45,080 insurance Voluntary auto insurance 20,306 172,057 192,363 Compulsory auto TPL insurance 25,252 91,411 116,663 Less: Accumulated impairment (100) - (100) Total $ 151,879 374,414 526,293 June 30, 2017 Reported but unpaid Not reported Total Fire insurance $ 26,518 1,805 28,323 Marine insurance 2,990 422 3,412 Miscellaneous casualty 56,870 9,813 66,683 insurance Personal accident and health 14,143 23,202 37,345 insurance Voluntary auto insurance 53,654 17,346 71,000 Compulsory auto TPL insurance 24,558 91,674 116,232 Less: Accumulated impairment (118) - (118) Total $ 178,615 144,262 322,877 iii) The movements in claim reserve and claim reserve (ceded) were as follows:

For the six months ended June 30, 2018 For the six months ended June 30, 2017 Ceded claim Ceded claim Claim reserve reserve Claim reserve reserve Beginning balance $ 1,162,126 526,293 982,303 415,004 Current provision 1,114,185 503,285 958,583 322,995 Current recovery (1,162,126) (526,393) (982,303) (415,579) Impairment loss - 4 - 457 Ending balance $ 1,114,185 503,189 958,583 322,877

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 2017 June 30, 2017 Special reserve of compulsory auto $ 47,565 55,739 58,947 liability insurance Special reserve of non-compulsory 97,299 103,433 103,433 auto liability insurance $ 144,864 159,172 162,380

ii) The movements in special reserve were as follows:

1. Special reserve－compulsory auto liability insurance

For the six months ended June 30 2018 2017 Beginning balance $ 55,739 44,266 Current provision - 14,681 Current recovery (8,174) - Ending balance $ 47,565 58,947

2. Special reserve－non-compulsory auto liability insurance

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 provision - - - 2,376 2,762 5,138 Current recovery (1,627) (4,507) (6,134) - - - Ending balance $ 40,679 56,620 97,299 74,492 259,895 334,387

For the six months ended June 30, 2017 Liability Special reserve Dangerous Dangerous Catastrophe change Total Catastrophe change Total Beginning balance $ 42,306 61,127 103,433 58,082 207,469 265,551 Current recovery - - - - (151) (151) Ending balance $ 42,306 61,127 103,433 58,082 207,318 265,400

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

December 31, 2017 Amount Amount without the with the adoption adoption of reserve of reserve Effect Special reserve $ 55,739 157,545 (101,806) Stockholders’ equity 1,886,197 1,801,698 84,499

June 30, 2017 Amount Amount without the with the adoption adoption of reserve of reserve Effect Special reserve $ 58,947 162,380 (103,433) Stockholders’ equity 1,953,132 1,867,283 85,849

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 -

For the three months ended June 30, 2017 For the six months ended June 30, 2017 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 Profit after tax $ 18,471 18,471 - 37,539 37,539 -

Earnings per share after tax 0.09 0.09 - 0.19 0.19 -

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 December 31, 2017 June 30, 2017 Ceded Ceded Ceded Premium premium Premium premium Premium premium deficiency deficiency deficiency deficiency deficiency deficiency reserve reserve reserve reserve reserve reserve Fire insurance $ - - - - 20,249 -

Voluntary auto insurance 12,218 - 19,915 - - -

Miscellaneous casualty 1,523 - 1,370 - 15,289 15,001 insurance Marine insurance 285 - 512 - 1,003 -

$ 14,026 - 21,797 - 36,541 15,001

ii) The movements of premium deficiency reserve were as follows:

For the six months ended June 30 2018 2017 Premium Ceded premium Premium Ceded premium deficiency deficiency deficiency deficiency reserve reserve reserve reserve Beginning balance $ 21,797 - 46,425 27,383 Current provision 14,026 - 36,541 15,001 Current recovery (21,797) - (46,425) (27,383) Ending balance $ 14,026 - 36,541 15,001

(ii) Insurance revenue and expense

1) Retained earned premium:

Life insurance business:

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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the three months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 53,169,154 2,134,634 55,303,788 Reinsurance premium - - - Insurance income 53,169,154 2,134,634 55,303,788 Reinsurance expense 586,807 - 586,807 Net changes in unearned (448,704) 9,434 (439,270) premium reserve 138,103 9,434 147,537 Retained earned premium $ 53,031,051 2,125,200 55,156,251

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 changes in unearned 162,575 (10) 162,565 premium reserve 1,059,961 (10) 1,059,951 Retained earned premium $ 107,334,114 1,406,459 108,740,573

For the six months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 124,519,045 3,790,028 128,309,073 Reinsurance premium - - - Insurance income 124,519,045 3,790,028 128,309,073 Reinsurance expense 1,094,054 - 1,094,054 Net change in unearned (369,734) 9,245 (360,489) premium reserves 724,320 9,245 733,565 Retained earned premium $ 123,794,725 3,780,783 127,575,508

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Property insurance business:

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 three months ended June 30, 2017 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 $ 502,521 11,440 131,305 382,656 584 382,072 Compulsory insurance 77,222 37,738 32,600 82,360 (65) 82,425 Total $ 579,743 49,178 163,905 465,016 519 464,497

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

For the six months ended June 30, 2017 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 $ 1,022,218 20,476 281,174 761,520 17,538 743,982 Compulsory insurance 152,886 73,000 64,347 161,539 135 161,404 Total $ 1,175,104 93,476 345,521 923,059 17,673 905,386 2) Retained claims payment:

Life insurance business:

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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the three months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 12,143,985 834,143 12,978,128 Reinsurance claims payment 9 - 9 Insurance claims payment 12,143,994 834,143 12,978,137 Less: recovery of reinsurance 296,049 - 296,049 claims payment Retained claims payment $ 11,847,945 834,143 12,682,088

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

For the six months ended June 30, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 21,486,629 1,962,770 23,449,399 Reinsurance claims payment 34 - 34 Insurance claims payment 21,486,663 1,962,770 23,449,433 Less: recovery of reinsurance 569,302 - 569,302 claims payment Retained claims payment $ 20,917,361 1,962,770 22,880,131

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Property insurance business:

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 three months ended June 30, 2017 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 214,083 1,413 55,225 160,271 Compulsory insurance 40,815 25,405 24,156 42,064 Total $ 254,898 26,818 79,381 202,335

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

For the six months ended June 30, 2017 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 421,430 3,681 128,632 296,479 Compulsory insurance 102,812 54,346 59,468 97,690 Total $ 524,242 58,027 188,100 394,169

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(af) 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 ended June 30, 2018 and 2017 and the six months ended June 30, 2018 and 2017, the Company and its subsidiaries’ income tax expenses and related accounts were as follows:

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Current income tax $ 469,029 1,925,641 4,723,883 4,852,682 expenses Deferred income tax 2,828,348 (599,829) 707,596 (1,964,461) (benefits) expenses Effects of change in tax - - (1,138,751) - rate Income tax expenses $ 3,297,377 1,325,812 4,292,728 2,888,221

For the three months ended June 30, 2018 and 2017 and the six months ended June 30, 2018 and 2017, the Company and its subsidiaries’ income tax benefits recognized under other comprehensive income were as follows:

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Items that will not be reclassified subsequently to profit or loss: Remeasurement gains $ - 497 329 140 related to defined benefit plans Proportionate share of (226) 1,873 (226) 1,873 other comprehensive income from associates or joint ventures under the equity method Unrealized (losses) gains (100,455) - 17,704 - from equity investments measured at fair value through other comprehensive income Effects of change in tax - - 127,639 - rate Total $ (100,681) 2,370 145,446 2,013

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Items that are or may be reclassified subsequently to profit or loss: Exchange differences of $ (115,859) (16,094) (181,428) 284,353 overseas subsidiaries’ financial reports translation Unrealized valuation - (419,785) - (634,157) losses on available-for- sale financial assets Gains on valuation of 893,456 - 3,238,359 - debt instrument measured at fair value through other comprehensive income Other comprehensive 20,023 - 553,669 - income on reclassification under the overlay approach Proportionate share of 30,083 - 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 $ 827,703 (435,879) 3,473,292 (349,804)

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) The Company and its subsidiaries’ income tax returns assessed and administrative remedies filed were as follows:

Latest year of assessment (Note1) The Company Until 2013 CTBC Bank Co., Ltd. Until 2013 CTBC Securities Co., Ltd. Until 2013 CTBC Insurance Brokers Co., Ltd. (dissolved) Until 2013 and 2015(Note) CTBC Venture Capital Co., Ltd. Until 2013 CTBC Asset Management Co., Ltd. Until 2013 CTBC Security Co., Ltd. Until 2013 Taiwan Lottery Co., Ltd. Until 2013 Chinatrust Bills Finance Corp. (dissolved) Until 2008 Taiwan Life Insurance Co., Ltd. Until 2013 CTBC Life Insurance Co., Ltd. (dissolved) Until 2013 CTBC Investments Co., Ltd. Until 2013 Note: CTBC Insurance Brokers Co., Ltd was liquidated after merged with the subsidiaries CTBC Bank Co., Ltd. in November, 2015 and the notice of assessment of the income tax for the year of 2015 has been acquired.

Year of Re-exam Description of Re-examination 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

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 Interest income and operating expenses allocation of exempt income Co., Ltd. " 2011 " " 2012 "

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Year of Litigation Description of Litigation The Company 2007 Interest income " 2008 Other losses " 2009 Other losses and other expenses CTBC Bank Co., Ltd. 2007 Interest income Chinatrust Bills Finance 2007 " Corp. (dissolved) CTBC Insurance Brokers 2007 " Co., Ltd. (dissolved) " 2008 " " 2009 Interest income and operating expenses allocation of exempt income CTBC Venture Capital Co., 2007 Interest income Ltd. " 2008 Operating income and operating expenses allocation of exempt income " 2009 Interest income CTBC Asset Management 2007 " Co., Ltd. " 2009 interest income, operating income and exempt income (ag) Capital stock, capital surplus, treasury stock, and other equity interest

(i) Capital stock

As of June 30, 2018, 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 amount to $194,969,896 and preferred stock $3,333,300, with 19,496,990 thousand shares and 333,330 thousand shares issued, respectively.

On August 30, 2017, The Company’s board of directors resolved to issue 333,330 thousand shares of Series B Preferred Stock for cash, with the subscription price at NT$60 per share, amounting to $19,999,800. The capital increase was approved by the FSC in accordance with Ruling No.1060037505 on October 3, 2017. All issued shares were fully paid and recognized as equity on December 25, 2017, the subscription date.

The Company’s rights and obligations of issuing preferred stock were as follows:

1) 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2) 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, preferred shares A dividends, and the remaining shall be paid to holders of preferred shares B as the current year’s dividends.

3) 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.

4) 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.

5) Other than the receipt of dividends at the rate as (1) mentioned above, holders of Series B Preferred Stock are not entitled to common shares’ cash or stock dividends derived from earnings or capital reserve.

6) Holders of preferred shares B have prior claim on the Company's assets over common shareholders if it is liquidated, but subordinate to the holders of preferred shares A. The repayment shall be capped at respective issue amount of preferred shares B upon liquidation.

7) 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.

8) Conversion Rights: Cannot be converted to common shares and Holders do not have the right to request the Company to redeem preferred shares.

9) 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Capital surplus

The components and sources of capital surplus were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Additional paid-in capital－common $ 32,242,318 32,239,491 32,239,491 stock Additional paid-in capital－preferred 16,648,468 16,648,774 - stock Share based payment transactions 1,499,326 1,499,326 1,499,326 Others (21,573) (21,573) (21,573) Total $ 50,368,539 50,366,018 33,717,244

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 its subsidiaries follows Article 267, Paragraph 1 of the Company Act.

(iii) Treasury stock

As of June 30, 2018, in accordance with Financial Holding Company Act and Article 12 of Business Mergers And Acquisitions Act, the Company has buyback 27,168 thousand shares at NT$21.45 per share from the shareholders who are dissent to the stock swap for the acquisition of Taiwan Life Insurance Co., Ltd. on August 2015, the aforementioned treasury stocks have been sold.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) 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 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 loss from associates under the equity method Unrealized gain from financial - (7,903,166) - - - (7,903,166) assets measured at fair value through other comprehensive income Accumulated loss on disposals - (5,680,239) - - - (5,680,239) 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)

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Changes in financial Exchange liabilities differences of designated at Unrealized overseas fair value (losses) gains on subsidiaries’ through profit or available-for-sale financial reports loss attributable financial assets translation to credit risk Total January 1, 2017 $ (11,997,483) (4,414,363) (317,142) (16,728,988) Available-for-sale financial assets- net －Valuation adjustment 9,183,396 - - 9,183,396 －Realized amount (3,552,398) - - (3,552,398) Foreign currency translation difference －Exchange difference - (4,080,335) - (4,080,335) －Gains on effective hedging instrument - 742,713 - 742,713 Proportionate share of other comprehensive income from associates under equity method －Recognized amount 6,392 - - 6,392 Changes in designated as financial liabilities measured at fair value through profit or loss attributable to credit risk －Recognized amount - - (633,329) (633,329) June 30, 2017 $ (6,360,093) (7,751,985) (950,471) (15,062,549)

(ah) 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.

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;

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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 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 preffered stock were $21,056,749 and $14,383.

A resolution on 2016 earnings distribution of the Company was approved by the general shareholder meeting on June 16, 2017 and the distribution of cash dividend and cash dividend from capital surplus was $16,549,348 and $2,920,473.

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.

(ai) Share-based payment

For the six months ended June 30, 2018 and 2017, the Company and its 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 2014 2015 2016 2017 Grant date 2015.02.06 2016.02.04 2017.01.25 2018.02.08 Grant number 285,222 273,119 231,283 241,881 Exercise period 2017.12.31 2018.12.31 2019.12.31 2020.12.31 Exercise price at grant date 20.35 14.92 17.82 21.39

The Company and its subsidiaries implement the above plan via cash settlements, yet absentee and resigned employees’ stock appreciation rights will be deemed abandoned and forfeited.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Disclosures for the Company and its subsidiaries’ employee stock appreciation rights plan (SARs) were as follows:

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 310,097 12.57 - 16.96 - 21.39 period

For the six months ended June 30, 2017 Management stock appreciation rights plan for the years 2014 2015 2016 Weighted Weighted Weighted average average average exercise exercise exercise Number price Number price Number price Outstanding at the beginning 346,900 16.10 302,173 13.21 231,283 17.82 of the period Granted during the period - 16.10 - 13.21 - 17.82 Forfeited during the period - 16.10 - 13.21 - 17.82 Exercised during the period 1,993 16.10 1,088 13.21 463 17.82 Expired during the period - 16.10 - 13.21 - 17.82 Outstanding at the end of the 344,907 16.10 301,085 13.21 230,820 17.82 period Exercisable at the end of the 344,907 16.10 - 13.21 - 17.82 period

For the six months ended June 30, 2018, the weighted-average stock prices executed under SARs for 2015 and 2016 were NT$20.25 and $20.02 (in dollars).

As of June 30, 2018, the weighted-average remaining durations of outstanding shares under SARs for 2015, 2016 and 2017 were 0.50, 1.50 and 2.50 years, respectively.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(aj) EPS

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Net income attributable to parent $ 9,674,688 9,179,695 21,902,491 19,393,303 company Dividends on preferred stock (14,383) - (14,383) - Net income attributable to $ 9,660,305 9,179,695 21,888,108 19,393,303 common stockholders Weighted average outstanding 19,489,013 19,469,822 19,479,470 19,469,822 shares of common stock (in thousands) Basic EPS (in dollars) $ 0.50 0.47 1.12 1.00

Retroactive adjustments are applied to the Company’s basic EPS for the three months ended June 30, 2017 and the six months ended June 30, 2017.

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.

(ak) Net interest income

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Interest income Loan interest $ 14,702,163 13,193,463 28,653,277 26,292,598 Revolving credit interest 688,951 630,586 1,372,240 1,264,152 Securities interest 14,421,720 11,858,880 27,810,733 23,097,225 Due from Central Bank 95,616 88,891 202,420 187,722 Due from banks and call 854,463 574,420 1,754,068 1,167,027 loans to banks Hedging derivatives 24,348 24,348 48,429 48,429 Insurance policies loans 303,648 286,836 601,605 572,499 Others 608,530 443,127 1,168,823 899,043 Subtotal 31,699,439 27,100,551 61,611,595 53,528,695 Interest expense Deposit 5,077,280 3,773,789 9,559,701 7,467,665 Due to other banks 237,301 196,239 428,828 388,170 Borrowings and other 908,195 846,668 1,794,429 1,645,842 financing Hedging derivatives 14,603 14,624 29,046 29,086 Others 279,635 160,878 609,687 270,600 Subtotal 6,517,014 4,992,198 12,421,691 9,801,363 $ 25,182,425 22,108,353 49,189,904 43,727,332

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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(al) Service fee and commission income

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Commission income Credit card business $ 1,251,739 1,299,815 2,540,401 2,628,548 Wealth management business 1,275,624 1,580,746 3,221,811 2,978,603 Corporate business 1,303,086 1,452,152 2,726,642 2,857,529 Banking business 1,194,818 1,135,888 2,452,960 2,335,926 Insurance business 2,512,781 2,114,072 5,140,348 4,846,179 Securities business 158,357 104,967 306,128 204,081 Lottery business 793,817 869,271 2,810,859 3,052,572 Others 149,217 78,923 280,601 159,191 Total commission income 8,639,439 8,635,834 19,479,750 19,062,629 Service fee Credit card business 135,859 104,099 267,358 199,958 Wealth management business 42,977 38,571 92,324 80,020 Corporate business 59,363 60,066 121,995 120,825 Banking business 517,868 505,436 1,026,661 1,012,240 Insurance business 2,805,266 2,484,998 6,220,900 6,683,513 Securities business 17,116 13,489 38,361 30,135 Lottery business 58,127 63,931 230,663 255,260 Others 94,303 11,256 133,247 27,145 Total service fee 3,730,879 3,281,846 8,131,509 8,409,096 Service fee and commission $ 4,908,560 5,353,988 11,348,241 10,653,533 income

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(am) Net insurance income

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Insurance income Insurance income $ 52,532,835 55,883,531 110,934,240 129,484,177 Reinsurance premium income 53,482 49,178 97,924 93,476 Recovery of reinsurance 311,922 375,430 613,385 757,402 claims payment Separate account insurance 13,315,238 3,561,582 17,093,070 7,254,267 product income Total insurance income 66,213,477 59,869,721 128,738,619 137,589,322 Insurance expense Reinsurance expense 633,910 750,712 1,241,120 1,439,575 Underwriting expense 3,385 2,370 5,908 5,727 Claims payment 10,879,064 6,698,225 20,987,463 12,047,912 Reinsurance claims payment 40,181 26,827 104,014 58,061 Life insurance bonus payment 576,342 627,137 614,429 653,820 Surrender value 10,227,158 5,907,664 18,399,630 11,271,909 Guaranty fund expense 100,318 94,113 211,639 218,069 Separate account insurance 13,315,238 3,561,582 17,093,070 7,254,267 product expense Total insurance expense 35,775,596 17,668,630 58,657,273 32,949,340 Total net insurance income $ 30,437,881 42,201,091 70,081,346 104,639,982

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(an) 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 2018 2017 2018 2017 Disposal gains (losses) Commercial paper $ 543 2,133 941 3,518 Treasury bills 133 1,156 80 1,514 Government bonds (94,937) 42,182 (466,548) (555,990) Corporate bonds 19,378 49,518 6,472 79,024 Financial debentures 46,638 27,178 125,400 53,271 Convertible bonds 7,365 33,181 9,585 66,731 Asset-backed securities 137,921 (10,922) (98,433) (10,922) Listed and OTC securities 3,432,200 274,829 4,959,124 615,359 Beneficiary certificates 598,392 (6,449) 1,482,106 (121,978) Derivative financial (1,321,998) 10,634,068 8,129,280 21,516,914 instruments Margin purchase and short 60 (876) 1,694 (4,302) sale of securities Other securities and bonds 15,060 457 15,382 (456) Negotiable certificate of 1,082 2,497 2,097 8,146 deposit Subtotal 2,841,837 11,048,952 14,167,180 21,650,829 Valuation gains (losses) Commercial paper $ 54 (3,471) 12,951 14,120 Treasury bills 3 (454) 3 (309) Government bonds (12,345) 182,229 (1,818) 832,002 Corporate bonds (80,889) (7,734) (131,458) (2,848) Financial debentures 1,151,874 (957,112) 2,761,560 (403,604) Convertible bonds (80,455) 21,767 (329,793) 70,293 Asset-backed securities (241,986) (114,554) (362,268) (82,355) Listed and OTC securities (2,467,758) 368,263 (4,823,140) 460,201 Beneficiary certificates 1,677,704 136,476 (202,317) 268,654 Other securities and bonds (160,763) (3,906) (719,073) (2,546) Derivative financial (24,006,718) (11,190,380) (20,704,972) 4,865,770 instruments Margin purchase and short (602) 357 (1,172) (457) sale of securities Negotiable certificates of 599 - 172 - deposit Fair value hedge adjustment (9,051) (7,466) (17,383) (3,881) Subtotal (24,230,333) (11,575,985) (24,518,708) 6,015,040 Dividend income 425,911 95,945 571,444 134,698 Interest income 750,272 423,642 1,576,770 657,629 Interest expense (463,682) (381,462) (846,532) (713,443) Total $ (20,675,995) (388,908) (9,049,846) 27,744,753

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ao) Investment-linked assets, liabilities, incomes and expenses

Related account balances of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Insurance product assets of segregated account: Cash in bank $ 869,147 1,516,446 1,499,310 Securities 69,626,900 52,558,787 46,033,124 Receivables 777,196 2,408,839 1,414,037 Others 37 - - Total $ 71,273,280 56,484,072 48,946,471 Insurance product liabilities of segregated account: Insurance product reserve－insurance $ 52,954,781 39,821,358 31,907,003 contract of segregated account Insurance product reserve－investment 17,417,703 15,742,156 16,712,288 contract of segregated account Payables 900,796 920,558 327,180 Total $ 71,273,280 56,484,072 48,946,471

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Insurance product revenues of segregated account: Premium income $ 13,538,787 2,724,472 18,356,033 6,654,346 (Losses) gains on financial (597,596) 355,405 (829,934) 809,288 assets or liabilities measured at fair value through profit or loss Foreign exchange gains 294,346 391,555 (610,262) (384,351) (losses) Interest income 79,701 90,150 177,233 174,984 Total $ 13,315,238 3,561,582 17,093,070 7,254,267 Insurance product expenses of segregated account: Net changes in segregated $ 12,254,481 2,487,948 15,004,486 5,085,670 account reserve－insurance contract Surrender value 783,161 859,078 1,547,270 1,777,836 Insurance claims payment 24,213 38,667 44,747 47,705 Management fee expense 253,383 175,889 496,567 343,056 Total $ 13,315,238 3,561,582 17,093,070 7,254,267

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the three months ended June 30, 2018 and 2017 and the six months ended June 30, 2018 and 2017, sales bonuses or discount of investment-oriented insurance products from counterparties amounted to $157,097, $47,925, $313,620 and $63,612, respectively.

(ap) Net changes in insurance liability reserve

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Provision for liability reserve $ 39,234,006 49,706,913 86,207,067 117,126,789 (Reversal of) Provision for claim (78,177) 70,577 (30,034) 150,688 reserve Reversal of premium deficiency (181,715) (399,151) (336,601) (137,168) reserve Reversal of special claim reserve (720,022) (329,434) (511,079) (450,782) Provision for (Reversal of) 74,271 (438,751) 156,298 (342,816) unearned premium reserve Provision for (Reversal of) 404 338 231 (3) reserve for insurance policies with financial instrument features Fair value adjustment (73,583) (56,198) (125,434) (106,395) Total $ 38,255,184 48,554,294 85,360,448 116,240,313

(aq) Employee benefits expenses

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Salary expenses $ 7,565,361 6,997,448 14,961,085 14,002,794 Insurance expenses 501,005 480,743 1,079,472 1,047,129 Cash-settled share-based 629,470 834,624 1,102,313 1,369,992 payment Retirement expenses Defined contribution plan 231,244 225,544 430,208 446,032 Defined benefits plan 78,373 82,805 157,937 164,294 Other personnel expenses 395,432 368,653 787,304 757,557 Total $ 9,400,885 8,989,817 18,518,319 17,787,798

As of June 30, 2018 and 2017, numbers of the Company and its subsidiaries’ employees were 19,753 and 19,694, respectively.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(ar) Depreciation and amortization expenses

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Housing $ 258,035 313,818 547,942 579,573 General equipment 146,260 135,206 289,313 267,566 Transportation equipment 5,788 8,419 12,408 17,847 Information equipment 182,538 175,987 365,247 355,334 Subtotal of depreciation 592,621 633,430 1,214,910 1,220,320 expenses Amortization of information 318,414 295,886 622,941 585,653 software Bond issuance expenses and 922 1,074 1,873 2,114 others Subtotal of amortization 319,336 296,960 624,814 587,767 expenses Total $ 911,957 930,390 $ 1,839,724 1,808,087

(as) 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 $11,671 and $9,855 and the remunerations to directors were $163,392 and $137,969 for the six months ended June 30, 2018 and 2017, respectively.

The actual compensations of employees of 2017 and 2016 amounted to $18,630 and $13,926, with $(204) and $(113) different from the amount recognized in the annual financial report. The actual compensations of the directors’ of 2017 and 2016 amounted to $260,823 and $194,959, with $(2,856) and $(1,592) 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 2018 and 2017. Relevant information is available on Market Observation Post System.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(at) Other general and administrative expenses

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Site usage and general $ 1,312,073 1,360,864 2,600,884 2,647,674 equipment expenses Information equipment expenses 603,510 528,696 1,132,141 1,030,274 General administration expenses 1,257,905 1,452,089 2,472,229 2,823,573 Marketing and promotion 785,755 817,600 1,468,615 1,477,343 expenses Other expenses 961,035 835,554 1,750,657 1,545,400 Business tax 848,257 805,067 1,651,696 1,609,174 Total $ 5,768,535 5,799,870 11,076,222 11,133,438

(au) Financial instruments

(i) Methods and assumptions used by the Company and its 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, available-for-sale financial assets (applicable before January 1, 2018), and held to maturity financial assets (applicable before January 1, 2018), 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 of debt investments without an active market (applicable before January 1, 2018) accounted for under other financial assets is determined by the quoted estimated fair value from the counterparties, and recorded in accordance with the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies” at amortized cost. 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 ITS 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 its 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 its subsidiaries and considering loss given default of the Company and its subsidiaries before being multiplied by exposure at default of the Company and its subsidiaries.

