Taipei Fubon Commercial Bank Co., Ltd.
Financial Statements for the Years Ended December 31, 2008 and 2007 and Independent Auditors’ Report INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders Taipei Fubon Commercial Bank Co., Ltd.
We have audited the accompanying balance sheets of Taipei Fubon Commercial Bank Co., Ltd. (the “Bank”), as of December 31, 2008 and 2007, and the related statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with the Rules Governing the Audit and Certification of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Taipei Fubon Commercial Bank Co., Ltd. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with the Criteria Governing the Preparation of Financial Reports by Public Banks, Criteria Governing the Preparation of Financial Reports by Futures Commission Merchants, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.
- 1 - We have also audited the consolidated financial statements of the Bank and its subsidiaries as of and for the years ended December 31, 2008 and 2007 and have issued an unqualified opinion thereon in our report dated March 6, 2009.
March 6, 2009
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.
- 2 - TAIPEI FUBON COMMERCIAL BANK CO., LTD.
BALANCE SHEETS DECEMBER 31, 2008 AND 2007 (In Thousands of New Taiwan Dollars and Shares, Except Par Value)
% % 2008 2007 Increase 2008 2007 Increase ASSETS Amount Amount (Decrease) LIABILITIES AND STOCKHOLDERS’ EQUITY Amount Amount (Decrease)
CASH AND CASH EQUIVALENTS (Notes 4 and 30) $ 18,685,817 $ 15,059,774 24 DUE TO THE CENTRAL BANK AND OTHER BANKS (Notes 17 and 30) $ 56,759,880 $ 71,610,295 (21 )
DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS BANKS (Notes 5, 30 and 31) 246,099,480 205,109,450 20 (Notes 2, 6, 30 and 33) 31,045,314 8,241,773 277
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS SECURITIES SOLD UNDER AGREEME NTS TO REPURCHASE (Notes 2, 30 (Notes 2, 6, 30 and 33) 41,950,036 20,958,704 100 and 32) 16,679,414 58,747,528 (72 )
RECEIVABLES, NET (Notes 2 and 7) 57,622,267 64,115,653 (10 ) PAYABLES (Notes 2, 18 and 26) 25,474,808 25,822,315 (1 )
RECEIVABLES - RELATED PARTIES (Note 30) 998,242 1,971,834 (49 ) DEPOSITS AND REMITTANCES (Notes 19 and 30) 968,177,982 817,128,646 18
DISCOUNTS AND LOANS, NET (Notes 2, 8 and 30) 753,846,935 657,030,190 15 BANK DEBENTURES (Note 20) 46,596,053 38,760,256 20
AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET (Notes 2, 9, 31, OTHER FINANCIAL LIABILITIES (Notes 2 and 21) 1,672,015 2,814,179 (41 ) 32 and 33) 59,393,517 85,559,042 (31 ) OTHER LIABILITIES (Notes 2, 22 and 26) 2,232,106 1,837,338 21 HELD-TO-MATURITY FINANCIAL ASSETS, NET (Notes 2, 10, 31 and 33) 8,472,109 5,883,418 44 Total liabilities 1,148,637,572 1,024,962,330 12
EQUITY INVESTMENTS UNDER THE EQUITY METHOD, NET (Notes 2, STOCKHOLDERS' EQUITY (Note 23) 11 and 33) 1,241,994 1,110,570 12 Capital stock, NT$10 par value Authorized and issued 4,358,988 thousand shares as of OTHER FINANCIAL ASSETS, NET (Notes 2 and 33) December 31, 2008; 3,962,716 thousand shares as of Financial assets carried at cost (Note 12) 1,571,713 1,473,183 7 December 31, 2007 43,589,883 39,627,167 10 Debt instruments with no active market, net (Note 13) 20,624,490 24,682,377 (16 ) Capital surplus Others (Note 14) 3,376,393 2,001,726 69 Additional paid-in capital - issue of shares in excess of par value 23,367 3,986,083 (99 ) Other financial assets, net 25,572,596 28,157,286 (9 ) Donated capital 305 305 - Others 17,948,824 17,948,824 - PROPERTIES AND EQUIPMENT (Notes 2 and 15) Total capital surplus 17,972,496 21,935,212 (18 ) Cost Retained earnings Land 6,904,904 6,930,174 - Legal reserve 9,820,883 8,814,811 11 Buildings 5,378,027 5,402,222 - Special reserve 1,285,676 1,285,676 - Machinery and computer equipment 3,539,389 3,556,215 - Unappropriated 6,021,557 3,358,345 79 Transportation equipment 193,432 210,569 (8 ) Total retained earnings 17,128,116 13,458,832 27 Office and other equipment 2,046,172 2,076,250 (1 ) Others Total cost 18,061,924 18,175,430 (1 ) Cumulative translation adjustments 173,040 13,298 1,201 Less: Accumulated depreciation 5,549,934 5,243,461 6 Unrealized gains on financial instruments 430,388 298,980 44 12,511,990 12,931,969 (3 ) Unrealized gains (losses) on cash-flow hedge 127,997 (239,058 ) 154 Construction in progress and prepayment for equipment 232,792 329,141 (29 ) Total others 731,425 73,220 899
Net properties 12,744,782 13,261,110 (4 ) Total stockholders' equity 79,421,920 75,094,431 6
INTANGIBLE ASSETS (Notes 2 and 3) 746,718 651,951 15
OTHER ASSETS (Notes 2, 16 and 26) 684,999 1,187,779 (42 )
TOTAL $ 1,228,059,492 $ 1,100,056,761 12 TOTAL $ 1,228,059,492 $ 1,100,056,761 12
The accompanying notes are an integral part of the financial statements.
- 3 - TAIPEI FUBON COMMERCIAL BANK CO., LTD.
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2008 AND 2007 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2008 2007 Amount Amount %
NET INTEREST (Notes 2 and 30) Interest revenues $ 37,755,471 $ 37,040,654 2 Interest expenses 19,780,355 19,859,484 -
Total net interest 17,975,116 17,181,170 5
NET REVENUES OTHER THAN INTEREST (Note 2) Commission and fee revenues, net (Notes 2, 14 and 30) 5,331,084 7,268,451 (27 ) Gains on financial assets and liabilities at fair value through profit or loss (Notes 6, 25 and 30) 330,926 580,804 (43 ) Realized gain from available-for-sale financial assets (Notes 2 and 33) 568,545 1,322,939 (57 ) Income from equity investments under the equity method, net (Note 11) 721,823 544,652 33 Foreign exchange gains 703,976 322,875 118 Impairment losses on assets (Notes 9, 10, 12 and 13) (308,025 ) (921,643 ) (67 ) Other noninterest net revenues (Note 30) 693,579 441,320 57
Total net revenues other than interest 8,041,908 9,559,398 (16 )
TOTAL NET REVENUES 26,017,024 26,740,568 (3 )
PROVISION FOR BAD DEBTS (Notes 2, 7, 8 and 14) 5,511,518 10,302,780 (47 )
OPERATING EXPENSES (Notes 2, 27, 29 and 30) Personnel expenses 6,179,827 5,847,510 6 Depreciation and amortization 1,056,769 1,036,197 2 Others 5,439,966 5,505,612 (1 )
Total operating expenses 12,676,562 12,389,319 2
INCOME BEFORE INCOME TAX 7,828,944 4,048,469 93
INCOME TAX EXPENSE (Notes 2 and 26) (1,808,185 ) (694,895 ) 160
NET INCOME $ 6,020,759 $ 3,353,574 80
2008 2007 Pretax After Tax Pretax After Tax
EARNINGS PER SHARE (Note 28) Basic $ 1.80 $ 1.38 $ 0.93 $ 0.77
The accompanying notes are an integral part of the financial statements.
- 4 - TAIPEI FUBON COMMERCIAL BANK CO., LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2008 AND 2007 (In Thousands of New Taiwan Dollars, Except Dividends Per Share)
Capital Surplus (Notes 2 and 23) Additional Other Adjustment (Notes 2 and 21) Issued and Outstanding Capital Paid-in Capital Unrealized Unrealized Stock - Share Issuance Retained Earnings Cumulative Gains (Losses) Gains (Losses) Total Shares in Excess of Special Unappropriated Translation on Financial on Cash-flow Stockholders' (Thousands) Amount Par Value Donation Others Total Legal Reserve Reserve Earnings Total Adjustments Assets Hedge Equity
BALANCE, JANUARY 1, 2007 3,962,716 $ 39,627,167 $ 3,986,083 $ 305 $ 17,948,824 $ 21,935,212 $ 8,682,875 $ 1,285,676 $ 439,785 $ 10,408,336 $ 48,762 $ 788,505 $ (528,900 ) $ 72,279,082
Appropriation of the 2006 earnings Legal reserve ------131,936 - (131,936 ) - - - - - Bonus to employees ------(3,078 ) (3,078 ) - - - (3,078 ) Cash dividends - NT$0.08 per share ------(300,000 ) (300,000 ) - - - (300,000 )
Changes in unrealized gains or losses on available-for-sale financial assets ------(489,525 ) - (489,525 )
Changes in unrealized gains or losses on cash-flow hedge ------289,842 289,842
Changes in cumulative translation adjustments ------(35,464 ) - - (35,464 )
Net income for the year ended December 31, 2007 ------3,353,574 3,353,574 - - - 3,353,574
BALANCE, DECEMBER 31, 2007 3,962,716 39,627,167 3,986,083 305 17,948,824 21,935,212 8,814,811 1,285,676 3,358,345 13,458,832 13,298 298,980 (239,058 ) 75,094,431
Appropriation of the 2007 earnings Legal reserve ------1,006,072 - (1,006,072 ) - - - - - Bonus to employees ------(23,475 ) (23,475 ) - - - (23,475 ) Cash dividends - NT$0.59 per share ------(2,328,000 ) (2,328,000 ) - - - (2,328,000 )
Capital surplus transferred to common stock 396,272 3,962,716 (3,962,716 ) - - (3,962,716 ) ------
Changes in unrealized gains or losses on available-for-sale financial assets ------131,408 - 131,408
Changes in unrealized gains or losses on cash-flow hedge ------367,055 367,055
Changes in cumulative translation adjustments ------159,742 - - 159,742
Net income for the year ended December 31, 2008 ------6,020,759 6,020,759 - - - 6,020,759
BALANCE, DECEMBER 31, 2008 4,358,988 $ 43,589,883 $ 23,367 $ 305 $ 17,948,824 $ 17,972,496 $ 9,820,883 $ 1,285,676 $ 6,021,557 $ 17,128,116 $ 173,040 $ 430,388 $ 127,997 $ 79,421,920
The accompanying notes are an integral part of the financial statements.
- 5 - TAIPEI FUBON COMMERCIAL BANK CO., LTD.
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2008 AND 2007 (In Thousands of New Taiwan Dollars)
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,020,759 $ 3,353,574 Adjustments to reconcile net income to net cash provided by operating activities Provision for bad debts 5,511,518 10,302,780 Collection of loans and receivables written off in prior years 1,264,025 1,163,808 Depreciation and amortization 1,056,769 1,036,197 Provision (reversal of provision) for credit and trading losses 159,584 (67,827 ) Losses (gains) on financial instruments designated as at fair value through profit or loss 174,775 (50,297 ) Losses on disposal of non-performing loans 117,214 1,530 Gains on disposal of assets (1,122 ) (99,089 ) Retirement losses on assets 12,832 17,041 Impairment losses on assets 308,025 921,643 Income from equity investment under the equity method, net (721,823 ) (544,652 ) Cash dividends received from equity investments under the equity method 580,431 163,668 Equity shares received from credit card organization (161,946 ) - Realized gains on disposal of available-for-sale financial assets (371,677 ) (961,552 ) Losses on disposal of financial assets carried at cost - 23,800 Deferred income tax 499,566 173,366 Amortization on premium and discount of financial assets (267,053 ) 285,737 Prepaid pension 82,356 62,361 Gains on disposal of debt instruments with no active market (35,992 ) (59,838 ) Net changes in operating assets and liabilities Held-for-trading financial assets (21,617,304 ) 5,518,676 Receivables 5,129,299 (6,587,834 ) Payables (367,904 ) (7,262,922 ) Held-for-trading financial liabilities 22,803,541 3,926,567
Net cash provided by operating activities 20,175,873 11,316,737
CASH FLOWS FROM INVESTING ACTIVITIES Decrease in financial assets designated as at fair value through profit or loss 451,197 982,287 Increase in available-for-sale financial assets (71,107,272 ) (37,990,903 ) Decrease in available-for-sale financial assets 97,914,538 27,530,576 Acquisition of held-to-maturity financial assets (3,825,023 ) (1,814,065 ) Proceeds from held-to-maturity investment matured 1,204,028 49,794 Decrease in securities purchased under agreements to resell - 29,943 Net increase in discounts and loans (101,020,006 ) (57,676,863 ) (Increase) decrease in due from the Central Bank and call loans to other banks (40,990,030 ) 34,725,311 Acquisition of properties and equipment (790,720 ) (799,969 ) Proceeds from disposal of properties and equipment 43,915 695 (Continued)
- 6 - TAIPEI FUBON COMMERCIAL BANK CO., LTD.
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2008 AND 2007 (In Thousands of New Taiwan Dollars)
2008 2007
Proceeds from disposal of collaterals assumed $ 81,995 $ 4,442,547 Proceeds from capital decrease of equity-method investees 5,500 34,012 Proceeds from disposal of financial assets carried at cost 54,070 116,200 Proceeds from capital decreasing of financial assets carried at cost 9,346 - Acquisition of debt instruments with no active market (12,542,956 ) (7,086,288 ) Proceeds from disposal of debt instruments with no active market 16,493,979 6,104,776 Net increase in other financial assets (1,057,211 ) (388,024 ) Net decrease in other assets 53,248 18,159
Net cash used in investing activities (115,021,402 ) (31,721,812 )
CASH FLOWS FROM FINANCING ACTIVITIES Decrease in due to the Central Bank and other banks (14,850,415 ) (1,220,419 ) (Decrease) increase in securities sold under agreements to repurchase (42,068,114 ) 2,690,991 Increase in deposits and remittances 151,049,336 41,215,074 Proceeds from bank debentures issuance 14,700,000 550,000 Payment on maturity of bank debentures (8,200,000 ) (25,500,000 ) Net decrease in other financial liabilities (185,007 ) (63,802 ) Net increase (decrease) in other liabilities 208,347 (1,116,800 ) Cash dividends paid (2,328,000 ) (300,000 ) Bonuses to employees (3,078 ) -
Net cash provided by financing activities 98,323,069 16,255,044
EFFECTS OF EXCHANGE RATE CHANGES 148,503 (34,498 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,626,043 (4,184,529 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 15,059,774 19,244,303
CASH AND CASH EQUIVALENTS, END OF YEAR $ 18,685,817 $ 15,059,774
SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 20,021,920 $ 19,524,884 Income tax paid $ 441,320 $ 625,008
NON-CASH INVESTING AND FINANCING ACTIVES Bonus to employee payables $ 23,475 $ 3,078
The accompanying notes are an integral part of the financial statements. (Concluded)
- 7 - TAIPEI FUBON COMMERCIAL BANK CO., LTD.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2008 AND 2007 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. ORGANIZATION AND OPERATIONS
Taipei Fubon Commercial Bank Co., Ltd. (the “Bank”) started as a financial institution under the Taipei City Government (TCG) in 1969. On July 1, 1984, it was reorganized into a limited liability corporation and was renamed City Bank of Taipei Co., Ltd. The Bank was subsequently renamed TAIPEIBANK Co., Ltd. (“TAIPEIBANK”) on January 1, 1993. The Bank was privatized on November 30, 1999 through the sale of its shares of stock to the public, with the holdings of the TCG reduced to less than 50% of the Bank’s outstanding capital stock. In their special meeting on October 4, 2002, the stockholders approved the share swap, which resulted in the Bank’s becoming a wholly owned subsidiary of the Fubon Financial Holdings Company (FFH). The board of directors designated December 23, 2002 as the effective date of the share swap and the date when the Bank’s stocks were delisted from the Taiwan Stock Exchange.
To fully harness the synergy of two diversified business operations and reduce operating costs, the boards of directors of the Bank and Fubon Bank Co., Ltd. (“Fubon Bank,” a wholly owned subsidiary of FFH) decided on January 1, 2005 to combine these two entities. On January 1, 2005, the Bank acquired the assets and liabilities of Fubon Bank through a share swap and renamed as Taipei Fubon Commercial Bank Co., Ltd.
On September 20, 2006, the boards of directors of the Bank and Fubon Bills Finance Co., Ltd. (FBFC) decided to merge the Bank and FBFC to strengthen the operating synergy and lower operating cost. The Bank, the survivor entity, set December 25, 2006 as the effective merger date.
The Bank engages in the following: (a) municipal treasuries of Taipei City; (b) management of municipal treasury bills of Taipei City; (c) all commercial banking operations authorized under the Banking Law; (d) securities and trust operations; (e) overall handling of the lottery issuance; (f) concurrent operations of futures dealing and (g) other authorized operations.
The Bank has its head office in Taipei City, and as of December 31, 2008, its 4 major operating departments were Banking, Trust, Public Treasury and Lottery departments, with 129 branches (including one offshore banking unit (OBU) and 4 overseas branches).
The operations of the Bank’s Trust Department are (1) planning, managing and operating a trust business; and (2) custodianship of nondiscretionary trust fund in overseas securities and mutual funds. These operations are regulated under the Banking Law.
According to the Ministry of Finance (MOF) announcement on September 3, 2007, the Bank was granted the right to become the issuer of Taiwan’s sports lottery tickets from April 16, 2008 until December 31, 2013.
As of December 31, 2008 and 2007, the Bank had 6,646 and 6,259 employees, respectively.
- 8 - 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank’s financial statements were prepared in conformity with the Criteria Governing the Preparation of Financial Reports by Public Banks, Criteria Governing the Preparation of Financial Reports by Futures Commission Merchants, Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the Republic of China (ROC). Under these guidelines, law and principles, certain estimates and assumptions have been used for the allowance for credit losses, depreciation of properties and equipment, pension cost, assets impairment, loss on pending litigations, provision for losses on guarantees, bonuses to employees, directors and supervisors, and assessment of certain financial instruments, etc. Actual results may differ from these estimates.
Since the operating cycle could not be reasonably identified in the banking industry, accounts included in Bank’s financial statements were not classified as current or non-current. Nevertheless, accounts were properly categorized according to the nature of each account, and sequenced by their liquidity. Please refer to Note 33 for the maturity analysis of assets and liabilities.
The Bank’s significant accounting policies are summarized as follows:
Basis of Financial Statement Preparation
The accompanying financial statements include the accounts of the head office, the OBU and all branches and representative offices. All interoffice balances and transactions have been eliminated.
Translation of Foreign-currency Financial Statements
The financial statements of foreign branches and the OBU are translated into New Taiwan dollars at the following exchange rates:
a. Assets and liabilities - at exchange rates prevailing on the balance sheet date;
b. Retained earning at the beginning balance not remitted - at exchange rates on beginning of the period; and
c. Income and expenses - at average exchange rates for the year.
d. Exchange differences arising from the translation of the financial statements of foreign operations are recognized as a separate component of stockholders’ equity.
Foreign-currency Transactions
Nonderivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized as gain or loss.
At the balance sheet date, foreign-currency monetary assets and liabilities are revalued at prevailing exchange rates, and the exchange differences are recognized as gain or loss.
At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities that are measured at fair value are revalued at prevailing exchange rates, with the exchange differences treated as follows:
a. Recognized in stockholders’ equity if the changes in fair value are recognized in stockholders’ equity;
b. Recognized as gain or loss if the changes in fair value are recognized as gain or loss.
- 9 - Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange rates at trade dates.
Fair Values Determination
Fair values are determined as follows: (a) listed stocks and GreTai Securities Market (GTSM) stocks - closing prices as of the balance sheet date; (b) beneficiary certificates (open-end fund) - net asset values as of the balance sheet date; (c) bonds - period-end reference prices published by the GTSM or Bloomberg; (d) investment with no active market - based on information provided by the counter-parties or using valuation techniques.
Financial Instruments at Fair Value Through Profit or Loss
Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Bank recognizes a financial asset or a financial liability on its balance sheet when the Bank becomes a party to a financial instrument contract. A financial asset is derecognized when the Bank loses its contractual rights to the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged or canceled or expires.
Financial instruments at FVTPL are initially measured at fair value. At each balance sheet date after initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly as gain or loss in the year in which they arise. On the de-recognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized as gain or loss. The Bank uses trade date accounting when recording transaction.
A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability.
Financial asset and financial liabilities that give rise to offsetting changes in fair values may be designated as financial instruments at fair value through profit or loss to eliminate inconsistencies in measuring these instruments. Thus, under the Bank’s risk management policies and investment strategies, financial assets, financial liabilities or their combination will be designated as financial instruments at fair value through profit or loss.
Repurchase and Resell Transactions
Securities purchased under resell agreements and securities sold under repurchase agreements are generally treated as collateralized financing transactions. Interest earned on resell agreements and interest incurred on repurchase agreements is recognized as interest income or interest expense over the life of each agreement.
Available-for-sale Financial Assets
Available-for-sale financial assets are carried at fair value plus transaction costs that are directly attribute to the acquisition. Unrealized gains or losses on available-for-sale financial assets are reported in equity attribute to the Bank’s stockholders. On disposal of an available-for-sale financial asset, the accumulated, unrealized gain or loss in equity attributable to the Bank’s stockholders is transferred to net profit and loss for the period. The Bank uses trade date accounting when recording available-for-sale portfolio transactions.
The recognition, de-recognition and the fair value bases of available-for-sale financial assets are similar to those of financial assets at fair value through profit or loss.
- 10 - Dividend income from equity securities is recognized on ex-dividend dates. Cash dividends received within a year after investment acquisition are recognized as a reduction of the carrying value of the investments and are subsequently recognized as income. Stock dividends received are accounted for only as increases in the number of the shares and are not recognized as income. The effective interest rate method of amortization and accretion is used; the straight line method is used if there is no significant difference.
If an available-for-sale financial asset is determined to be impaired, the accumulative unrealized loss previously recognized in equity attributable to the Bank’s stockholders is recognized as impairment loss and reported in income statement. For equity investments, loss reversal is adjusted to the equity attributable to the Bank stockholders. For debt investments, loss reversal is credited to current income.
Nonperforming Loans
Under “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans” (the “Regulations”) issued by the Ministry of Finance, the balances of loans and other credits extended by the Bank and the related accrued interest are classified as nonperforming when the loan is overdue and shall be authorized by a resolution passed by the board of directors.
Nonperforming loans reclassified from loans are recognized as discounts and loans; otherwise, are recognized as other financial assets.
Allowance for Possible Losses and Reserve for Losses on Guarantees
In determining the allowance for credit losses and provision for losses on guarantees, the Bank assesses the collectibility of discounts and loans, bills purchased, accounts receivables, interest receivables, acceptances and other receivables, and nonperforming loans as well as guarantees as of the balance sheet dates.
Under the Regulations issued by the Ministry of Finance, the Bank evaluates the collectibility of its loan portfolio on the basis of its clients’ financial position, their payment histories and timeliness of repayments of principals and interests.
The Bank evaluates credit losses on the basis of the estimated collectibility. In accordance with the Regulations stated above, the loan assets divided into different classes subject to assets that require special mentioned, assets that are substandard, assets that are doubtful, and assets for which there is loss. The minimum allowance for credit losses and provision for losses on guarantees for the aforementioned classes should be 2%, 10%, 50% and 100% of outstanding credits, respectively.
Certain loans as defined under Banking Bureau guidelines and approved by the board of directors for write-off are offset against the allowance for credit losses. The repayments of loans written off are recorded as a reversal of this allowance.
Held-to-maturity Financial Assets
Held-to-maturity financial assets are carried at amortized cost, which are valued by interest method. On initial recognition, the costs of the financial assets are valued at their fair value plus the acquisition costs. The net gain or loss on held-to-maturity financial assets is de-recognized upon asset disposal, impairment or amortization. The Bank uses trade date accounting when recording transactions.
If a held-to-maturity financial asset is determined to be impaired, the impairment loss is recognized and reported in the income statement. Loss reversal is credited to current income and should not be more than the carrying amount had the impairment loss not been recognized.
- 11 - Equity Investments Under the Equity Method
Equity investments are accounted for by the equity method if the Bank has significant influence over the investees. Under this method, investments are stated at cost plus (or minus) a proportionate share in the investees’ net earnings (losses) or changes in net worth. Cash dividends received are accounted for as a reduction of the carrying values of the investments. Starting January 1, 2006, goodwill is no longer amortized and is instead tested annually for impairment.
Stock dividends received are accounted for only as increases in the number of shares held and are not recognized as income.
Costs of investments sold are determined using the moving-average method.
Intangible Assets
Computer software is amortized on a straight-line basis over five years.
Properties
Properties are stated at cost less accumulated depreciation. Major renewals, additions and improvements are capitalized, while repairs and maintenance are expensed as incurred.
Depreciation is calculated using the straight-line method over service lives estimated as follows: buildings and improvements, 5 to 60 years; computers and peripheral equipment, 3 to 15 years; transportation and communication equipment, 3 to 10 years; and miscellaneous equipment, 3 to 20 years. For assets still in use beyond their original estimated service lives, further depreciation is calculated on the basis of newly estimated salvage value.
The cost and accumulated depreciation are removed from the accounts when property is disposed of, and any gain or loss is credited or charged to other noninterest net revenues.
Other Financial Assets
Investments in equity instruments with no quoted market price in an active market and with fair values that cannot be reliably measured, are measured at cost. If there is objective evidence that a financial asset is impaired, an impairment loss is recognized. A reversal of the impairment losses is prohibited.
Debt instruments with no quoted market prices in an active market and with fair values that cannot be reliably measured are carried at amortized cost. The accounting treatment of these instruments is similar to that of held-to-maturity financial assets except for the absence of restriction on the timing of their disposal.
Operating Leases
The Bank has operating lease agreements on the office spaces used by its branches. The imputed interest on lease deposits (included in other financial assets), computed using the interest rate on one-year time deposits, is charged to business expenses - rent and credited to interest income.
Unrealized Sale and Leaseback Gain or Loss
Sale and leaseback happen when the Bank sells an asset and then leases it back. The related unrealized gains or losses are deferred and amortized over the lease period.
- 12 - Reserve for Losses on Defaults and Trading Loss Reserve
The reserve for trading losses should be used only to cover the trading loss in excess of the trading profit. When the accumulated trading loss reserve reaches $200,000 thousand, no additional reserve for trading loss is required to be set aside.
Under the regulations of the Securities and Futures Bureau, the Bank should recognize monthly a trading loss reserve at 10% of net gain on sales of securities and record this reserve as a liability account.
Under the Rules Governing Futures Commission Merchants, a futures commission merchant engaging in futures proprietary business should set aside 10% of the net profit realized each month as reserve for trading losses.
The reserve for trading losses referred to in the preceding paragraph should not be used for purposes other than covering the trading loss in excess of the trading profit. When the accumulated trading loss reserve reaches the amount of required minimum working capital, no additional reserve for trading loss is required to be set aside.
Interest Revenue and Service Fees
Interest revenue on loans is recorded by the accrual method. No interest revenue is recognized in the accompanying financial statements on loans and other credits extended by the Bank that are classified as nonperforming loans. The interest revenue on these loans/credits is recognized upon collection.
Under the Ministry of Finance regulations, the interest revenue on credits covered by agreements that extend their repayment periods is recorded as deferred revenue (included in other liabilities) and recognized as revenue upon collection.
Service fees are recorded as revenue upon receipt and substantial completion of activities involved in the earnings process.
Pension
Pension expense under defined benefit pension plan is determined on the basis of actuarial calculations. Unrecognized net transition obligation is amortized over the average remaining service years of employees. Under the defined contribution pension plan, which is based on the Labor Pension Act, is expensed during the period when the employees rendered their services.
Income Tax
Inter-period income tax allocation is applied, in which tax effects of deductible temporary differences unused loss carryforward and unused investment tax credits are recognized as deferred income tax assets, and those of taxable temporary differences are recognized as deferred income tax liabilities. Valuation allowance is provided for deferred tax assets that are not certain to be realized.
Income tax credits for certain acquisitions of equipment, personnel training expenditures and equity investments are recognized as reduction of current income.
Interest income on short-term bills has been taxed separately and recorded as tax expense. The adjustment of prior year’s income tax is included in the current income tax.
Income taxes (10%) on unappropriated earnings are recorded as income tax in the year when the stockholders resolve to retain these earnings.
- 13 - The Bank, FFH and its subsidiaries have used the linked-tax system for income tax filings since 2003. Under the related rules, the accounting procedure is applied systematically on a consistent basis. The related contributions or payments are accrued as receivables or payables, respectively.
Hedge Accounting
To qualify as a hedge, a derivative must effectively reduce any risk inherent in the hedged item from changes in interest rates, exchange rates and market values. Changes in the fair value of the derivative must be highly negatively correlated with changes in the fair value of the hedged item over the life of the hedge contract. At the inception of the hedge, there must be a formal designation and documentation of the hedging relationship, the Bank’s risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged items, overall risk management objectives and strategies and how the Bank will assess hedging instrument effectiveness.
A fair value hedge that meets all hedge accounting criteria is accounted for as follows: a. The gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreign-currency component of its carrying amount (for a nonderivative hedging instrument) is recognized immediately as gain or loss; and b. The carrying amount of the hedged item is adjusted through profit or loss for the corresponding gain or loss attributable to the hedged risk.
A cash flow hedge that meets all hedge accounting criteria is accounted for as follows:
The unrealized gain or loss from the hedging instrument was recognized as equity when the hedge took effect. If a hedge of a forecast transaction results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognized as equity should be reclassified into gain or loss.
The Bank uses the fair value hedge to hedge the exposure to changes in fair value of a recognized asset or liability or a previously unrecognized firm commitment to buy or sell an asset or liability at a fixed interest rate. The cash flow hedge is a hedge of the exposure to cash flow changes that are attributable to the floating interest rate associated with a recognized asset or liability.
Asset Impairment
Statement of Financial Accounting Standards No. 35 - Impairment of Assets requires the impairment review on equity investments - equity method, properties, and intangible assets to be made on each balance sheet date. If asset are deemed impaired, the Bank must calculate the recoverable amount of the asset or the cash-generating unit. An impairment loss should be recognized whenever the recoverable amount of the asset or the cash generating unit is below the carrying amount, and this impairment loss is charged to accumulated impairment. After the recognition of an impairment loss, the depreciation (amortization) charged to the assets should be adjusted in the future periods at the revised asset carrying amount (net of accumulated impairment), less its salvage value, on a systematic basis over its remaining service life. If asset impairment loss is reversed, the increase in the carrying amount resulting from reversal is credited to current income. However, loss reversal should not be more than the carrying amount (net of depreciation) had the impairment not been recognized.
Contingencies
A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. If the amount of the loss cannot be reasonably estimated or the loss is possible, the related information is disclosed in the financial statements.
- 14 - Reclassifications
Certain accounts of the 2007 financial statement have been reclassified to be consistent with the presentation of the 2008 financial statements.
3. ACCOUNTING CHANGES
a. In March 2007, the Accounting Research and Development Foundation issued Interpretation 2007-052, which requires companies to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. This accounting change resulted in decreases of $31,681 thousand in net income and of NT$0.01 in after income tax basic earnings per share for the year ended December 31, 2008.
b. Effective January 1, 2007, the Bank adopted the newly released Statement of Financial Accounting Standards No. 37 - “Intangible Assets” and other standards amended for harmonizing with this standard. The Bank reassessed the useful lives of and amortization method for it recognized intangible asset.
4. CASH AND CASH EQUIVALENTS
December 31 2008 2007
Cash on hand $ 8,378,230 $ 7,315,430 Due from other banks 7,097,027 5,721,840 Notes and checks for clearing 3,210,560 2,022,504
$ 18,685,817 $ 15,059,774
5. DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS
December 31 2008 2007
Call loans to banks $ 61,097,869 $ 67,710,468 Deposit reserve - checking account 14,349,374 3,923,646 Required deposit reserve 22,106,287 19,405,206 Deposit reserve - foreign-currency deposits 196,644 5,692,821 Time deposits in the Central Bank 147,490,000 107,750,000 Due from the Central Bank 18,415 27,035 Others 840,891 600,274
$ 246,099,480 $ 205,109,450
Under a directive issued by the Central Bank of the ROC, NTD-denominated deposit reserves are determined monthly at prescribed rates based on the average balances of customers’ NTD-denominated deposits. These required deposit reserves are subject to withdrawal restrictions.
In addition, the foreign-currency deposit reserves are determined at prescribed rates based on the balances of additional foreign-currency deposits. These reserves may be withdrawn momentarily and are noninterest earning.