The Company and its subsidiaries adopt IFRS9 (applicable from January 1, 2018) IAS39 (applicable before January 1, 2018) 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 its subsidiaries do not measure a financial instrument at fair value.

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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Financial Assets Book value Fair value Held-to-maturity financial assets－net $ 737,471,741 748,438,632 Other financial assets- Investment in debt instruments 841,910,122 869,048,176 without active markets

June 30, 2017 Financial Assets Book value Fair value Held-to-maturity financial assets－net $ 349,812,943 357,855,659 Other financial assets－Investment in debt 760,207,747 765,090,168 instruments without active markets

(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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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.

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).

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Fair value hierarchy information on financial instruments

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 1,146,489 - - 1,146,489 value through profit or loss 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 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 Financial assets held for trading Investment in stocks $ 24,396,128 24,191,279 204,849 - Investment in debt instruments 97,357,022 8,208,044 89,148,978 - Others 1,236,286 1,236,286 - - Designated as financial assets measured at fair value through profit or loss Investment in debt instruments 17,705,947 14,741,412 2,964,497 38 Others 1,251,918 - - 1,251,918 Available-for-sale financial assets－net Investment in stocks 71,631,325 70,381,812 1,249,513 - Investment in debt instruments 335,322,437 142,059,274 187,915,493 5,347,670 Others 71,280,334 60,532,268 778,011 9,970,055 Liabilities: Financial liabilities measured at fair value 6,975 6,975 - - through profit or loss Designated as financial liabilities measured at 34,090,353 - - 34,090,353 fair value through profit or loss Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through $ 33,743,557 188,009 33,216,475 339,073 profit or loss Derivative financial assets－hedging 137,010 - 137,010 - Liabilities: Financial liabilities measured at fair value 34,309,143 600,197 33,312,348 396,598 through profit or loss Derivative financial liabilities－hedging 16,865 - 16,865 - Instruments not measured at fair value Held-to-maturity financial assets 748,438,632 613,612,422 134,826,210 - Other financial assets- Investment in debt instruments 869,048,176 552,889,418 211,958,489 104,200,269 without active markets Investment property 60,699,572 - - 60,699,572

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 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 Financial assets held for trading Investment in stocks $ 13,126,846 12,956,784 170,062 - Investment in debt instruments 103,659,758 10,814,067 92,845,691 - Others 3,023,536 3,023,536 - - Designated as financial assets measured at fair value through profit or loss Investment in debt instruments 15,458,227 15,182,270 275,918 39 Others 1,322,137 - - 1,322,137 Available-for-sale financial assets－net Investment in stocks 78,153,816 77,135,771 1,018,045 - Investment in debt instruments 613,640,965 171,102,124 436,711,127 5,827,714 Others 56,896,973 49,793,460 796,956 6,306,557 Liabilities: Designated as financial liabilities measured at 33,115,580 - - 33,115,580 fair value through profit or loss Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through $ 37,913,382 146,591 37,348,848 417,943 profit or loss Derivative financial assets－hedging 223,611 - 223,611 - Liabilities: Financial liabilities measured at fair value 41,415,688 301,000 40,624,879 489,809 through profit or loss Derivative financial liabilities－hedging 281,876 - 281,876 - Instruments not measured at fair value Held-to-maturity financial assets 357,855,659 216,644,335 141,211,324 - Other financial assets－Investment in debt instruments 765,090,168 49,010,478 629,239,615 86,840,075 without active markets Investment property 60,212,178 - - 60,212,178

3) For the six months ended June 30, 2018 and 2017, the Company and its subsidiaries have transferred financial assets measured at fair value through other comprehensive income amount to $719,370 and available-for-sale financial asset amount to $12,013,180 from Level 1 to Level 2, based on the lack of active quote markers for debt securities, and also transferred Financial assets measured at fair value through other comprehensive income amounted to $1,412,832 from Level 2 to Level 1, based on the high frequency of the transaction and the availability of observable of input parameters.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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, 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 $ 44,149,201 543,038 825,207 2,721,892 - 16,809 767,791 186,965 (20,895) 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 - 403,779 419,640 - - 206,692 - - 8,756,957 at fair value through other comprehensive income

Total $ 53,565,948 532,328 1,144,118 3,141,532 - 16,809 1,008,933 186,965 (20,895) 57,225,732

For the six months ended June 30, 2017 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 at fair value through profit or loss Financial assets held for $ 6,358,224 (3,563,368) - 341,442 - 39,750 2,757,995 110 - 417,943 trading Designated as financial 1,376,507 (20,381) - - - - 33,950 - - 1,322,176 assets measured at fair value through profit or loss Available-for-sale financial 11,703,963 (47,408) (232,416) 903,427 105,996 - 299,291 - - 12,134,271 assets－net

Total $ 19,438,694 (3,631,157) (232,416) 1,244,869 105,996 39,750 3,091,236 110 - 13,874,390

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, 2018 and 2017 which were recognized in current net income shown in the above table were $648,474 and $2,391,154, 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, 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 $ 396,598 377,040 - (314,588) 34,750 20,895 56,680 173,472 (16,809) 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 (7,360,671) (252,236) 12,037,912 34,750 20,895 56,680 173,472 (16,809) 38,754,258

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the six months ended June 30, 2017 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 $ 6,913,541 (3,954,653) - 319,702 - 39,750 2,757,419 71,112 - 489,809 for trading Designated as financial 28,178,587 (1,174,816) 633,329 5,478,480 - - - - - 33,115,580 liabilities measured at fair value through profit or loss Total $ 35,092,128 (5,129,469) 633,329 5,798,182 - 39,750 2,757,419 71,112 - 33,605,389

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, 2018 and 2017 which were recognized current net income shown in the above table were $2,757,073 and $1,968,459, respectively.

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, 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Impacts on other comprehensive income as credit spread changes Favorable Unfavorable changes changes December 31, 2017 Liabilities Financial liabilities measured at fair value through profit or loss Designated as financial liabilities measured at fair $ 55,978 (55,881) value through profit or loss June 30, 2017 Liabilities Financial liabilities measured at fair value through profit or loss Designated as financial liabilities measured at fair $ 54,093 (53,767) value through profit or loss

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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 8.60%~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 Not applicable The higher net method/ value/Market assets/market Discounted cash risk Premium/β risk premium/the flow 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 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 Financial assets held for trading Designated as financial assets measured $ 1,251,956 Discounted cash Default rate 8.72%~18.92% The higher default at fair value through profit or loss flow model rate, the lower fair value Available-for-sale financial assets－net Investment in debt instruments 5,347,670 Discounted cash Interest rate 0.76% The higher interest flow model rate, the lower fair value Others 9,970,055 Net asset valuation Net asset value Not applicable The higher net method asset valuation, the higher fair value Liabilities: Designated as financial liabilities measured 34,090,353 Interest rate option Credit spread 1.10%~1.40% 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 $ 339,073 Interest rate option Interest rate 59%~96% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the lower fair value Liabilities: Financial liabilities measured at fair value 396,598 Interest rate option Interest rate 59%~96% 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 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 Financial assets held for trading Designated as financial assets measured $ 1,322,176 Discounted cash Default rate 8.72%~18.92% The higher default at fair value through profit or loss flow model rate, the lower fair value Available-for-sale financial assets－net Investment in debt instruments 5,827,714 Discounted cash Interest rate 0.76% The higher interest flow model rate, the lower fair value Others 6,306,557 Net asset valuation Net asset value Not applicable Not applicable method Liabilities: Designated as financial liabilities measured 33,115,580 Interest rate option Credit spread 1.20%~1.80% 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 $ 417,943 Interest rate option Interest rate 54%~97% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the lower fair value Liabilities: Financial liabilities measured at fair value 489,809 Interest rate option Interest rate 54%~97% 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 its 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 ended June 30, 2018 and 2017 and the six months ended June 30, 2018 and 2017, unrealized gains (losses) due to the estimated change of fair value recognized by the Company and its subsidiaries were $(23,508,875), $(12,321,669), $(19,328,942) and $4,344,303, respectively.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Financial risk information The risk management objectives of the Company and its 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 its 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 its subsidiaries primarily include loans, securities investment approved by regulators, and derivatives financial transaction, etc.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

b) Management procedures of credit risk i) Risk Identification: By prudent credit review process, the Company and its 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 its 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 its 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

iv) Risk Reporting:

Risk management units of the Company and its 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 ITS 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

iii) Pre-settlement risk mitigation:

The Company and its 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 (au)(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 its 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, 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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

December 31, 2017 Financial Individual Clients Service Public Sector High Tech Real Estate Manufacturing Institution Others Total Receivables—Credit card $ 72,061,570 ------72,061,570 Receivables—Factoring - 1,323,926 176,521 8,103,581 - 2,133,625 5,013,123 - 16,750,776 Loans -Consumer loans 690,235,219 ------690,235,219 -Corporate loans 64,635,257 65,598,962 153,321,103 61,454,120 77,617,043 85,277,633 13,674,254 - 521,578,372 -Micro-business loans 4,862,485 2,523,131 - 786,425 695,650 1,173,458 74,756 258,375 10,374,280 -Life insurance loans 18,977,259 ------18,977,259 -Premium advance loans 3,114,879 ------3,114,879 -Foreign currency loans 258,261,005 243,136,260 18,456,318 48,567,709 143,646,499 157,685,307 91,820,768 9,017,258 970,591,124 -Non-accrual loans 3,913,144 3,156,666 - 593,987 130,107 836,875 247 43,883 8,674,909 -Adjustment of discount (169,913) (565,941) (218) (60,531) (236,290) (43,837) (41,966) (240,254) (1,358,950) and premium Other financial assets 179,055 89,027 - - - 4,336 - - 272,418

Total $ 1,116,069,960 315,262,031 171,953,724 119,445,291 221,853,009 247,067,397 110,541,182 9,079,262 2,311,271,856

December 31, 2017 Financial Individual Public Sector Corporate Institution Clients Total Available for sale financial assets－ $ 125,693,958 65,825,022 135,128,343 8,769,526 335,416,849 Investment in debt instruments Derivative financial assets－hedging 64,276 - 72,734 - 137,010 Reinsurance assets－Claims recoverable from - - 549,217 - 549,217 reinsurers Reinsurance assets－Due from reinsurers and - - 534,840 - 534,840 ceding companies Held-to-maturity financial assets 668,846,084 29,851,116 38,786,411 - 737,483,611 Other financial assets－Investment in debt 75,363,871 282,360,095 484,204,299 - 841,928,265 instruments without active market Total $ 869,968,189 378,036,233 659,275,844 8,769,526 1,916,049,792

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Financial Individual Clients Service Public Sector High Tech Real Estate Manufacturing Institution Others Total Receivables—Credit card $ 79,938,671 ------79,938,671 Receivables—Factoring - 1,385,474 80,732 7,782,798 - 2,515,768 5,689,854 2,651 17,457,277 Loans -Consumer loans 671,654,836 ------671,654,836 -Corporate loans 62,835,904 72,118,561 159,803,914 63,357,720 76,619,366 77,373,643 15,423,986 - 527,533,094 -Micro-business loans 6,713,519 2,577,709 - 789,591 640,006 1,015,592 154,126 459,431 12,349,974 -Life insurance loans 18,692,781 ------18,692,781 -Premium advance loans 2,990,383 ------2,990,383 -Foreign currency loans 261,753,896 230,541,780 7,962,814 49,263,122 137,464,449 153,336,583 87,949,315 9,017,819 937,289,778 -Non-accrual loans 3,797,368 3,267,653 - 245,136 222,121 1,882,347 318 97,302 9,512,245 -Adjustment of discount (207,791) (570,083) (453) (69,768) (283,060) (92,519) (53,395) (206,648) (1,483,717) and premium Other financial assets 157,473 147,428 9,622 - 71,823 4,390 - - 390,736

Total $ 1,108,327,040 309,468,522 167,856,629 121,368,599 214,734,705 236,035,804 109,164,204 9,370,555 2,276,326,058

June 30, 2017 Financial Individual Public Sector Corporate Institution Clients Total Available for sale financial assets－ $ 435,658,796 57,665,982 111,844,911 9,183,130 614,352,819 Investment in debt instruments Derivative financial assets－hedging - - 223,611 - 223,611 Reinsurance assets－Claims recoverable from - - 488,071 - 488,071 reinsurers Reinsurance assets－Due from reinsurers and - - 431,238 - 431,238 ceding companies Held-to-maturity financial assets 284,030,312 18,768,772 47,020,236 - 349,819,320 Other financial assets－Investment in debt 66,745,811 241,625,615 451,856,933 - 760,228,359 instruments without active market Total $ 786,434,919 318,060,369 611,865,000 9,183,130 1,725,543,418

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) By Area

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 card 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Asia (excluding Taiwan North America Taiwan) Others Total Available for sale financial assets $ 86,804,011 72,766,782 133,481,908 42,364,148 335,416,849 －Investment in debt instruments Derivative financial assets－ 126,274 - 5,276 5,460 137,010 hedging Receivables－Credit cards 72,061,570 - - - 72,061,570 Receivables－Factoring 4,990,254 1,363,062 7,791,414 2,606,046 16,750,776 Loans Consumer finance －Mortgage loans 571,135,554 - - - 571,135,554 －Automobile loans 10,031,129 - - - 10,031,129 －Consumer loans 109,068,536 - - - 109,068,536 Corporate finance －Corporate loans 515,822,165 3,500,000 2,256,207 - 521,578,372 －Micro business loans 10,370,853 - 3,427 - 10,374,280 Life insurance loans 18,977,259 - - - 18,977,259 Premium advance loans 3,114,879 - - - 3,114,879 Foreign currency loans 61,184,604 115,646,068 770,683,114 23,077,338 970,591,124 Non-accrual loans 2,177,617 133,026 6,364,266 - 8,674,909 Adjustment of discount and (307,383) (30,407) (763,908) (257,252) (1,358,950) premium Reinsurance assets－Claims 137,819 91,514 307,154 12,730 549,217 recoverable from reinsurers Reinsurance assets－Due from 172,936 66,545 284,813 10,546 534,840 reinsurers and ceding companies Held-to-maturity financial assets 622,277,935 38,470,276 58,595,754 18,139,646 737,483,611 Other financial assets 47,500,709 294,947,655 211,855,844 287,896,475 842,200,683 Total $ 2,135,646,721 526,954,521 1,190,865,269 373,855,137 4,227,321,648

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Asia (excluding Taiwan North America Taiwan) Others Total Available for sale financial assets $ 388,016,442 83,201,745 110,269,596 32,865,036 614,352,819 －Investment in debt instruments Derivative financial assets－ 213,490 - 3,733 6,388 223,611 hedging Receivables－Credit cards 79,938,671 - - - 79,938,671 Receivables－Factoring 4,914,809 1,418,512 8,504,683 2,619,273 17,457,277 Loans Consumer finance －Mortgage loans 551,675,427 - - - 551,675,427 －Automobile loans 12,983,800 - - - 12,983,800 －Consumer loans 106,995,609 - - - 106,995,609 Corporate finance －Corporate loans 522,057,690 3,500,000 765,073 1,210,331 527,533,094 －Micro-business loans 12,349,974 - - - 12,349,974 Life insurance loans 18,692,781 - - - 18,692,781 Premium advance loans 2,990,383 - - - 2,990,383 Foreign currency loans 65,791,060 112,125,554 735,963,540 23,409,624 937,289,778 Non-accrual loans 1,706,392 66,809 7,739,044 - 9,512,245 Adjustment of discount and (336,810) (56,540) (855,450) (234,917) (1,483,717) premium Reinsurance assets－Claims 122,797 72,248 63,709 229,317 488,071 recoverable from reinsurers Reinsurance assets－Due from 128,313 35,521 72,805 194,599 431,238 reinsurers and ceding companies Held-to-maturity financial assets 246,386,993 31,544,887 57,957,580 13,929,860 349,819,320 Other financial assets 46,912,319 263,763,062 185,672,933 264,270,781 760,619,095 Total $ 2,061,540,140 495,671,798 1,106,157,246 338,500,292 4,001,869,476

g) Credit quality and overdue loss analysis of financial assets of the Company and its subsidiaries

The measurement of credit risk of the Company and its 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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 its subsidiaries evaluate credit risk whether financial instruments increased significantly that should be included in credit loss provisions. The Company and its 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.

The Company and its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 its 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 for the six months ended June 30, 2018.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Credit quality and impairment analysis of financial assets

Some financial assets held by the Company and its 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, available-for-sale financial assets, 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, 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Neither past due nor impaired Past due not impaired 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) Available for sale financial assets－Investment $ 276,723,184 58,539,720 - 335,262,904 - - - - 153,945 - 94,412 335,322,437 in debt instruments Derivative financial assets－hedging 137,146 - (136) 137,010 ------137,010 Receivables－Credit cards 57,572,492 8,451,904 2,023,066 68,047,462 64,246 132,368 562,337 758,951 - 3,255,157 1,115,323 70,946,247 Receivables－Factoring 7,180,302 8,091,740 720,450 15,992,492 20,779 87,200 722 108,701 649,583 - 543,685 16,207,091 Loans Consumer finance －Mortgage loans 557,571,313 3,887,591 571,825 562,030,729 2,759,357 1,018,031 599,707 4,377,095 - 4,727,730 420,797 570,714,757 －Automobile loans 9,952,020 - - 9,952,020 63,511 - - 63,511 - 15,598 98,257 9,932,872 －Consumer loans 77,527,067 16,899,287 3,655,763 98,082,117 350,297 636,077 1,774,884 2,761,258 - 8,225,161 2,675,199 106,393,337 Corporate finance －Corporate loans 261,421,249 201,424,627 55,899,411 518,745,287 - 202,770 127,734 330,504 2,502,581 - 861,669 520,716,703 －Micro business loans 2,835,479 5,558,083 1,720,740 10,114,302 3,262 35,032 6,304 44,598 77,215 138,165 29,139 10,345,141 Life insurance loans 18,977,259 - - 18,977,259 ------18,977,259 Premium advance loans 3,114,879 - - 3,114,879 ------3,114,879 Foreign currency loans 400,408,149 417,567,965 141,487,826 959,463,940 515,129 1,122,419 2,309,865 3,947,413 5,930,603 1,249,168 4,475,943 966,115,181 Non-accrual loans ------957 957 4,943,708 3,730,244 4,717,239 3,957,670 Adjustment of discount and premium (434,893) (712,515) (214,536) (1,361,944) 574 2,393 (3,817) (850) (409) 4,253 (835) (1,358,115) Reinsurance assets－Claims recoverable from 510,677 38,540 - 549,217 ------549,217 reinsurers Reinsurance assets－Due from reinsurers and 504,517 12,640 - 517,157 - - - - 17,562 121 17,621 517,219 ceding companies Held-to-maturity financial assets 657,494,357 79,489,254 500,000 737,483,611 ------11,870 737,471,741 Other financial assets 817,892,077 21,654,489 2,553,604 842,100,170 - - - - 4,554 95,959 103,789 842,096,894 Total $ 3,149,387,274 820,903,325 208,918,013 4,179,208,612 3,777,155 3,236,290 5,378,693 12,392,138 14,279,342 21,441,556 15,164,108 4,212,157,540

Note: The balances of impairment allowance, as shown above, are in compliance with the IFRSs accepted by FSC.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Neither past due nor impaired Past due not impaired 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) Available for sale financial assets－Investment $ 550,380,360 63,825,209 1,386 614,206,955 - - - - 145,864 - 102,775 614,250,044 in debt instruments Derivative financial assets－hedging 224,823 (989) (223) 223,611 ------223,611 Receivables－Credit cards 66,232,462 7,887,659 1,812,874 75,932,995 57,642 110,976 506,650 675,268 - 3,330,408 1,080,911 78,857,760 Receivables－Factoring 7,138,822 8,513,176 1,473,509 17,125,507 56,252 181,393 94,125 331,770 - - 18,490 17,438,787 Loans Consumer finance －Mortgage loans 537,876,561 4,059,256 510,076 542,445,893 2,499,964 1,108,514 657,607 4,266,085 - 4,963,449 463,784 551,211,643 －Automobile loans 12,901,366 - - 12,901,366 62,097 - - 62,097 - 20,337 121,722 12,862,078 －Consumer loans 76,746,589 16,192,908 3,332,132 96,271,629 286,964 535,743 1,554,883 2,377,590 - 8,346,390 2,656,638 104,338,971 Corporate finance －Corporate loans 265,437,687 203,613,279 55,481,501 524,532,467 - 57,812 117,757 175,569 2,825,058 - 996,442 526,536,652 －Micro-business loans 5,445,282 4,787,744 1,747,607 11,980,633 1,784 15,569 80,562 97,915 59,036 212,390 25,086 12,324,888 Life insurance loans 18,692,781 - - 18,692,781 ------18,692,781 Premium advance loans 2,990,383 - - 2,990,383 ------2,990,383 Foreign currency loans 390,026,781 391,420,662 145,833,380 927,280,823 306,385 625,477 2,176,615 3,108,477 5,418,464 1,482,014 4,748,569 932,541,209 Non-accrual loans ------19,758 19,758 5,596,529 3,895,958 4,660,651 4,851,594 Adjustment of discount and premium (513,991) (652,663) (325,732) (1,492,386) 339 417 2,832 3,588 1,223 3,858 (706) (1,483,011) Reinsurance assets－Claims recoverable from 474,245 13,826 - 488,071 ------488,071 reinsurers Reinsurance assets－Due from reinsurers and 399,724 13,949 - 413,673 - - - - 17,558 7 17,558 413,680 ceding companies Held-to-maturity financial assets 271,969,165 77,350,155 500,000 349,819,320 ------6,377 349,812,943 Other financial assets 732,998,347 23,655,914 3,860,665 760,514,926 - - - - 14,061 90,108 96,595 760,522,500 Total $ 2,939,421,387 800,680,085 214,227,175 3,954,328,647 3,271,427 2,635,901 5,210,789 11,118,117 14,077,793 22,344,919 14,994,892 3,986,874,584

Note: The balances of impairment allowance, as shown above, are in compliance with the IFRSs accepted by FSC.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

h) Aging analysis on past due but not impaired financial assets

Past due but not impaired loans might result from some temporary administration reasons so the customer is in the early stages of delinquency but no actual impairment has occurred yet. Unless there is other objective evidence shown the potential loss, according to internal credit risk assets impairment evaluation guideline, a less than 90-day past due loan is typically not be treated as impairment.

December 31, 2017 Up to 1 month 1-2 months 2-3 months Over 3 months Total Receivables -Credit cards $ 570,913 126,381 61,657 - 758,951 -Factoring 106,210 1,816 675 - 108,701 Loans Consumer finance -Mortgage loans 4,212,602 136,863 27,630 - 4,377,095 -Automobile loans 59,376 1,545 2,590 - 63,511 -Consumer loans 2,341,410 298,279 121,569 - 2,761,258 Corporate finance -Corporate loans 329,871 633 - - 330,504 -Micro-business loans 43,431 1,167 - - 44,598 Foreign currency loans 2,807,661 899,152 217,141 23,459 3,947,413 Non-accrual loans - - 957 - 957 Adjustment of discount and 2,970 (3,789) (31) - (850) premium Total $ 10,474,444 1,462,047 432,188 23,459 12,392,138

June 30, 2017 Up to 1 month 1-2 months 2-3 months Over 3 months Total Receivables -Credit cards $ 494,871 123,506 56,891 - 675,268 -Factoring 150,508 81,781 8,194 91,287 331,770 Loans Consumer finance -Mortgage loans 4,082,290 115,298 68,497 - 4,266,085 -Automobile loans 55,842 5,274 981 - 62,097 -Consumer loans 1,957,392 290,981 129,217 - 2,377,590 Corporate finance -Corporate loans 162,309 13,260 - - 175,569 -Micro-business loans 97,766 149 - - 97,915 Foreign currency loans 1,591,737 1,115,346 401,394 - 3,108,477 Non-accrual loans - - 19,758 - 19,758 Adjustment of discount and 643 2,862 83 - 3,588 premium Total $ 8,593,358 1,748,457 685,015 91,287 11,118,117

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

i) Impairment analysis on impaired financial assets

December 31, 2017 Individually Collectively Individually Collectively assessed assessed assessed assessed impaired impaired impairment impairment Net impaired exposure exposure allowances allowances Exposure Available for sale financial $ 153,945 - 94,412 - 59,533 assets- Investment in debt instruments Receivables -Credit cards - 3,255,157 - 424,797 2,830,360 -Factoring 649,583 - - 526,663 122,920 Loans Consumer finance -Mortgage loans - 4,727,730 - 230,909 4,496,821 -Automobile loans - 15,598 - 182 15,416 -Consumer loans - 8,225,161 - 1,122,561 7,102,600 Corporate finance -Corporate loans 2,502,581 - 323,002 - 2,179,579 -Micro-business loans 77,215 138,165 6,628 736 208,016 Foreign currency loans 5,930,603 1,249,168 915,181 101,542 6,163,048 Non-accrual loans 4,943,708 3,730,244 2,929,933 1,787,306 3,956,713 Adjustment of discount and (409) 4,253 - - 3,844 premium Reinsurance assets-Due from 17,562 121 17,621 - 62 reinsurers and ceding companies Other financial assets 4,554 95,959 321 82,782 17,410 Total $ 14,279,342 21,441,556 4,287,098 4,277,478 27,156,322

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Individually Collectively Individually Collectively assessed assessed assessed assessed impaired impaired impairment impairment Net impaired exposure exposure allowances allowances Exposure Available for sale financial $ 145,864 - 102,775 - 43,089 assets－Investment in debt instruments Receivables -Credit cards - 3,330,408 - 432,614 2,897,794 Loans Consumer finance -Mortgage loans - 4,963,449 - 265,272 4,698,177 -Automobile loans - 20,337 - 232 20,105 -Consumer loans - 8,346,390 - 1,164,227 7,182,163 Corporate finance -Corporate loans 2,825,058 - 440,938 - 2,384,120 -Micro-business loans 59,036 212,390 1,768 173 269,485 Foreign currency loans 5,418,464 1,482,014 1,191,899 127,023 5,581,556 Non-accrual loans 5,596,529 3,895,958 2,753,332 1,907,319 4,831,836 Adjustment of discount and 1,223 3,858 - - 5,081 premium Reinsurance assets－Due from 17,558 7 17,558 - 7 reinsurers and ceding companies Other financial assets 14,061 90,108 346 78,559 25,264 Total $ 14,077,793 22,344,919 4,508,616 3,975,419 27,938,677

j) Foreclosed properties

Foreclosed properties of the Company and its subsidiaries are classified under other assets. Please refer to Note 6(s).