- 15 - 6. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
December 31 2008 2007 Held-for-trading financial assets
Commercial paper $ 4,618,507 $ 6,630,798 Convertible corporate bonds 2,203,199 2,674,476 Government bonds 1,402,784 147,368 Listed stocks and beneficiary certificates 742,369 566,502 Beneficiary certificates 226,204 249,291 Treasury bills 99,272 491,297 Corporate bonds - 297,631 Others 32,969 15,175 9,325,304 11,072,538 Derivatives Interest rate swap contracts 16,057,413 4,104,061 Currency swap contracts 8,921,866 1,841,240 Forward exchange contracts 4,722,432 1,234,875 Option contracts 1,277,944 1,068,227 Commodity swap contracts 226,479 - Commodity forward contracts 200,578 - Cross-currency swap contracts 196,379 - Fixed rate commercial paper - interest rate swap 22,832 6,850 Nondeliverable cross-currency swap contracts 10,723 14,730 Stock price swap contracts 7,402 11,844 Others 2,657 341 31,646,705 8,282,168 40,972,009 19,354,706 Financial assets designated as at fair value through profit or loss
Bank debentures 978,027 1,603,998
$ 41,950,036 $ 20,958,704
Held-for-trading financial liabilities
Derivatives Interest rate swap contracts $ 16,147,338 $ 4,133,160 Currency swap contracts 8,282,902 2,090,898 Forward exchange contracts 4,496,337 1,074,823 Option contracts 1,254,471 805,468 Cross-currency swap contracts 405,738 91,511 Commodity swap contracts 226,479 - Commodity forward contracts 200,578 - Futures contracts - 17,601 Nondeliverable cross-currency swap contracts - 25,592 Others 31,471 2,720
$ 31,045,314 $ 8,241,773
The Bank engages in derivative transactions mainly for accommodating customers’ needs, managing its exposure positions and satisfying the need for different currencies.
- 16 - Some interest rate swap contracts which belong to trading purpose derivatives are used to offset most market and credit risks. In order to eliminate measurement anomalies for items that provide a natural offset of each other, the Bank also designates corresponding financial assets as financial assets at fair value through profit or loss.
The contract (notional) amounts of the Bank outstanding derivative financial instruments as of December 31, 2008 and 2007 are summarized as follows:
December 31 2008 2007
Interest rate swap contracts $ 1,087,641,085 $ 974,134,833 Currency swap contracts 574,738,171 292,643,144 Forward exchange contracts 200,861,825 142,433,047 Option contracts 136,400,431 156,312,128 Cross-currency swap contracts 25,605,554 12,468,659 Futures contracts 5,690,913 8,657,273 Fixed rate commercial paper - interest rate swap 5,500,000 6,215,000 Commodity forward contracts 1,426,619 - Commodity swap contracts 1,129,308 - Credit default swaps contracts 1,027,192 3,000,000 Stock price swap contract 661,302 219,917 Nondeliverable cross currency swap contracts 655,464 2,436,428 Forward rate agreements - 4,248,400
Gains in 2008 and 2007 on financial assets and liabilities at fair value through profit or loss were as follows:
Years Ended December 31 2008 2007
Net gains on held-for-trading financial assets and liabilities $ 505,701 $ 530,507 Net (losses) gains on financial assets designated as at fair value through profit or loss (174,775 ) 50,297
$ 330,926 $ 580,804
7. RECEIVABLES, NET
December 31 2008 2007
Credit card receivable $ 24,558,236 $ 29,149,789 Accounts receivable - factoring 23,876,048 24,005,000 Interest receivable 4,570,867 4,670,521 Acceptances 2,622,657 4,160,777 Accrued income 1,090,276 473,597 Custodial collections receivable 831,725 833,279 Accounts receivable 412,130 1,028,478 Others 713,514 791,492 58,675,453 65,112,933 Less: Allowance for credit losses 1,053,186 997,280
$ 57,622,267 $ 64,115,653
- 17 - The details of and changes in allowance for credit losses are summarized below:
Years Ended December 31 2008 2007
Balance, January 1, 2008 $ 997,280 $ 1,110,353 Reversal of allowance for bad debts 40,383 258,592 Write-offs (15,096 ) (377,045 ) Recovery of written-off credits 7,315 3,908 Effects of exchange rate changes (696 ) 1,472 Reclassifications 24,000 -
Balance, December 31, 2008 $ 1,053,186 $ 997,280
8. DISCOUNTS AND LOANS, NET
December 31 2008 2007
Discount and overdraft $ 3,080,803 $ 3,966,014 Short-term loans 121,558,037 98,516,211 Short-term secured loans 41,841,596 40,019,508 Medium-term loans 165,947,899 143,576,207 Medium-term secured loans 94,091,434 68,827,901 Long-term loans 57,983,932 58,795,869 Long-term secured loans 265,364,924 238,071,370 Import and export negotiation 2,515,800 2,861,371 Nonperforming loan reclassified from loans 5,884,954 7,643,263 758,269,379 662,277,714 Less: Allowance for credit losses 4,422,444 5,247,524
$ 753,846,935 $ 657,030,190
The Bank has not accrued any interest on the entire balance of the nonperforming loans shown above. The unrecognized interest revenues were $233,394 thousand in 2008 and $272,088 thousand in 2007. In 2008 and 2007, the Bank had not written off credits for which legal proceedings had not been initiated.
The details of and changes in allowance for credit losses are summarized below:
Year Ended December 31, 2008 General Specific Risk Risk Sub-total
Balance, January 1, 2008 $ 1,923,213 $ 3,324,311 $ 5,247,524 Provisions (reversal of provisions) for bad debts (195,370 ) 3,377,219 3,181,849 Write-off - (4,802,176 ) (4,802,176 ) Recovery of written-off credits - 834,761 834,761 Effects of exchange rate changes - 12,558 12,558 Reclassifications of discounts and loans to other financial assets - (52,072 ) (52,072 )
Balance, December 31, 2008 $ 1,727,843 $ 2,694,601 $ 4,422,444
- 18 -
Year Ended December 31, 2007 General Specific Risk Risk Sub-total
Balance, January 1, 2007 $ 2,073,870 $ 4,930,777 $ 7,004,647 Provisions (reversal) for bad debt (150,657 ) 6,658,427 6,507,770 Write-off - (8,935,199 ) (8,935,199 ) Recovery of written-off credits - 732,356 732,356 Effects of exchange rate changes - (1,538 ) (1,538 ) Reclassifications from discounts and loans to other financial assets - (60,512 ) (60,512 )
Balance, December 31, 2007 $ 1,923,213 $ 3,324,311 $ 5,247,524
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET
December 31 2008 2007
Bond investments - government bonds $ 27,826,603 $ 54,767,167 Bond investments - corporate bonds 18,161,255 15,238,982 Bond investments - bank debentures 8,693,872 9,466,482 Listed stocks and beneficiary certificates 3,297,990 3,914,910 Beneficiary certificates for real estate securitization 1,433,374 367,308 Structured investment vehicles - 324,840 Negotiable certificates of deposits - 1,657,935 59,413,094 85,737,624 Less: Accumulated impairment 19,577 178,582
$ 59,393,517 $ 85,559,042
On structured investment vehicles, the Bank recognized impairment losses of $141,336 thousand for 2008 and $178,582 thousand for 2007 based on counter-parties’ quotation and net asset value of financial institutions provided.
For 2008, the Bank had written off accumulated impairment losses of $300,341 thousand.
10. HELD-TO-MATURITY FINANCIAL ASSETS, NET
December 31 2008 2007
Bank debentures $ 4,206,297 $ 4,256,190 Corporate bonds 4,000,343 1,490,796 Negotiable certificates of deposits 265,469 97,452 Collateralized debt obligations - 727,812 8,472,109 6,572,250 Less: Accumulated impairment - 688,832
$ 8,472,109 $ 5,883,418
On collateralized debt obligations, the Bank recognized impairment losses, valued on the basis of the counter-parties’ quotation, of $36,565 thousand for 2008 and $687,370 thousand for 2007.
- 19 -
For 2008, the Bank had written off an accumulated impairment loss of $725,397 thousand.
11. EQUITY INVESTMENTS UNDER THE EQUITY METHOD, NET
December 31 2008 2007 % of % of Owner- Owner- Amount ship Amount ship
Taipei Fubon Bank Life Insurance Agency Co., Ltd. $ 776,848 100.00 $ 641,800 100.00 Fubon Leasing Co., Ltd. 397,458 100.00 395,719 100.00 Fubon Real Estate Management Co., Ltd. 55,953 30.00 54,273 30.00 Fubon Venture Capital Co., Ltd. 6,251 5.00 11,751 5.00 Fubon Insurance Agent Co., Ltd. 5,484 100.00 7,027 100.00
$ 1,241,994 $ 1,110,570
Gains (losses) on equity investments for the years ended December 31, 2008 and 2007, respectively, were summarized as follows:
For the Years Ended December 31 2008 2007
Taipei Fubon Bank Life Insurance Agency Co., Ltd. $ 712,818 $ 586,892 Fubon Real Estate Management Co., Ltd. 6,148 4,139 Fubon Insurance Agent Co., Ltd. 1,118 2,956 Fubon Leasing Co., Ltd. 1,739 (53,660 ) Fubon Venture Capital Co., Ltd. - 4,325
$ 721,823 $ 544,652
The investees’ financial statements for the years ended December 31, 2008 and 2007, which were used as basis for calculating income from the equity-method investments, had all been audited, except those of Fubon Venture Capital Co., Ltd. (FVCCL) financial statements for the years ended December 31, 2007. Had FVCCL’s financial statement been audited, there would have been no significant effect on the Bank’s financial statements.
FVCCL was classified as an equity-method investment, since the Bank, Fubon Life Insurance Co., Ltd. and Fubon Insurance Co., Ltd. totally had 45% equity in FVCCL. FVCCL is under liquidation and the Bank received $5,500 thousand resulted from liquidation in January 2008.
To restructure the organization and the investment structure, the stockholders’ meeting resolved to liquidate Fubon Leasing Co., Ltd. on December 1, 2008, and was approved by Ministry of Economic Affairs on December 11, 2008.
As of December 31, 2008 and 2007, part of the unrealized gains on financial assets, which amounted to $4,468 thousand and $1,468 thousand (included in stockholders’ equity as adjustments), respectively, were resulted from valuation of available-for-sale financial assets held by an equity-method investee.
Fubon Leasing Co., Ltd. and Fubon Insurance Agent Co., Ltd. were excluded from the consolidated financial statement since the Bank considered those subsidiaries immaterial.
- 20 -
12. FINANCIAL ASSETS CARRIED AT COST
December 31 2008 2007 Unlisted common stocks Taiwan High Speed Rail Co., Ltd. $ 500,000 $ 500,000 Taiwan Asset Management Co., Ltd. 300,000 300,000 Fubon Securities Finance Co., Ltd. 213,975 213,975 VISA Inc. 161,601 - Taiwan Financial Asset Service Co., Ltd. 100,000 100,000 Financial Information Service Co., Ltd. 91,000 91,000 P.K. Venture Capital Investment Corp. 49,736 49,736 Ascentek Venture Capital Corp. 28,000 28,000 Taiwan Futures Exchange 25,250 25,250 Apex Venture Capital Co., Ltd. 25,169 34,515 Easy Card Corp. 25,000 25,000 Taiwan Aerospace Co., Ltd. 17,000 17,000 TaiMall Development Co., Ltd. - 49,920 Others 34,982 38,787
$ 1,571,713 $ 1,473,183
Financial assets carried at cot were stocks with no quoted market prices in an active market, and whose fair values cannot be reliably measured are recognized at cost.
For some unquoted equity investments, impairment losses of $55,691 thousand for the year ended December 31, 2007 were recognized because of investees’ continued deficit and the remote possibility of loss reversal. The related investees’ information is summarized as follows:
Year Ended December 31, Investee 2007
Taiwan Aerospace Co., Ltd. $ 48,528 Tnton Management Corp. 4,958 Hong Chia Venture Capital Co., Ltd. 1,316 Pacific Venture Capital Co., Ltd. 889
$ 55,691
13. DEBT INVESTMENTS WITH NO ACTIVE MARKET, NET
December 31 2008 2007
Bank debentures $ 14,044,909 $ 13,289,389 Foreign-currency structured deposits 5,000,000 6,200,000 Collateralized debt obligations 1,718,645 3,571,793 Corporate bonds 151,748 157,715 Foreign government bonds - 1,621,195 20,915,302 24,840,092 Less: Accumulated impairment 290,812 157,715
$ 20,624,490 $ 24,682,377
- 21 -
As of December 31, 2008 and 2007, the accumulated impairment on aforementioned bank debentures and corporate bonds were $290,812 thousand and $157,715 thousand, respectively, valued at the counter-parties’ quotation. For the years ended December 31, 2008 and 2007, the Bank recognized impairment losses of $130,124 thousand and $0 thousand, respectively.
14. OTHER FINANCIAL ASSETS - OTHERS, NET
December 31 2008 2007
Guarantee deposits $ 2,562,604 $ 1,913,362 Nonperforming loans reclassified from other than loans 368,557 394,699 Hedged derivative financial assets 786,745 47,340 Bills purchased 9,205 19,952 3,727,111 2,375,353 Less: Allowance for nonperforming loans reclassified from other than loans 350,718 373,627
$ 3,376,393 $ 2,001,726
The detail of and changes in allowance for credit losses are summarized below:
Years Ended December 31 2008 2007
Balance, January 1, 2008 $ 373,627 $ 378,487 Provision for bad-debt losses 2,289,286 3,536,418 Write-offs (2,786,216 ) (4,029,334 ) Recovery of written-off credits 421,949 427,544 Reclassifications 52,072 60,512
Balance, December 31, 2008 $ 350,718 $ 373,627
15. PROPERTIES AND EQUIPMENT
December 31 2008 2007
Cost $ 18,061,924 $ 18,175,430 Accumulated depreciation Buildings and improvements 1,403,613 1,315,981 Office equipment 2,580,514 2,391,035 Transportation equipment 127,675 143,499 Other equipment 1,438,132 1,392,946 5,549,934 5,243,461 Construction in progress and prepayments for equipment 232,792 329,141
Net properties and equipment $ 12,744,782 $ 13,261,110
- 22 - 16. OTHER ASSETS
December 31 2008 2007
Prepaid expenses $ 215,801 $ 256,580 Prepaid pension (Note 29) 205,168 287,524 Prepayment 37,301 6,076 Deferred income tax assets (Note 26) - 405,612 Others 226,729 231,987
$ 684,999 $ 1,187,779
17. DUE TO THE CENTRAL BANK AND OTHER BANKS
December 31 2008 2007
Call loans from banks $ 40,314,962 $ 51,037,087 Redeposit from Chunghwa Post Co., Ltd. 15,923,083 19,415,759 Due to banks 393,023 83,128 Due to the Central Bank 128,249 554,449 Overdrafts of bank 563 519,872
$ 56,759,880 $ 71,610,295
18. PAYABLES
December 31 2008 2007
Accounts and notes payable $ 7,743,015 $ 8,179,509 Accrued interest 4,977,585 4,645,082 Accrued expenses and taxes 2,992,171 3,729,561 Checks for clearing 3,210,560 2,022,504 Acceptances 2,635,312 4,177,883 Collection of bills 821,833 1,072,670 Linked tax payable 749,962 109,739 Salaries payable to employees of other organizations 705,189 339,109 Receipts under custody payable 318,202 745,815 Sports lottery 242,070 - Others 1,078,909 800,443
$ 25,474,808 $ 25,822,315
- 23 - 19. DEPOSITS AND REMITTANCES
December 31 2008 2007 Deposits Checking $ 33,873,357 $ 30,537,765 Demand 117,517,414 109,738,553 Savings 493,897,092 463,809,793 Time 312,806,932 210,955,605 Negotiable certificates of deposit 9,438,100 1,110,100 Outward remittances 645,087 976,830
$ 968,177,982 $ 817,128,646
20. BANK DEBENTURES
To maintain its capital adequacy ratio and the medium to long-term capital supply, the Bank, former TAIPEIBANK, former Fubon Bank and former Fubon Bills Finance Co., Ltd. applied to the Ministry of Finance for approval to issue bank debentures. The outstanding balances of bank debentures as of December 31, 2008 and 2007 are summarized as follows:
December 31 2008 2007 Financial liabilities - cash flow hedge Former TAIPEIBANK Second dominant, 5-year term bank debentures issued in 2003 (B); inverse floating rate; maturity: September 1, 2008 $ - $ 800,000 Third dominant, 5-year term bank debentures issued in 2003 (B); inverse floating rate; maturity: January 8, 2009 2,000,000 2,000,000 2,000,000 2,800,000 Former Fubon Bank First dominant, 7-year term bank debentures issued in 2003; inverse floating rate; maturity: May 9 and 15, 2010 5,800,000 5,800,000 Second dominant, 7-year term bank debentures issued in 2003; floating rate; maturity: June 10, 2010 2,400,000 2,400,000 Third dominant, 7-year term bank debentures issued in 2003 (A); floating rate; maturity: July 31, 2010 500,000 500,000 Third dominant, 7-year term bank debentures issued in 2003 (B, C, D); floating rate; maturity: August 6, 2010 1,300,000 1,300,000 First dominant, 7-year term bank debentures issued in 2004 (A); floating rate; maturity: February 27, 2011 300,000 300,000 First dominant, 7-year term bank debentures issued in 2004 (B); floating rate; maturity: March 8, 2011 300,000 300,000 Second dominant, 7-year term bank debentures issued in 2004; inverse floating rate; maturity: March 8, 2011 300,000 300,000 Third dominant, 7-year term bank debentures issued in 2004; floating rate; maturity: March 9, 2011 800,000 800,000 Fourth dominant, 7-year term bank debentures issued in 2004; inverse floating rate; maturity: March 9, 2011 1,500,000 1,500,000 13,200,000 13,200,000 (Continued)
- 24 -
December 31 2008 2007 Former Fubon Bills Finance Co., Ltd. First dominant, 5-year term bank debentures issued in 2003; inverse floating rate; maturity: March 31 or April 1, 2 and 3, 2008 $ - $ 1,000,000 First dominant, 5-year term bank debentures issued in 2004; floating rate; maturity: May 13 and 14, 2009 2,000,000 2,000,000 2,000,000 3,000,000 17,200,000 19,000,000 Financial liabilities - fair value hedge Former TAIPEIBANK First dominant, 10-year term bank debentures issued in 2003; inverse floating rate; maturity: July 31, 2013 5,000,000 5,000,000 Second dominant, 7-year term bank debentures issued in 2003 (C, D, E); inverse floating rate; maturity: September 1, 2010 3,200,000 3,200,000 Third dominant, 5-year term bank debentures issued in 2003 (A); inverse floating rate; maturity: January 8, 2009 500,000 500,000 Fourth dominant, 7-year term bank debentures issued in 2003; inverse floating rate; maturity: March 19, 2011 - 900,000 Fifth dominant, 7-year term bank debentures issued in 2003; inverse floating rate; maturity: March 19, 2011 - 1,300,000 8,700,000 10,900,000 Former Fubon Bank Fourth dominant, 5-year term bank debentures issued in 2003; floating rate; maturity: December 12, 2008 - 2,000,000 Fifth dominant, 10-year term bank debentures issued in 2003; inverse floating rate; maturity: December 15, 2013 - 500,000 Fifth dominant, 5-year term bank debentures issued in 2004; floating rate; maturity: March 9, 2009 - 300,000 Fifth dominant, 7-year term bank debentures issued in 2004; floating rate; maturity: March 9, 2011 2,000,000 3,100,000 Sixth dominant, 5-year term bank debentures issued in 2004; floating rate; maturity: June 8, 2009 300,000 300,000 2,300,000 6,200,000 Taipei Fubon Bank Third subordinated, 7-year term bank debentures issued in 2008; fixed 3.09%; maturity: May 30, 2015 2,500,000 - Forth subordinated, 7-year term bank debentures issued in 2008; fixed 3.14%; maturity: June 20, 2015 500,000 - 3,000,000 - Valuation adjustments of bank debentures 646,053 (689,744 ) 14,646,053 16,410,256 Bank debentures - non-hedge Former TAIPEIBANK Second dominant, 5-year term bank debentures issued in 2003 (A); fixed 1.4%; maturity: September 1, 2008 - 300,000 - 300,000 Former Fubon Bills Finance Co., Ltd. First dominant, 7-year term bank debentures issued in 2005 (A); fixed 2.1%; maturity: July 5 and 6, 2012 1,000,000 1,000,000 First dominant, 5-year term bank debentures issued in 2005 (B); fixed 1.95%; maturity: July 5 and 6, 2010 1,500,000 1,500,000 2,500,000 2,500,000 (Continued)
- 25 -
December 31 2008 2007 Taipei Fubon Bank First subordinated, 6-year term bank debentures issued in 2007; fixed 2.9%; maturity: June 28, 2013 $ 550,000 $ 550,000 First subordinated, 6-year term bank debentures issued in 2008 (A); fixed 3.05%; maturity: January 31, 2014 4,250,000 - First subordinated, 7-year term bank debentures issued in 2008 (B); floating rate; maturity: January 31, 2015 100,000 - Second subordinated, 7-year term bank debentures issued in 2008 (A); fixed 3.05%; maturity: March 28, 2015 1,350,000 - Second subordinated, 7-year term bank debentures issued in 2008 (B); floating rate; maturity: March 28, 2015 1,200,000 - Third subordinated, 7-year term bank debentures issued in 2008; fixed 3.09%; maturity: May 30, 2015 2,500,000 - Forth subordinated, 7-year term bank debentures issued in 2008; fixed 3.14%; maturity: June 20, 2015 2,300,000 - 12,250,000 550,000 14,750,000 3,350,000
$ 46,596,053 $ 38,760,256 (Concluded)
21. OTHER FINANCIAL LIABILITIES
December 31 2008 2007
Fund obtained from the government - intended for specific types of loans $ 1,144,942 $ 1,251,526 Guarantee deposit received 367,114 445,537 Hedged derivative financial liabilities 159,959 1,117,116
$ 1,672,015 $ 2,814,179
22. OTHER LIABILITIES
December 31 2008 2007
Advance receipts $ 1,401,025 $ 991,557 Suspense and clearing payment 390,653 676,601 Reserve for compensation 134,063 15,238 Deferred income tax liabilities (Note 26) 126,209 - Deferred revenue 71,219 77,154 Reserve for guarantee liabilities 61,060 61,060 Others 47,877 15,728
$ 2,232,106 $ 1,837,338
- 26 - 23. STOCKHOLDERS’ EQUITY
a. Capital stock
On May 21, 2008, the Bank’s board of directors resolved to capitalize $3,962,716 thousands of capital surplus and to issue 396,272 thousand shares. After the insurance, the Bank’s authorized, issued and outstanding capital stock increase to $43,589,883 thousand, divided into 4,358,988 thousand shares.
The capitalization of capital surplus was approved by Securities and Futures Bureau on July 25, 2008. And the Bank finished the registration of changes on August 20 2008 as the record date of capital increase.
b. Capital surplus
Under the Company Law, capital surplus can only be used to offset a deficit. However, the capital surplus from share issued in excess of par (additional paid-in capital from issuance of common shares, conversion of bonds and treasury stock transactions) and donations may be capitalized, which however is limited to a certain percentage of the Bank’s paid-in capital and cannot be declared as stock dividend in the same year that the stock is issued for cash.
c. Earnings appropriation
Based on the Bank’s Articles of Incorporation, the Bank should make appropriations from its net income (less any deficit) in the following order:
1) 30% as legal reserve;
2) Less than 5% as bonus to employees of all or part of the remainder and unappropriated earnings generated in period years, as determined by the board of directors.
Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balance of certain stockholders’ equity accounts should be transferred from unappropriated earnings to a special reserve. Any special reserve appropriated may be reversed to the extent of the decrease in the net debit balance.
Appropriations of earnings should be resolved by the stockholders in, and given effect to in the financial statements of, the year following the year of earnings generation. Under the Financial Holdings Company Law, the Bank’s board of directors is allowed to carry out the functions of stockholders’ meetings as defined by the Company Law.
Bonus for employees for 2008 was estimated and recorded on the basis of past experience. It was accrued at 1% to 5% of net income less 30% of legal reserve.
Similar to employee bonuses, the remunerations to directors and supervisors were estimated on the basis of past experience. Material differences between these estimates and the amounts proposed by the Board of Directors in the following year are retroactively adjusted in the current year. If the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change in accounting estimate.
Under the Company Law, legal reserve should be appropriated until the reserve equals the Bank’s paid-in capital. This reserve may only be used to reduce or offset deficit. When the reserve reaches 50% of the Bank’s paid-in capital, up to 50% of the reserve may be capitalized. The Banking Law limits the appropriation of cash dividends to 15% of the Bank’s paid-in capital if the legal reserve equals the Bank’s paid-in capital.
- 27 - Under the Integrated Income Tax System, local resident and corporate stockholders are allowed tax credits calculated on the basis of the ratio of creditable tax to unappropriated earnings on the date of dividend distribution.
In May 2008 and 2007, the board of directors’ meetings, which execute rights and functions of stockholders’ meetings, resolved the appropriations of the 2007 and 2006 earnings, respectively, as follows:
Appropriations of Earnings Per Share (NT$) 2007 2006 2007 2006
Legal reserve $ 1,006,072 $ 131,936 Cash dividends 2,328,000 300,000 $0.59 $0.08 Bonus to employees - cash 23,475 3,078
$ 3,357,547 $ 435,014
As of March 6, 2009, the date of the accompanying auditors’ report, the appropriation of earnings for 2008 has not been resolved by the board of directors yet. The related information regarding the proposed and resolved appropriation of earnings is available on the Market Observation Post System (M.O.P.S.) website of the Taiwan Stock Exchange.
24. COMMISSION AND FEE REVENUES, NET
Years Ended December 31 2008 2007
Commission and fee revenues $ 7,177,701 $ 9,509,554 Commission and fee expenses (1,846,617 ) (2,241,103 )
$ 5,331,084 $ 7,268,451
25. GAINS (LOSSES) ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Years Ended December 31 2008 2007
Disposal losses $ (2,251,427 ) $ (301,732 ) Revaluation gains 2,476,949 770,566 Dividend income 105,404 111,970
$ 330,926 $ 580,804
26. INCOME TAX
Since 2003, Fubon Financial Holdings Co., Ltd. has used the linked-tax system for income tax filing with its eligible subsidiaries, including the Bank.
- 28 - Income tax information is as follows: a. A reconciliation of income tax on pretax income at statutory rate and current income tax payable
Years Ended December 31 2008 2007
Income tax on pretax income at 25% statutory rate $ 1,957,236 $ 1,012,107 Add (deduct) tax effects of: Tax-exempt income 115,543 (835,324 ) Permanent differences (753,276 ) (209,770 ) Temporary differences 25,951 (471,799 ) Loss carryforwards (249,062 ) 504,786 Investment tax credit (28,295 ) - Alternative minimum tax - 108,954 Nondeductible pre-paid withholding tax on bond interest 32,186 51,947 10% surtax on undistributed retained earnings - 785
Current income tax payable $ 1,100,283 $ 161,686 b. Income tax expense
Current income tax payable $ 1,100,283 $ 161,686 Separation taxes on interest earned on short-term bills 39,758 46,964 Nondeductible tax of overseas branches 30,029 109,237 Deferred income tax expense 499,566 173,366 Adjustment of prior years’ tax 138,549 203,642
Income tax expense $ 1,808,185 $ 694,895 c. Components of deferred income tax assets (liabilities)
December 31 2008 2007 Deferred income tax assets (liabilities): Loss carryforwards $ - $ 249,062 Loss on derivative financial instruments - available for sale financial assets and cash flow hedge 78,998 161,263 Unrealized donation expense 45,422 58,190 Pension 53,119 32,615 Unrealized valuation gains on financial instruments (355,144 ) (353,160 ) Financial assets impairment losses 21,882 238,370 Temporary differences of overseas branches’ expense 29,514 11,471 Others - 7,801
$ (126,209 ) $ 405,612
Taxable income from all sources is subject to income tax. Foreign income taxes paid, to the extent of the domestic income tax applicable to the foreign-source income, are deductible against the domestic income tax liabilities.
- 29 - d. The related information under the Integrated Income Tax System was as follows:
December 31 2008 2007
Balance of imputed tax credit account $ 303,379 $ 471,394
2008 2007 (Estimated) (Actual) The ratio of imputed tax credit to earnings Bank 5.04% 14.35%
The ratio for the imputation credits allocated to stockholders of the Bank is based on the balance of the ICA as of the date of dividend distribution. The expected creditable ratio for the 2008 earnings may be adjusted, depending on the ICA balance on the date of dividend distribution.
Under the Integrated Income Tax System, stockholders (except those who are not residents of the ROC) are allowed a tax credit for the income tax paid by the Bank.
As of December 31, 2008 and 2007, the Bank had no unappropriatd retained earnings generated before January 1, 1998.
e. Income tax returns of the TAIPEIBANK Co., Ltd. (the Bank’s former name) and the former Fubon Bank through 2002 and those of the former Fubon Bills Finance Co., Ltd. through 2005 had been examined and cleared by the Taipei National Tax Administrative (TNTA). The Company disagreed with the tax authorities’ assessment of Fubon Bills Finance Co., Ltd.’ 2004 tax return and had applied for a re-examination. On these returns, TNTA had decided to give a tax refund at 65% of tax paid on interest income earned by the Bank, and the Bank accepted this refund rate and accrued 35% of the withholding tax denied.
27. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
Years Ended December 31 2007 2006 Included in Included in Included in Included in Branch General Branch General and And and and Operating Adminis- Operating Adminis- Department trative Total Department trative Total Personnel expenses Salaries and wages $ 2,499,355 $ 1,006,461 $ 3,505,816 $ 2,377,520 $ 930,488 $ 3,308,008 Pension 275,606 53,227 328,833 179,257 103,366 282,623 Others 1,408,003 937,175 2,345,178 926,861 1,330,018 2,256,879
$ 4,182,964 $ 1,996,863 $ 6,179,827 $ 3,483,638 $ 2,363,872 $ 5,847,510
Depreciation $ 381,584 $ 343,106 $ 724,690 $ 372,631 $ 347,603 $ 720,234 Amortization 146,261 185,818 332,079 131,841 184,122 315,963
$ 527,845 $ 528,924 $ 1,056,769 $ 504,472 $ 531,725 $ 1,036,197
- 30 - 28. EARNINGS PER SHARE
The numerators and denominators used in computing earnings per shares (EPS) were summarized as follows:
Earnings Per Share (NT$) Amounts (Numerator) Shares Before After Before After (Denominator) Income Income Income Tax Income Tax (in Thousands) Tax Tax
2008 $ 7,828,944 $ 6,020,759 4,358,988 $ 1.80 $ 1.38
2007 $ 4,048,469 $ 3,353,574 4,358,988 $ 0.93 $ 0.77
The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted for the capital surplus transferred to common stock for the year ended December 31, 2008. This adjustment caused the before and after income tax EPS for the year ended December 31, 2007 to decrease from NT$1.02 to NT$0.93 and from NT$0.85 to NT$0.77, respectively.
29. PENSION PLAN
Under a defined benefit pension plan, the Bank makes monthly contributions to the employees’ pension fund. The fund is in the custody of the Pension Fund Supervising Committee and deposited in the Bank of Taiwan (the Central Trust of China merged with the Bank of Taiwan in 2007, with the Bank of Taiwan as the survivor entity) on behalf of the committee’s name.
The Bank applied defined contribution plan regulated by Labor Pension Act. Under this Act, the Bank contributed 6% of the employee salaries to the Labor Insurance Administration, according to this Act, the contribution rate by the employer to the Labor Pension Fund per month shall not be less than 6% of the employee’s monthly wages. In the years ended of 2008 and 2007, the pension expense amount to $198,613 thousand and $170,138 thousand, respectively, those were contributed to personal pension accounts. In the years ended of 2008 and 2007, then pension costs under defined benefit plan were $130,220 thousand and $112,485 thousand.