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

k) Disclosures required by the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies

i) Asset quality of CTBC Bank Co., Ltd. and its subsidiaries’ overdue loans and overdue receivables

Unit：In Thousands of New Taiwan Dollars, %

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 - %

Month / Year June 30, 2017 Non-performing Non-performing Allowance for Categories / Items loans Total loans loans ratio credit losses Coverage ratio Corporate Secured 3,200,880 438,744,471 0.73 % 14,792,595 243.94 % finance Unsecured (Note 10) 2,863,208 764,129,446 0.37 % Residential mortgages 1,804,652 739,086,128 0.24 % 6,616,217 366.62 % Cash cards 54,749 2,724,002 2.01 % 117,112 213.91 % Consumer Micro credit Original 1,660,671 106,199,537 1.56 % 4,771,292 287.31 % finance loans Purchase - 78,234 - % 2,077 - % Others Secured 304,980 66,608,272 0.46 % 745,173 154.88 % Unsecured 176,135 5,152,223 3.42 % Total loan business 10,065,275 2,122,722,313 0.47 % 27,044,466 268.69 % Overdue Balance of Delinquency Allowance for receivables receivables ratio credit losses Coverage ratio Credit cards business 77,382 80,018,871 0.10 % 1,150,203 1,486.40 % Without recourse factoring - 17,457,277 - % 574,554 - %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Unit: In Thousands of New Taiwan Dollars

June 30, 2018 June 30, 2017 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 55,379 142,223 73,432 111,868 negotiation plan (Note 1) Pursuant to a contract under a debt 694,905 68,419 736,456 73,549 liquidation plan and a debt relief plan (Note 2) Total 750,284 210,642 809,888 185,417

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, 2018 Credit amount/ stockholders’ Ranking Enterprise group by industry sector Credit amount equity (%) 1 A group. Cement manufacturing 14,401,130 5.14 % 2 B group. Data storage media manufacturing 10,976,709 3.92 % 3 C group. Iron and steel smelting 9,155,377 3.27 % 4 D group. Other unclassified financial service 8,910,988 3.18 % 5 E group. Other unclassified financial service 8,304,104 2.96 % 6 F group. Other food, beverage and tabacco productcs 6,570,807 2.34 % retailing 7 G group. Cable telecommunications 6,252,148 2.23 % 8 H group. Television programming and broadcasting 6,200,000 2.21 % 9 I group. Real estate developing 5,949,995 2.12 % 10 J group. Cement manufacturing 5,901,003 2.11 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Unit: In Thousands of New Taiwan Dollars, %

June 30, 2017 Credit amount/ stockholders’ Ranking Enterprise group by industry sector Credit amount equity (%) 1 D group. Liquid crystal panel and components 11,156,620 4.20 % manufacturing 2 A group. Cement and concrete products manufacturing 10,183,466 3.83 % 3 C group. Iron and steel smelting 9,400,818 3.54 % 4 K group. Liquid crystal panel and components 7,653,610 2.88 % manufacturing 5 L group. Other unclassified financial service 7,509,611 2.83 % 6 G group. Cable telecommunications 7,195,432 2.71 % 7 M group. Wires and cables manufacturing 6,299,863 2.37 % 8 N group. Print circuits manufacturing 6,178,258 2.33 % 9 O group. Marine shipping 6,173,563 2.32 % 10 P group. Consulting group 6,081,473 2.29 %

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 ITS 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 its 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 its 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 its 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 ITS 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 its 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, 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

December 31, 2017 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Total Deposits from Central Bank and $ 57,663,783 9,411,532 4,274,955 3,524,513 - 74,874,783 other banks Due to Central Bank and other 2,781,104 2,928,582 2,072,707 4,782,645 2,905,595 15,470,633 banks Non-derivative financial liabilities - - 3,300 - 34,090,353 34,093,653 measured at fair value through profit and loss Securities sold under repurchase 59,569,701 14,548,525 - - - 74,118,226 agreements Commercial papers payable 14,736,333 19,992,667 16,099,000 998,000 - 51,826,000 Payables 52,490,734 11,653,118 10,119,708 16,962,259 91,027,992 182,253,811 Current income tax liabilities - 80,898 6,089,958 52,922 6,944 6,230,722 Deposits and remittances 2,105,255,472 249,323,851 210,928,618 333,922,425 45,542,801 2,944,973,167 Bonds payable - 291,390 1,086,090 8,900,000 101,950,000 112,227,480 Other financial liabilities 68,873,192 5,094,973 7,792,305 14,171,977 37,123,632 133,056,079

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 174

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 0~30 days 31~90 days 91~180 days 181 days~1year Over 1 year Total Deposits from Central Bank and $ 52,297,922 13,279,697 3,900,933 7,710,793 679,000 77,868,345 other banks Due to Central Bank and other 2,124,840 3,505,025 1,009,343 2,635,016 5,777,121 15,051,345 banks Non-derivative financial liabilities - - - - 33,115,580 33,115,580 measured at fair value through profit and loss Securities sold under repurchase 66,303,112 2,267,966 10,653 - - 68,581,731 agreements Commercial papers payable 6,940,000 5,300,000 3,740,000 15,700,000 - 31,680,000 Payables 69,034,337 27,154,911 4,557,750 6,848,133 62,354,905 169,950,036 Current income tax liabilities 553 123,415 10,974 5,120,108 6,944 5,261,994 Deposits and remittances 1,874,358,010 281,487,998 239,198,554 379,508,054 51,874,018 2,826,426,634 Bonds payable - 1,629,600 814,800 1,412,320 110,850,000 114,706,720 Other financial liabilities 35,431,453 13,417,797 7,716,392 18,680,890 70,158,863 145,405,395

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 its 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.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 175

CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

December 31, 2017 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 $ 3,253,298 - - - - 3,253,298 －Interest rate derivatives 12,349,226 - - - - 12,349,226 －Other derivatives 374,260 5,298 322,835 29,783 98,007 830,183 Derivative financial liabilities for hedging －Foreign exchange derivatives 1,346,340 1,792,366 - - - 3,138,706 －Interest rate derivatives 14,720 - 15,081 31,126 - 60,927 Total $ 17,337,844 1,797,664 337,916 60,909 98,007 19,632,340

June 30, 2017 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial liabilities at fair value through profit or loss －Foreign exchange derivatives $ 5,490,157 - - - - 5,490,157 －Interest rate derivatives 15,806,014 - - - - 15,806,014 －Other derivatives 492,149 134 162,314 6,217 39,421 700,235 Derivative financial liabilities for hedging －Foreign exchange derivatives 1,685,248 1,825,606 - - - 3,510,854 －Interest rate derivatives 14,595 - 15,495 30,172 32,226 92,488 Total $ 23,488,163 1,825,740 177,809 36,389 71,647 25,599,748

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 176

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) Gross settled derivatives

Gross settled derivatives engaged by the Company and its 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 is as follows:

June 30, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total 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 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)

December 31, 2017 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial instrument at fair value through profit or loss －Foreign exchange derivatives －Cash outflow $ 966,107,810 752,356,613 414,736,787 296,113,308 11,597,194 2,440,911,712 －Cash inflow 973,025,525 751,428,908 414,851,144 296,874,169 11,587,672 2,447,767,418 Financial liabilities for hedging －Foreign exchange derivatives －Cash outflow 28,722,542 - - - - 28,722,542 －Cash inflow 28,803,338 - - - - 28,803,338 Cash outflow subtotal 994,830,352 752,356,613 414,736,787 296,113,308 11,597,194 2,469,634,254 Cash inflow subtotal 1,001,828,863 751,428,908 414,851,144 296,874,169 11,587,672 2,476,570,756 Net cash flow $ 6,998,511 (927,705) 114,357 760,861 (9,522) 6,936,502

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 177

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial instrument at fair value through profit or loss －Foreign exchange derivatives －Cash outflow $ 1,635,351,620 1,196,358,963 555,086,338 364,401,857 21,290,426 3,772,489,204 －Cash inflow 1,642,243,010 1,196,286,922 555,120,839 363,859,725 21,309,712 3,778,820,208 Financial liabilities for hedging －Foreign exchange derivatives ─ Cash outflow 36,673,010 - - - - 36,673,010 ─ Cash inflow 36,559,544 - - - - 36,559,544 Cash outflow subtotal 1,672,024,630 1,196,358,963 555,086,338 364,401,857 21,290,426 3,809,162,214 Cash inflow subtotal 1,678,802,554 1,196,286,922 555,120,839 363,859,725 21,309,712 3,815,379,752 Net cash flow $ 6,777,924 (72,041) 34,501 (542,132) 19,286 6,217,538

f) Maturity analysis of off-balance-sheet items

Table below shows the maturity analysis of off-balance-sheet items for the Company and its 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, 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 lines of credit commitments 110,875,725 - - - 2,806,008 113,681,733 Unused letter of credit 23,784,331 - - - - 23,784,331 Unused credit card commitments 521,865,565 - - - - 521,865,565 Total $ 713,496,838 - - - 2,806,008 716,302,846

December 31, 2017 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial guarantee contracts $ 61,493,801 - - - - 61,493,801 Unused lines of credit commitments 113,068,310 - - - 868,169 113,936,479 Unused letter of credit 22,091,818 - - - - 22,091,818 Unused credit card commitments 513,552,736 - - - - 513,552,736 Total $ 710,206,665 - - - 868,169 711,074,834

June 30, 2017 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial guarantee contracts $ 59,227,131 - - - - 59,227,131 Unused lines of credit commitments 107,216,588 - - - 267,777 107,484,365 Unused letter of credit 17,401,670 - - - - 17,401,670 Unused credit card commitments 580,849,548 - - - - 580,849,548 Total $ 764,694,937 - - - 267,777 764,962,714

Note: The total refers to the maximum credit risk exposure.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 178

CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

June 30, 2017

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 $ 2,513,565 375,957 255,513 225,147 232,801 355,493 1,068,654 Major cash outflow at maturity 2,720,041 181,726 251,666 445,682 394,338 554,729 891,900 Gap (206,476) 194,231 3,847 (220,535) (161,537) (199,236) 176,754

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, 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)

June 30, 2017

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 $ 80,974,148 32,641,241 23,854,447 10,561,454 6,758,257 7,158,749 Major cash outflow at maturity 94,759,395 40,712,616 22,500,220 11,446,797 9,856,609 10,243,153 Gap (13,785,247) (8,071,375) 1,354,227 (885,343) (3,098,352) (3,084,404)

Note: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. is denominated in U.S. Dollars.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 179

CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

June 30, 2017

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 $ 45,140,330 20,151,149 12,839,861 4,893,274 4,070,512 3,185,534 Major cash outflow at maturity 53,417,155 28,635,031 12,712,770 5,160,075 3,923,945 2,985,334 Gap (8,276,825) (8,483,882) 127,091 (266,801) 146,567 200,200

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 its 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 its 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 its subsidiaries set robust management procedures, facilitate market risk communication within the Company and its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, Currency 2018 31, 2017 2017 Yield curve parallel shift up by 1 b.p. CNY $ (1,527) (677) (20) EUR (18) 5 77 HKD (9) 138 136 JPY (7) (22) (126) NTD (1,027) (1,916) (1,415) USD (1,458) (3,366) (2,429) Others (161) (378) (752)

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 181

CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, Currency 2018 31, 2017 2017 Underlying currency appreciate by 1% AUD $ 4,433 (527) (465) CNY (13,513) 4,434 12,628 EUR 1,040 2,670 17,083 GBP (1,671) 85 128 HKD (7,993) (10,605) (2,595) JPY (3,373) 5,562 (709) KRW 165 32 217 USD 53,844 (23,920) (43,299) Others 2,023 6,643 8,987

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 2018 31, 2017 2017 Equity factor sensitivity Stock price upward movement by 1% Taiwan $ 64,895 43,890 43,334 US 131,100 79,053 14,612 HK 627 455 122 China 10,620 16,463 26,612 Others 62,558 45,062 43,780 Sensitivity of commodity risk Commodity price upward movement by Crude Oil - - 277 1% Gold (22) 44 19 Sensitivity of credit risk premium Credit spread upward shift by 0.01% (1,685) (32) 304

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

d) Sensitivity analysis

Sensitivity analysis of risk factors of the Company and its subsidiaries’ non-trading purpose investment portfolio is summarized as follows:

June 30, 2018

Amount Risk Items Movement

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)

December 31, 2017

Risk Items Movement Amount

Profit and Loss Equity

Interest Rate Risk Interest Rate Curve shift up by 1 bp $ 4,547 (180,302) Interest Rate Curve shift down by 1 bp (4,547) 180,302

Foreign Exchange Rate Risk Foreign Currency appreciate by 1% against NTD 680,247 671,735 Foreign Currency depreciate by 1% against NTD (680,247) (671,735)

Equity Price Risk Equity price appreciate by 1% - 1,160,698 Equity price depreciate by 1% - (1,160,698)

June 30, 2017

Risk Items Movement Amount

Profit and Loss Equity

Interest Rate Risk Interest Rate Curve shift up by 1 bp $ (2,975) (160,344) Interest Rate Curve shift down by 1 bp 2,975 160,344

Foreign Exchange Rate Risk Foreign Currency appreciate by 1% against NTD 769,152 484,606 Foreign Currency depreciate by 1% against NTD (769,152) (484,606)

Equity Price Risk Equity price appreciate by 1% - 1,175,936 Equity price depreciate by 1% - (1,175,936)

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 183

CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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’s 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, 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 40,370,003 0.2756 4,945,623 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 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

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 184

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Foreign currency Spot rate NTD amount Financial assets Monetary items USD $ 53,309,216 29.8480 1,591,165,926 EUR 1,156,779 35.6833 41,277,684 JPY 2,690,944,000 0.2649 712,831,067 CAD 468,053 23.7757 11,128,284 AUD 2,822,499 23.2576 65,644,563 Non-monetary items USD 1,579,202 29.8480 47,136,036 EUR 95,026 35.6833 3,390,826 JPY 48,036,037 0.2649 12,724,749 THB 17,113,101 0.9153 15,663,621 Financial liabilities Monetary items USD 24,289,369 29.8480 724,989,054 EUR 1,156,359 35.6833 41,262,703 JPY 2,603,814,424 0.2649 689,750,441 CAD 406,818 23.7757 9,672,379 AUD 1,459,961 23.2576 33,955,180

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 185

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Foreign currency Spot rate NTD amount Financial assets Monetary items USD $ 47,429,179 30.4360 1,443,554,442 CNY 19,526,747 4.4878 87,634,366 JPY 2,596,981,611 0.2716 705,340,205 EUR 851,451 34.7366 29,576,528 AUD 1,367,601 23.3627 31,950,872 Non-monetary items USD 1,041,235 30.4360 31,691,057 CNY 2,157,501 4.4878 9,682,900 JPY 52,400,042 0.2716 14,688,990 EUR 55,017 34.7366 1,911,121 Financial liabilities Monetary items USD $ 21,453,495 30.4360 652,958,593 CNY 15,508,822 4.4878 69,600,495 JPY 2,515,582,061 0.2716 683,232,088 EUR 853,822 34.7366 29,658,882 AUD 92,356 23.3627 2,157,676

Note: Foreign currency amount of overseas subsidiaries is disclosed by their functional currency.

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 its subsidiaries set robust management procedures and clearly define authorities and responsibilities, so that the Company and its subsidiaries keep their finances and operations sound.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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 its 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 its subsidiaries should adopt appropriate measurements and apply proper management procedures by taking their respective characteristics/ complexity of assets and liabilities into account.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 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

December 31, 2017

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 $ 1,557,616,121 182,796,327 88,148,239 109,057,285 1,937,617,972 assets Interest rate sensitive 521,428,782 952,324,513 119,522,340 65,673,702 1,658,949,337 liabilities Interest rate sensitivity 1,036,187,339 (769,528,186) (31,374,101) 43,383,583 278,668,635 gap Net worth 279,632,639 Ratio of interest rate sensitive assets to liabilities (%) 116.80 Ratio of interest rate sensitivity gap to net worth (%) 99.66

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017

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 $ 1,485,041,651 106,136,731 163,750,819 98,124,011 1,853,053,212 assets Interest rate sensitive 492,727,494 907,826,653 142,244,382 67,462,720 1,610,261,249 liabilities Interest rate sensitivity 992,314,157 (801,689,922) 21,506,437 30,661,291 242,791,963 gap Net worth 265,652,855 Ratio of interest rate sensitive assets to liabilities (%) 115.08 Ratio of interest rate sensitivity gap to net worth (%) 91.39

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, 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)

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017

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 $ 11,837,889 879,863 527,733 2,514,784 15,760,269 assets Interest rate sensitive 7,829,584 12,429,061 1,530,551 1,236,530 23,025,726 liabilities Interest rate sensitivity 4,008,305 (11,549,198) (1,002,818) 1,278,254 (7,265,457) gap Net worth 9,368,555 Ratio of interest rate sensitive assets to liabilities (%) 68.45 Ratio of interest rate sensitivity gap to net worth (%) (77.55)

June 30, 2017

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 $ 11,628,400 819,263 336,268 2,123,242 14,907,173 assets Interest rate sensitive 6,713,641 11,651,254 1,560,440 1,261,418 21,186,753 liabilities Interest rate sensitivity 4,914,759 (10,831,991) (1,224,172) 861,824 (6,279,580) gap Net worth 8,728,245 Ratio of interest rate sensitive assets to liabilities (%) 70.36 Ratio of interest rate sensitivity gap to net worth (%) (71.95)

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.)

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 its 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 its 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, 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

December 31, 2017 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 $ 21,724,368 21,163,275 21,724,368 21,163,275 561,094 Available-for-sale financial assets Repurchase agreement Repurchase agreements 5,322,644 5,179,055 5,322,644 5,179,055 143,588 Securities lending agreements 31,549,510 30,656,153 31,549,510 30,656,153 893,357 Held-to-maturity financial assets Repurchase agreements 47,905,315 47,775,896 48,917,076 47,775,896 1,141,180

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 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 $ 30,198,448 29,363,510 30,198,448 29,363,510 834,938 Available-for-sale financial assets Repurchase agreements 4,338,946 4,203,479 4,338,946 4,203,479 135,467 Securities lending agreements 32,759,375 31,550,628 32,759,375 31,550,628 1,208,747 Held-to-maturity financial assets Repurchase agreements 34,488,466 35,014,742 35,504,138 35,014,742 489,396

(vi) Offsetting financial assets and financial liabilities

The Company and its 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, 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

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

December 31, 2017 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 $ 33,880,567 - 33,880,567 21,267,359 5,431,665 7,181,543

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 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 $ 34,326,008 - 34,326,008 21,062,833 2,703,647 10,559,528 Securities lending agreements 30,656,153 - 30,656,153 30,656,153 - - Securities sold under repurchase 74,118,226 - 74,118,226 9,273,490 - 64,844,736 agreement Total $ 139,100,387 - 139,100,387 60,992,476 2,703,647 75,404,264

June 30, 2017 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 $ 38,136,993 - 38,136,993 26,298,369 3,258,785 8,579,839

June 30, 2017 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 $ 41,697,564 - 41,697,564 26,092,498 3,678,797 11,926,269 Securities lending agreements 31,550,628 - 31,550,628 31,550,628 - - Securities sold under repurchase 68,581,731 - 68,581,731 18,988,243 - 49,593,488 agreement Total $ 141,829,923 - 141,829,923 76,631,369 3,678,797 61,519,757

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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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.

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

4) Capital adequacy ratio of CTBC Group

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 %

Unit：In Thousands of New Taiwan Dollars，%

December 31, 2017 Items Percentage of Group’s Net Group’s Statutory Company Ownership Eligible Capital Capital Requirement CTBC Financial Holding Co., Ltd. 100.00 % $ 324,736,023 373,599,178 CTBC Bank Co., Ltd. 100.00 % 256,184,368 146,502,471 CTBC Securities Co., Ltd. 99.92 % 6,519,598 2,322,926 Taiwan Life Insurance Co., Ltd. 100.00 % 82,568,113 48,599,916 CTBC Venture Capital Co., Ltd. 100.00 % 3,913,406 2,206,762 CTBC Security Co., Ltd. 100.00 % 57,125 58,889 CTBC Asset Management Co., Ltd 100.00 % 5,470,176 3,773,917 Taiwan Lottery Co., Ltd 100.00 % 1,076,548 681,256 CTBC Investments Co., Ltd. 100.00 % 500,434 301,751 Deduction (396,048,795) (373,126,916) Subtotal 284,976,996 204,920,150 Capital adequacy ratio of CTBC Group 139.07 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Unit：In Thousands of New Taiwan Dollars，%

June 30, 2017 Items Percentage of Group’s Net Group’s Statutory Company Ownership Eligible Capital Capital Requirement CTBC Financial Holding Co., Ltd. 100.00 % $ 287,534,565 355,631,868 CTBC Bank Co., Ltd. 100.00 % 252,313,334 151,889,955 CTBC Securities Co., Ltd. 99.92 % 6,373,008 2,102,633 Taiwan Life Insurance Co., Ltd. 100.00 % 76,887,177 44,618,032 CTBC Venture Capital Co., Ltd. 100.00 % 3,870,042 2,109,836 CTBC Security Co., Ltd. 100.00 % 54,681 52,592 CTBC Asset Management Co., Ltd 100.00 % 5,431,047 2,731,758 Taiwan Lottery Co., Ltd 100.00 % 1,092,823 675,937 CTBC Investments Co., Ltd. 100.00 % 521,473 280,839 Deduction (379,863,596) (355,064,773) Subtotal 254,214,554 205,028,677 Capital adequacy ratio of CTBC Group 123.99 %

5) CTBC Financial Holding Co., Ltd.’s eligible capital

December 31, Items June 30, 2018 2017 June 30, 2017 Common stock 194,969,896 194,969,896 194,969,896 Capital surplus 50,368,539 50,366,018 33,717,244 Legal reserve 24,189,775 20,467,553 20,467,553 Special reserve 29,719,062 30,688,581 30,688,579 Accumulated profit or loss 35,099,203 37,417,514 19,497,980 Equity adjustments (25,000,524) (15,759,469) (15,062,549) Preferred stock 3,333,300 3,333,300 - Subordinated debentures 1,440,000 3,840,000 3,840,000 Less: Goodwill (1,404) (1,632) - Less: Treasury stock - (582,754) (582,754) Less: Deferred assets (3,188) (2,984) (1,384) Total eligible capital 314,114,659 324,736,023 287,534,565

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(av) Structured entities that are not included in consolidated financial reports

(i) The table below presents the types of structured entities that the Company and its subsidiaries do not include in consolidated financial reports but in which they hold an interest.

Interests held by the Company and its 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 entity. “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, 2018 2017 June 30, 2017 Asset Backed Securities $ 166,006,932,170 160,442,133,657 164,056,403,458 Private funds 9,333,313,303 3,894,773,941 6,378,041,728 Special purpose entities 16,245,510 16,191,470 16,223,146

(iii) The carrying amounts of interests held by the Company and its subsidiaries in these structured entities were as follows.

December 31, June 30, 2018 2017 June 30, 2017 Assets held by the Company and its subsidiaries Financial assets measured at fair value $ 12,521,044 - - through profit or loss Financial assets measured at fair value 28,755,130 - - through other comprehensive income Available for sale financial assets—net - 40,275,237 34,848,775 Loan—net 1,024,506 1,098,087 1,236,225 Financial assets at amortised cost 26,607,952 - - Held-to-maturity financial assets—net - 480,916 427,517 Investments under equity method—net 14,707,299 14,617,903 14,499,862 Investment in debt instruments without - 23,643,521 25,953,663 active markets—net Other assets—net - 580,509 652,210 Total assets held by the Company and its $ 83,615,931 80,696,173 77,618,252 subsidiaries

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, June 30, 2018 2017 June 30, 2017 Liabilities held by the Company and its subsidiaries Deposits and remittances $ 4,104 4,524 5,319

The maximum amount of risk exposures the Company and its 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 its subsidiaries.

(iv) As of June 30, 2018, December 31 and June 30, 2017, the Company and its subsidiaries have not provided any financial support to their special purpose entities that are not included in consolidated financial reports.

(aw) 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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. 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 its 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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. 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, 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

For the six months ended June 30, 2017 Change Change in income Change in in assumption before tax stockholders’ equity Mortality/Morbidity Increase 5 % Decrease 111,612 Decrease 92,638 Rate of return Decrease 0.1 % Decrease 623,455 Decrease 517,467 Expense (fixed expense) Increase 5 % Decrease 433,169 Decrease 359,531 Decrement and lapse rate Increase 5 % Increase 24,119 Increase 20,019

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, 2018 and 2017. The influence on stockholders’ equity assumes that income tax is calculated at 20% and 17% of pre-tax income.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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.

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

c) Claim development trend

i) Claims development from direct business

As of June 30, 2018, December 31 and June 30, 2017, the accumulated compensation amount which was reconciled to the balance sheet over the past years were as follows:

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

December 31, 2017 Development year Accident Claims year 1 2 3 4 5 6 7 8 reserve 2010 1,588,374 1,666,035 1,674,078 1,679,016 1,682,004 1,684,205 1,685,597 1,686,995 - 2011 1,604,776 1,658,047 1,671,486 1,677,554 1,676,058 1,678,655 1,680,193 1,680,574 381 2012 1,580,537 1,674,595 1,726,325 1,734,986 1,742,530 1,745,563 1,747,067 1,747,427 1,864 2013 1,654,500 1,745,064 1,765,499 1,767,906 1,779,614 1,781,666 1,783,343 1,783,761 4,147 2014 1,727,002 1,840,108 1,857,685 1,882,480 1,885,749 1,887,986 1,889,802 1,890,250 7,770 2015 1,851,932 1,992,332 2,001,600 2,008,765 2,012,084 2,014,543 2,016,383 2,016,787 15,187 2016 1,863,529 2,023,099 2,052,865 2,060,525 2,064,060 2,066,719 2,068,713 2,069,152 46,053 2017 1,951,241 2,071,991 2,101,988 2,109,995 2,113,670 2,116,495 2,118,604 2,119,064 167,823 Not reported and not paid claim reserve 243,225 Add: Reported but not paid claims 562,236 Provision for not paid claims per other statutory requirement 72 Claims reserve 805,533

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 Development year Accident Claims year 1 2 3 4 5 6 7 8 reserve From July 1, 2009 1,527,282 1,607,263 1,624,437 1,628,354 1,631,011 1,632,445 1,633,003 1,633,353 - to June 30, 2010

From July 1, 2010 1,627,309 1,696,700 1,702,059 1,705,724 1,708,479 1,711,978 1,713,946 1,714,337 391 to June 30, 2011

From July 1, 2011 1,594,474 1,690,800 1,702,786 1,716,212 1,723,400 1,725,438 1,726,992 1,727,393 1,955 to June 30, 2012

From July 1, 2012 1,604,384 1,700,691 1,745,482 1,748,436 1,748,575 1,750,550 1,752,096 1,752,461 3,886 to June 30, 2013

From July 1, 2013 1,663,362 1,771,233 1,792,322 1,827,705 1,830,862 1,833,001 1,834,749 1,835,183 7,478 to June 30, 2014

From July 1, 2014 1,767,027 1,904,678 1,922,558 1,929,871 1,933,142 1,935,480 1,937,303 1,937,728 15,170 to June 30, 2015

From July 1, 2015 1,822,485 1,955,490 1,984,475 1,991,579 1,994,892 1,997,391 1,999,241 1,999,642 44,152 to June 30, 2016

From July 1,2016 1,782,484 1,891,665 1,919,232 1,926,255 1,929,565 1,932,098 1,933,962 1,934,361 151,877 to June 30, 2017

Not reported and not paid claim reserve 224,909 Add: Reported but not paid claims 516,878 Provision for not paid claims per other statutory requirement 44 Claims reserve 741,831

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 (Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 203

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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:

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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.

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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, 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

For the six months ended June 30, 2017 Effects to net income as the expected loss rate increases (decreases) 5% Insurance Expected Before After Item Premium loss rate reinsurance reinsurance Fire insurance $ 213,819 60.3 % 9,929 3,556 Marine insurance 25,319 63.8 % 851 243 Miscellaneous casualty insurance 111,412 72.8 % 7,792 4,354 Personal accident and health 159,927 68.6 % 7,921 5,619 insurance Voluntary auto insurance 532,217 69.5 % 25,645 25,499 Compulsory auto TPL insurance 225,886 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, 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 66,784 11.35 % 42,558 9.67 % insurance 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 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

For the three months ended June 30, 2017 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 105,934 16.84 % 38,194 8.21 % Marine insurance 16,076 2.56 % 1,978 0.43 % Miscellaneous casualty insurance 49,343 7.85 % 24,118 5.19 % Personal accident and health 85,728 13.63 % 62,209 13.38 % insurance Voluntary auto insurance 256,880 40.84 % 256,157 55.08 % Compulsory auto TPL insurance 114,960 18.28 % 82,360 17.71 % Total $ 628,921 100.00 % 465,016 100.00 %

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 133,973 10.88 % 85,735 9.66 % insurance 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 %

For the six months ended June 30, 2017 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 213,819 16.85 % 68,903 7.47 % Marine insurance 25,319 2.00 % 4,355 0.47 % Miscellaneous casualty insurance 111,412 8.78 % 43,239 4.68 % Personal accident and health 159,927 12.61 % 114,147 12.37 % insurance Voluntary auto insurance 532,217 41.95 % 530,876 57.51 % Compulsory auto TPL insurance 225,886 17.81 % 161,539 17.50 % Total $ 1,268,580 100.00 % 923,059 100.00 %

ii) Loss concentration

Self–claim as of Self–claim as of Self–claim as of June 30, 2018 December 31, 2017 June 30, 2017 Item Amount % Amount % Amount % Fire insurance $ 14,091 2.31 % 21,463 3.38 % 36,056 5.67 % Marine insurance 6,102 1.00 % 6,310 0.99 % 5,567 0.88 % Miscellaneous casualty insurance 57,193 9.36 % 53,196 8.37 % 45,784 7.20 % Personal accident and health insurance 30,248 4.95 % 36,583 5.75 % 38,662 6.08 % Voluntary auto insurance 321,577 52.63 % 327,669 51.53 % 320,398 50.40 % Compulsory auto TPL insurance 181,785 29.75 % 190,612 29.98 % 189,239 29.77 % Total $ 610,996 100.00 % 635,833 100.00 % 635,706 100.00 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

iii) Trends in claims development

1. Claims development from direct business and arrange reinsurance business, the cumulative claims over the past years were as follows:

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

December 31, 2017 Development year Accident Cumulative Reported Claim year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 claims paid but unpaid Unpaid reserve ≦2008 3,226,826 1,564,535 1,555,575 1,585,336 1,577,932 1,568,372 1,555,869 1,556,252 1,556,007 1,538,776 1,538,427 349

2009 292,020 365,568 389,096 390,409 390,764 391,097 391,668 391,605 411,085 411,083 2

2010 731,225 887,990 917,652 925,371 922,365 921,213 921,267 923,815 919,706 4,109

2011 859,809 1,078,873 1,114,607 1,120,276 1,130,005 1,129,171 1,132,362 1,123,970 8,392

2012 885,653 1,088,513 1,139,401 1,141,031 1,140,165 1,139,363 1,134,184 5,179

2013 815,688 994,571 1,043,050 1,050,437 1,054,039 1,045,781 8,258

2014 1,031,688 1,226,439 1,265,429 1,279,183 1,253,182 26,001

2015 1,081,950 1,198,254 1,205,616 1,179,449 26,167

2016 1,103,788 1,271,401 1,157,609 113,792

2017 993,289 636,895 356,394

Total 548,643 613,483 1,162,126

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2009 292,020 365,568 389,096 390,409 390,764 391,097 391,668 391,605 391,604 391,578 26

2010 731,225 887,990 917,652 925,371 922,365 921,213 921,267 920,878 919,769 1,109

2011 859,809 1,078,873 1,114,607 1,120,276 1,130,005 1,129,171 1,129,672 1,123,939 5,733

2012 885,653 1,088,513 1,139,401 1,141,031 1,140,165 1,138,399 1,133,499 4,900

2013 815,688 994,571 1,043,050 1,050,437 1,050,805 1,044,129 6,676

2014 1,031,688 1,226,439 1,265,429 1,272,315 1,244,570 27,745

2015 1,081,950 1,198,254 1,220,248 1,158,980 61,268

2016 1,103,788 1,217,107 1,010,253 206,854

For the six 426,612 180,468 246,144 months ended June 30, 2017

Total 561,702 396,881 958,583

2. Claims development from retained business

The cumulative claims over the past years were as follows:

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 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

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Development year Accident Cumulative Reported Claim year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 claims paid but unpaid Unpaid reserve ≦2008 1,941,637 1,037,173 1,023,914 1,056,901 1,050,305 1,042,543 1,036,008 1,036,398 1,036,646 1,013,546 1,015,213 (1,667) 2009 229,910 271,252 291,113 291,103 290,439 290,745 291,071 291,007 310,441 310,501 (60) 2010 472,945 550,366 579,075 576,434 579,318 579,111 579,166 581,384 578,218 3,166 2011 319,488 434,055 452,541 456,646 460,523 460,177 462,873 458,997 3,876 2012 322,156 430,261 463,422 461,614 460,802 462,417 458,690 3,727 2013 309,566 389,766 413,261 415,501 420,720 416,885 3,835 2014 339,270 405,799 486,185 443,771 433,194 10,577 2015 427,366 664,691 493,026 482,634 10,392 2016 755,956 698,660 57,296 2017 823,289 517,767 305,522 Total 396,664 239,069 635,733 Cumulative impairment loss 100 - 100 $ 396,764 239,069 635,833

June 30, 2017 Development year For the six months Accident ended June Cumulative Reported Claim year 2008 2009 2010 2011 2012 2013 2014 2015 2016 30, 2017 claims paid but unpaid Unpaid reserve ≦2008 1,941,637 1,037,173 1,023,914 1,056,901 1,050,305 1,042,543 1,036,008 1,036,398 1,036,646 1,022,972 1,021,925 1,047 2009 229,910 271,252 291,113 291,103 290,439 290,745 291,071 291,007 291,007 290,996 11 2010 472,945 550,366 579,075 576,434 579,318 579,111 579,166 578,776 578,282 494 2011 319,488 434,055 452,541 456,646 460,523 460,177 460,568 459,068 1,500 2012 322,156 430,261 463,422 461,614 460,802 460,447 458,177 2,270 2013 309,566 389,766 413,261 415,501 417,864 415,823 2,041 2014 339,270 405,799 428,001 438,891 430,913 7,978 2015 427,366 486,185 495,171 467,955 27,216 2016 664,691 726,609 612,476 114,133 For the six 370,349 144,070 226,279 months ended June 30, 2017 Total 382,969 252,619 635,588 Cumulative impairment loss 118 - 118 $ 383,087 252,619 635,706 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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. Grand Bills Finance Corporation 〃 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. 〃 LH Financial Group Public Company Limited 〃 CTBC Investment 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 Charity Foundation 〃 CTBC Culture Foundation 〃 CTBC Anti-drug Educational Foundation 〃 CTBC Financial Management College The Chairman of the Company’s sub-subsidiary is its director. Nan Ya Technology Corporation 〃 Kinpo Electionc Co., Ltd. 〃 Kainan High School of Commerce and The Chairman of the Company is its body Industry corporate representative. Straits Exchange Foundation The Chairman of the Company’s subsidiary is its body corporate representative. CTBC Financial Park Mangement authority The Director of the Company’s subsidiary is its body corporate representative. TransWorld University 〃 Overseas Investment & Development Corp. The Director of the Company’s subsidiary is its chairman. Taiwan Relo Club, Ltd. 〃 Wei Fu Investment Co., Ltd. The Institutional Director of the Company. Yi Chuan Investment Co., Ltd. 〃 Chung Yuan Investment Co., Ltd. 〃 Hewei Investment Co., Ltd The Chairman of the Company is its director.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Company Sunghung Investment Co., Ltd. The Chairman of the Company is its director. Fenglu Development & Investment Co., Ltd. 〃 United Real Estate Management Co., Ltd. 〃 Taiwan Sports Lottery Co., Ltd. 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. Showa Denko HD Trace Corp. 〃 Taipei Financial Center Corporation 〃 Formosa Sumco Technology Corporation 〃 Brothers Entertaining Co., Ltd. The Director of the Company’s subsidiary is its director. Rich Healthy Fruits & Vegetable Corp. The General manager of the Company’s subsidiary is its director. Global BioPharma, Inc. 〃 Noratech Pharmaceuticals, Inc. 〃 Prince Pharmaceutical Co., Ltd. 〃 Huaku Development Co., Ltd. The second-degree relative of the Director of the Company’s sub-subsidiary is its general manager. 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. 〃 Zhonghang Co., Ltd. 〃 Bosser Design Inc. 〃 CTC Group Inc. 〃 Chailease Insurance Brokers Co., Ltd. 〃 Chung-Chie Property Management Co., Ltd. 〃 Chinatrust Real Estate Co., Ltd. 〃 APEX Credit Solution Inc. 〃 Shin Wen Investment Co., Ltd. 〃 Kae Lee Investment Ltd. 〃

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Company Chia Shih Investment Co., Ltd. Related party in substance. Changchi Investment Ltd. 〃 Yi Huao Investment Co., Ltd. 〃 Yi Kao Investment Co., Ltd. 〃 Songyong Investment Co., Ltd. 〃 Chailease Auto Rental Co., Ltd. 〃 Fina Finance & Trading Co., Ltd. 〃 Other related parties The directors of the Company and its subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.

(b) Significant transactions between related parties and the Company

(i) Lease

For the three months ended June 30, 2018 and 2017 and the six months ended June 30, 2018 and 2017, 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 $66,568, $64,985, $134,759 and $128,801, respectively, constituting 54.36%, 53.32%, 54.03% and 52.82%, respectively, of total rental income.

As of June 30, 2018, December 31 and June 30, 2017, deposits of the Company's subsidiary, CTBC Bank Co. Ltd for renting safe boxes to related parties amounted to $5, $5 and $6, the rents received in advance from related parties amounted to $11,424, $7,665 and $58,222, respectively. The guarantee deposit for the use of space and machinery received from related parties amounted to $65,613, $69,358 and $66,620, respectively.

(ii) Donations

For the three months ended June 30 For the six months ended June 30 Related party 2018 2017 2018 2017 CTBC Culture Foundation $ 44,000 17,000 44,000 17,000 CTBC Charity Foundation 54,000 54,000 54,000 54,000 CTBC Anti-Drug 47,000 18,000 47,000 18,000 Educational Foundation CTBC Financial 37,244 5,018 117,244 85,018 Management College Total $ 182,244 94,018 262,244 174,018

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Guarantee

December 31, 2017 Balance of Maximum Ending guarantee Range of Related party balance balance reserve interest rates Collateral Showa Denko HD Trace $ 1,500 1,500 - 1% Securities/ the NTD Corp. deposits in the Company’s subsidiary CTBC Bank Co., Ltd. Huaku Development 46,902 46,902 - 0.95% Land Co., Ltd.

June 30, 2017 Balance of Maximum Ending guarantee Range of Related party balance balance reserve interest rates Collateral Showa Denko HD Trace $ 1,500 1,500 - 1% Securities/ the NTD Corp. deposits in the Company’s subsidiary CTBC Bank Co., Ltd. Huaku Development 46,902 46,902 - 0.95% Land Co., Ltd.

(iv) Loans

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 - Land 〃 Ltd. 〃 Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate 〃 Ltd. 〃 Sunghung Inestment Co., 44,000 44,000 44,000 - Real estate 〃 Ltd. 〃 Taipei Financial Center 269,573 22,007 22,007 - Real estate/ 〃 Corporation buildings for commercial use 〃 Changchi Investment Ltd. 8,793 8,458 8,458 - Real estate 〃〃 Others 93,649 88,811 88,811 - Real estate 〃

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December 31, 2017 Settlement status Number/name of Maximum Ending Normal Overdue Loan Categories related parties balance balance loans loans Collateral conditions Consumer loan—employee 45 $ 20,604 11,182 11,182 - None None Home loan mortgage 444 2,356,026 2,194,369 2,194,369 - Real estate/ others 〃 Others Nan Ya Plastics Corporation 2,613,535 2,480,637 2,480,637 - Real estate/ plant/ 〃 machine room

〃 Huaku Development Co., 1,050,000 1,050,000 1,050,000 - Land 〃 Ltd. 〃 CTC Group Inc. 439,229 385,039 385,039 - Real estate 〃〃 Jungguan Investment Co., 355,000 350,000 350,000 - Land 〃 Ltd. 〃 Taipei Financial Center 376,756 269,573 269,573 - Real estate 〃 Corporation 〃 Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate 〃 Ltd. 〃 Sunghung Investment Co., 44,000 44,000 44,000 - Real estate 〃 Ltd. 〃 Changchi Investment Ltd. 9,084 8,452 8,452 - Real estate 〃〃 Others 83,490 69,397 69,397 - Real estate 〃

June 30, 2017 Settlement status Number/name of Maximum Ending Normal Overdue Loan Categories related parties balance balance loans loans Collateral conditions Consumer loan—employee 43 $ 17,234 7,553 7,553 - None None Home loan mortgage 410 2,170,201 2,065,013 2,065,013 - Real estate/ others 〃 Others Nan YaTechnology 1,533,250 1,333,200 1,333,200 - Real estate/ plant/ 〃 Corporation machine room/ Machinery 〃 Huaku Development Co., 1,050,000 1,050,000 1,050,000 - Land 〃 Ltd. 〃 Nan Ya Plastics Corporation 895,517 866,628 866,628 - Real estate/ plant/ 〃 machine room 〃 CTC Group Inc. 447,882 440,488 440,488 - Real estate 〃〃 Jungguan Investment Co., 355,000 355,000 355,000 - Land 〃 Ltd. 〃 Taipei Financial Center 376,756 308,713 308,713 - Real estate 〃 Corporation 〃 Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate 〃 Ltd. 〃 Zhonghang Co., Ltd. 224,000 200,200 200,200 - Vehicle/ cargo 〃 aircraft 〃 Wei Fu Investment Co., Ltd. 50,000 50,000 50,000 - Real estate 〃〃 Sunghung Investment Co., 44,000 44,000 44,000 - Real estate 〃 Ltd. 〃 Changchi Investment Ltd. 9,314 8,991 8,991 - Real estate 〃〃 Others 59,868 55,991 55,991 - Real estate 〃

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(v) Deposits

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 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 Sungyong 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 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 Chuan Wei Investment Co., 478,310 197,693 0~0.01% 6 13 Ltd. 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. Straits Exchange Foundation 187,030 187,030 0.15~1.04% 487 967 Kuan Ho Development Co., 201,326 182,022 0~0.01% 5 10 Ltd. CTBC Financial Management 189,625 178,985 0~1.09% 70 129 College Yi Chuan Investment Co., Ltd. 170,012 163,510 0~0.01% 3 5 Yi Hua 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 0~0.01% 1 1 Ltd. Others 13,739,682 7,679,070 10,591 20,133 Total $ 28,572,655 20,584,137 26,267 50,480

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Maximum Ending Range of Interest Related party balance balance interest rates expenses Hofa Land Development Co., Ltd. $ 3,370,887 2,952,819 0~0.45% 2,030 Showa Denko HD Trace Corp. 3,207,376 2,332,749 0~2.02% 23,725 CTBC Charity Foundation 1,111,542 909,871 0~1.07% 5,934 Taiwan Sports Lottery Co., Ltd. 1,014,570 699,636 0~0.01% 53 Yan Yuan Investment Co., Ltd. 808,739 559,505 0~0.01% 45 Chuan Wei Investment Co., Ltd. 505,811 480,260 0~0.01% 30 Taiwan Institute of Economic Research 472,821 423,814 0~1.33% 2,106 Shin Wen Investment Co., Ltd. 421,426 421,426 0~0.01% 12 Yi Kao Investment Co., Ltd. 416,142 377,272 0.01% 23 Kainan High School of Commerce and Industry 345,795 298,311 0~1.22% 2,119 Overseas Investment & Development Corp 299,142 282,671 0~1.53% 1,958 Chinatrust Real Estate Co., Ltd. 403,474 268,125 0~1.25% 2,681 Fenglu Development & Investment Co., Ltd. 216,213 216,213 0~0.01% 18 Kuan Ho Development Co., Ltd. 201,841 201,841 0~0.01% 10 Chia Shih Investment Co., Ltd. 190,926 190,881 0~0.01% 12 Straits Exchange Foundation 187,030 187,030 0.15~1.22% 1,907 Yi Huao Investment Co., Ltd. 159,505 159,445 0~0.01% 12 CTBC Financial Management College 211,089 159,153 0~1.22% 193 Sunghung Investment Co., Ltd. 127,767 127,767 0~0.01% 5 Kae Lee Investment Ltd. 122,080 121,930 0~0.01% 6 Wu Tzu Development Co., Ltd. 462,421 118,402 0~0.01% 20 Hewei Investment Co., Ltd. 111,564 107,413 0~0.01% 10 Yi Chuan Investment Co., Ltd. 121,080 106,419 0~0.01% 7 TransWorld University 234,056 103,700 0~1.22% 165 Others 18,585,762 6,757,674 35,860 Total $ 33,309,059 18,564,327 78,941

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 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) Showa Denko HD Trace Corp. $ 3,207,376 2,022,892 0~1.41% 7,689 15,940 CTBC Charity Foundation 1,111,542 984,298 0~1.07% 1,482 2,945 Yan Yuan Investment Co.,Ltd. 490,688 490,688 0~0.01% - 11 Taiwan Sports Lottery Co., 1,014,570 443,012 0~0.01% 9 24 Ltd. Taiwan Institute of Economic 424,060 372,836 0~1.33% 523 1,029 Research Chuan Wei Investment Co., 370,715 320,888 0~0.01% 8 8 Ltd. Kainan High School of 345,795 314,333 0~1.22% 530 1,072 Commerce and Industry Overseas Investment & 299,142 282,671 0~1.53% 946 1,958 Development Corp. Yi Kao Investment Co., Ltd. 345,637 229,332 0.01% 6 7 Straits Exchange Foundation 187,030 187,030 0.15~1.22% 470 968 CTBC Financial Management 194,016 175,127 0~1.22% 40 86 College Fenglu Development & 177,513 174,858 0~0.01% 5 9 Investment Co., Ltd. TransWorld University 234,056 161,404 0~1.22% 37 102 Brothers Entertaining Co., Ltd. 133,210 133,210 0~0.08% 2 3 Others 12,039,180 7,027,778 8,746 19,817 Total $ 20,574,530 13,320,357 20,493 43,979

(vi) Call Loans to Banks

For the six months ended June 30, 2017 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 $ - 0.38~0.40% - 45

(vii) Derivative financial commodity trading

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 1) 113,968 Investment swap 09.05.2018 Trust Funds

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Money market 12.07.2017~ USD 2,650 (1,109) (Note 2) (1,109) Investment swap 01.11.2018 Trust Funds

June 30, 2017 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Money market 06.15.2017~ USD 8,500 1,015 (Note 1) 1,015 Investments swap 07.26.2017 Trust Funds

Note 1: Financial assets measured at fair value through profit or loss.

Note 2: Financial liabilities measured at fair value through profit or loss.

(viii) Securities purchased under resell agreements

For the six months ended June 30, 2018 Interest Interest expenses expenses (For the three (For the six Ending Interest months ended months ended Related party balance payable June 30) June 30) Straits Exchange Foundation $ 18,101 - 17 41

For the six months ended June 30, 2017 Interest Interest expenses expenses (For the three (For the six Ending Interest months ended months ended Related party balance payable June 30) June 30) Straits Exchange Foundation $ 15,015 - 12 21

(ix) Funds

December 31, Related party Content June 30, 2018 2017 June 30, 2017 CTBC Securities Co., CTBC Investment Trust $ 235,108 222,017 244,748 Ltd. Funds CTBC Investments Co., 〞 27,808 32,613 31,763 Ltd. Taiwan Life Insurance 〞 1,805,207 2,042,821 1,877,932 Co., Ltd. Total $ 2,068,123 2,297,451 2,154,443

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(x) Stocks issued by the related parties that are being held by the Company and its subsidiaries:

December 31, Related party June 30, 2018 2017 June 30, 2017 Nan Ya Plastics Corporation $ 1,171,361 1,317,912 1,236,690 Nan Ya Technology Corporation - - 164,400 Global BioPharma Inc. - - 35,000 Rich Healthy Fruits & Vegetable Corp. - 90,000 90,000 Noratech Pharmaceuticals Inc. - 60,000 60,000 Prince Pharmaceutical Co., Ltd. 40,000 40,000 40,000 Taipei Financial Center Corporation 1,013,040 742,500 742,500 Formosa Sumco Technology Corporation 268,707 351,860 - Total $ 2,493,108 2,602,272 2,368,590

(xi) Others

1) Commission and other 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 2018 2017 2018 2017 LH Financial Group Dividend income $ 209,453 - 209,453 - Public Company Limited Grand Bills Finance Commission income, the 94,517 82,824 94,960 83,034 Corporation remunerations to directors, resignation income, transportation allowance and dividend income Taipei Financial Center Commission income and 36,096 777 36,096 777 Corporation the remunerations to directors Sungbo Co., Ltd. Commission income 1,193 - 1,193 - Kinpo Electronics, Inc. 〞 620 573 1,112 1,056 Individuals 〞 772 1,619 3,675 3,090 $ 342,651 85,793 346,489 87,957

Foregoing transactions, accounts receivable balances were as follows:

Related party Summary June 30, 2018 June 30, 2017 Grand Bills Finance Corporation Commission income, the $ 77 55 remunerations to directors, resignation income, transportation allowance and dividend income Kinpo Electronics, Inc. Commission income 200 243 $ 277 298

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Handling fees and other general administration expenses

For the three months ended June 30 For the six months ended June 30 Related party Summary 2018 2017 2018 2017 Brothers Entertaining Sponsorship, marketing $ 104,318 96,745 199,488 186,880 Co., Ltd. feedback fund and gift expenses CTBC Financial Park Head office general 32,825 36,231 67,825 72,837 Management administration authority expenses CTBC Security Co., Security fees 35,083 35,129 60,235 61,426 Ltd. Taipei Financial Center Sponsorship, joint-brand 16,143 16,564 19,976 22,656 Corporation credit card payment and ATM utilities Taiwan Relo Club, Ltd. Marketing fees and gift 7,583 21,357 15,581 21,668 expenses Fina Finance & Trading Service expenses 5,924 19,567 14,310 44,554 Co., Ltd. Taiwan Institute of Expense for domestic 3,550 3,550 7,100 7,100 Economic Research economics research and business consulting commissioned research APEX Credit Solution Collection assistance 3,674 6,406 6,849 8,638 Inc. fees Chailease Finance Co., Leasing of official 1,467 2,625 2,750 5,713 Ltd. vehicles, rental fees and service fees Sungbo Co., Ltd. Gift expenses and other 1,024 630 1,295 761 administration expenses Chung-Chie Property Cleaning fees and 756 - 1,047 - Management Co., administration Ltd. expenses Chinatrust Real Estate Agency fees 978 - 978 - Co., Ltd. Chailease Auto Rental Rental fees 616 - 868 - Co., Ltd. and repair expense Bosser Design Inc. Upholstery fees, repair - 39 149 185 expenses and interior renovation fees United Real Estate Rental fees - - - 244 Management Co., Ltd. $ 213,941 238,843 398,451 432,662

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Foregoing transactions, accounts payable balances were as follows:

Related party Summary June 30, 2018 June 30, 2017 CTBC Financial Park Management Head office general administration $ 24,000 37,788 authority expenses CTBC Security Co., Ltd. Security fees 4,140 4,140 Fina Finance & Trading Co., Ltd. Service expenses 2,810 - Taiwan Institute of Economic Research Expense for domestic economics research 5,000 5,000 and business consulting commissioned research APEX Credit Solution Inc. Collection assistance fees 1,280 2,964 Chailease Finance Co., Ltd. Leasing of official vehicles, rental fees 161 - and service fees $ 37,391 49,892

3) Others

June 30, 2018 Income statement Balance sheet Trading Company Trading Company 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 expense 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 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 Rental expenses Other general 17,372 - - Co., Ltd. Management administration authority expenses TLG Capital Co., Ltd. Hong Chang Precision Interest revenue Interest revenue 189 Other receivables 9,345 Industrial Co., Ltd. $ 255,256 331,574

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Income statement Balance sheet Trading Company Trading Company Summary accounts Amount accounts Amount

CTBC Bank Co., Ltd. Chailease Finance Co., Released undue - $ - - 23,999 Ltd. loans (Note) 〞 Fina Finance & Trading 〞 - - - 426,851 Co., Ltd. 〞 Others Affiliates Advance payment for - Other receivables 8,184 utilities expenses, security fees, training fees and postage expense CTBC Securities Co., CTBC Financial Park Cleaning fees, Other general 7,397 Other payables 1,199 Ltd. Management security fees and administration authority utilities expenses expenses 〞 Chung-Chie Property Cleaning fees and 〞 1,018 - - Management Co., administration Ltd. expenses CTBC Investments Co., Funds managed by the Management fees Management 304,994 Management 45,765 Ltd. Company revenue receivables CTBC Venture Capital CTBC Security Co., Security fees Other general 2,878 Accrued expenses 32 Co., Ltd. Ltd. administration expenses 〞 CTBC Financial Park Utilities and 〞 1,128 〞 203 Management administrative authority expenses Taiwan Life Insurance CTBC Financial Park Rental expenses 〞 39,964 - - Co., Ltd. Management authority 〞 Chailease Insurance Sales commission Service expenses 3,471 Commission 261 Brokers Co., Ltd. payable TLG Capital Co., Ltd. Hong Chang Precision Interest revenue Interest revenue 456 Other receivables 10,870 Industrial Co., Ltd. $ 361,306 517,364

June 30, 2017 Income statement Balance sheet Trading Company Trading Company Summary accounts Amount accounts Amount CTBC Bank Co., Ltd. Chailease Finance Co., Released undue - $ - - 40,497 Ltd. loans (Note) 〞 Fina Finance & Trading 〞 - - 772,920 Co., Ltd. 〞 Others Affiliates Advance payment for - - Other receivables 1,873 utilities expenses and security fees CTBC Securities Co., CTBC Financial Park Cleaning fees, Other general 2,713 Other payables 1,412 Ltd. Management security fees and administration authority utilities expenses expenses 〞 Chung-Chie Property Cleaning fees and 〞 512 - - Management Co., administration Ltd. expenses CTBC Investments Co., Funds managed by the Management fees Management 106,021 Management 17,031 Ltd. Company revenue receivables CTBC Venture Capital CTBC Security Co., Security fees Other general 1,399 Accrued expenses - Co., Ltd. Ltd. administration expenses 〞 CTBC Financial Park Utilities and Other general 210 - - Management administrative administration authority expenses expenses Taiwan Life Insurance CTBC Financial Park Rental expenses Other general 3,752 - - Co., Ltd. Management administration authority expenses TLG Capital Co., Ltd. Hong Chang Precision Interest revenue Interest revenue 234 Other receivables 13,162 Industrial Co., Ltd. $ 114,841 846,895

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Note: The Company’s subsidiary CTBC Bank Co., Ltd. signed a strategic alliance agreement with Chailease Finance Co., Ltd. and Fina Finance & Trading 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.