Information related to defined benefit pension plan of the Bank is disclosed as follows:
a. The components of the net pension cost are summarized below:
Years Ended December 31 2008 2007
Service cost $ 128,491 $ 134,556 Interest cost 54,335 45,391 Expected return on pension fund assets (55,500 ) (64,504 ) Net amortization and deferral 2,894 (2,958 )
Net pension cost $ 130,220 $ 112,485
- 31 - b. The reconciliations of the funded status of the plan and prepaid pension as of December 31, 2008 and 2007 were as follows:
December 31 2008 2007 Benefit obligation Vested benefit obligation $ (359,116 ) $ (365,916 ) Nonvested benefit obligation (904,496 ) (1,067,999 ) Accumulated benefit obligation (1,263,612 ) (1,433,915 ) Additional benefit based on future salaries (497,951 ) (541,906 ) Projected benefit obligation (1,761,563 ) (1,975,821 ) Fair value of plan assets 2,079,925 1,995,678 Funded status 318,362 19,857 Unrecognized net translational assets (242 ) (364 ) Net (gain) loss not recognized as pension cost (112,952 ) 268,031
Prepaid pension $ 205,168 $ 287,524
c. Vested benefit $ 487,369 $ 450,929
d. Actuarial assumptions
1) Discount rate used in determining present value 2.75% 2.75% 2) Future salary increase rate 2.25% 2.50% 3) Expected rate of return on plan assets 2.75% 2.75%
30. RELATED-PARTY TRANSACTIONS
The Bank’s related parties were as follows:
a. Related parties
Related Party Relationship with the Bank
Fubon Financial Holdings Co., Ltd. (FFH) Parent company Fubon Insurance Co., Ltd. (“Fubon Insurance”) Subsidiary of FFH Fubon Life Insurance Co., Ltd. (“Fubon Life Insurance”) Subsidiary of FFH Fubon Securities Co., Ltd. (“Fubon Securities”) Subsidiary of FFH Fubon Bank (Hong Kong) Limited (Fubon Bank (Hong Kong)) Subsidiary of FFH Fubon Securities Investment Trust Co., Ltd. (“Fubon Securities Subsidiary of FFH Investment Trust”) Fubon Direct Marketing Consulting Co., Ltd. (“Fubon Direct Subsidiary of FFH Marketing Consulting”) Fubon Asset Management Co., Ltd. (“Fubon Asset Subsidiary of FFH Management”) Fubon Venture Capital Co., Ltd. Subsidiary of FFH Fubon Financial Holding Venture Co., Ltd. Subsidiary of FFH Taiwan Sport Lottery Co., Ltd. (“Taiwan Sport Lottery”) Subsidiary of FFH Fubon Insurance (Vietnam) Co., Ltd. Subsidiary of FFH Antai Life Insurance Co., Ltd. Subsidiary of FFH TAIPEIFUBON BANK Life Insurance Agency Co., Ltd. FFH’s subsidiary Fubon Leasing Co., Ltd. (“Fubon Leasing”) FFH’s subsidiary (Continued)
- 32 -
Related Party Relationship with the Bank
Fubon Insurance Agent Co., Ltd. FFH’s subsidiary Fubon Real Estate Management Co., Ltd. Equity-method investee Taipei City Government (TCG) Major stockholder of parent company TFN Media Co., Ltd. Related party in substance Taiwan Jantek Electronics Related party in substance Chung Hsing Land Development Co., Ltd. (CHLDC) Major stockholder of parent company Ming Tong Co., Ltd. Major stockholder of parent company Tao Yin Co., Ltd. Major stockholder of parent company Fu Sheng Travel Service Co., Ltd. Equity-method investee of FFH's subsidiary Citi Fubon Life Insurance Company Hong Kong Limited Equity-method investee of FFH's subsidiary Fubon Media Technology Co., Ltd. Equity-method investee of FFH's subsidiary Fubon Securities (BVI) Co., Ltd. Fubon Securities USA, Inc. Equity-method investee of FFH's subsidiary Fubon Futures Co., Ltd. Equity-method investee of FFH's subsidiary Fubon Venture Capital Co., Ltd. Equity-method investee Fubon Securities Investment Consulting Co., Ltd. (“Fubon Equity-method investee of FFH's Investment”) subsidiary Fu-Sheng Properties Insurance Agent Co., Ltd. Equity-method investee of FFH's subsidiary Fu-Sheng Life Assurance Agent Co., Ltd. Equity-method investee of FFH's subsidiary Fuly Life Properties Insurance Agent Co., Ltd. Equity-method investee of FFH's subsidiary Fuly Life Assurance Agent Co., Ltd. Equity-method investee of FFH's subsidiary TAIPEIBANK Charitable Foundation Bank provides over one third of the donations received by the Foundation Sinostar Venture Capital Co., Ltd. Equity-method investee of FFH's subsidiary Fubon Securities Investment's affiliate funds Related party in substance Fubon Technology Consulting Co., Ltd. Related party in substance Taiwan Mobile Co., Ltd. Related party in substance TECO Electric & Machinery Co., Ltd. Related party in substance Easy Card Co., Ltd. Related party in substance Taiwan Fixed Network Co., Ltd. Related party in substance Fubon Art Foundation Related party in substance Fubon Charity Foundation Related party in substance Fubon Culture and Education Foundation Related party in substance Fubon Building Management Maintain Co., Ltd. (“Fubon Related party in substance Building Management”) Fubon Securities Finance Co., Ltd. Related party in substance Fubon Land Development Co., Ltd. (Fubon Land Related party in substance Development) Fu-An Leasing Co., Ltd. Related party in substance Taiwan High Speed Rail Corporation Related party in substance (Continued)
- 33 -
Related Party Relationship with the Bank
Taiwan Customer Service Technology Co., Ltd. Related party in substance TransAsia Telecommunications Related party in substance Win TV Broadcasting Co., Ltd. Related party in substance Chia Hsin Cement Corporation Related party in substance Taiwan Cement Corporation Related party in substance Chia Hsin R.M.C Corporation Related party in substance Huei Jhih Co., Ltd. Related party in substance China Synthetic Rubber Corporation Related party in substance Taiwan Prosperity Chemical Corporation Related party in substance Hong Kong Cement Co., Ltd. Related party in substance Taiwan Stock Exchange Corporation Related party in substance TCC International Holdings Limited Related party in substance Chinese National Association of Industry and Commerce, Related party in substance Taiwan (CNAIC) Chinese Taipei Economic Cooperation Committee Related party in substance Taipei International Community Culture Foundation Related party in substance Straits Exchange Foundation(SEF) Related party in substance The Red Cross Society of The Republic of China Related party in substance Taipei Culture Foundation Related party in substance GTECH Corporation Related party in substance Services Corporation Limited (GTECH Global) Related party in substance HKJC Business Ventures Limited Related party in substance Gallup Market Research Corp., Taiwan. Related party in substance Ggallup Investment Co., Ltd. Related party in substance Global Vision Co., Ltd. Related party in substance Fubon Construction Co., Ltd. Related party in substance Fubon Real Estate Co., Ltd. Related party in substance Taiwan digital Communication Co., Ltd. Related party in substance Sinostar Investment Consulting Co., Ltd. Related party in substance Kuo Chi Investment Co., Ltd. Related party in substance Wealth Media Technology Co., Ltd. Related party in substance Tai Fu Media Technology Co., Ltd. Related party in substance TFN Investment Co., Ltd. Related party in substance Common Life Publishing Co., Ltd. Related party in substance Yun Gang Investment Co., Ltd. Related party in substance Others Directors, supervisors, managers and their relatives up to the second degree (Concluded) b. Significant related-party transactions are summarized as follows:
Year Ended December 31, 2008 Highest % of the Interest Ending Balance for Account Income Balance the Period Balance Rate (%) (Expense)
1) Loans $ 31,411,337 $ 65,047,347 4.17 1.6013-8.2242 $ 1,441,030
- 34 -
Year Ended December 31, 2008 Is the Transaction at Arm’s Length Account Volume or Name Highest Ending Type of Commercial Category of Related Party Balance Balance Normal Overdue Collaterals Term
Employees’ consumer 59 $ 30,790 $ 28,641 $ - Unsecured Yes loan Household mortgages 212 1,156,896 1,156,896 - Land and Yes buildings Others: Taiwan High Speed Rail 20,774,725 20,774,725 - Other right Yes Corporation pledge, unsecured (project approval) Taiwan Cement Corporation 700,000 600,000 - Unsecured Yes China Synthetic Rubber 449,000 360,000 - Unsecured Yes Corporation Chia Hsin Cement 200,000 200,000 - Unsecured Yes Corporation TCG 23,845,110 134,710 - Public treasury Yes guarantees Hydraulic Engineering 7,142,251 3,030,113 - Public treasury Yes Office, Public Works guarantees Department, TCG Employee Public Service 4,210,000 2,200,000 - Public treasury Yes Housing and Welfare guarantees Commission, TCG Department Of Urban 3,369,120 2,829,397 - Public treasury Yes Development, TCG guarantees Department of Rapid Transit 2,486,507 86,507 - Public treasury Yes Systems, TCG guarantees Taipei Municipal Secured 682,448 10,348 - Public treasury Yes Small Loans Service, TCG guarantees
$ 65,047,347 $ 31,411,337
Year Ended December 31, 2007 Highest % of the Interest Ending Balance for Account Income Balance the Period Balance Rate (%) (Expense)
1) Loans $ 40,176,695 $ 64,854,054 6.11 1.679-8.2005 $ 1,717,737
Year Ended December 31, 2007 Is the Transaction at Arm’s Length Account Volume or Name Highest Ending Type of Commercial Category of Related Party Balance Balance Normal Overdue Collaterals Term
Employees’ consumer 58 $ 21,514 $ 21,514 $ - Credit Yes loan Household mortgages 156 696,397 685,629 - Land and Yes buildings Others: Department of Rapid Transit 2,486,507 2,486,507 - Public treasury Yes Systems, TCG guarantees Hydraulic Engineering 7,142,251 7,142,251 - Public treasury Yes Office, Public Works guarantees Department, TCG Taipei Water Department, 111 4 - Public treasury Yes TCG guarantees New Construction Office, 194,283 77,461 - Public treasury Yes Public Works Department, guarantees TCG Taipei Municipal Secured 20,411 13,913 - Public treasury Yes Small Loans Service, TCG guarantees TCG 29,845,110 6,845,110 - Public treasury Yes guarantees Department Of Urban 4,505,478 3,432,314 - Public treasury Yes Development, TCG guarantees Taiwan High Speed Rail 19,141,992 19,141,992 - Project approval Yes Corporation Fubon Land Development 800,000 330,000 - Land Yes
$ 64,854,054 $ 40,176,695
- 35 -
Years Ended December 31 2008 2007 % of the Interest % of the Interest Ending Account Income Ending Account Income Balance Balance Rate (%) (Expense) Balance Balance Rate (%) (Expense)
2) Deposits $ 44,993,431 4.65 0-0.03 $ (215,118 ) $ 34,899,929 4.27 0-4.89 $ (252,527 ) 3) Due from banks - call loans $ 3,277,320 5.36 4.97-5.25 $ 37,682 $ - - 3.25-5.15 $ 19,095 4) Due to banks - call loans $ 232,584 0.58 0.30 $ (39 ) $ - - 4.23-6.35 $ (17,556 ) 5) Due from banks - deposits $ 1,590 0.02 - $ - $ 22,826 0.40 - $ - 6) Due to banks - deposits $ 55,759 14.19 0.01-5.14 $ (444 ) $ 6,136 0.03 0.05-5.53 $ (402 ) 7) Guarantees $ 1,574,156 2.69 0.45-0.85 $ 8,413 $ 991,163 1.97 0.78-0.85 $ 9,390
Guarantees
December 31, 2008 Highest Balance in Current Ending Provision Type of Related Party Period Balance (Note) Rates Collaterals
Taiwan High Speed Rail Corporation $ 992,590 $ 979,156 $ - 0.78%-0.85% None China Synthetic Rubber Corporation $ 195,000 $ 195,000 $ - 0.55% None Taiwan High Speed Rail Corporation $ 500,000 $ 400,000 $ - 0.45% None
December 31, 2007 Highest Balance in Current Ending Provision Type of Related Party Period Balance (Note) Rates Collaterals
Taiwan High Speed Corporation $ 1,065,718 $ 991,163 $ - 0.78%-0.85% None
Note: The provision was estimated by general reserve.
8) Securities
Years Ended December 31 Issuer Object Type 2008 2007
Fubon Life Insurance Bonds Sold cut off $ 1,923,704 $ - Fubon Insurance Bonds Sold cut off 98,379 - Fubon Securities Bonds Bought cut off 4,898,385 614,707 Sold cut off 302,870 1,004 FFH Securities Sold cut off 1,416,115 - Fubon Life Insurance Bonds Sold under agreements - 1,002,752 to repurchase Fubon Securities Investment Trust Bonds Sold under agreements - 2,525,928 to repurchase Fubon Insurance Bonds Sold under agreements - 390,000 to repurchase Fubon Securities Bonds Sold under agreements - 2,353,162 to repurchase Taiwan High Speed Rail Bonds Sold under agreements - 195,600 Corporation to repurchase Fubon Asset Management Bonds Sold under agreements - 151,053 to repurchase TFN Media Co., Ltd. Bonds Sold under agreements 7,179 10,345 to repurchase
Note: Fund transaction.
- 36 -
Bond transaction is not from OTC Electronic Bond Trading System.
9) Fund and stock transactions
Balance as of December 31 2008 2007 Units (in Units (in Item Thousands) Amount Thousands) Amount
Fubon No. 1 REITs 57,680 $ 559,496 57,680 $ 616,599 Fubon Fund 50,883 365,340 51,123 488,225 Taiwan Mobile Co., Ltd. 47,074 2,292,483 61,935 2,694,185
10) Commission and fee revenues
For the years ended December 31, 2008 and 2007, the Bank received commissions and fees revenues of $48,897 thousand and $58,860 thousand respectively, from the TCG for its handling of the loans to government employees and teachers and mortgage loans to various individuals. For paying principals and interests on bonds on behalf of the TCG, the Bank received commissions and fees revenues of $5,393 thousand and $12,509 thousand for the years ended December 31, 2008 and 2007, respectively.