Please refer to Note 9(A) for more information regarding the Company's subsidiary CTBC Bank Co., Ltd. provided guarantee to PT Bank CTBC Indonesia for loan application.

No significant discrepancy in transaction terms found between related party transaction and non-related party transaction.

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Salary and other short-term employee benefits $ 530,672 456,287 1,069,738 979,387 Post-employment benefits 7,334 8,069 14,924 14,953 Share-based payment 104 1,094 842,687 306,897 Termination benefits 38 38 76 38 Total $ 538,148 465,488 1,927,425 1,301,275

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(8) Pledged Assets:

Pledged assets of the Company and its subsidiaries were as follows:

Unit: In Thousands of New Taiwan Dollars

Assets June 30, 2018 December 31, 2017 June 30, 2017 Purpose of collateral Subsidiary—CTBC Bank Co., Ltd. and its subsidiaries Bonds $ 23,842,533 53,527,925 64,531,718 Guarantee deposits for transaction settlements and call loans from banks, repurchase agreement pledge, etc. Negotiable certificates of deposit 30,291,000 25,191,000 22,191,000 Daytime overdrafts of Central Bank, foreign currency call loan guarantee pledge, call loan liquidation account in U.S. Dollars, etc. Time deposits 383,814 5,573,695 8,563,349 Compliance guarantee deposits for futures dealer and guarantee deposit, etc. Receivables 3,800 9,400 9,900 Guarantee for all the debts and other guarantee deposits Subsidiary—CTBC Securities Co., Ltd. and its subsidiaries Restricted time deposits 780,622 779,878 756,000 Guarantee for all the debts Subsidiary—CTBC Investments Co., Ltd. Restricted time deposits 55,000 55,000 55,000 Operation guarantee deposits Subsidiary—Taiwan Life Insurance Co., Ltd. and its subsidiaries Time deposits 233,033 232,648 232,769 Compliance guarantee deposits Accounts Receivable 699,503 707,615 878,302 Short-term borrowings and guarantee for commercial paper payable debts Government bonds 7,335,990 7,367,702 7,173,253 Compliance guarantee deposits

As of June 30, 2018, December 31 and June 30, 2017, 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(9) Significant Contingent Liabilities and Unrecognized Contract Commitment:

(a) Major commitments and contingencies

December 31, June 30, 2018 2017 June 30, 2017 CTBC Financial Holding Co., Ltd. Promissory notes of short term borrowing and $ 77,000,000 67,500,000 66,500,000 other financing Subsidiary—CTBC Bank Co., Ltd. and its subsidiaries Contingent liabilities from guarantee and letter of 80,755,548 83,585,619 76,628,801 credit business Promissory note to Central Bank for bank’s 575,110 969,419 969,419 clearance Client notes in custody 92,679,532 91,164,866 90,735,548 Marketable securities and debts in custody 2,827,000,325 2,585,480,564 2,388,982,638 Consigned travelers’ checks in custody 276,170 283,004 292,355 Designated purpose trust accounts 946,993,641 841,738,263 871,152,049 Other items in custody 427,079 444,735 455,132 $ 4,025,707,405 3,671,166,470 3,495,715,942

As of June 30, 2018, December 31 and June 30, 2017, the credit amount of the cancellable loan commitments of the Company’s subsidiary CTBC Bank Co., Ltd. and its subsidiaries were $1,345,692,461, $1,517,591,873 and $1,547,630,400, 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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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, 2018, 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 $28,000.

As of June 30, 2018, 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. a subsidiary of the Company’s subsidiary CTBC Asset Management Co., Ltd. obtain financing facility, a Letter of Comfort is issued to financial institutions to request a credit limit of RMB573,279 thousand and US$20,000 thousand as of June 30, 2018, in order to declare that the operation of the company is actively supported by the Company.

To help CTBC Leasing Co., Ltd. a subsidiary of the Company’s subsidiary CTBC Asset Management Co., Ltd. obtain financing facility, a Letter of Comfort to financial institution is issued to request a credit limit of US$112,000 thousand and RMB557,000 thousand as of June 30, 2018.

To help PT Bank CTBC Indonesia obtain financing facility, the Company’s subsidiary CTBC Bank Co., Ltd. has issued Letters of Comfort to financial institutions on November 18, 2015, to declare that the operation of the company is actively supported by the Company’s subsidiary CTBC Bank Co., Ltd. The credit application amount is IDR300,000,000 thousand .

On September 4, 2012, the Company’s subsidiary CTBC Bank Co., Ltd. signed with Continental Development Corporation (hereafter “Continental Development”) a contract of purchase of buildings and land. The $2,181,339 contract price was negotiated based on the appraisal report prepared by DTZ Real Estate Appraisal Firm and Savills Real Estate Appraisal Firm. Besides, on April 27, 2018, the Company’s subsidiary CTBC Bank Co., Ltd. signed supplementary clauses with Continental Development, and expected to obtain the rights of land, zone 99 & 100 at Huikuo Section, Xitun District, Taichung City, currently owned by Continental Development Corporation, along with the (Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 227

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

1st to 6th floors and part of 7th floor including the part of the new building should belong to the Bank. The building area is expected to be 3,455.41 Ping with 11 plane parking spaces and 86 mechanical parking spaces in the basement. The Bank paid the contract price in installments proportionately with construction progress during the contract period, accounted for under premises and equipment－net, prepayment for land and buildings, and obtained the ownership certificate on July 10, 2018.

On July 23, 2015, the Company's subsidiary CTBC Bank Co., Ltd. signed with Yung-Yue Construction and Development Co., Ltd. and Chong Hong Construction Co., Ltd. a contract of purchase of buildings and land. The Bank will obtain the rights of land, zone 13-1 and 13-7 at An- Kang Section, Nei-Hu District, Taipei City, along with the ten floors above ground as well as four floors underground of the new buildings located there. The $5,139,800 contract price was negotiated based on the appraisal report prepared by Elite Real Estate Appraisers Firm and Grand Elite Real Estate Appraisers Firm. The contract price will be paid in contractual installments proportionately with construction progress during the contract period, amounted for under premises and equipment- net, prepayment for land and buildings. As of June 30, 2018, the outstanding balance amounted to $508,216.

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.

In September 2012, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. signed a pre-sale contract for building and land with Continental Development Corporation. In April 27, 2018, an supplementary contract was signed to purchase the 8st to 28th floors and part of 7th floor including the part of the new building should belong to Taiwan Life Insurance Co., Ltd. The building area is expected to be 8,206.62 ping with 19 plane parking spaces and 178 mechanical parking spaces in the basement. The Company’ s subsidiary Taiwan Life Insurance Co., Ltd. has obtained the ownership certificate on July 10, 2018, and the closing is expected to be completed on September 2018.

As of June 30, 2018, the outstanding balance of the signed contract and property acquisition of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. amounted to $7,588,030.

As of June 30, 2018, the outstanding balance of the committed investment facility of signed private fund contract of the Company’s and its subsidiaries amounted to JPY$3,041,818 thousand, USD$905,312 thousand, EUR$61,721 thousand and DKK$57,371 thousand, respectively.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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

Trust Assets June 30, 2018 June 30, 2017 Trust Liabilities June 30, 2018 June 30, 2017 Cash $ 32,583,939 51,137,310 Payables 347,438,139 265,012,383 Bonds 16,725,542 14,556,216 Other liabilities 26,831 62,359 Stocks 192,107,151 205,752,775 Trust capital 543,283,506 530,189,312 Mutual funds 291,662,216 264,329,526 Miscellaneous reserves 55,410,512 75,023,364 and accumulated earnings Structured products 19,347,717 19,930,339 Other investments 738,572 1,229,350 Receivables 355,586 321,016 Real estates－net 45,770,734 48,617,224 Securities in custody 346,837,253 264,398,838 Other assets 30,278 14,824 Total trust assets $ 946,158,988 870,287,418 Total trust liabilities 946,158,988 870,287,418

Note: As of June 30, 2018 and 2017, the Company's subsidiary CTBC Bank’ s Offshore Banking Unit invested in foreign securities under specific purpose trust accounts amounting to $3,081,931 and $1,669,618, respectively.

Properties Catalog of Trust Accounts

Investments June 30, 2018 June 30, 2017 Cash $ 32,583,939 51,137,310 Bonds 16,725,542 14,556,216 Stocks 192,107,151 205,752,775 Mutual funds 291,662,216 264,329,526 Structured products 19,347,717 19,930,339 Other investments 738,572 1,229,350 Securities in custody 346,837,253 264,398,838 Real estates－net Lands 45,710,267 48,531,881 Buildings 60,467 85,343 Subtotal 45,770,734 48,617,224 Other assets Prepaid other payments 97 172 Long-term prepaid rent 30,181 14,652 Subtotal 30,278 14,824 Total $ 945,803,402 869,966,402

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Income Statement of Trust Accounts

For the six months ended June 30, 2018 2017 Trust revenues $ 1,217,987 1,328,248 Trust expenses (606,385) (394,848) Earnings before tax 611,602 933,400 Income tax (2,795) (2,940) Net profits $ 608,807 930,460

Total amount of minimum future irrevocable operating lease payment were as below:

December 31, June 30, 2018 2017 June 30, 2017 Less than 1 year $ 1,143,249 1,199,464 989,652 1 year to 5 years 1,946,601 2,260,338 1,985,626 More than 5 years 834,629 752,552 803,113 Total $ 3,924,479 4,212,354 3,778,391

(d) Lessor

The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries lease their investment property and rental assets under operating leases; please refer to Note 6(p) and 6(s). Non- cancellable operating lease rentals receivable were as follows:

December 31, June 30, 2018 2017 June 30, 2017 Less than 1 year $ 1,517,705 1,630,935 1,518,574 1 year to 5 years 4,151,320 5,265,501 4,159,087 More than 5 years 10,541,206 15,380,009 11,468,399 Total $ 16,210,231 22,276,445 17,146,060

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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 Corporation 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 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 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 Development, the institutional directors of the Company, informed that according to the Analysis Report on the Sale of Structured Notes 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 Development. Therefore, the Company’s subsidiary CTBC Bank has been requested to negotiate with Chung Cheng Investment and Kuan Ho Development for reasonable resolution. On August 16, 2011, the Company’s subsidiary CTBC Bank sent a letter to Chung Cheng Investment and Kuan Ho 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 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.

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After appealing for third instance, the Supreme Court of Republic of China has revoked the original verdict in August 2014 and urged Taiwan High Court to re-examine its verdict. As it mentioned previously, Red Fire is the SPV of CTBC Holding. Thus, CTBC Holding did not sustain any loss, and Mr. Koo, the former Chairman of the Bank, and the three involved employees did not obtain any personal benefits through the case. Furthermore, citing from the legal opinion issued by CTBC Holding’s outside counsel, “With regard to the legal aspects, the case above is a criminal case, and since CTBC Holding is a corporate entity, the employees’ individual criminal liability will not have any influence on CTBC Holding. Therefore, there should be no significant disadvantageous effects on the financial or business affairs of CTBC Holding.” The case is now still under trial at Taiwan High Court. Although the litigation result is not yet final, the outcome should not have negative impacts on the finance and operation of CTBC Holding substantially. “Regardless guilty or not, the fact that CTBC Holding has not suffered damage would not be changed as a result.” Taiwan High Court has completed the trial. The judgment of the case will be pronounced on September 12, 2018.

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 in this case. 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 proceed therefrom. The Company has appointed external legal counsel to represent it during the judiciary proceeding. So far, Taiwan High Court has completed the trial. The judgment of the case will be pronounced on September 12, 2018.

(ii) Others

As for the real estate and non-performing loans transactions among the Company’s subsidiary CTBC Bank Co., Ltd. and Tectonics Laboratories (Cayman Islands) 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. The case is currently under prosecutors' investigation. The case is expected to have no significant effect on the Company’s operation and shareholders’ equity.

The Company’s subsidiary CTBC Securities Co., Ltd. previously served as the underwriter for issuing the domestic convertible bonds of Chou Chin Industrial Company (Chou Chin). After terminating the underwriting agreement, the former Chairman and related person of Chou Chin were found to be illegally engaged in influencing its share price and illegal trading of its shares, which resulted in the delisting of Chou Chin’ s shares from the stock market. Consequently, the Securities and Futures Investors Protection Center sued Chou Chin’s board of directors, supervisors, certified public accountants and securities underwriter with joint liability amounting to $515,157 plus 5% interest. On April 3, 2014, the judgment of the second instance (Taiwan High Court) decided in favor of the Company’ s subsidiary CTBC Securities Co., Ltd. The Taiwan Supreme Court made the judgment of Tai Shang Zi No. 1894 on October 7, 2015. The result of the appeal of Securities and Future Investors Protection Center is that CTBC Securities Co., Ltd. wins partly, and the other parts remand to Taiwan High Court. Reason for the winning: CTBC securities Co., Ltd. had made underwriting evaluation based on the audited financial reports certificated by the CPA. Since CTBC Securities Co., Ltd. had no negligence or misconduct in underwriting, it shall not be responsible for any loss or damage. Reason for the remand: the judgment of Taiwan High Court did not respond to and provide

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reasons for the request of the assertion of Securities and Future Investors Protection Center according to the Securities Exchange Act Art. 20.3 before amendment which caused the judgment to be automatically held in contravention of laws and regulations. Regarding the parts remanded from the Supreme Court, Taiwan High Court had judged in favor of the Company’s subsidiary CTBC Securities Co., Ltd. on May 22, 2018. In addition, the Securities and Futures Investors Protection Center did not appeal within the statutory period. Therefore, the judgment is final and binding. The management of the Company’s subsidiary CTBC Securities Co., Ltd. evaluated that the lawsuit would have no impact on the financial reports as of June 30, 2018 of CTBC Securities Co., Ltd.

According to the press release of Supreme Prosecutors Office on October 5, 2016, Mr. Koo, the former Chairman of CTBC Bank has been involved in the controversy of oversea investment case amounted USD$300 million. The case is currently under the trial of Taiwan Taipei District Court. The opinion letter of the Company’s external legal counsel states that “CTBC Holding has reviewed the content of the press release and confirmed that the aforementioned amount should be the oversea investment of CT Opportunity Investment Company (CTO), a sub-subsidiary of the Company.” If the case mentioned in the press release of Supreme Prosecutors Office is indeed referred to the overseas investment of CTO, then according to the consolidated financial statement of CTBC Holding for 2006, CTO’s oversea investment balance amounted to USD$339.31 million in 2005, and recovered USD$304.988 million in 2006 which had surpassed the USD$300 million mentioned in the press release. Since the amount is fully recovered, there should be no impairment of interests of CTBC Holding and CTBC Asset Management. Therefore, there should be no significant impact on the finances of CTBC Asset Management and CTBC Holding.”

According to the press release of Supreme Prosecutors Office on October 5, 2016, the Company's subsidiary CTBC Life Insurance has involved in the controversy of Gobo Group’s property acquisition case before merging Taiwan Life Insurance. This case is currently under the trial of Taiwan Taipei District Court. 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.” According to the opinion of the above legal counsel, the Company evaluated this case is expected to have no significant impact on operation and shareholders’ equity of Taiwan Life Insurance and the Company.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Regarding to the prosecution made on January 12, 2017 and additional prosecution in January 4, 2018 by the Taipei District Prosecutors Office against employees of the Bank for earning unjust price gains in the transaction of the land at Zone 15-2, Ankang Section, Neihu Dist., Taipei City, and two buildings at Zone 13-1 and 13-7, Ankang Section, Neihu Dist., Taipei City,Taipei District Court has concluded the oral argument sessions and the judgment of the case will be pronounced on October 11, 2018. The legal counsel of the Bank opines, “After reviewing the information provided by the Bank, the acquisition prices of the transactions were lower than the appraised prices provided by the professional institution, and the approved prices resolved by the board of directors of the Bank. There is no other evidence showing that the appraisal reports in the transactions were unreliable. As the transaction complied with the regulations and the acquisition prices were not unreasonable, the transactions should not damage the rights and interest of the Bank and CTBC Holding.” In addition, the board of directors of CTBC Holding instructed management team to coordinate with legal counsel to review this case. According to the report, “Mr. Chang is not a substantive responsible person of the company, and does 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 buildings at Zone 13-1 and 13-7, Ankang Section, Neihu Dist., Taipei City are in compliance with legal procedures. Moreover, Mr. Chang did not attend the board meeting which resolved to purchase the aforementioned real estate; Mr. Chang did not involve the decision-making procedures. Furthermore, the counterparties of the transaction Yongyue Development Co., Ltd., Mr. Chang, and its ultimate beneficiary person － Ms. Wu, do not meet the definitions of the interested party or quasi-interested party, and all are incompatible with IAS definition of related party. Besides, according to the request memo and related documents, the transaction had gotten all necessary approval, and the prices acquisition were meet the appraised opinion made by two professional appraisal institutions. After interviewing with Mr. Yang, the director of Cushman and Wakefield, we opined that the aforementioned appraisal procedures were in compliance with regulations, and the acquisition prices did not exceed the ceiling resolved by the board of directors of the Bank, therefore, the transactions are not illegal.” According to the opinion of the above legal counsel, the Company evaluated this case is expected to have no significant impact on operation and shareholders’ equity of CTBC Bank and the Company.

(10) Significant Catastrophic Losses:None

(11) Significant Subsequent Events:None

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(12) Other:

(a) Business segment financial information 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) reversal for bad debt (1,679,498) (49) (5,961) (13,307) (1,698,815) expenses 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 three months ended June 30, 2017 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 11,579,029 29,493 10,509,522 (9,691) 22,108,353 Non-interest income 10,014,913 237,915 43,176,110 262,253 53,691,191 Net revenue 21,593,942 267,408 53,685,632 252,562 75,799,544 (Provisions) Reversal for bad debt (1,014,987) (58,349) 60,067 (5,381) (1,018,650) expenses and guarantee reserve Net changes in insurance liability - - (48,554,294) - (48,554,294) reserve Operating expenses (13,586,269) (197,254) (1,202,497) (734,057) (15,720,077) Net income (loss) before tax 6,992,686 11,805 3,988,908 (486,876) 10,506,523 Income tax expense (951,317) (23,097) (289,460) (61,938) (1,325,812) Net income (loss) 6,041,369 (11,292) 3,699,448 (548,814) 9,180,711

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 (Provisions) reversal for bad debt (2,069,561) (40,908) 2,944 (40,997) (2,148,522) expenses, commitments 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

For the six months ended June 30, 2017 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 23,126,571 52,550 20,548,760 (549) 43,727,332 Non-interest income 20,254,445 547,227 104,600,569 505,386 125,907,627 Net revenue 43,381,016 599,777 125,149,329 504,837 169,634,959 (Provisions) Reversal for bad debt (384,877) (58,349) 80,686 (19,972) (382,512) expenses and guarantee reserve Net changes in insurance liability - - (116,240,313) - (116,240,313) reserve Operating expenses (26,492,355) (407,086) (2,290,992) (1,538,890) (30,729,323) Net income (loss) before tax 16,503,784 134,342 6,698,710 (1,054,025) 22,282,811 Income tax expense (2,568,377) (48,232) (206,866) (64,746) (2,888,221) Net income (loss) 13,935,407 86,110 6,491,844 (1,118,771) 19,394,590

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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, disclousure of whichis required under Article 46 of the Financial Holding Company ACT:

June 30, 2018

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) $ 406,575,000 130.03 % TAIWAN GOVERNMENT 201,351,828 64.40 % TAIWAN POWER COMPANY 53,830,305 17.22 % US GOVERNMENT 33,517,624 10.72 % MORGAN STANLEY 31,243,730 9.99 % TAIWAN RAILWAYS ADMINISTRATION 27,804,821 8.89 % BANK OF AMERICA 27,471,945 8.79 % GOLDMAN SACHS GROUP INC 26,970,674 8.63 % CITIGROUP INC. 24,318,070 7.78 % AT&T INC. 23,951,518 7.66 % VERIZON COMMUNICATIONS INC. 22,249,777 7.12 % JP MORGAN CHASE & CO 21,387,538 6.84 % TAICHUNG CITY GOVERNMENT 20,000,000 6.40 % CENTRAL TAIWAN SCIENCE PARK BUREAU 20,000,000 6.40 % DEUTSCHE BANK AG 19,401,439 6.20 % BANK OF CHINA LIMITED 17,860,067 5.71 % SAUDI ARABIAN GOVERNMENT 17,750,596 5.68 % RABOBANK NEDERLAND 16,162,457 5.17 % COMISION FED DE ELECTRIC 15,732,448 5.03 % COMCAST CORP 15,593,511 4.99 % INDONESIAN GOVERNMENT 15,157,186 4.81 % RUSSIAN GOVERNMENT 15,046,722 4.81 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 ADCB FINANCE CAYMAN LTD. $ 14,434,979 4.62 % MEXICAN GOVERNMENT 14,298,308 4.57 % ELECTRICITE DE FRANCE S.A. 14,170,596 4.53 % HSBC HOLDINGS PLC 13,872,179 4.44 % QATAR GOVERNMENT 12,687,670 4.06 % HOFA LAND DEVELOPMENT CO., LTD. 12,251,513 3.92 % CITIC LTD. 11,935,039 3.82 % BNP PARIBAS SA 11,847,300 3.79 % NATIXIS 11,804,172 3.78 % FIRST ABU DHABI BANK PJSC 11,618,719 3.72 % INDUSTRIAL AND COMMERCIAL BANK OF CHINA 11,527,659 3.69 % BRAZIL GOVERNMENT 11,361,034 3.63 % ANHEUSER-BUSCH INBEV SA/NV 11,159,868 3.57 % SOCIETE GENERALE SA 10,800,427 3.45 % BANK OF TOKYO-MITSUBISHI UFJ 10,600,397 3.39 % TAINAN CITY GOVERNMENT 10,579,000 3.38 % CREDIT SUISSE 10,464,754 3.35 % WELLS FARGO & CO. 10,449,845 3.34 % LLOYDS BANK PLC. 10,428,622 3.34 % CHINA DEVELOPMENT BANK 10,106,191 3.23 % FINANCE BUREAU OF KAOHSIUNG CITY GOVERNMENT 10,000,000 3.20 % TAIWAN NATIONAL TREASURY ADMINISTRATION, MINISTRY OF FINANCE 10,000,000 3.20 % ANZ BANKING GROUP LTD. 9,971,627 3.19 % FREDDIE MAC 9,902,678 3.17 % QNB FINANCE LTD. 9,783,759 3.13 % PETROLEOS MEXICANOS 9,665,241 3.09 % COMMONWEALTH BANK OF AUSTRALIA 9,348,560 2.99 % CPC CORPORATION, TAIWAN 9,199,338 2.94 % CREDIT AGRICOLE SA 8,458,419 2.71 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 $ 8,403,933 2.69 % APPLE INC. 8,311,341 2.66 % COLOMBIAN GOVERNMENT 8,270,070 2.64 % NAN SHAN LIFE INSURANCE COMPANY., LTD. 8,216,452 2.63 % MANULIFE FINANCIAL CORP. 8,209,923 2.63 % TAIWAN COOPERATIVE BANK 8,128,202 2.60 % BARCLAYS PLC. 7,805,936 2.50 % AIG INC. 7,674,257 2.45 % UBS AG 7,624,745 2.44 % STANDARD CHARTERED PLC. 7,561,699 2.42 % ENEL FINANCE INTERNATION NV 7,527,261 2.41 % CHUNGHWA TELECOM CO., LTD. 7,409,475 2.37 % BARCLAYS BANK PLC. 7,332,498 2.35 % LLOYDS BANKING GROUP PLC. 7,187,672 2.30 % THE EXPORT-IMPORT BANK OF CHINA 6,891,886 2.20 % MEGA FINANCIAL HOLDING COMPANY 6,841,681 2.19 % NEXEN ENERGY ULC 6,769,008 2.16 % HONGKONG GOVERNMENT 6,766,799 2.16 % CATHAY UNITED COMMERCIAL BANK CO., LTD. 6,648,785 2.13 % ROYAL BANK OF CANADA 6,621,275 2.12 % HSBC BANK MIDDLE EAST LTD. 6,427,996 2.06 % GAZPROM VIA GAZ CAPITAL SA 6,422,922 2.05 % PERTAMINA PERSERO PT 6,415,456 2.05 % HSBC BANK PLC. 6,382,699 2.04 % EXPORT-IMPORT BANK OF KOREA 6,374,468 2.04 % AMERICA MOVIL SAB DE CV 6,278,708 2.01 % MAO DE INTERNATIONAL INVESTMENT LTD. 6,200,000 1.98 % CHANG HWA COMMERCIAL BANK LTD. 6,168,946 1.97 % CREDIT SUISSE GROUP FUNDING GUERNSEY LTD. 6,042,082 1.93 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 WESTPAC BANKING CORP. $ 5,980,909 1.91 % KINGSTON TECHNOLOGY 5,951,220 1.90 % TRAFIGURA PTE LTD. 5,934,008 1.90 % EMIRATES NBD PJSC 5,847,439 1.87 % ABN AMRO BANK NV 5,736,749 1.83 % CHINA CONSTRUCTION BANK CORPORATION 5,585,155 1.79 % NOMURA INTERNATIONAL FUNDING PTE. LTD 5,501,080 1.76 % AMGEN INC 5,432,695 1.74 % CELGENE CORP. 5,390,058 1.72 % TAIPEI FUBON COMMERCIAL BANK CO., LTD. 5,350,960 1.71 % SUMITOMO MITSUI FINANCIAL GROUP INC. 5,285,025 1.69 % FIRST COMMERCIAL BANK LTD. 5,268,444 1.68 % DBS BANK LTD. 5,225,149 1.67 % PRUDENTIAL FINANCIAL INC. 5,141,940 1.64 % YUANTA COMMERCIAL BANK CO., LTD. 5,111,063 1.63 % TAISHIN INTERNATIONAL BANK CO., LTD. 5,067,643 1.62 % HUA NAN COMMERCIAL BANK., LTD. 5,045,184 1.61 % ABBVIE INC. 5,004,967 1.60 % GRUPO TELEVISA SA-SPON ADR 4,944,599 1.58 % FANNIE MAE 4,898,326 1.57 % PERUSAHAAN LISTRIK NEGARA PT 4,865,654 1.56 % DA-FU MEDIA CORP. 4,829,120 1.54 % TAIWAN SHIN KONG COMMERCIAL BANK CO., LTD. 4,825,980 1.54 % AU OPTRONICS CORP. 4,802,284 1.54 % CHINA GOVERNMENT 4,789,170 1.53 % HUARONG FINANCE 2017 CO LTD. 4,705,145 1.50 % NATIONAL BANK OF CANADA 4,619,152 1.48 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 SOURTHERN TAIWAN SCIENCE PARK BUREAU $ 4,585,000 1.47 % VALE OVERSEAS LIMITED 4,556,211 1.46 % BPCE SA 4,536,657 1.45 % BANK OF COMMUNICATIONS CO., LTD. 4,528,377 1.45 % CHINA CINDA FINANCE 2017 Ⅲ LIMITED 4,484,068 1.43 % FORMOSA HA TINH (CAYMAN) LIMITED 4,464,438 1.43 % CHINA STEEL CORPORATION 4,446,858 1.42 % MONSANTO CO 4,444,005 1.42 % BANK OF NOVA SCOTIA, TORONTO 4,389,775 1.40 % CHINA STATE GRID CORPORATION OF CHINA 4,376,485 1.40 % TAIWAN MOBILE CO., LTD. 4,364,597 1.40 % LAND BANK OF TAIWAN 4,360,666 1.39 % CATHAY FINANCIAL HOLDING CO., LTD. 4,313,882 1.38 % HON HAI PRECISION INDUSTRY CO., LTD. 4,308,447 1.38 % SOUTHERN POWER COMPANY 4,302,648 1.38 % THE BANK OF YOKOHAMA, LTD. 4,269,361 1.37 % DEPARTMENT OF RAPID TRANSIT SYSTEMS, TAIPEI CITY GOVERNMENT 4,266,000 1.36 % HONGKONG ELECTRIC FINANCE LTD. 4,240,313 1.36 % NAN YA PLASTICS CORPORATION 4,217,144 1.35 % SULTANATE OF OMA 4,200,199 1.34 % SANTANDER INTERNATIONAL PRODUCT PLC. 4,189,289 1.34 % E.SUN COMMERCIAL BANK, LTD. 4,171,446 1.33 % PINGTUNG COUNTRY GOVERNMENT 4,160,000 1.33 % CORP NACIONAL DEL COBRE 4,132,656 1.32 % EMIRATES NATIONAL OIL CO. 4,079,223 1.30 % AGRICULRURAL BANK OF TAIWAN 4,062,741 1.30 % VODAFONE GROUP PLC. 4,014,795 1.28 % SUNCOR ENERGY INC. 3,961,511 1.27 % FUBON LIFE INSURANCE CO., LTD. 3,944,729 1.26 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 LITE-ON SINGAPORE PTE LTD $ 3,944,623 1.26 % AXA SA 3,942,509 1.26 % TAIWAN COOPERATIVE FINANCIAL HOLDING CO., LTD. 3,914,272 1.25 % PHILLIPS 66 3,888,495 1.24 % ARES CAPITAL CORP. 3,884,375 1.24 % OVERSEA CHINESE BANKING CORPORATION LIMITED 3,882,759 1.24 % PETROCHINA COMPANY LIMITED 3,824,138 1.22 % UBS LIMITED (CCP) 3,821,809 1.22 % TAIWAN CEMENT CORPORATION 3,806,057 1.22 % NATIONWIDE BUILDING SOCIETY 3,769,531 1.21 % AGRICULTURAL DEVELOPMENT BANK OF CHINA 3,747,402 1.20 % BIOGEN INC 3,729,803 1.19 % SANTANDER UK GROUP HOLDINGS 3,637,073 1.16 % ASIA CEMENT CORPORATION 3,615,444 1.16 % DP WORLD LTD 3,587,945 1.15 % TAQA ABU DHABI NATIONAL ENERGY COMPANY 3,580,920 1.15 % CIMB BANK BERHAD 3,575,697 1.14 % SANTANDER UK PLC 3,568,503 1.14 % SHELL INTERNATIONAL FIN. 3,558,770 1.14 % JIHSUN SECURITIES INVESTMENT TRUST CO., LTD. 3,551,578 1.14 % TAIWAN BUSINESS BANK CO., LTD. 3,531,605 1.13 % UNITED OVERSEAS BANK LTD. 3,530,284 1.13 % 21ST CENTURY FOX AMERICA INC. 3,492,048 1.12 % ROGERS COMMINICATIONS INC. 3,477,186 1.11 % YUANTA SECURITIES CO., LTD. 3,452,820 1.10 % JIHCHUAN INVESTMENT CO., LTD. 3,450,000 1.10 % MALAYAN BANKING BERHAD 3,424,825 1.10 % KAI-YUE CO., LTD. 3,423,636 1.09 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 CHINA NETWORK SYSTEMS CO., LTD. $ 3,492,048 1.12 % GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 3,356,928 1.07 % PRUDENTIAL PLC. 3,354,653 1.07 % ASE TECHNOLOGY HOLDING, CO., LTD. 3,348,258 1.07 % SHIN KONG LIFE INSURANCE CO., LTD. 3,339,508 1.07 % TAISHIN FINANCIAL HOLDING CO. LTD. 3,334,163 1.07 % BANK OF TAIWAN 3,305,913 1.06 % KOREA DEVELOPMENT BANK 3,275,245 1.05 % MACQUARIE BANK LIMITED, SYDNEY 3,269,168 1.05 % ING Groep Nv 3,264,510 1.04 % KAZMUNAYGAZ NATIONAL CO JSC 3,263,788 1.04 % MOROCCO GOVERNMENT 3,246,882 1.04 % FUBON SECURITIES CO., LTD. 3,221,999 1.03 % MIAOLI COUNTY GOVERNMENT 3,217,000 1.03 % CHINA CINDA FINANCE 2017 I LTD. 3,169,339 1.01 % FAR EAST HORIZON LIMITED 3,141,105 1.00 % PFIZER INC. 3,140,596 1.00 % ALIBABA GROUP HOLDING LTD 3,132,437 1.00 % ING BANK NV 3,109,874 0.99 % AIA GROUP LTD. 3,060,256 0.98 % AGRICULTURAL BANK OF CHINA 3,007,997 0.96 % MIZUHO SECURITIES CO LTD. 3,006,616 0.96 % REPUBLIC OF KOREA GOVERNMENT 3,005,113 0.96 % HSINCHU COUNTRY GOVERNMENT 3,000,000 0.96 % CHANGHUA COUNTRY GOVERNMENT 3,000,000 0.96 % B. The same related person Mr./Ms. Du 8,746,452 2.80 % Mr./Ms. Wang 7,820,684 2.50 % Mr./Ms. Wu 7,432,358 2.38 % Mr./Ms. Jhuang 4,356,713 1.39 % Mr./Ms. Chen 3,870,871 1.24 % Mr./Ms. Jhuang 3,528,221 1.13 % - - %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 MORGANSTANLEY GROUP $ 34,063,614 10.89 % HSBC HOLDINGS GROUP 32,327,584 10.34 % MERRILL LYNCH GROUP 30,826,487 9.86 % GOLDMAN SACHS GROUP 30,756,449 9.84 % SHIN KONG GROUP 28,981,530 9.27 % CITIGROUP GROUP 25,163,077 8.05 % JP MORGAN CHASE GROUP 24,754,382 7.92 % CITIC GROUP 24,318,957 7.78 % THE FAR EASTERN GROUP 22,021,018 7.04 % BOC GROUP 20,534,331 6.57 % DEUTSCHE BANK AG GROUP 19,401,439 6.20 % CREDIT SUISSE GROUP 18,909,352 6.05 % FANNIE MAE GROUP 18,157,933 5.81 % LLOYDS BANKING GROUP 17,616,294 5.63 % COMCAST GROUP 17,143,995 5.48 % RABOBANK NEDERLAND GROUP 16,883,511 5.40 % LINYUAN GROUP 16,711,518 5.34 % ICBC GROUP 16,536,397 5.29 % NATIXIS GROUP 16,340,829 5.23 % FUBON GROUP 16,278,166 5.21 % REPUBLIC OF INDONESIA GROUP 15,426,429 4.91 % ANHEUSER-BUSCH GROUP 15,348,867 4.91 % BARCLAYS BANK PLC GROUP 15,138,434 4.84 % HON HAI GROUP 14,772,018 4.72 % TAIWAN COOPERATIVE FINANCIAL HOLDING GROUP 14,457,672 4.62 % NATIONAL BANK OF ABU DHABI GROUP 13,917,615 4.45 % FCFC GROUP 13,764,833 4.40 % SOCIETE GENERALE GROUP 13,254,332 4.24 % CHINA STEEL GROUP 12,478,156 3.99 % STANDARD CHARTERED GROUP 11,998,041 3.84 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 KINGSTON GROUP $ 11,952,691 3.82 % CHINA DEVELOPMENT BANK GROUP 11,812,200 3.78 % UBS LIMITED GROUP 11,463,913 3.67 % YUANTA FINANCIAL HOLDING GROUP 11,202,680 3.58 % AIG GROUP 10,871,775 3.48 % WELLS FARGO & CO. GROUP 10,789,293 3.45 % MEGA HOLDING GROUP 10,670,206 3.41 % TAIWAN TELECOM GROUP 10,616,745 3.40 % ANZ BANKING GROUP 10,434,351 3.34 % KAOHSIUNG CITY GOVERNMENT GROUP 10,300,000 3.29 % UMC GROUP 10,290,347 3.29 % PRUDENTIAL FINANCIAL INC. GROUP 10,188,917 3.26 % NOMURA HOLDINGS INC. GROUP 9,573,686 3.06 % CNOOC GROUP 9,510,624 3.04 % RUENTEX GROUP 9,451,524 3.02 % TCC GROUP 9,378,856 3.00 % FIRST FINANCIAL HOLDING GROUP 9,303,951 2.98 % CHINA CINDA GROUP 9,210,357 2.95 % ASE GROUP 9,055,312 2.90 % CREDIT AGRICOLE SA GROUP 8,948,795 2.86 % BANCO SANTANDER GROUP 8,283,862 2.65 % ENEL FINANCE INTERNATIONAL GROUP 7,879,961 2.52 % ING BANK GROUP 7,094,827 2.27 % CHINA HUARONG ASSET MANAGEMENT GROUP 6,869,337 2.20 % SINOPEC GROUP 6,844,666 2.19 % SUMITOMO MITSUI BANKING CORPORATION GROUP 6,714,607 2.15 % DBS GROUP 6,535,315 2.09 % PHOENIX PROPERTY GROUP 6,524,974 2.09 % PERUSAHAAN LISTRIK NEGARA GROUP 6,265,538 2.00 % UNITED OVERSEAS BANK GROUP 6,177,787 1.98 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 WALSIN LIHWA GROUP $ 6,141,836 1.96 % TING HSIN INTERNATIONAL GROUP 6,138,168 1.96 % LITE-ON TECHNOLOGY GROUP 5,953,954 1.90 % SOUTHERN POWER COMPANY GROUP 5,942,663 1.90 % CNS GROUP 5,787,983 1.85 % CCB GROUP 5,784,002 1.85 % AUO GROUP 5,733,810 1.83 % YAGEO GROUP 5,593,571 1.79 % TAIPEI CITY GOVERNMENT GROUP 5,265,996 1.68 % HUA NAN FINANCIAL HOLDING GROUP 5,077,274 1.62 % YULON GROUP 4,973,661 1.59 % CNPC GROUP 4,927,991 1.58 % TOP GROUP 4,622,724 1.48 % EVERGREEN GROUP 4,601,379 1.47 % CHINA STATE GRID CORP. GROUP 4,518,629 1.45 % CHINA MERCHANTS BANK GROUP 4,459,086 1.43 % RELIANCE INDUSTRIES LTD GROUP 4,307,239 1.38 % NAN YA GROUP 4,299,689 1.38 % NEW CHARM GROUP 4,279,871 1.37 % FORMOSA GROUP 4,279,047 1.37 % FEIYEH GROUP 4,278,650 1.37 % 1MDB ENERGY LTD GROUP 4,200,332 1.34 % E.SUN FINANCIAL HOLDING GROUP 4,172,423 1.33 % MIZUHO BANK GROUP 4,076,349 1.30 % CHINA OVERSEAS LAND & INVESTMENT GROUP 4,038,956 1.29 % AXA SA GROUP 4,011,061 1.28 % BEIJING ENTERPRISES HOLDINGS GROUP 3,970,085 1.27 % OCBC GROUP 3,913,869 1.25 % YUANLIH GROUP 3,868,465 1.24 % BANK OF COMMUNICATIONS GROUP 3,867,090 1.24 % SINOPAC FINANCIAL HOLDING GROUP 3,720,076 1.19 %

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 ALLIANZ GROUP $ 3,681,110 1.18 % MERCURIA GROUP 3,662,441 1.17 % TAIWAN FINANIAL HOLDING GROUP 3,648,716 1.17 % JIH SUN INTERNATIONAL LEASING & FINANCE GROUP 3,593,599 1.15 % TBC GROUP 3,576,413 1.14 % ROYAL BANK OF SCOTLAND GROUP 3,545,365 1.13 % TWENTY-FIRST CENTURY FOX GROUP 3,539,180 1.13 % UNI-PRESIDENT GROUP 3,473,515 1.11 % CONTINENTAL ENGINEERING GROUP 3,444,143 1.10 % CMP GROUP 3,300,162 1.06 % SINOCHEM GROUP 3,257,640 1.04 % ASUS GROUP 3,235,725 1.03 % WILMAR GROUP 3,170,329 1.01 % ARCH GROUP 3,127,204 1.00 % KEELUNG CITY GOVERNMENT GROUP 3,077,300 0.98 % CATCHER GROUP 3,077,160 0.98 %

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 for 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;

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

CTBC Financial Holding Co., Ltd. BALANCE SHEETS June 30, 2018, December 31, 2017 and June 30, 2017 (Expressed in Thousands of New Taiwan Dollars)

June 30, 2018 December 31, 2017 June 30, 2017 June 30, 2018 December 31, 2017 June 30, 2017 Assets Amount ％ Amount ％ Amount ％ Liabilities and Equity Amount % Amount % Amount % 11000 Cash and cash equivalents $ 807,225 - 18,680,129 5 716,220 - Liabilities： 12100 Available-for-sale financial assets-net - - 1,679,451 - 2,498,922 1 22600 Commercial papers payable-net $ 7,649,256 2 44,756,966 11 28,322,137 7 12150 Financial assets measured at fair value through other 506,520 - - - - - 23000 Payables 22,265,319 6 1,481,375 - 20,426,573 6 comprehensive income 23200 Current income tax liabilities 1,354,931 - 35,529 - 35,529 - 12500 Securities purchased under resell agreements - - - - 439,385 - 24000 Bonds payable 27,000,000 7 27,000,000 7 27,000,000 8 13000 Receivables-net 3 - 9 - 71,356 - 24600 Provisions 7,995 - 8,629 - 139 - 13200 Current income tax assets 427,406 - 391,333 - 192,548 - 29300 Deferred tax liabilities 3 - - - - - 15000 Investments under equity method-net 369,116,651 100 373,126,916 95 355,064,773 99 29500 Other liabilities - - 171,569 - - - 15500 Other financial assets-net - - 371,250 - 371,250 - Total Liabilities 58,277,504 15 73,454,068 18 75,784,378 21 18500 Premises and equipment-net 79,864 - 82,087 - 78,979 - Stockholders’ Equity - Parent Company： 19000 Intangible assets-net 1,404 - 1,632 - - - Capital stock： 19300 Deferred income tax assets 3,188 - 2,984 - 1,384 - 31101 Common stock 194,969,896 53 194,969,896 49 194,969,896 54 19500 Other assets-net 14,494 - 18,916 - 45,510 - 31103 Preferred stock 3,333,300 1 3,333,300 1 - - 31500 Capital surplus 50,368,539 14 50,366,018 13 33,717,244 9 Retained earnings： 32001 Legal reserve 24,189,775 7 20,467,553 5 20,467,553 6 32003 Special reserve 29,719,062 8 30,688,581 8 30,688,579 9 32011 Undistributed earnings 35,099,203 9 37,417,514 10 19,497,980 5 32500 Other equity interest (25,000,524) (7) (15,759,469) (4) (15,062,549) (4) 32600 Treasury stock - - (582,754) - (582,754) - Total Equity 312,679,251 85 320,900,639 82 283,695,949 79 Total assets $ 370,956,755 100 394,354,707 100 359,480,327 100 Total Liabilities and Equity $ 370,956,755 100 394,354,707 100 359,480,327 100

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 and 2017 (Expressed In Thousands of New Taiwan Dollars)

For the three months ended June 30 For the six months ended June 30 2018 2017 2018 2017 Amount ％ Amount ％ Amount % Amount % Income： Proportionate share of gains $ 11,230,470 100 9,737,194 100 23,849,226 100 20,277,258 100 from associates or joint ventures under equity method Other income 4,189 - 803 - 58,812 - 2,490 - Expenses and Losses： Operating expenses (389,713) (3) (371,322) (4) (764,662) - (659,446) - Other expenses and losses (127,604) (1) (141,228) (1) (272,544) - (273,031) - Net Income before Tax 10,717,342 96 9,225,447 95 22,870,832 100 19,347,271 100 Income tax (expense) benefit (1,042,654) (9) (45,752) - (968,341) (4) 46,032 - Net Income 9,674,688 87 9,179,695 95 21,902,491 96 19,393,303 100 Other comprehensive income (3,454,502) (31) 3,595,680 37 (16,428,923) (69) 1,665,680 8 (losses) (net amount after tax) Total Comprehensive Income $ 6,220,186 56 12,775,375 132 5,473,568 27 21,058,983 108

Basic EPS (in NT dollars) $ 0.50 0.47 1.12 1.00

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

Total other equity interest

Share capital Retained earnings Changes in Unrealised gains designated as (losses) on financial Other Exchange financial assets Unrealized liabilities comprehensive differences of measured at fair (losses) measured at fair income on overseas value through gains on value through reclassification subsidiaries’ other available-for- profit or loss under the Common Capital Legal Special Undistributed financial reports comprehensive sale attributable to overlay stock Preferred share surplus reserve reserve earnings translation income financial assets credit loss approach Treasury stock Total equity Balance at January 1, 2017 $ 194,969,896 - 36,637,717 17,674,655 21,886,995 28,249,266 (4,414,363) - (11,997,483) (317,142) - (582,754) 282,106,787 Net income - - - - - 19,393,303 ------19,393,303 Other comprehensive income (losses) - - - - - (759) (3,337,622) - 5,637,390 (633,329) - - 1,665,680 Total comprehensive income (losses) - - - - - 19,392,544 (3,337,622) - 5,637,390 (633,329) - - 21,058,983 Appropriation and distribution of retained earnings: Legal reserve appropriated - - - 2,792,898 - (2,792,898) ------Special reserve appropriated - - - - 8,801,584 (8,801,584) ------Cash dividends - common stock - - - - - (16,549,348) ------(16,549,348) Cash dividends from capital surplus - - (2,920,473) ------(2,920,473) Balance at June 30, 2017 $ 194,969,896 - 33,717,244 20,467,553 30,688,579 19,497,980 (7,751,985) - (6,360,093) (950,471) - (582,754) 283,695,949

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 and retrospective restatement - - - - - 276,540 (804) (646,184) 5,608,490 - 1,552,859 - 6,790,901 Equity at beginning of period 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 of preference share - - - - - (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

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 251

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

CTBC FINANCIAL HOLDING CO., LTD. Statements of Cash Flows For the six months ended June 30, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

For the six months ended June 30 2018 2017 Cash Flows from Operating Activities: Net Income before Tax $ 22,870,832 19,347,271 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:： Adjustments to reconcile profit (loss) Depreciation expense 3,044 5,406 Amortization expense 228 - Interest expenses 272,558 269,560 Interest income (6,716) (2,490) Proportionate share of gains from associates or joint ventures under equity method (23,849,226) (20,277,258) Losses on determination of lease contract of leased assets - 78 Gain on disposal and retirement of premises and equipment - (2) Subtotal of income and expense items with no effect on cash flows (23,580,112) (20,004,706) Net Changes in Operating Assets and Liabilities： Net Changes in Operating Assets： Increase in available-for-sale financial assets - (1,899,124) Decrease in financial assets at fair value through other comprehensive income 1,679,510 - Increase in receivables (3) - Decrease in other assets 4,422 3,575 Net Changes in Operating Assets 1,683,929 (1,895,549) Net Changes in Operating Liabilities： Decrease in payables (186,998) (20,651) (Decrease) increase in employee benefits liabilities (634) 139 Decrease in other financial liabilities - (162) Decrease in other liabilities (171,569) (121,387) Net Changes in Operating Liabilities (359,201) (142,061) Net Changes in Operating Assets and Liabilities 1,324,728 (2,037,610) Total Adjustments (22,255,384) (22,042,316) Interest received 6,725 1,822 Dividends received 18,085,663 607,278 Interest paid (372,749) (266,322) Income tax refund 315,265 213,534 Net Cash Provided by (Used in) Operating Activities 18,650,352 (2,138,733) Cash Flows from Investing Activities： Purchase of premises and equipment (821) (4,834) Disposal of premises and equipment - 25 Net Cash Used in Investing Activities (821) (4,809) Cash Flows from Financing Activities： (Decrease) increase in commercial paper payable (37,107,710) 2,543,210 Disposal of treasury stock 585,581 - Other (306) - Net Cash (Used in) Provided by Financing Activities (36,522,435) 2,543,210 Net (Decrease) Increase in Cash and Cash Equivalents (17,872,904) 399,668 Cash and Cash Equivalents, at the Beginning of the Period 18,680,129 755,937 Cash and Cash Equivalents, at the End of the Period $ 807,225 1,155,605 Components of cash and cash equivalents： Cash and cash equivalents recognized in balance sheet $ 807,225 716,220 Securities purchased under resell agreements which meet IAS 7 definition of cash and cash - 439,385 equivalents Cash and Cash Equivalents, the end the period $ 807,225 1,155,605

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 June 30, 2017 Cash and cash equivalents $ 73,000,777 56,225,426 Due from Central Bank and call loans to banks 128,827,282 190,655,714 Financial assets measured at fair value through profit or loss 158,493,884 99,309,421 Financial assets measured at fair value through other 153,146,557 - comprehensive income Investments in debt instruments at amortised cost 595,204,441 - Available-for-sale financial assets－net - 421,054,056 Derivative financial assets－hedging 148,808 223,611 Securities purchased under reverse repurchase agreements 741,879 - Receivables－net 146,877,638 121,877,968 Current income tax assets 458,524 582,432 Loans－net 1,630,737,935 1,538,215,177 Held-to-maturity financial assets－net - 259,674,619 Investments under equity method－net 84,846,205 71,999,683 Other financial assets－net 1,367,240 1,756,128 Investment property－net 1,849,974 4,079,938 Premises and equipment－net 44,558,477 44,030,626 Intangible assets－net 12,611,944 12,346,850 Deferred income tax assets 4,759,344 3,667,586 Other assets－net 17,962,159 10,887,783 Total assets 3,055,593,068 2,836,587,018 Deposits from Central Bank and other banks 57,649,796 71,231,484 Due to Central Bank and other banks 590,322 981,807 Financial liabilities measured at fair value through profit 88,149,130 61,588,228 or loss Derivative financial liabilities－hedging 453,506 281,876 Securities sold under repurchase agreements 45,484,622 39,737,786 Payables 63,362,404 59,068,343 Current income tax liabilities 2,622,901 2,024,944 Deposits and remittances 2,423,046,344 2,245,997,030 Bonds payable 67,909,752 67,946,406 Other financial liabilities 10,965,458 10,187,130 Provisions 5,126,261 4,486,116 Deferred income tax liabilities 987,061 782,219 Other liabilities 8,958,730 6,620,794 Total liabilities 2,775,306,287 2,570,934,163 Common stock 140,685,719 131,125,735 Provision for capital increase - 9,559,984 Capital surplus 29,788,688 29,788,688 Retained earnings 119,130,489 105,013,753 Other equity interest (9,318,115) (9,835,305) Total equity 280,286,781 265,652,855 Total liabilities and equity 3,055,593,068 2,836,587,018