11) Derivative financial instruments
December 31, 2008 Contract Gains (Notional) (Losses) on Balance Sheet Related Party Derivative Instrument Contract Period Amount Valuation Account Balance
FFH Cross currency swap contracts 2008.12.17-2013.12.23 $ 654,700 $ 7,269 Revaluation of held for trading $ 7,269 financial assets FFH Cross currency swap contracts 2008.12.11-2013.12.16 667,000 (4,519 ) Revaluation of held for trading (4,519 ) financial liabilities Fubon Bank (Hong Kong) Forward exchange contracts 2008.05.05-2009.12.07 3,153,303 (58,086 ) Revaluation of held for trading (73,042) financial liabilities Fubon Bank (Hong Kong) Forward exchange contracts 2008.10.22-2009.09.08 1,690,971 12,971 Revaluation of held for trading 29,482 financial assets Fubon Securities Interest rate swap contracts 2006.03.16-2013.06.10 8,280,000 (174,504 ) Revaluation of held for trading (243,500 ) financial liabilities Fubon Securities Interest rate swap contracts 2006.02.17-2013.03.28 8,300,000 140,614 Revaluation of held for trading 203,073 financial assets Fubon Life Insurance Currency swap contracts 2008-12.31-2009.04.03 8,771,132 (64,266 ) Revaluation of held for trading (68,198 ) financial liabilities Fubon Life Insurance Currency swap contracts 2008.11.05-2009.11.12 5,060,911 181,627 Revaluation of held for trading 203,136 financial assets Fubon Insurance Currency swap contracts 2008.12.24-2009.03.16 1,900,266 (26,880 ) Revaluation of held for trading (28,751 ) financial liabilities FFH Currency swap contracts 2008.12.12-2009.01.16 1,818,711 (11,528 ) Revaluation of held for trading (11,528 ) financial liabilities Fubon Insurance Currency swap contracts 2008.12.18-2009.03.23 1,192,395 16,678 Revaluation of held for trading 21,913 financial assets Fubon Bank (Hong Kong) Option 2007.05.07-2009.08.06 3,526,482 (24,793 ) Revaluation of held for trading 4,989 financial assets Fubon Bank (Hong Kong) Option 2007.05.07-2009.09.08 800,046 (5,092 ) Revaluation of held for trading (12,823 ) financial liabilities Fubon Bank (Hong Kong) Option 2007.05.07-2009.09.08 2,577,937 11,473 Revaluation of held for trading (3,332 ) financial liabilities
- 37 -
December 31, 2007 Contract Gains (Notional) (Losses) on Balance Sheet Related Party Derivative Instrument Contract Period Amount Valuation Account Balance
Fubon Life Insurance Forward exchange contracts 2007.11.07-2008.01.22 $ 1,295,961 $ 25,806 Revaluation of held for trading $ 25,806 financial assets Fubon Bank (Hong Kong) Forward exchange contracts 2007.01.23-2008.07.07 732,306 (14,956 ) Revaluation of held for trading (14,956 ) financial liabilities Fubon Bank (Hong Kong) Forward exchange contracts 2007.07.20-2008.11.03 796,788 16,511 Revaluation of held for trading 16,511 financial assets Fubon Securities Interest rate swap contracts 2006.02.17-2012.07.18 8,900,000 (36,983 ) Revaluation of held for trading (68,996 ) financial liabilities Fubon Securities Interest rate swap contracts 2006.02.22-2012.10.09 10,660,000 30,029 Revaluation of held for trading 62,459 financial assets Fubon Life Insurance Interest rate swap contracts 2007.06.07-2017.06.07 500,000 791 Revaluation of held for trading 791 financial assets Fubon Life Insurance Currency swap contracts 2007.04.26-2008.07.12 2,616,882 (3,932 ) Revaluation of held for trading (3,932 ) financial liabilities Fubon Life Insurance Currency swap contracts 2007.04.26-2008.11.26 4,471,524 21,509 Revaluation of held for trading 21,509 financial assets Fubon Insurance Currency swap contracts 2007.12.18-2008.11.26 771,872 (1,871 ) Revaluation of held for trading (1,871 ) financial liabilities Fubon Insurance Currency swap contracts 2007.07.03-2008.12.15 856,005 5,235 Revaluation of held for trading 5,235 financial assets Fubon Bank (Hong Kong) Option 2007.05.07-2009.07.15 9,639,692 29,782 Revaluation of held for trading 29,782 financial assets Fubon Bank (Hong Kong) Option 2007.05.07-2009.08.13 672,413 (7,731 ) Revaluation of held for trading (7,731 ) financial liabilities Fubon Bank (Hong Kong) Option 2007.05.07-2009.08.13 3,541,666 (14,805 ) Revaluation of held for trading (14,805 ) financial liabilities Taiwan High Speed Rail Forward exchange contracts 2007.12.26-2008.01.18 649,680 (11,255 ) Revaluation of held for trading (11,255 ) Corporation financial liabilities
12) Lease
Rental Revenue (Expense) for the Years Ended Lease December 31 Name Type Payment Frequency Deposits Lease Term 2008 2007
TCG Lessor Payable monthly $ 2,125 December 2011 $ (29,376 ) $ (27,638 ) Lessee Received annual - December 2011 181 184 Fubon Securities Lessor Payable monthly - July 2009 (4,412 ) (4,412 ) Lessee Received monthly 63 December 2012 42,641 44,189 Fubon Insurance Lessor Payable monthly 7,501 December 2012 (121,418 ) (115,148 ) Fubon Life Insurance Lessor Payable monthly 1,051 September 2012 (6,306 ) (10,480 ) CHLDC Lessor Payable monthly - January 2010 (117,642 ) (136,968 ) Ming Tong Co., Ltd. Lessor Payable monthly 2,742 April 2011 (20,220 ) (19,992 ) Taiwan Mobile Co., Ltd. Lessor Payable monthly 2,291 March 2012 (7,784 ) (7,784 ) Fubon AMC Lessee Received monthly 13,679 November 2011 10,482 11,892 Fubon Bank (Hong Kong) Limited Lessee Received monthly - December 2011 21,664 3,190
13) Insurance
The Bank entered into several contracts with Fubon Insurance, as follows:
Insurance Insurance Insured Item/Insurance Type Insurance Period Amount Premium
Year ended December 31, 2008
Cash on hand 2008.04.20-2009.04.20 $ 300,000 $ 820 Coffer duty insurance 2008.04.20-2009.04.20 100,000 745 Electronic equipment insurance 2008.11.01-2009.11.01 3,025,556 5,446 Commercial fire insurance 2008.04.20-2009.04.20 5,011,038 2,486 Public accident insurance 2008.04.20-2009.04.20 76,000 782 Car insurance 2007.12.31-2008.12.31 - 61 Combined insurance for the bank 2008.04.20-2009.04.20 272,000 12,150 Motorcycle insurance 2008.06.04-2009.06.04 - 437 Fidelity insurance 2008.01.01-2009.01.01 (Note) 8,562
Note: Employees are classified into different categories by job responsibilities with insurance amount $1,000 thousand, $3,000 thousand and $5,000 thousand.
- 38 -
Insurance Insurance Insured Item/Insurance Type Insurance Period Amount Premium
Year ended December 31, 2007
Cash on hand 2007.04.20-2008.04.20 $ 300,000 $ 850 Coffer duty insurance 2007.04.20-2008.04.20 100,000 766 Electronic equipment insurance 2006.11.01-2007.11.01 2,758,613 6,897 2007.11.01-2008.11.01 3,027,667 6,055 Commercial fire insurance 2007.04.20-2008.04.20 4,894,454 2,943 Public accident insurance 2007.04.20-2008.04.20 168,000 800 Car insurance 2007.01.01-2007.12.31 - 60 Combined insurance for the bank 2007.04.20-2008.04.20 272,000 12,150 Motorcycle insurance 2007.06.04-2008.06.04 - 455 Fidelity insurance 2007.01.01-2008.01.01 1,500 669
14) Co-marketing agreements
The Bank entered into a cooperation contract with Fubon Securities on brokerage services. Under this contract, the Bank paid allocation costs of $160,511 thousand and $181,211 thousand for the years ended December 31, 2008 and 2007, respectively.
The Bank signed contracts with Fubon Direct Marketing Consulting to handle the collection of installment payments by the Bank’s credit card holders. For the years ended December 31, 2008 and 2007, the Bank paid $4,208 thousand and $1,881 thousand to Fubon Direct Marketing Consulting, respectively.
15) Donation
An allocation of 30% of the Lottery department’s net income is being made to a public welfare foundation to carry out its social welfare responsibilities, as required by relevant regulations. Thus, for the years ended December 31, 2008 and 2007, the Bank donated $34,570 thousand and $40,000 thousand, respectively, to the Taipei Fubon Bank Charitable Foundation. And for the year ended December 31, 2008, the Bank donated $15,000 thousand Fubon Cultural and Educational Foundation and Fubon Charity Foundation.
16) Compensation of directors, supervisors and management personnel:
Years Ended December 31 2008 2007
Salaries $ 105,508 $ 199,288 Incentives 120,143 102,003 Bonus shares 3,506 - Special compensation 8,180 2,154
$ 237,337 $ 303,445
The compensation of directors, supervisors and management personnel for the year ended December 31, 2007 included the bonuses appropriated from earnings for 2007 which had been approved by stockholders in their annual meeting held in 2008.
- 39 - 17) Linked-tax system
The Bank, FFH, and its subsidiaries use the linked-tax system for filing income tax and surtax returns on undistributed retained earnings.
For 2007 and 2008, the estimated income tax refund of $998,242 thousand and $1,971,834 thousand, respectively, will be refunded by FFH to the Bank, and the Bank’s estimated income tax payment portions, payable to FFH, were $749,962 thousand and $109,739 thousand, respectively.
18) Disposal of nonperforming loans
Year Ended December 31, 2007 (In Thousands of New Taiwan Dollars)
Related party: Fubon Asset Management Co., Ltd.
Disposal date: January 9, 2007
Carrying Price Contract Items Amount Amount Allocation Secured $ - $ - $ - Enterprise Unsecured - - - House mortgage Secured Car loans - - - Others - - - General Credit cards 1,303,109 - 51,166 Cash cards 394,630 - 15,494 Micro credit - - - Unsecured Others - - - Total 1,697,739 66,660
19) The Bank bought land and a building from Fubon Land Development for $93,539 thousand and $31,180 thousand, respectively. The purchase price should be paid to Fubon Land Development in three installments, with the first installment of $24,944 thousand paid on December 30, 2008 and the remaining two installments payable in 2009.
20) Others
Years Ended December 31 2008 2007
Commission and fee revenues - TCG $ 19,000 $ 17,000 Commission and fee revenues - Fubon Life Insurance 60,564 54,741 Commission and fee revenues - Taiwan Sport Lottery 49,236 - Commission and fee revenues - Fubon Securities Investment Consulting 35,044 9,800 Commission and fee revenues - Fubon Insurance 33,371 22,938 Commission and fee revenues - Fubon Securities Investment Trust 28,458 37,744 Commission and fee revenues - Fubon Media Technology Co., Ltd. 14,392 14,608 Commission and fee revenues - Fubon Securities 2,148 20,436 Commission and fee revenues - Fubon Bank (Hong Kong) 1,638 75,688 Commission and fee revenues - others 5,195 7,090 Other revenues - Taiwan Sport Lottery 413,145 - Other revenues - Fubon AMC 43,512 37,170 (Continued)
- 40 -
Years Ended December 31 2008 2007
Other revenues - Fubon Direct Marketing Consulting $ 480 $ 946 Commission and fee expenses - Easy Card Co., Ltd. 179,388 81,252 Commission and fee expenses - Taiwan Sport Lottery 155,473 - Commission and fee expenses - Fubon Direct Marketing Consulting 42,463 203,135 Commission and fee expenses - Fubon Multimedia Technology 32,066 10,552 Commission and fee expenses - Taiwan Mobile Co., Ltd. 13,737 17,008 Commission and fee expenses - Fubon Insurance 11,270 42,553 Commission and fee expenses - Fubon Securities 4,727 18,688 Commission and fee expenses - TCG 1,447 1,376 Commission and fee expenses - Fubon Life Insurance 207 37,632 Commission and fee expenses - others 7,079 4,791 Business expenses - Fubon Property Management 47,000 56,000 Business expenses - Fubon Insurance - 2,523 Business expenses - Fubon Direct Marketing Consulting - 5,481 Donation - Fubon Art Foundation 9,794 10,172 Donation - Fubon Culture and Education Foundation 9,367 20,536 Donation - Fubon Charity Foundation 2,429 17,076 Insurance expenses - Fubon Life Insurance 82,182 60,809 Insurance expenses - Fubon Insurance 36,002 27,373 Other operating expenses - Taiwan Fixed Network Co., Ltd. 103,000 66,957 Other operating expenses - Taiwan High Speed Rail Corporation 14,300 22,000 Other operating expenses - Fubon Property Management 12,801 10,675 Other operating expenses - Fubon Media Technology Co., Ltd. 3,291 2,444 (Concluded)
Transaction between the Bank and related parties are at arm’s length commercial terms except for the preferential interest rates offered to employees for savings and loans of up to prescribed limits.
Under the Banking Law, except for consumer and government loans, credits extended by the Bank to any related party should be fully secured, and the credit terms for related parties should be similar to those for unrelated parties.
31. PLEDGED ASSETS
As of December 31, 2008 and 2007, the following assets had been provided as guarantee deposits:
December 31 2008 2007
Certificates of deposit (included in due from the Central Bank and other banks) $ 10,000,000 $ - Available-for-sale financial assets 3,061,506 4,515,762 Held-to-maturity investments 265,469 97,452
$ 13,326,975 $ 4,613,214
The above certificates of deposits were provided as collaterals for day-time overdraft, a requirement for joining the Central Bank’s clearing system for real-time gross settlement, and the pledged amount is adjustable depending on the overdraft amount. At the end of day, the unused parts can be used for liquid reservation.
- 41 -
Other pledged assets had been placed with (a) courts of justice as part of the requirements for pursuing various collection cases on overdue loans, (b) the National Credit Card Center to secure the Bank’s potential obligations on credit card activities, (c) the Central Bank to secure the Bank’s potential obligations on its trust activities, and (d) foreign governments to secure the Bank’s potential obligations on its overseas operations.
As of December 31, 2008 and 2007, the Bank’s obligations had not been secured.
32. CONTINGENCIES AND COMMITMENTS
As of December 31, 2008, in addition to those disclosed in Note 33, financial instruments, contingences and commitments of the Bank are summarized as follows:
a. Repurchase/resell agreements
Bills and bonds sold under repurchase agreements before December 21, 2009 $ 16,689,073
As of December 31, 2008, the Bank’s investments in financial assets at fair value through profit or loss and available-for-sale financial assets, net, which amounted to $3,376,100 thousand and $12,148,300 thousand, respectively, had been sold under repurchase agreements.
b. The Bank has several operating lease agreements expired in 2018, which cover office spaces. As of December 31, 2008, the related guarantee deposits aggregated $228,846 thousand, including rent deposits of $124,000 thousand. Under agreements with the lessors, except for rent deposits, the minimum future rentals were as follows:
Fiscal Year Amount
2009.1.1-12.31 $ 927,129 2010.1.1-12.31 696,936 2011.1.1-12.31 467,600 2012.1.1-12.31 240,883 2013.1.1-12.31 79,072
Rentals from 2014 to 2018 amount to $34,996 thousand, the present value of which is about $32,662 thousand discounted at Taiwan Post’s one-year time deposit rate of 1.39%.
c. As of December 31, 2008, construction and purchase contracts amounted to $324,602 thousand, of which $55,370 thousand was unpaid.
d. The Bank sold its Fubon Nei-Hu building to Taiwan Land Bank Co., Ltd., the trust company of Fubon REIT II on March 24, 2006, and then leased the building back. The disposal gain of $297,232 thousand will be recognized over the three-year lease period.
e. Under the announcement released by the Ministry of Finance (MOF) on September 3, 2007, the Bank was awarded the license to issue sports lottery tickets from April 16, 2007 to December 31, 2013. Based on an earlier MOF, the target annual turnover should be no less than NT$4 billion. Thus, under the guidelines of the national sports regulatory agency, unless there are reasons other than force majeure, the Bank should have turned in 80% of the target annual lottery earnings, which was at least NT$1.145 billion annually, to the government in 2008. If the earning goal was not met, the Bank had to pay the short fall.
- 42 - There was some delay, however in the approval of the Bank’s proposed network of ticket vendors, and the date to begin issuing lottery tickets was postponed from April 15 to May 2 in 2008. In addition, it was only on November 11, 2008 when approval was granted for the general public to engage in betting on sports. As a result, the vendors could sell lottery tickets much later than planned and even the plan to make ticket sales ride on the popularity of the 2008 Beijing Olympics could not be realized. These developments were considered force majeure, which prevented the Bank from meeting the requirement for the 2008 turnover. Thus, on October 21, 2008, the Bank submitted a request to the regulatory agencies for the revision of the turnover and lottery earnings requirement for 2008.
As of March 6, 2009, the date of the accompanying auditors’ report, one of the regulatory agencies, the Sports Affairs Council, approved the Bank’s request not to pay the shortfall from the amount required for turnover to the government. Another regulatory agency, the MOF, is reviewing the Bank’s request. The Bank believed that the MOF would also approve the Bank’s request. f. The Bank had sold to customers financial products linked to securities issued by Lehman Brothers Company (LEH), but LEH filed for bankruptcy in September 2008. The customers then filed a claim for settlement of losses on the LEH-linked financial products. The Bank had estimated a related loss of $120,000 thousand as of December 31, 2008. g. Balance sheets and trust properties of trust accounts:
These statements were managed by the Bank’s Trust Department. However, these items were not included in the Bank’s financial statements.