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 2018 % 2017 % Interest revenues $ 27,839,812 68 23,611,721 61 Less: Interest expenses (10,014,478) (24) (7,807,196) (20) Net interest income 17,825,334 44 15,804,525 41 Non-interest income－net 22,882,136 56 22,927,440 59 Net revenue 40,707,470 100 38,731,965 100 Provisions for bad debt expenses, (1,870,850) (5) (1,069,009) (3) commitments and guarantee reserve Operating expenses (20,814,760) (51) (20,805,067) (53) Net income before tax from continuing 18,021,860 44 16,857,889 44 operations Income tax expenses (2,035,946) (5) (1,756,530) (5) Net income 15,985,914 39 15,101,359 39 Other comprehensive income (losses) 1,314,080 3 (2,462,556) (6) Total comprehensive income 17,299,994 42 12,638,803 33 EPS—net income (after tax) (in NT dollars) 1.14 1.07

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 June 30, 2017 Current assets $ 22,407,334 22,115,019 Financial assets carried at cost－non-current - 3,600 Financial assets measured at fair value through other 32,836 - comprehensive income Investments under equity method－net 241,953 216,200 Premises and equipment－net 81,002 104,517 Investment property－net 47,526 47,957 Intangible assets－net 54,650 58,316 Deferred income tax assets 115,063 73,897 Other non-current assets 436,042 457,279 Total assets 23,416,406 23,076,785 Current liabilities 15,753,037 15,830,182 Provisions－non-current liabilities 60,639 32,990 Deferred income tax liabilities 10,122 - Other non-current liabilities - 225 Total liabilities 15,823,798 15,863,397 Common stock 6,027,140 6,027,140 Capital surplus 796,191 796,191 Retained earnings 843,754 471,147 Other equity interest (74,477) (81,090) Total equity 7,592,608 7,213,388 Total liabilities and equity 23,416,406 23,076,785

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 2018 % 2017 % Revenues $ 932,004 100 650,464 100 Service fee expenses (34,704) (4) (26,715) (4) Employee benefits expenses (310,439) (33) (253,693) (39) Proportionate share of losses from associates (3,136) - (2,850) - or joint ventures under equity method Operating expenses (221,530) (24) (234,265) (37) Net income before tax from continuing 362,195 39 132,941 20 operations Income tax expense (35,024) (4) (47,711) (7) Net income 327,171 35 85,230 13 Other comprehensive ( losses) income (4,876) - 15,911 3 Total comprehensive income 322,295 35 101,141 16 EPS—net income (after tax) (in NT dollars) 0.54 0.14

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) CTBC Venture Capital Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

June 30, 2018 June 30, 2017 Current assets $ 273,895 274,714 Available-for-sale financial assets－net - 2,059,101 Financial assets measured at fair value through profit or 4,047,527 - loss Investments under equity method－net 23,816 27,661 Premises and equipment－net 5,090 5,648 Deferred income tax assets 17,517 24,634 Other non-current assets 1,578 1,827,997 Total assets 4,369,423 4,219,755 Current liabilities 491,548 349,702 Deferred income tax liabilities 70 11 Total liabilities 491,618 349,713 Common stock 3,245,169 3,000,000 Capital surplus 1,081 1,081 Retained earnings 631,274 366,056 Other equity interest 281 502,905 Total equity 3,877,805 3,870,042 Total liabilities and equity 4,369,423 4,219,755

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the six months ended June 30 2018 % 2017 % Operating revenues $ 385,304 100 370,036 100 Operating costs (6,117) (2) (4,700) (1) Operating expenses (50,728) (13) (45,921) (12) Operating income 328,459 85 319,415 87 Non-operating income and expenses 3,595 1 (6,135) (2) Net income before tax from continuing 332,054 86 313,280 85 operations Income tax expense (12,056) (3) (6,466) (2) Net income 319,998 83 306,814 83 Other comprehensive income (losses) 75 - (318,022) (86) Total comprehensive income (losses) 320,073 83 (11,208) (3) EPS－net income (after tax) (in NT dollars) 0.99 1.02

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) CTBC Asset Management Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

June 30, 2018 June 30, 2017 Current assets $ 44,286 2,801,242 Available-for-sale financial assets－net - 519,034 Financial assets measured at fair value through profit or 671,919 - loss Investments under equity method－net 1,472,663 1,458,564 Investment properties－net 5,379,630 631,837 Premises and equipment－net 1,032 572 Intangible assets－net 167 201 Deferred income tax assets 44,332 43,461 Other non-current assets 3,855 8,605 Total assets 7,617,884 5,463,516 Current liabilities 2,148,409 24,419 Deferred income tax liabilities 21,785 7,664 Other non-current liabilities 664 386 Total liabilities 2,170,858 32,469 Common stock 5,358,820 5,358,820 Capital surplus 448 448 Retained earnings 118,711 94,711 Other equity interest (30,953) (22,932) Total equity 5,447,026 5,431,047 Total liabilities and equity 7,617,884 5,463,516

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the six months ended June 30 2018 % 2017 % Operating revenues $ 86,412 100 18,409 100 Operating costs (25,756) (30) (2,684) (15) Operating expenses (34,123) (39) (20,452) (111) Operating income (losses) 26,533 31 (4,727) (26) Non-operating income and expenses 70,347 81 72,625 395 Net income before tax from continuing operations 96,880 112 67,898 369 Income tax expense (9,559) (11) (3,077) (17) Net income 87,321 101 64,821 352 Other comprehensive income (losses) 5,306 6 (40,215) (218) Total comprehensive income 92,627 107 24,606 134 EPS—net income (after tax) (in NT dollars) 0.16 0.12

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(v) CTBC Security Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

June 30, 2018 June 30, 2017 Current assets $ 99,539 101,174 Financial assets carried at cost - 103 Premises and equipment－net 2,229 2,611 Intangible assets－net - 28 Other non-current assets 666 658 Deferred income tax assets 814 620 Total assets 103,248 105,194 Current liabilities 31,672 31,367 Other non-current liabilities 16,106 19,136 Total liabilities 47,778 50,503 Common stock 47,695 47,695 Capital surplus 739 739 Retained earnings 7,036 6,247 Total equity 55,470 54,681 Total liabilities and equity 103,248 105,184

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the six months ended June 30 2018 % 2017 % Operating revenues $ 115,729 100 122,683 100 Operating costs (104,240) (90) (111,842) (91) Operating expenses (8,391) (7) (8,218) (7) Operating income 3,098 3 2,623 2 Non-operating income and expenses 246 - 251 - Net income before tax from continuing 3,344 3 2,874 2 operations Income tax expense (715) (1) (558) - Net income 2,629 2 2,316 2 Total comprehensive income 2,629 2 2,316 2 EPS－net income (after tax) (in NT dollars) 0.55 0.49

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(vi) Taiwan Lottery Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

June 30, 2018 June 30, 2017 Current assets $ 843,152 1,158,800 Premises and equipment－net 118,777 137,278 Intangible assets－net 29,966 27,788 Deferred income tax assets 6,819 5,789 Other non-current assets 20,296 22,218 Total assets 1,019,010 1,351,873 Current liabilities 206,106 256,280 Other non-current liabilities 1,760 2,770 Total liabilities 207,866 259,050 Common stock 500,000 500,000 Capital surplus 9,865 9,865 Retained earnings 301,279 582,958 Total equity 811,144 1,092,823 Total liabilities and equity 1,019,010 1,351,873

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the six months ended June 30 2018 % 2017 % Operating revenues $ 818,016 100 1,071,873 100 Operating expenses (600,179) (73) (565,011) (52) Operating income 217,837 27 506,862 48 Non-operating income and expenses 923 - 3,224 - Net income before tax from continuing 218,760 27 510,086 48 operations Income tax expense (42,481) (5) (85,141) (8) Net income 176,279 22 424,945 40 Total comprehensive income 176,279 22 424,945 40 EPS－net income (after tax) (in NT dollars) 3.53 8.50

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(vii) Taiwan Life Insurance Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

June 30, 2018 June 30, 2017 Cash and cash equivalents $ 52,605,683 98,865,135 Receivables 20,630,062 14,111,583 Current income tax assets 516,220 911,666 Financial assets measured at fair value through profit or 152,928,372 13,762,234 loss Available-for-sale financial assets - 229,742,078 Financial assets measured at fair value through other 182,665,622 - comprehensive income Financial assets carried at cost - 4,712,920 Financial assets at amortised cost 998,722,371 - Investments under equity method－net 19,073,599 18,006,738 Debt investments without active market - 747,201,479 Held-to-maturity financial assets - 79,913,010 Other financial assets－net 2,906,785 101,330 Investment properties 54,230,111 52,675,732 Loans 50,899,386 56,792,839 Reinsurance assets 1,760,759 1,610,638 Premises and equipment 4,399,779 4,521,387 Intangible assets 6,862,311 6,729,673 Deferred income tax assets 6,919,938 5,354,368 Other assets 23,239,330 23,377,217 Separated account insurance product assets 71,273,280 48,946,471 Total assets 1,649,633,608 1,407,336,498 Payables 13,221,188 16,093,745 Current income tax liabilities 348,647 2,985,317 Financial liabilities measured at fair value through profit or 18,660,760 3,736,341 loss Bonds payables 15,923,483 15,920,527 Insurance liabilities 1,447,777,874 1,237,627,316 Reserve for insurance policies with financial instrument 3,442 2,754 features Foreign exchange rate fluctuation reserves 1,965,103 803,704 Provisions 160,504 169,321 Deferred income tax liabilities 1,230,865 1,965,449 Other liabilities 1,809,473 3,408,944

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2018 June 30, 2017 Separated account insurance product liabilities 71,273,280 48,946,471 Total liabilities 1,572,374,619 1,331,659,889 Common stock 31,944,991 30,556,324 Stock dividend to be distributed 9,846,144 1,388,667 Capital surplus 27,279,200 27,279,200 Retained earnings 16,477,260 14,735,670 Other equity interest (8,288,606) 1,716,748 Total equity 77,258,989 75,676,609 Total liabilities and equity 1,649,633,608 1,407,336,498

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the six months ended June 30 2018 % 2017 % Operating revenues $ 157,870,553 100 160,067,008 100 Operating costs (148,391,611) (94) (153,663,032) (97) Operating expenses (2,379,549) (1) (1,956,836) (1) Gross profit 7,099,393 5 4,447,140 2 Non-operating revenues and expenses (47,399) - (57,464) - Net income before tax from continuing operations 7,051,994 5 4,389,676 2 Income tax expense (256,729) - (199,411) - Net Income 6,795,265 5 4,190,265 2 Other comprehensive (losses) income (17,759,301) (12) 4,467,897 3 Total comprehensive (losses) income (10,964,036) (7) 8,658,162 5 EPS—net income (after tax) (in NT dollars) 1.63 1.00

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(viii) CTBC Investments Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

June 30, 2018 June 30, 2017 Current assets $ 494,875 410,356 Financial assets measured at fair value through profit or 27,808 - loss Available-for-sale financial assets－net - 31,763 Premises and equipment－net 20,223 24,261 Intangible assets 16,730 20,841 Deferred income tax assets 14,804 17,712 Other non-current assets 57,725 57,547 Total assets 632,165 562,480 Current liabilities 133,370 41,007 Total liabilities 133,370 41,007 Common stock 425,000 425,000 Capital surplus 155,950 155,950 Accumulated deficits (82,155) (61,790) Other equity interest - 2,313 Total equity 498,795 521,473 Total liabilities and equity 632,165 562,480

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the six months ended June 30 2018 % 2017 % Operating revenues $ 241,150 100 126,053 100 Operating expenses (253,749) (105) (131,307) (104) Operating losses (12,599) (5) (5,254) (4) Non-operating revenues and expenses 3,038 1 (984) (1) Net losses before tax from continuing (9,561) (4) (6,238) (5) operations Income tax benefit 7,922 3 1,158 1 Net losses (1,639) (1) (5,080) (4) Other comprehensive income - - 826 1 Total comprehensive losses (1,639) (1) (4,254) (3) EPS—net losses (after tax) (in NT dollars) (0.04) (0.12)

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 263

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(e) Profitability of the Company

Unit: %

Items June 30, 2018 June 30, 2017 Return on assets ratio (annual) Before income tax 11.95 11.13 After income tax 11.45 11.15 Return on common equity ratio Before income tax 15.41 13.68 (annual) After income tax 14.75 13.71 Net income ratio 92.67 96.93

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 common 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 common equity ratio are annualized ratios.

(f) Profitability of the Company and its subsidiaries

Unit: %

Items June 30, 2018 June 30, 2017 Return on assets ratio (annual) Before income tax 0.96 0.90 After income tax 0.80 0.78 Return on common equity ratio Before income tax 17.65 15.75 (annual) After income tax 14.75 13.71 Net income ratio 15.09 11.43

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 common 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 common equity ratio are annualized ratios.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 264

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(g) Profitability of the Company’s subsidiaries

(i) Profitability of CTBC Bank Co., Ltd. and its subsidiaries

Unit: %

Items June 30, 2018 June 30, 2017 Return on assets ratio (annual) Before income tax 0.99 0.99 After income tax 0.84 0.85 Return on common equity ratio Before income tax 13.53 13.63 (annual) After income tax 11.42 11.65 Net income ratio 32.97 33.05

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 common 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 common equity ratio are annualized ratios.

(ii) Profitability of CTBC Securities Co., Ltd. and its subsidiaries

Unit: %

Items June 30, 2018 June 30, 2017 Return on assets ratio (annual) Before income tax 2.97 1.20 After income tax 2.68 0.77 Return on common equity ratio Before income tax 9.69 3.73 (annual) After income tax 8.75 2.38 Net income ratio 35.92 13.53

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 common 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 common equity ratio are annualized ratios.

(Continued) WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa 265

CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Profitability of Taiwan Life Insurance Co., Ltd. and its subsidiaries

Unit: %

Items June 30, 2018 June 30, 2017 Return on assets ratio (annual) Before income tax 0.88 0.65 After income tax 0.85 0.62 Return on common equity ratio Before income tax 17.74 12.33 (annual) After income tax 17.07 11.75 Net income ratio 7.12 3.41

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 common 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 common equity ratio are annualized ratios.

(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: None.

(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 Compnay Limited 〃

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Bank Grand Bills Finance Corporation An investee company carried under equity method by the Bank. 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 Financial Management College The Chairman of the Bank’s subsidiary is its director. Kinpo Electronics, Inc. 〃 Showa Denko HD Trace Corp. The Chairman of the Bank is its director. Straits Exchange Foundation The Chairman of the Bank is its body corporate representative. CTBC Securities Co., Ltd. Controlled by the same company as the Bank. CTBC (Mauritius) Holding Co., Ltd. 〃 CTBC Asia Limited 〃 CTBC Securities Investment Service 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. 〃 CTBC Venture Capital Investment Management 〃 (Shanghai) Co., Ltd. CTBC International Co., Limited 〃 CTBC Leasing Co., Ltd. 〃 CTBC Capital International Co., Limited 〃 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. 〃

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Bank CTBC Investment Trust Funds A securities investment trust fund managed by the company which is controlled by the same company as the Bank. Overseas Investment & Development Corp. The director of the Bank is its Chairman. Wei Fu Investment Co., Ltd. The Institutional director of the Bank's parent company. Yi Chuan Investment Co., Ltd. 〃 Chung Yuan Investment Co., Ltd. 〃 Hewei Investment Co., Ltd. The Chairman of the Bank's parent company is its director. Sunghung Investment Co., Ltd. 〃 Fenglu Development & Investment Co., Ltd. 〃 United Real Estate Management 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. TransWorld University The director of the company which is controlled by the same company as the Bank is its body corporate representative. 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 〃 Nan Ya Technology Corporation 〃 Brothers Entertaining Co., Ltd. 〃 Taiwan Relo Club, Limited The Chairman of the company which is controlled by the same company as the Bank is its Chairman. 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. Huaku Development Co., Ltd. The second-degree relative of the director of the company controlled by the same company as the Bank is its general manager. 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. 〃

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Bank Sungbo Co., Ltd. Related party in substance. Jungguan Investment Co., Ltd. 〃 Kuan Ho Development Co., Ltd. 〃 Zhonghang Co., Ltd. 〃 Bosser Design Inc. 〃 CTC Group Inc. 〃 APEX Credit Solution Inc. 〃 Changchi Investment Ltd. 〃 Yi Huao Investment Co., Ltd. 〃 Yi Kao Investment Co., Ltd. 〃 Shin Wen 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. 〃 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 between related parties and the Bank

a) Loans

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 - Real estate 〃 Co., Ltd. 〃 Kuan Ho 245,000 245,000 245,000 - Real estate 〃 Development Co., Ltd.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Settlement status Number/name of Maximum Ending Normal Loan Categories related parties balance balance loans Overdue loans Collateral conditions Home loan mortgage 444 $ 2,356,026 2,194,369 2,194,369 - Real estate/ Note others Others Nan Ya Plastics 2,613,535 2,480,637 2,480,637 - Real estate/ 〃 Corporation plant/ machine room 〃 Huaku Development 1,050,000 1,050,000 1,050,000 - Real estate 〃 Co., Ltd. 〃 CTC Group Inc. 439,229 385,039 385,039 - Real estate 〃

〃 Jungguan Investment 355,000 350,000 350,000 - Real estate 〃 Co., Ltd. 〃 Taipei Financial 376,756 269,573 269,573 - Real estate/ 〃 Center Corporation buildings for commercial use 〃 Kuan Ho 245,000 245,000 245,000 - Real estate 〃 Development Co., Ltd.

June 30, 2017 Settlement status Number/name of Maximum Ending Normal Loan Categories related parties balance balance loans Overdue loans Collateral conditions Home loan mortgage 410 $ 2,170,201 2,065,013 2,065,013 - Real estate/ Note others Others Nan Ya Technology 1,533,250 1,333,200 1,333,200 - Real estate/ 〃 Corporation plant/ machine room/ machinery 〃 Huaku Development 1,050,000 1,050,000 1,050,000 - Real estate 〃 Co., Ltd. 〃 Nan Ya Plastics 895,517 866,628 866,628 - Real estate/ 〃 Corporation plant/ machine room 〃 CTC Group Inc. 447,882 440,488 440,488 - Real estate 〃〃 Jungguan Investment 355,000 350,000 350,000 - Real estate 〃 Co., Ltd. 〃 Taipei Financial 376,756 308,713 308,713 - Real estate/ 〃 Center Corporation buildings for commercial use 〃 Kuan Ho 245,000 245,000 245,000 - Real estate 〃 Development Co., Ltd. 〃 Zhonghang Co., Ltd 224,000 200,200 200,200 - Vehicle/ cargo 〃 aircraft

Note: The terms of loans between related and non-related parties are identical.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

b) Deposits

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% 9,216 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 Sungyong 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 Co., Ltd. 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 Quanwei Investment Co., 478,310 197,693 0~0.01% 6 13 Limited Fenglu Development & 216,213 194,057 0~0.01% 5 10 Investment Co., Ltd. CTBC Real Estate Co., Ltd. 210,342 188,936 0~1.25% 459 847 Straits Exchange Foundation 187,030 187,030 0.15~1.04% 487 967 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 Financial Management 189,625 178,985 0~1.09% 70 129 College Yi Chuan Investment Co., Ltd. 170,012 163,510 0~0.01% 3 5 Yi Hua 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 Zhongyuan Investment Co., Ltd. 105,479 103,229 0.01% 1 1 Total $ 81,386,605 33,795,619 25,537 50,383

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Interest expenses Maximum Range of (for the year Related party balance Ending balance interest rates 2017) CTBC Financial Holding Co., Ltd. $ 20,078,851 18,678,943 0~0.16% 81 Taiwan Life Insurance Co., Ltd. 34,900,558 15,996,525 0~0.30% 10,219 Hofa Land Development Co., Ltd. 3,370,887 2,952,819 0~0.45% 2,030 Showa Denko HD Trace Corp. 3,207,376 2,332,749 0~2.02% 23,725 CTBC Securities Co., Ltd. 4,940,108 1,921,013 0~1.07% 10,198 CTBC Charity Foundation 1,111,542 909,871 0~1.07% 5,934 Taiwan Sports Lottery Co., Ltd. 1,014,570 699,636 0~0.01% 53 Taiwan Lottery Corporation 854,835 676,013 0~0.14% 483 Yan Yuan Investment Co., Ltd. 808,739 559,505 0~0.01% 45 Chuan Wei Investment Co., Ltd. 505,811 480,260 0~0.01% 30 Taiwan Institute of Economic Research 472,821 423,814 0~1.33% 2,106 Shin Wen Investment Co., Ltd 421,426 421,426 0~0.01% 12 CTBC Investments Co., Ltd. 444,002 415,124 0~0.45% 1,347 Yi Kao Investment Co., Ltd. 416,142 377,272 0.01% 23 Kainan High School of Commerce and 345,795 298,311 0~1.22% 2,119 Industry Overseas Investment & Development Corp. 299,142 282,671 0~1.53% 1,958 Chinatrust Real Estate Co., Ltd. 403,474 268,125 0~1.25% 2,681 Fenglu Development & Investment Co., 216,213 216,213 0~0.01% 18 Ltd. CTBC Venture Capital Co., Ltd. 526,591 208,325 0~0.16% 20 Kuan Ho Development Co., Ltd. 201,841 201,841 0~0.01% 10 Chia Shih Investment Co., Ltd. 190,926 190,881 0~0.01% 12 Straits Exchange Foundation 187,030 187,030 0.15~1.22% 1,907 CTBC Asia Limited 222,412 163,428 0.25~1.55% 758 Yi Huao Investment Co., Ltd. 159,505 159,445 0~0.01% 12 CTBC Financial Management College 211,089 159,153 0~1.22% 193 Sunghung Investment Co., Ltd. 127,767 127,767 0~0.01% 5 Kae Lee Investment Co., Ltd. 122,080 121,930 0~0.01% 6 Wu Tzu Development Co., Ltd 462,421 118,402 0~0.01% 20 Hewei Investment Co., Ltd. 111,564 107,413 0~0.01% 10 Yi Chuan Investment Co., Ltd. 121,080 106,419 0~0.01% 7 TransWorld University 234,056 103,700 0~1.22% 165 Total $ 76,690,654 49,866,024 66,187

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

June 30, 2017 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. $ 34,712,115 17,386,271 0~0.30% 2,254 4,174 Showa Denko HD Trace Cop. 3,207,376 2,022,892 0~1.41% 7,689 15,940 CTBC Securities Co., Ltd. 4,730,370 1,926,919 0~1.07% 2,477 4,871 CTBC Charity Foundation 1,111,542 984,298 0~1.07% 1,482 2,945 CTBC Financial Holding Co., 2,090,369 715,117 0~0.11% 10 18 Ltd. Taiwan Lottery Corporation 854,835 512,737 0~0.14% 136 257 Yan Yuan Investment Co., Ltd. 490,688 490,688 0~0.01% 11 11 Taiwan Sports Lottery Co., Ltd. 1,014,570 443,012 0~0.01% 9 24 CTBC Investments Co., Ltd. 420,424 394,269 0~0.41% 333 659 Taiwan Institute of Economic 424,060 372,836 0~1.33% 523 1,029 Research Chuan Wei Investment Co., Ltd. 370,715 320,888 0~0.01% 8 8 Kainan High School of 345,795 314,333 0~1.22% 530 1,072 Commerce and Industry Overseas Investment & 299,142 282,671 0~1.53% 946 1,958 Development Corp. CTBC Venture Capital Co., Ltd. 526,591 239,173 0~0.11% 5 9 Yi Kao Investment Co., Ltd. 345,637 229,332 0.01% 6 7 CTBC Asia Limited 205,305 204,918 0.25% - - Straits Exchange Foundation 187,030 187,030 0.15~1.22% 470 968 CTBC Financial Management 194,016 175,127 0~1.22% 40 86 College Fenglu Development & 177,513 174,858 0~0.01% 5 9 Investment Co., Ltd. Trans World University 234,056 161,404 0~1.22% 37 102 Brothers Entertaining Co., Ltd. 133,210 133,210 0~0.08% 2 3 Total $ 52,075,359 27,671,983 16,973 34,150

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

For the six months ended June 30, 2017 Ending Range of Interest Related party balance interest rates revenues CTBC Bank(Philippines) Corp. $ 1,006,172 1.22~2.38% 911

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

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

For the six months ended June 30, 2017 Ending Range of Interest Related party balance interest rates revenues The Tokyo Star Bank, Ltd. $ 1,086,400 0.05~0.06% 393

e) Due from other banks

December 31, Related party June 30, 2018 2017 June 30, 2017 CTBC Bank Corp. (USA) $ 4,123,251 4,305,364 121,889

f) Derivative financial instruments

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 (Note1) 113,968 Co., Ltd. Trust swap 09.05.2018 Funds

June 30, 2017 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit (loss) Account Balance PT Bank CTBC Interest rate swaps 01.12.2015~ USD 3,175 (195) (Note2) (195) Indonesia 03.12.2018 CTBC Investments Money market 06.15.2017~ USD 8,500 1,015 (Note1) 1,015 Co., Ltd. Trust swap 07.26.2017 Funds

Note 1: Financial assets measured at fair value through profit or loss.

Note 2: Financial liabilities measured at fair value through profit or loss.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

g) Others

i) Commission and other income

For the three months ended June 30 Related party Summary 2018 2017 CTBC Life Insurance Co., Commission for joint sales, $ 950,892 908,544 Ltd. income from group catering and commission income LH Financial Group Public Dividend income 209,453 - Company Limited $ 1,160,345 908,544

For the six months ended June 30 Related party Summary 2018 2017 Taiwan Life Insurance Co., Ltd. Commission for joint sales, $ 2,131,811 2,233,213 income from group catering and commission income LH Financial Group Public Dividend income 209,453 - Company Limited $ 2,341,264 2,233,213

The balance of accounts receivable for foregoing transactions were as follows:

June 30, June 30, Related party Summary 2018 2017 Taiwan Life Insurance Co., Commission for joint sales, income from $ 227,163 277,744 Ltd. group catering and commission income

ii) Handling fees and other general administration expenses

For the three months ended June 30 Related party Summary 2018 2017 Taiwan Lottery Co., Ltd. Lottery service fees $ 202,732 270,510 Brothers Entertaining Co., Ltd Sponsorship, marketing 104,318 96,745 feedback fund and gift expenses $ 307,050 367,255

For the six months ended June 30 Related party Summary 2018 2017 Taiwan Lottery Co., Ltd. Lottery service fees $ 859,453 1,112,050 Brothers Entertaining Co.,Ltd Sponsorship, marketing feedback 199,488 186,880 fund and gift expenses $ 1,058,941 1,298,930

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 2018 2017 Taiwan Lottery Co., Ltd. Lottery service fees $ 338,826 595,682

iii) Others

June 30, December June 30, Related party Summary 2018 31, 2017 2017 Taipei Financial Center Balance of share holdings $ 506,520 371,250 371,250 Corporation Fina Finance &Trading Co., Referral maturity fees (Note1) 250,260 426,851 772,960 Ltd. CTBC Asset Management Co., Gains on property transaction - 2,535,287 - Ltd. － investment property (Note2) Total $ 756,780 3,333,388 1,144,210

Note1: The Company’s subsidiary CTBC Bank Co., Ltd. signed a strategic alliance agreement with Chailease Finance Co., Ltd. and Fina Finance & Trading 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 if any delay arises.

Note2: The price was referred to the appraisal report from the real estate appraiser firm.

Please refer to Note 9(a) for more information regarding the guaranteed loans of PT Bank CTBC Indonesia.

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 ITS 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 Investmensts Co., Ltd. Trust A securities investment trust fund managed by the Funds 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 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. 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)(ix) for transactions with CTBC Investments Co., Ltd.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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., Limited. 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. Rich Healthy Fruits & Vegetable Corp. The General Manager of the Company is its director. Noratech Pharmaceuticals, Inc. 〃 Prince Pharmaceutical 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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) CTBC Asset Management Co., Ltd.

1) Names of the related parties and relationship

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 ITS 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 Securities Co., Ltd. 〃 CTBC Venture Capital Co., Ltd. 〃 CTBC Asset Management Co., Ltd. 〃 CTBC Investments Co., Ltd. 〃 Taiwan Lottery Co., Ltd. 〃 Taiwan Life Insurance 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. CTBC Anti-Drug Educational 〃 Foundation 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. Related party in substance. Yi Kao 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 ITS 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 Asset Management Co., Ltd. 〃 CTBC Security Co., Ltd. 〃 Taiwan Life Insurance Co., Ltd. 〃 CTBC Financial Management College 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 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 ITS 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. 〃 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 〃 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 Technology Corporation The Chairman of the Company's subsidiary is its director. Chailease Insurance 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Significant transactions with related parties

a) The following table presents the ending balance of the discretionary account invested by the related parties：

December 31, Related party June 30, 2018 2017 June 30, 2017 CTBC Investments Co., Ltd. $ 67,708,679 62,003,848 58,978,955

b) 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, 2018 2017 June 30, 2017 Nan Ya Plastics Corporation $ 1,171,361 1,299,372 1,191,390 Nan Ya Techonology Corporation - - 164,400 Formosa Sumco Technology 268,907 351,860 - Corporation Total $ 1,440,268 1,651,232 1,355,790

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

Please refer to Note 7(b)(ix) for transactions with CTBC Investments Co., Ltd.

(viii) CTBC Investments Co., Ltd.

1) Names of the related parties and relationship

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Significant transactions with related parties

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

(m) Significant contract: 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 co-marketing with CTBC Bank and Taiwan Life shared based on annual commission rate agreed between all parties for each insurance product.

(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, 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, 2017 Beginning Current Current Ending Compulsory auto insurance balance provision recovery balance Unearned premium reserve $ 73,748 73,282 73,748 73,282 Claim reserve 130,077 136,210 130,077 136,210 Special reserve (204,344) 10,277 - (194,067) Total $ (519) 219,769 203,825 15,425

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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For the six months ended June 30, 2017 Beginning Current Current Ending Compulsory moto insurance balance provision recovery balance Unearned premium reserve $ 63,274 63,875 63,274 63,875 Claim reserve 55,543 53,029 55,543 53,029 Special reserve 248,610 4,404 - 253,014 Total $ 367,427 121,308 118,817 369,918

(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, 2018, December 31 and June 30, 2017, assets and liabilities the Company’s sub-subsidiary TLG Insurance Co., Ltd. operated on this insurance were as below:

December 31, June 30, 2018 2017 June 30, 2017 Assets Cash and cash equivalents $ 349,275 342,136 370,548 Notes receivable 2,698 2,268 - Premiums receivable 4,878 4,342 4,787 Claims recoverable from reinsurers 9,065 32,891 8,579 Due from reinsurers and ceding 12,310 12,378 13,831 companies Ceded unearned premiums reserve 73,116 76,263 76,942 Ceded claim reserve 102,649 116,663 116,232 Temporary payments and suspense 310 3,669 46 accounts Total Assets $ 554,301 590,610 590,965 Liabilities Notes payable $ 458 403 351 Due to reinsurers and ceding 13,068 12,485 11,946 companies Unearned premium reserve 208,750 214,552 214,099 Claim reserve 284,434 307,275 305,471 Special reserve 47,565 55,739 58,947 Temporary receipts and suspense 14 139 138 accounts Other liabilities 12 17 13 Total liabilities $ 554,301 590,610 590,965

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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 institution as time deposits, once insurer has reported and gotten the approval of the competent authority, it may purchase domestic securities. As of June 30, 2018, December 31 and June 30, 2017, the amount of time deposits the Company’s sub-subsidiary TLG Insurance Co., Ltd. placed in financial institutions described in preceding paragraph were $47,565, $55,739 and $58,947, 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, 2018, December 31 and June 30, 2017, the amount of demand deposits were $52,065, $49,780 and $64,095, respectively, note deposits were $410, $76 and $253, respectively, and time deposits were $249,235, $236,541 and $247,253, 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 2018 2017 2018 2017 Operating revenue Premium (contain $ 85,775 92,070 170,185 180,243 reinsurance premium) Less: Reinsurance (28,782) (32,600) (58,879) (64,347) expense Net change in 1,433 65 2,655 (135) unearned premiums reserve Retained earned premium 58,426 59,535 113,961 115,761 Interest income 143 115 288 229 $ 58,569 59,650 114,249 115,990 Operating costs Insurance claim payment $ 84,275 66,220 182,768 157,158 (contain reinsurance indemnity) Less: Claims recoverable (28,296) (24,156) (51,518) (59,468) from reinsurers Retained claim payment 55,979 42,064 131,250 97,690 Net change in claim (8,868) 1,213 (8,827) 3,619 reserve Net change in special 11,458 16,373 (8,174) 14,681 claim reserve $ 58,569 59,650 114,249 115,990

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS 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, 2018 and 2017 and the six months ended June 30, 2018 and 2017, the income for reinsurance corporate with BEST RE (L) Ltd. were $0, $0, $26 and $18, respectively. As of June 30, 2018, December 31 and June 30, 2017, the amount of unauthorized insurance reserve the Company’s sub-subsidiary TLG Insurance Co., Ltd. should increase to meet the supervisory report request were $96, $100 and $118, 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 $96, $98 and $106, respectively, and claims recoverable from reinsurers of paid claims overdue in nine months amounted to $0, $2 and $12 , respectively.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(13) Disclosures Required:

(a) Related information on significant transactions:

For the six months ended June 30, 2018, according to the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, the related information on significant transactions by the Company and its 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 34,823 34,823 33,508 6.5% 1 45,992 Actual 670 - 295,253 590,505 Leasing Co., Electronic Ltd, loans/other business Ltd. Shanghai income contact 1 〃 Hongtai Real 〃 No 45,992 45,992 45,992 8.46% 1 91,984 〃 920 - 295,253 590,505 estate Development, Ltd., Ningbo 2 CTBC CTBC Capital Receivables Yes 610 610 - (Note 6) 2 - Support - - 1,565,363 1,956,703 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. Note 6：The average rate with identical cut-off date of peer bank by CTBC Venture Capital Co., Ltd.. (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 Relationship endorsements endorsements endorsements amount guarantees latest amount for third parties on on behalf of companies in Name of with the for a specific during as of during the and financial guarantees and behalf of parent Mainland No. guarantor Name Company enterprise the period reporting date period endorsements statements endorsements subsidiary company China 1 CTBC CTBC Asia 3 373,449 100,000 100,000 - - 1.30 % 2,987,588 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 relationship of endorsements and guarantees for others are as follow: (1) Company belongs to business relation. (2) Subsidiaries directly hold common stock equity over 50%. (3) Parent company and its subsidiaries hold common stock over 50% in combination based on company category. (4) The parent company that holds over 50% of the common stock directly or indirectly through its subsidiaries. (5) Co-investment relation by stockholders endorsement the company with shareholding ratio.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Marketable securities held as of June 30, 2018 (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 Market price holding securities and name issuer Account Number of shares Book value Shareholding ratio (Note 1) Remark CTBC Venture Capital HIM International Music - Financial assets 1,792 263,409 3.78 % 263,409 Co., Ltd. Inc. measured at fair value through profit or loss 〃 Eir Genix Inc. - 〃 6,255 218,846 5.04 % 218,846 〃 Others (Note2) - 〃 - 3,565,272 - % 3,565,272 CTBC Asset Privately Offered Fund – - - - 671,919 - % 671,919 Management Co., Ltd. CVI Credit Value Fund B III CTBC Investments Co., Beneficiary Certificate – Securities 1,806 19,833 - % 19,833 Ltd. CTBC Hwa-win Money investment trust Market Fund fund managed by CTBC Investments Co., Ltd. 〃 Beneficiary Certificate – - 〃 313 5,983 - % 5,983 CTBC Stable Growth Fund 〃 CTBC Global Short 〃 204 1,992 - % 1,992 Duration High Yield Bond Fund A TLG Capital Co., Ltd. Cathay Financial Holding - 〃 1,666 104,292 0.01 % 104,292 Co., Ltd. Preferred Stock (2882A) 〃 Union Bank of Taiwan 〃 4,000 206,400 0.15 % 206,400 (2838A) 〃 Formosa Chemicals & 〃 Financial assets 439 53,339 0.01 % 53,339 Fibre Corporation measured at fair value through other comprehensive income 〃 Taiwan Mobile 〃〃 362 40,001 0.01 % 40,001 Corporation 〃 Formosa Plastic 〃〃 468 52,650 0.01 % 52,650 Corporation 〃 Mega Finance Holding - 〃 2,558 68,810 0.02 % 68,810 Co., Ltd. 〃 Far Eas Tone - 〃 228 17,966 0.01 % 17,966 Telecommunications Co., Ltd. 〃 Quanta Computer Co., - 〃 974 52,109 0.03 % 52,109 Ltd. 〃 Taiwan Telecom Co., Ltd. - 〃 364 40,040 - % 40,040 〃 Fubon Financial Holding - 183 9,351 - % 9,351 Co., Ltd. 〃 Sinopac Financial Holding - 〃 758 8,338 0.01 % 8,338 Co., Ltd.

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.

(iv) Accumulative purchases or sales of the same investee's capital stock up to $300,000 or over 10% of paid-in capital:None

(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 Status of with the Date of reference Purpose of Other acquisition Property date Amount payment Counter-party Relationship Owner issuer transfer Amount materials acquisition commitment Taiwan Life Lot NO. 26 inThe 2,713,716 The price of Continental Non-related Not Not Not - Appraisal Investment Insurance 3 avenues of subsidiary 1,144,186 Development parties applicable applicable applicable report real estate Co., Ltd. Zhongzheng signed the paid by the Corporation district, joint- way of joint Taipei City construction construction contract and and the price the pre-sale of 1,569,530 contract in paid with November, construction 2012, and got progress. The the ownership total amount in May, 2018. of the contract price has been paid.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(vi) Disposal of real estate up to $300,000 or 10% of paid-in capital:

(In Thousands of New Taiwan Dollars)

Name of Type of Transaction Acquisition Book Transaction Status of Gain from Nature of Purpose of company property date date value amount receipt disposal Counter-party relationship disposal Price reference Other terms Taiwan Life Lot NO. 26 in The subsidiary 2012.11 1,144,186 1,144,186 Joint - Continental Non-related Joint venture Appraisal Insurance Co., 3 avenues of signed the construction Development parties report Ltd. Zhongzheng joint- Corporation district, Taipei construction City contract in November, 2012, and got the ownership in May, 2018.

(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 338,826 - % - - 39,900 - same company as Taiwan Lottery Co., Ltd.

(ix) Financial derivative transactions: Not applicable to bank subsidiaries; others: Please refer to Note 6(au).

(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 March 15, 2018 I.R Servicing., Ltd. Non-secured loan JPY 190,284 JPY 184,608 JPY (5,676)None Non-related party May 25, 2018 Millennium servicing.Ltd Secured loan JPY 12,277 JPY 12,280 JPY 3 None Non-related party May 25, 2018 Aozora Servicing.,Ltd. Secured loan JPY 13,274 JPY 13,274 JPY - None Non-related party May 25, 2018 Astry Servicing.,Ltd. Secured loan JPY 12,604 JPY 9,542 JPY (3,062)None Non-related party May 25, 2018 Abilio Servicer Co., Ltd Secured loan JPY 29,739 JPY 29,739 JPY - None Non-related party May 25, 2018 Yamada-Servicer.co.jp Secured loan JPY 13,143 JPY 13,143 JPY - 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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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, 2018 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 805,788 The terms of loans between 0.01% 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 〃 0.01% Ltd. Ltd. subsidiary remittances/ Other asset 〃〃〃〃 Deposits and 756,000 〃 0.01% remittances/ Other financial asset 〃〃〃〃 Deposits and 756,633 〃 0.01% remittances/ Cash and cash equivalents 〃〃 CTBC Investment Co., 〃〃 404,005 〃 0.01% Ltd. 〃〃 Taiwan Lottery Co., Ltd. 〃〃 458,549 〃 0.01% 〃〃〃〃 Payables/ 338,826 〃 0.01% Receivables 〃〃〃〃 Other general and 815,016 〃 0.56% administrative expenses/ Service income 〃〃 CTBC Venture Capital 〃 Deposits and 232,841 〃 -% Co., Ltd. remittances/ Cash and cash equivalents 〃〃 Taiwan Life Insurance Co 〃〃 16,422,548 〃 0.30% Ltd. 〃〃〃〃 Receivables/ 361,471 〃 0.01% Payables 〃〃〃〃 Service fee and 1,939,917 〃 1.34% commission income / service fee and commission expenses 〃〃 CTBC Capital Subsidiary to sub- Cash and cash 4,122,533 〃 0.07% Corp. subsidiary equivalents / Deposits and remittances 〃〃 The Tokyo Star Bank, Ltd. 〃 Deposits from 551,200 〃 0.01% Central Bank and other banks/ Due from Central Bank and call loans to banks 〃〃〃〃 Due from Central 4,575,000 〃 0.08% Bank and call loans to bank/ Deposits from Central Bank and other banks 〃〃 CTBC Bank(Philippines) 〃〃 1,080,963 〃 0.02% Corp. 〃〃 PT Bank CTBC 〃 Loans/ Due to 1,067,500 〃 0.02% Indonesia Central Bank and other banks

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.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(b) Related information on reinvestment:

The following is the information on investees for the six months ended June 30, 2018 (excluding information on investees in Mainland China):

(Unit: In Thousands of New Taiwan Dollars/Thousands Shares) Aggregate shareholding of the Company and its subsidiaries Name of Main Investment Number of Total investee business Shareholding Book gain(loss) Number of pro forma Number of Shareholding company Address scope ratio Value recognized shares shares shares ratio Note CTBC Bank No.166, 168, 170, Commercial banking 100.00% 277,749,526 16,015,451 14,068,572 - 14,068,572 100.00% 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 99.92% 7,604,889 326,902 602,219 - 602,219 99.92% " Co., Ltd. 2nd Road,Taipei business CTBC Venture 21F, No.168, Jingmao Venture capital 100.00% 3,877,805 319,998 324,517 - 324,517 100.00% " Capital Co., Ltd. 2nd Road,Taipei investment CTBC Asset 19F, No.168, Jingmao Asset management 100.00% 5,447,026 87,321 535,882 - 535,882 100.00% " Management 2nd Road,Taipei business Co., Ltd. CTBC Security 5F, No.188, Jingmao Protection, fire and 100.00% 55,469 2,629 4,770 - 4,770 100.00% Co., Ltd. 2nd Road,Taipei life safety services Taiwan Lottery 15F, No.188, Jingmao Operate the public 100.00% 811,144 176,279 50,000 - 50,000 100.00% The investment has Co., Ltd. 2nd Road,Taipei welfare lottery for been eliminated the issuing, sale, when preparing the promotion, drawing, consolidated payment of prize financial and management statements. CTBC 12F, No.188, Jingmao Investment and trust 100.00% 678,851 (1,639) 42,500 - 42,500 100.00% " Investments Co., 2nd Road,Taipei business Ltd. Taiwan Life 8F, No.188, Jingmao Insurance business 100.00% 72,891,941 6,922,285 4,179,113 - 4,179,113 100.00% " Insurance Co., 2nd Road,Taipei Ltd. CTBC Bank 16th to 19th Floors, Commercial banking 99.60% 4,303,644 67,240 246,496 - 246,496 99.60% " (Philippines) Fort Legend and financing Corp. Towers 31st Street business corner 3rd Avenue Bonifacio Global City, Taguig City, 1634 Philippines PT Bank CTBC Tamara Center, Commercial banking 99.00% 5,767,781 107,370 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% 1,466,604 58,166 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% 14,759,458 573,826 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% 1,924,170 61,861 114,399 - 114,399 21.15% Finance Jhongsiao E. short-term bills and Corporation Rd.,Taipei securities CTBC Bank 801 S. Figueroa Commercial banking 100.00% 14,013,004 610,129 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% 40,747,670 1,172,200 700 - 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% 3,130,308 9,945 1,936 - 1,936 100.00% " Business Shinjuku,Tokyo assurance business Finance, Ltd. TSB 2-2-17,Akasaka, Debts management 100.00% 537,865 11,506 - - - 100.00% " Servicer,Ltd. Minato,Tokyo business CTBC 3rd Floor,Raffles Holding company 100.00% 210,038 (5,136) 17,363 - 17,363 100.00% "(Note 1) (Mauritius) Tower,19 Cybercity Holding Co., Ebene ,Republic of Ltd. Mauritius. CTBC Securities 14F, No.188, Jingmao Security investment 100.00% 52,544 2,000 5,000 - 5,000 100.00% The investment has Investment 2nd Road,Taipei consultant company been eliminated Service Co., Ltd. when preparing the consolidated financial statements.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate shareholding of the Company and its subsidiaries Name of Main Investment Number of Total investee business Shareholding Book gain(loss) Number of pro forma Number of Shareholding company Address scope ratio Value recognized shares shares shares ratio Note CTBC Asia Suite 2809, 28F., Two Securities company 100.00% 207,833 (5,099) 134,526 - 134,526 100.00% The investment has Limited International been eliminated Finance Centre, 8 when preparing the Finance Street, consolidated Central, financial Hong Kong statements. CTBC Capital Romm 511, 5F, Holding company 100.00% 23,816 29 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% 1,472,663 37,590 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% 24,091 184 - - - 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% 1,446,304 37,756 - - - 100.00% " Co., Ltd. Wenguang Building, Hongqiao Road, Changning District, Shanghai TLG Insurance 18F-1, No.17, Property insurance 100.00% 1,829,597 49,634 200,000 - 200,000 100.00% " Co., Ltd. Xuchang St., business Zhongzheng Dist., Taipei City, Taiwan TLG Capital 17F., No.17, Xuchang Installment, leasing 100.00% 893,713 41,281 66,325 - 66,325 100.00% " Co., Ltd. St., Zhongzheng Dist., and account Taipei City, receivable factoring Taiwan business, etc. King Dragon 27F Xiamen Lixin Insurance business 50.00% 589,659 (77,719) 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% 213,652 (2,499) 20,000 - 20,000 25.00% VentuerCapital Xinsheng S. Rd., Da’ investment Co., Ltd. an Dist., Taipei City 106,Taiwan AZ-Star Co., 3-2-7,Kudan-minami, Fund management 40.00% 32,464 62,369 - - - 40.00% Ltd. Chiyodaku,Tokyo business AZ-Star First 3-2-7,Kudan- Equity investment 43.98% 214,251 (4,804) 3 - 3 43.98% Investment minami,Chiyodaku, business Limited Tokyo Partnership LH Financial 1Q. House Lumini Investment business 35.62% 15,876,878 522,352 7,544,961 - 7,544,961 35.62% Group Public Building, 5th Floor, Company South Sathon Road, Limited Thungmahamek, Sathon, Bangkok 10120 Hofa Land 4F-2, NO.80, Szu Wei Premises development 90.00% 12,673,301 117,219 1,224,900 - 1,224,900 90.00% Development 3rd, Kaohsiung City, and transaction Co., Ltd. Taiwan Wu Tzu 3F, No.2-7, Luchuan Athletics and 99.00% 2,033,999 (27,823) 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% 903,773 4,456 30,000 - 30,000 30.00% Energy Co., Ltd. Guangfu N. Rd., Company Hukou Township, Hsinchu County, Taiwan

Note 1: The book value includes accumulated impairment loss amounted to $20,629.

Note 2: Liquidating.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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, 2018 Outflow Inflow June 30, 2018 (Note 2) indirect investment (Note 2) June 30, 2018 June 30, 2018 CTBC Bank Co., Ltd., Commercial 6,194,068 ( 3 ) 6,194,068 - - 6,194,068 28,717 A branch in Shanghai; 28,717 6,825,140 - Shanghai Branch banking USD 206,045 USD 206,045 USD 206,045 CNY 5,064 not an investee CNY 5,064 CNY 1,496,730 CTBC Bank Co., Ltd., " 4,114,056 ( 3 ) 4,114,056 - - 4,114,056 229,844 A branch in 229,844 4,382,566 - Guangzhou Branch USD 130,531 USD 130,531 USD 130,531 CNY 49,255 Guangzhou; not an CNY 49,255 CNY 950,133 investee CTBC Bank Co., Ltd., " 4,081,960 ( 3 ) 4,081,960 - - 4,081,960 85,022 A branch in Xiamen; 85,022 3,879,893 - Xiamen Branch CNY 800,000 CNY 800,000 CNY 800,000 CNY 18,153 not an investee CNY 18,153 CNY 833,763 Xiamen Jinmeixin Financing business 795,471 ( 1 ) - 795,471 - 795,471 - A joint venture - 795,471 - Consumer FinanceCo., CNY 170,000 CNY - CNY 170,000 CNY 170,000 CNY - was established by CNY - CNY 170,000 the Company’s Ltd. subsidiary CTBC Bank Co., Ltd, GOME Holdings Group Co., Ltd. and Xiamen Jin Yuan Financial Holding Co., Ltd. The Bank acquired 34% of the shares. The joint venture company has not yet been completely established. CTBC Leasing Co., Financial leasing 2,071,728 ( 2 ) 2,071,728 - - 2,071,728 37,756 100.00% 37,756 1,446,304 - Ltd. CNY 433,802 CNY 433,802 CNY 433,802 CNY 8,142 CNY 8,142 CNY 314,469 CTBC Venture Capital Venture capital 58,612 ( 2 ) 58,612 - - 58,612 184 100.00% 184 24,091 - Investment management CNY 12,578 CNY 12,578 CNY 12,578 CNY 40 CNY 40 CNY 5,238 Management and consulting (Shanghai) Co., Ltd. King Dragon Life Life insurance 3,529,890 ( 1 ) 1,646,486 - - 1,646,486 (155,438) 50.00% (77,719) 589,659 - Insurance Co., Ltd. business CNY 700,000 CNY 350,000 CNY 350,000 CNY (33,840) CNY (16,920)CNY 128,092

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: CTBC Bank Co., Ltd. Shanghai Branch, CTBC Bank Co., Ltd. Guangzhou Branch and CTBC Bank Co,. Ltd. Xiamen Branch.

3. Please specify if information regarding current gains or losses of an investee is not accessible.

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CTBC FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(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, 2018 MOEA Commission, MOEA CTBC Bank Co., Ltd. 15,185,555 15,188,604 168,216,811 (USD 336,576 ) (USD 497,987 ) (CNY 970,000 ) CTBC Asset Management Co., Ltd. 2,071,728 2,071,728 3,268,216 (CNY 433,802 ) (CNY 433,802 ) (CNY 710,605 ) CTBC Venture Capital Co., Ltd. 58,612 58,612 2,326,283 (CNY 12,578 ) (CNY 12,578 ) (CNY 505,887 ) Taiwan Life Insurance Co., Ltd. 1,646,486 1,646,486 46,355,393 (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 ITS SUBSIDIARIES Notes to the Consolidated Financial Statements

(14) Segment Information:

The Company and its 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, 2018 and 2017, 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, 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 three months ended June Consolidated Consolidated retail Adjustments and 30, 2017 institutional banking banking Insurance Others eliminations Total Net interest income $ 8,426,247 4,205,166 10,511,765 (1,034,825) - 22,108,353 Net non-interest income 3,987,000 6,314,682 42,333,447 1,415,924 (359,862) 53,691,191 Net revenue 12,413,247 10,519,848 52,845,212 381,099 (359,862) 75,799,544 Net Income (loss) before Tax $ 3,772,947 4,666,938 3,055,550 (988,912) - 10,506,523

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

For the six months ended June 30, Consolidated Consolidated retail Adjustments and 2017 institutional banking banking Insurance Others eliminations Total Net interest income $ 14,810,632 8,217,762 20,552,957 145,981 - 43,727,332 Net non-interest income 8,411,819 12,286,844 102,473,768 3,995,433 (1,260,237) 125,907,627 Net revenue 23,222,451 20,504,606 123,026,725 4,141,414 (1,260,237) 169,634,959 Net Income before Tax $ 9,362,028 9,039,398 4,397,131 (515,746) - 22,282,811

Total assets $ 2,776,400,811 778,347,322 1,415,564,098 118,913,674 (21,785,716) 5,067,440,189

(b) Geographic segment information: Not applicable to the interim financial statements.

(c) Information on major customers: Not applicable to the interim financial statements. WorldReginfo - 61c38f67-ea68-442f-bfd4-6ee05178b2fa