Balance Sheets of Trust Accounts December 31, 2008
(In Thousands of New Taiwan Dollars)
Real Estate Other Trust Trust Plan Business Total Trust assets
Bank deposits $ 16,219 $ 828,241 $ 844,460 Short-term investments Bonds - 65,996,482 65,996,482 Stocks - 9,993,311 9,993,311 Funds - 119,787,130 119,787,130 Receivables - 289 289 Real estate Work in process - 2,750,510 2,750,510 Land 442,096 2,754,034 3,196,130 Buildings 176,307 107,045 283,352 Collective investment trust account - 2,719,104 2,719,104 Securities investment trust fund custody - 166,189,425 166,189,425
Total trust assets $ 634,622 $ 371,125,571 $ 371,760,193 (Continued)
- 43 -
Real Estate Other Trust Trust Plan Business Total Trust liabilities
Payables $ 5,333 $ - $ 5,333 Other liabilities 13,044 - 13,044 Trust capital 515,000 204,994,757 205,509,757 Reserves and cumulative earnings Cumulative earnings 3,419 12,873,664 12,877,083 Reserves for assets revaluation 98,510 - 98,510 Net income (684 ) (15,651,379 ) (15,652,063 ) Collective investment trust account - 2,719,104 2,719,104 Securities investment trust fund custody - 166,189,425 166,189,425
Total trust liabilities $ 634,622 $ 371,125,571 $ 371,760,193 (Concluded)
Trust Income Statement Year Ended December 31, 2008
(In Thousands of New Taiwan Dollars)
Real Estate Other Trust Trust Plan Business Total
Trust income Interest income $ 23 $ 8,761 $ 8,784 Rental income 24,413 - 24,413 Cash dividends - 2,647,568 2,647,568 Realized gains on capital reduction of investment - 19,355 19,355 Realized capital gain on common stocks - 5,238 5,238 Realized capital gain on funds - 823,334 823,334 Realized investment income - 3,182,466 3,182,466 Gains from beneficiary certificates - 2,558 2,558 Total trust income 24,436 6,689,280 6,713,716 Trust expense Trust administrative expenses 771 (302,171 ) (301,400 ) Supervisors’ fee - 540 540 Tax expenses 1,202 - 1,202 Commission and fees - 469 469 Realized capital loss on common stocks - 229,418 229,418 Income tax expenses - 898 898 Others 905 - 905 Realized capital loss on funds - 921 921 Realized investment loss - 22,410,584 22,410,584 Distribution of interest on beneficiary securities 22,242 - 22,242 Total trust expenses 25,120 22,340,659 22,365,779
Net income $ (684 ) $ (15,651,379 ) $ (15,652,063 )
- 44 - Balance Sheets of Trust Accounts December 31, 2007
(In Thousands of New Taiwan Dollars)
Real Estate Other Trust Trust Plan Business Total Trust assets
Bank deposits $ 18,241 $ 577,373 $ 595,614 Short-term investments Bonds - 88,675,480 88,675,480 Stocks - 7,585,326 7,585,326 Funds - 147,052,835 147,052,835 Receivables - 259 259 Real estate Land 496,400 2,848,385 3,344,785 Buildings 103,600 12,861 116,461 Work in process - 1,910,709 1,910,709 Collective investment trust account - 4,152,691 4,152,691
Total trust assets $ 618,241 $ 252,815,919 $ 253,434,160
Trust liabilities
Payables $ 478 $ - $ 478 Other liabilities 14,344 - 14,344 Trust capital 600,000 251,940,075 252,540,075 Reserves and cumulative earnings Net income 106 15,247,226 15,247,332 Cumulative earnings 3,313 (18,524,073 ) (18,520,760 ) Collective investment trust account - 4,152,691 4,152,691
Total trust liabilities $ 618,241 $ 252,815,919 $ 253,434,160
Trust Income Statement Year Ended December 31, 2007
(In Thousands of New Taiwan Dollars)
Real Estate Other Trust Trust Plan Business Total Trust income Interest income $ 23 $ 2,744 $ 2,767 Rental income 26,145 - 26,145 Cash dividends - 2,796,441 2,796,441 Realized capital gain on common stocks - 8,265 8,265 Realized capital gain on funds - 4,240,412 4,240,412 Realized investment income - 11,671,945 11,671,945 Total trust income 26,168 18,719,807 18,745,975 (Continued)
- 45 -
Real Estate Other Trust Trust Plan Business Total Trust expense Trust administrative expenses $ 742 $ 1,067,857 $ 1,068,599 Supervisors’ fee - 240 240 Taxes expenses 1,277 - 1,277 Commission and fees - 370 370 Realized capital loss on common stocks - 82,514 82,514 Income tax expenses - 2,853 2,853 Realized investment loss - 2,318,747 2,318,747 Distribution of interest on beneficiary securities 23,218 - 23,218 Others 825 - 825 Total trust expenses 26,062 3,472,581 3,498,643
Net income $ 106 $ 15,247,226 $ 15,247,332 (Concluded)
Trust Properties of Trust Accounts December 31, 2008 and 2007
(In Thousands of New Taiwan Dollars)
Investment Portfolio 2008 2007
Cash in bank $ 844,460 $ 595,614 Short-term investments Funds 119,787,130 147,052,835 Bonds 65,996,482 88,675,480 Stocks 9,993,311 7,585,326 195,776,923 243,313,641 Receivables Securities trading receivables 289 259 Net asset of collective investment trust account 2,719,104 4,152,691 Securities investment trust fund custody 166,189,425 - Real estate Land 3,196,130 3,344,785 Buildings 283,352 116,461 Work in process 2,750,510 1,910,709 6,229,992 5,371,955
Total $ 371,760,193 $ 253,434,160
- 46 - 33. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments
December 31 2008 2007 Carrying Carrying Amount Fair Value Amount Fair Value Financial assets
Other short-term financial assets $ 322,407,564 $ 322,407,564 $ 284,042,575 $ 284,042,575 Financial assets at fair value through profit or loss 41,950,036 41,950,036 20,958,704 20,958,704 Available-for-sale financial assets 59,393,517 59,393,517 85,559,042 85,559,042 Discounts and loans 753,846,935 753,846,935 657,030,190 657,030,190 Held-to-maturity investments 8,472,109 8,501,147 5,883,418 5,850,109 Equity investments - equity method 1,241,994 1,241,994 1,110,570 1,110,570 Other financial assets 25,572,596 25,493,591 28,157,286 28,168,871
Financial liabilities
Other short-term financial liabilities 97,827,287 97,827,287 155,500,969 155,500,969 Financial liabilities at fair value through profit or loss 31,045,314 31,045,314 8,241,773 8,241,773 Deposit and remittance 968,177,982 968,177,982 817,128,646 817,128,646 Bank debentures 46,596,053 45,990,900 38,760,256 38,121,223 Other financial liabilities 1,672,015 1,672,015 2,814,179 2,814,179
b. Methods and assumptions applied in estimating the fair values disclosures for financial instruments are as follows:
1) The carrying amounts of cash and cash equivalents, due from the Central Bank and other banks, securities purchased under agreements to resell, receivables (exclude tax receivables), call loans and due to banks, payables (exclude tax payable), securities sold under agreements to repurchase, borrowed funds, and remittances approximate their fair values because of the short maturities of these instruments.
2) Fair value is best determined using quoted market prices for financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and hedging derivative financial instruments. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In case where quoted market prices are not available, fair values are based on estimates using available indirect data and appropriate valuation methodologies.
Debt investments with no active market and bank debenture are valued using prescribed valuation method.
3) Discounts and loans, deposits are interest-earning assets or interest-bearing liabilities or fair value hedge. Thus, their carrying amounts represent fair values.
4) The fair values of equity investment - equity method and unquoted equity instruments are estimated at carrying amounts because they have no quoted prices in an active market.
5) If quoted price for derivatives is not available, fair values of forward contracts and interest rate swap contracts are based on estimates using present value techniques. Options’ fair values are based on estimates using the Black-Scholes model.
6) Fair values of forward contracts are estimated using the forward rates provided by Reuters. Fair values of interest rate swap contracts and cross-currency swap contracts are estimated using the market quotations provided by Bloomberg, but the fair value of parts of these contracts are provided by the counter-parties.
- 47 - 7) Refundable deposits have no specified maturity date and thus its market value is estimated based on its carrying value in the balance sheet. The carrying value of the guarantee deposits received is the reasonable base for estimating market value for carrying value is the current pay-off price. c. Fair values of financial assets and financial liabilities determined based upon quoted market prices or estimates summarized as follows:
Quoted Market Prices Fair Value Based on Estimates December 31 December 31 2008 2007 2008 2007 Financial assets
Financial assets at fair value through profit or loss $ 4,252,422 $ 1,728,941 $ 37,697,614 $ 19,229,763 Available-for-sale financial assets 55,207,171 58,653,494 4,186,346 26,905,548 Held-to-maturity investments - - 8,501,147 5,850,109 Other financial assets - - 25,493,591 28,168,871
Financial liabilities
Financial liabilities at fair value through profit or loss - - 31,045,314 8,241,773 Bank debentures 37,344,847 26,910,967 8,646,053 11,210,256 Other financial liabilities - - 1,672,015 2,814,179
For the years ended December 31, 2008 and 2007, valuation gains or losses of financial instruments based on estimates were amounting to gains $3,748,160 thousand and losses $1,124,258 thousand, respectively.
In 2008 and 2007, for financial assets and liabilities other than those at fair value through profit or loss, interest revenues were $36,883,629 thousand and $35,571,945 thousand, respectively, and interest expenses were $19,080,301 thousand and $17,759,563 thousand, respectively.
The movements of unrealized gains or losses on financial instruments in 2008 and 2007 are summarized as follows:
Years Ended December 31 2008 2007
Balance, January 1, 2008 $ 298,980 $ 788,505 Recognized in stockholders’ equity 507,553 473,495 Recognized as loss (371,677 ) (961,552 ) Unrealized losses on financial instruments of an equity - method investee - equity method recognized as profit or loss (4,468 ) (1,468 )
Balance, December 31, 2008 $ 430,388 $ 298,980 d. Financial risk information
1) Market risk
The Bank engages into bonds, bills, loans and other similar financial instruments transactions. The values of those commodities will fluctuate with market interest rates on the balance sheet date. The interest rate sensitivity information is described in Note 36.
- 48 - 2) Credit risk
The Bank is exposed to credit risk in the event of default on contracts by counter-parties. To control this risk, the Bank makes credit commitments and issues financial guarantees and standby letters of credit only after careful evaluation of customers’ credit worthiness. On the basis of the result of the credit evaluation, the Bank may require collateral before drawings are made against the credit facilities. As of December 31, 2008 and 2007, the ratios of secured loans to total loans were 48.17% and 53.54%, respectively. The ratios of secured financial guarantees and standby letters of credits were from 0% to 100%, and the average for the years ended December 31, 2008 and 2007 were about 46.83% and 48.83%, respectively. Collaterals held vary but may include cash, inventories, marketable securities, and other properties. When the customers default, the Bank will, as required by circumstances, foreclose the collaterals or execute other rights arising out of the guarantees given. Since most of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash demands. The maximum potential amount of future payments represents the notional amounts that could be lost under the guarantees if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collaterals held or pledged.
The maximum credit exposures of the off-balance sheet financial instruments are summarized as follows:
December 31 2008 2007
Credit card commitments for credit card $ 203,324,363 $ 221,438,858 Financial guarantees and standby letter of credit 75,617,568 67,379,932 Undrawn loan commitments 75,875,946 95,207,125
The credit risk amounts of counter-parties presented above were off-balance sheet credit risk contracts with positive amounts on the balance sheet. Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counter-parties whose aggregate credit exposure is material in relation to the Bank’s total credit exposure.
The Bank maintains a diversified portfolio, limits its exposure to any one geographic region, country or individual creditor and monitors the exposure on a continuous basis. The Bank’s most significant concentrations of credit risk were summarized as follows:
December 31 Credit Risk Profile by Counter-party 2008 2007
Manufacturing industry $ 139,899,898 $ 95,383,735 Transportation, warehousing and telecom industries 32,416,688 27,237,035 Real estate industry 28,878,174 26,985,123
$ 201,194,760 $ 149,605,893
3) Liquidity risk
As of December 31, 2008 and 2007, the liquidity reserve ratios were 23.34% and 18.48%, respectively. The Bank has sufficient capital and working capital to execute all contract obligations of contract and has no liquidity risk.
The management policy of the Bank is to match the contractual maturity profile of and interest rates for its assets and liabilities. As a result of uncertainties, however, the maturities and interest rates usually have no match, and the absence is this match may give rise to gain or loss.
- 49 - The Bank applied appropriate way to group assets and liabilities. The maturity analysis of assets and liabilities was as follows:
Year Ended December 31, 2008 Due Between Due Between Due Between Due Between Due in One Month and Three Months Six Months and One Year and Due After One Month Three Months and Six Months One Year Seven Years Seven Years Total Assets
Cash and cash equivalents $ 18,685,817 $ - $ - $ - $ - $ - $ 18,685,817 Due from the Central Bank and other banks 125,522,601 65,000,010 38,573,296 7,853,781 9,149,792 - 246,099,480 Financial assets at fair value through profit or loss 33,689,793 1,226,092 2,639,710 27,293 4,046,656 320,492 41,950,036 Receivables 37,099,102 4,015,513 4,056,606 6,959,564 7,542,910 - 59,673,695 Discounts and loans 38,058,266 72,836,801 50,026,322 64,384,061 230,273,495 302,690,434 758,269,379 Available-for-sale financial assets 6,797,357 1,148,194 338,598 6,219,035 40,971,139 3,919,194 59,393,517 Held-to-maturity investments - 196,644 1,134,472 - 7,140,993 - 8,472,109 Debt investments with no active market - - - 50,000 8,284,902 12,289,588 20,624,490 Hedged derivative financial assets 92 - 303,181 - 483,472 - 786,745
$ 259,853,028 $ 144,423,254 $ 97,072,185 $ 85,493,734 $ 307,893,359 $ 319,219,708 $ 1,213,955,268
Liabilities
Due to the Central Bank of China and other banks $ 30,602,105 $ 14,395,937 $ 5,148,305 $ 5,840,754 $ 772,779 $ - $ 56,759,880 Financial liabilities at fair value through profit or loss 31,045,314 - - - - - 31,045,314 Bonds and short-term bills sold under agreements to repurchase 15,551,438 988,109 139,867 - - - 16,679,414 Payables 20,056,303 1,541,635 1,334,106 1,428,177 1,114,587 - 25,474,808 Deposits and remittances 834,066,730 23,195,536 14,064,634 13,812,340 41,519,371 41,519,371 968,177,982 Bank debentures 2,500,000 - 2,300,000 1,300,000 40,496,053 - 46,596,053 Hedged derivative financial liabilities - - - - 159,959 - 159,959
$ 933,821,890 $ 40,121,217 $ 22,986,912 $ 22,381,271 $ 84,062,749 $ 41,519,371 $ 1,144,893,410
Year Ended December 31, 2007 Due Between Due Between Due Between Due Between Due in One Month and Three Months Six Months and One Year and Due After One Month Three Months and Six Months One Year Seven Years Seven Years Total Assets
Cash and cash equivalents $ 15,059,774 $ - $ - $ - $ - $ - $ 15,059,774 Due from the Central Bank of China and other banks 152,239,450 13,120,000 17,695,000 22,055,000 - - 205,109,450 Financial assets at fair value through profit or loss 14,733,722 2,151,855 499,417 3,426,553 147,157 - 20,958,704 Receivables 66,750,576 232,170 86,954 15,067 - - 67,084,767 Discounts and loans 128,420,030 23,752,693 23,747,887 31,076,925 184,476,894 270,803,285 662,277,714 Available-for-sale financial assets - 11,086,515 1,350,661 6,083,892 60,411,673 6,626,301 85,559,042 Held-to-maturity investments - 472,855 97,452 599,537 4,227,449 486,125 5,883,418 Debt investments with no active market - - 6,292,264 765,824 9,839,374 7,784,915 24,682,377 Hedged derivative financial assets - - - - 47,340 - 47,340
$ 377,203,552 $ 50,816,088 $ 49,769,635 $ 64,022,798 $ 259,149,887 $ 285,700,626 $ 1,086,662,586
Liabilities
Due to the Central Bank of China and other banks $ 53,143,686 $ 5,542,061 $ 5,030,198 $ 6,854,894 $ 1,039,456 $ - $ 71,610,295 Financial liabilities at fair value through profit or loss 8,241,773 - - - - - 8,241,773 Securities sold under agreements to repurchase 55,055,203 2,896,242 607,257 188,826 - - 58,747,528 Payables 21,998,279 807,013 848,600 1,486,053 682,370 - 25,822,315 Deposits and remittances 490,169,945 72,872,241 77,503,413 118,018,499 42,229,062 16,335,486 817,128,646 Bank debentures - - 1,000,000 3,100,000 34,660,256 - 38,760,256 Hedged derivative financial liabilities 5,582 3,823 - 75,132 1,032,579 - 1,117,116
$ 628,614,468 $ 82,121,380 $ 84,989,468 $ 129,723,404 $ 79,643,723 $ 16,335,486 $ 1,021,427,929
4) Cash flow risk and fair value risk arising from interest rate fluctuations
Interest rate risk refers to a decline in the earnings and value of financial instruments due to adverse fluctuations of interest rates. Since this risk is considered material, the Bank enters into interest rate swap contracts to manage this risk.
- 50 - e. Fair value hedge and cash flow hedge
1) Fair value hedge
The Bank enters into interest rate swap contracts to hedge the risk of interest rate fluctuations of the fixed rate loans and the bank debenture. The risk is considered to be material to the Bank, and the Bank entered into interest rate swap contracts for hedging purposes.
December 31 2008 2007 Nominal Nominal Hedged Items Hedging Instruments Amount Fair Value Amount Fair Value
Loans Interest rate swap contracts $ - $ - $ 383,491 $ (5,582 ) Bank debentures Interest rate swap contracts 15,100,000 603,329 23,600,000 (689,744 ) Available-for-sale Interest rate swap contracts 1,423,668 (147,206 ) 1,248,685 (55,706 ) financial assets - corporated bonds
2) Cash flow hedge
The future cash flows on the floating rate debts taken by the Bank may fluctuate and lead to risk because of market interest rate changes. The risk is considered to be material to the Bank, and the Bank entered into interest rate swap contracts for hedging purposes.
Projected Period Designated Hedging Instruments Projected Gain/Loss Financial Instrument December 31, 2008 Period of Recognized in Designated as Nominal Cash Flow the Income Hedged Items Hedging Instruments Principal Fair Value Generation Statement
Bank debentures Interest rate swap contracts $ 17,800,000 $ 170,663 2006-2011 2006-2011
Projected Period Designated Hedging Instruments Projected Gain/Loss Financial Instrument December 31, 2007 Period of Recognized in Designated as Nominal Cash Flow the Income Hedged Items Hedging Instruments Principal Fair Value Generation Statement
Bank debentures Interest rate swap contracts $ 19,600,000 $ (318,744 ) 2006-2013 2006-2013
The movements of unrealized gains or losses on cash flow hedge for the years ended December 31, 2008 and 2007, respectively, were summarized as follows:
For the Years Ended December 31 2008 2007
Stockholders’ equity adjustment, January 1, 2008 $ (239,058 ) $ (528,900 ) Transfer from stockholders’ equity to current gain or loss 528,980 1,668,843 Debit to stockholders’ equity in the current period (161,925 ) (1,379,001 )
Stockholders’ equity adjustment, December 31, 2008 $ 127,997 $ (239,058 )
- 51 - 34. QUALITATIVE AND QUANTITATIVE INFORMATION BY RISK TYPES
a. Risk Management Organizational Structure
In line with promoting a disciplined risk management culture and environment, the Bank strives to continue pursuing an optimal risk-weighted return to achieve steady growth and maximize stockholder value. In addition, to comply with regulatory requirements, the Bank has implemented Basel II as the standard for enhancing risk management policies, procedures and competency. Through comprehensive risk management, the Bank is well equipped to identify, evaluate, monitor and manage risks covering every aspect of its activities.
Taipei Fubon Bank Risk Management Organizational Structure
Board
Board of Director
Assets /Liability & Risk Management Consumer Banking Group Corporate Banking Group General Mgr. General Mgr. Committee
Credit Risk Consumer Legal/ General Corporate Risk風險管理 Mgt . Control Panel Banking Compliance Administration Banking
Financial Operation Credit Legal/ Capital Credit & Risk Control & Risk Control Panel Management Corporate Risk Compliance Adequacy Mgt. Approval
Investment Credit Assets & Specific Risk Consumer Risk Collections Liability/ Review Panel Liquidity Risk Market Operating Risk Risk Control Panel
Operational Risk
Enterprise Risk
The Assets/Liability Risk Management Committee, led by the chairman, is consisting of general managers and senior management level of each division. The committee will be held on monthly basis or whenever needed to examine overall assets and liabilities risks, liquidity risk, market risk, credit risk, operational risk, capital adequacy and assets quality of the Bank. To enhance the Bank’s risk management, the Committee has set up credit risk control panel, financial operation risk control panel, investment review panel and operating risk control panel.
- 52 - To strengthen the independence of risk management, the Bank has established a risk management division, responsible for supervising and monitoring credit risk, market risk, operational risk, and enterprise-wide risk as well. Furthermore, under the framework of Basel II, the division has also implemented risk management including cord standards for the risk policies establishment, risk management system implementation, enterprise-wide risk management planning and validations for accuracy and consistency of internal models.
In response to the needs for implementing risk management policies and procedures, under the corporate banking and consumer banking groups, the Bank has also set up a corporate credit review committee, consumer credit review committee, corporate credit department, consumer risk management department and collection department. Furthermore, under the administration management, the funding and corporate planning departments are responsible for monitoring liquidity risk and capital adequacy for the Bank. The ultimate risk management relies on the Audit department, which is under supervision of the board for evaluating the effectiveness of internal control and compliance procedures of the Bank. b. Credit Risk Management and Regulatory Capital Requirement
1) Strategy/objectives/policies and procedures
In line with its business goals as well as sound credit principles, the Bank has implemented a credit risk strategy to carry to get an optimal risk-weighted return on its capital. The Bank relies on its comprehensive credit risk management instruments to measure, evaluate, monitor and report various risks associated with default risk, counter-party risk and concentration risk, to ensure its asset quality as well as minimize loss and perform in the best interest of all stockholders.
2) Risk report and evaluation system
The monitoring of the overall composition and quality of the various credit portfolios relies on various information systems, including underwriting, internal risk rating, limit control, account maintenance and collections. The Bank has also set credit limits on corporate group/individual accounts, large exposure accounts, industry segments and foreign countries as well. The comprehensive procedures for credit review of accounts will allow the Bank to take immediate corrective action on potential problem credits to protect its assets.
The Bank has initiated a Basel II credit risk management project to establish credit risk information systems including risk data warehousing system, internal risk rating system and risk-weighted assets calculation system based on the internal ratings-based (IRB) approach.
3) Mitigation or hedging of risk
To comply with the Bank’s internal policies and procedures, the Bank has established limits on the concentration of risks on credits, investments and counter-parties. In addition, the ratings assigned to individual borrowers are based on internal risk ratings to facilitate early identification of changes in risk profiles. Further, to maintain a sound credit portfolio, the Bank has also set up a comprehensive centralized approval process with written guidelines and dual authorities. For credits to individuals, appropriate collaterals based on the borrowers’ repayment capacity are also required to mitigate credit risk.
4) Methodology of the regulatory capital requirement
The Bank uses the standardized approach for market risk capital charge.
- 53 - c. Operational risk and regulatory capital requirement
Under the approval by Taiwan’s Financial Supervisory Commission given in December 2006, the Bank was one of the first financial institutions to implement in 2007 the standardized approach for capital charge to measure operational risks.
1) Strategy/objectives/policy and procedure
In line with risk management to get optimal risk-weighted return, the Bank’s operational risk strategy is to proactively identify, assess, monitor and control/mitigate operational risk in its products, services, operations and systems effectively and efficiently. In 2004, the Bank established a new operating risk management system, under which all business units set up their key risk indicators and risk assessments reflecting their individual business characteristics. Each business unit examines the key risk indicators and risk assessments monthly and quarterly and takes appropriate action on existing or potential operational risks.
2) Risk report and evaluation system
For enhanced identification and control of operational risks in all branches and area centers, the Bank does self-assessment by categorizing risk levels using green, yellow and red light indicators. The results of the external and internal loss data generated from the key risk indicators and operational risk self-assessments provided by each business unit are further evaluated and measured to determine the level of operating risk. In addition, according to the frequency and severity of internal loss data, an operational risk matrix is used as a management tool to assess the degree of the operational risk. The risk matrix is composed of eight business lines and seven loss event types, which are measured and classified as low, medium, or high risk. The Bank periodically monitors and reviews the medium and high risk and generates quarterly quality and quantitative reports, including operating risk events, loss exposure, risk transfer, special operating event, trend analysis and corrective actions follow-up.
In July 2008, the Bank established a computerized operating loss data warehousing and internal operational risk measurement system, which are closely integrated into the risk management process. The major functions of this sytem include risk and control self-assessment (RCSA), control self-assessment (CSA), key risk indicators (KRI), regulatory requirement self-assessment (RRSA), operational loss data collection (LDC) and risk dashboard. The system generates timely reports on operational risk profiles to reinforce internal communication and decision making.
3) Mitigation or hedging of risk
The operational loss can be reduced through the risk transfer of adopting internal audit, operation monitoring, staff training, insurance policies and outsourcing in each business based on the likelihood of an operational risk occurring.
4) Methodology of regulatory capital requirement
The Bank uses the standardized approach for operational risk capital charge.
- 54 - d. Market risk and regulatory capital requirement
1) Strategy/objectives/policy and procedure
The Bank has implemented a full range of market risk management systems and policies to govern its front, middle and back offices, with the middle office directly under the market risk management department's supervision. In addition, the market risk management strategy is aligned with the overall objectives of the risk management team. Further, the financial products used for trading is further categorized by four risk factors of interest rate, foreign exchange, equities and commodities, for which the Bank has set up policies, procedures and risk limits. Through a comprehensive risk management system, market risk can be effectively identified, measured, monitored and controlled.
2) Risk report and evaluation system
The market risk management department is responsible for evaluating daily risk limit (including risk factor sensitivity measurement tools such as Delta, Vega and DV01) and monitoring the trading position of profits and losses. Based on authorized limits, trading position status, and monthly/yearly profit and loss data, the market risk department takes full control on any exceeded limit exposure.
In line with Fubon Holding’s strategic plan, the Bank had initiated the implementation of the value at risk (VaR) management system. The system was successfully deployed and finished in the first half of 2008 to facilitate the application of the VaR limit to the trading book as well as to do back testing. Moreover, the Bank has established an online risk control over the trading system platform for safer financial product transactions online.
3) Mitigation or hedging of risk
There are strict rules and control among the front, middle and back offices of the trading department, risk management and settlement department. Preset policies on trading (hedging and non-hedging) cannot be altered unless prior approval is duly obtained. In addition, in line with generally accepted accounting principles on the hedging requirement, all hedging documents and assessments should be completed before the actual trading. The periodic review of the correlation between hedging and hedged targets is also required.
4) Methodology on regulatory capital requirement
In response to the accuracy of the risk profile and capital requirement in dealing with foreign exchange options, the Bank submitted to the Financial Supervisory Commission on October 30, 2008 the application to use the delta-plus method instead of the simplified approach. By using the new method, the Bank aimed to enhance its capital adequacy ratio. For the rest of the market risks, the Bank uses the standardized approach to calculate capital charges.
- 55 - 35. AVERAGE AMOUNTS AND AVERAGE INTEREST RATES OF INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
Average balances were calculated at the daily average balance of interest-earning assets and interest-bearing liabilities.
Years Ended December 31 2008 2007 Average Average Average Average Balance Rate (%) Balance Rate (%) Interest-earning assets
Cash - due from banks - deposits $ 2,782,805 2.47 $ 1,657,638 5.33 Due from the Central Bank and other banks 263,008,831 2.41 223,304,753 2.74 Financial assets at fair value through profit or loss 10,607,266 1.69 16,947,312 1.69 Securities purchased under agreement to resell 102,858 0.74 209,155 1.12 Accounts receivable - factoring 23,114,157 3.51 9,901,267 5.10 Discounts and loans 714,699,020 3.39 652,108,713 3.43 Available-for-sale financial assets 58,298,920 2.46 72,588,886 2.38 Held-to-maturity investments 7,784,577 3.17 5,435,386 2.41 Debt instrument with non-active market 22,317,298 4.79 26,303,718 4.97
Interest-bearing liabilities
Due to Central Bank and other banks 88,096,967 2.89 87,253,810 4.08 Securities sold under agreement to repurchase 46,308,746 1.84 62,198,021 1.72 Demand deposits 104,633,345 0.24 90,561,150 0.63 Savings deposits 241,141,191 0.60 255,918,730 0.62 Time deposits 281,249,065 2.43 190,923,342 2.82 Time-savings deposits 233,042,510 2.52 223,828,812 2.26 Negotiable certificates of deposit 5,181,142 1.97 839,061 1.16 Public treasury savings 19,935,446 0.24 24,108,146 0.35 Bank debentures 48,765,984 2.08 57,355,342 1.92
36. ASSET QUALITY, CONCENTRATION OF CREDIT EXTENSIONS, INTEREST RATE SENSITIVITY, PROFITABILITY AND MATURITY ANALYSIS OF ASSETS AND LIABILITIES
a. Asset quality
Please refer to Table 5.
b. Concentration of credit extensions December 31, 2008
(In Thousands of New Taiwan Dollars, %)
Credit Rank % to Net Asset Group Name (Note 2) Extensions (Note 1) Value Balance (Note 3) 1 Continental Engineering Corporation Group (Note 4) $23,079,876 29.06 2 Chi Mei Group 12,629,564 15.90 3 China Steel Corporation Group 10,545,789 13.28 4 Nanya Plastics Group 10,231,133 12.88 5 RSEA Engineering Corporation Group 10,122,488 12.75 6 CPC Corporation Group 8,952,819 11.27 7 Powerchip Semiconductor Corporation 7,685,530 9.68 8 AUO Group 7,138,998 9.00 9 Formosa Petrochemical Corporation Group 7,057,977 8.89 10 Far Eastern Textile Group 6,961,123 8.76
- 56 -
December 31, 2007
(In Thousands of New Taiwan Dollars, %)
Credit Rank % to Net Asset Group Name (Note 2) Extensions (Note 1) Value Balance (Note 3) 1 Continental Engineering Corporation Group (Note 4) $21,358,601 28.44 2 AUO Group 9,915,862 13.20 3 Formosa chemical & Fiber (Nanya) Corporation Group 8,843,373 11.78 4 Far Eastern Textile Group 6,855,919 9.13 5 Chi Mei Group 6,284,702 8.37 6 Foxconn Group 6,217,588 8.28 7 USI Group 5,836,151 7.77 8 Tatung Group 5,416,161 7.21 9 Powerchip Semiconductor Corporation Group 4,934,831 6.57 10 Pacific Electronic Wire & Cable Co., Ltd. Group 4,575,967 6.09
Note 1: Ranking top ten (excluded the government or state owned utilities) accounting to total credit consists of loans.
Note 2: Groups were regulated in Supplementary Provisions to the Taiwan Stock Exchange Corporation Criteria for Review of Securities Listings Article 6.
Note 3: Total credit consists of loans were totalized each credit (included import bill negotiated, export bill negotiated discounted, overdrafts, short-term loans, short-term secured loans, marginal receivables, medium-term loans, medium-term secured loans, long-term loans, long-term secured loans, and overdue receivables), exchange bills negotiated, accounts receivable - without recourse factoring, acceptances receivable, and grantees issued.
Note 4: Include loans to Taiwan High Speed Rail Corporation. c. Interest rate sensitivity information
Interest Rate Sensitivity December 31, 2008
(In Thousands of New Taiwan Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 754,831,405 $ 74,561,497 $ 30,585,197 $ 56,336,604 $ 916,314,703 Interest rate-sensitive liabilities 329,268,187 369,785,308 94,605,653 51,870,024 845,529,172 Interest rate sensitivity gap 425,563,218 (295,223,811 ) (64,020,456 ) 4,466,580 70,785,531 Net worth 78,414,767 Ratio of interest rate-sensitive assets to liabilities 108.37% Ratio of the interest rate sensitivity gap to net worth 90.27%
- 57 - Interest Rate Sensitivity December 31, 2007
(In Thousands of New Taiwan Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 597,325,000 $ 64,438,000 $ 65,112,000 $ 90,378,000 $ 817,253,000 Interest rate-sensitive liabilities 347,664,000 357,335,000 40,268,000 47,362,000 792,629,000 Interest rate sensitivity gap 249,661,000 (292,897,000 ) 24,844,000 43,016,000 24,624,000 Net worth 73,256,000 Ratio of interest rate-sensitive assets to liabilities 103.11% Ratio of the interest rate sensitivity gap to net worth 33.61%
Note 1: The above amounts included only New Taiwan dollar amounts held by the Bank’s onshore branches (i.e., excluding foreign currency).
Note 2: Interest rate-sensitive assets and liabilities refer to the revenues or costs of interest-earning assets and interest-bearing liabilities, which are affected by interest rate changes.
Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets －Interest rate-sensitive liabilities.
Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets/Interest rate-sensitive liabilities.
Interest Rate Sensitivity December 31, 2008
(In Thousands of U.S. Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 4,761,694 $ 294,392 $ 23,862 $ 133,682 $ 5,213,630 Interest rate-sensitive liabilities 5,568,018 310,251 314,451 55,855 6,248,575 Interest rate sensitivity gap (806,324 ) (15,859 ) (290,589 ) 77,827 (1,034,945 ) Net worth 61,461 Ratio of interest rate-sensitive assets to liabilities 83.44% Ratio of the interest rate sensitivity gap to net worth (1,683.91% )
Interest Rate Sensitivity December 31, 2007
(In Thousands of U.S. Dollars, %)
181 Days to Items 1 to 90 Days 91 to 180 Days Over One Year Total One Year Interest rate-sensitive assets $ 4,075,892 $ 891,309 $ 182,240 $ 138,503 $ 5,287,944 Interest rate-sensitive liabilities 4,850,332 291,868 186,113 87,503 5,415,816 Interest rate sensitivity gap (774,440 ) 599,441 (3,873 ) 51,000 (127,872 ) Net worth 60,305 Ratio of interest rate-sensitive assets to liabilities 97.64% Ratio of the interest rate sensitivity gap to net worth (212.04% )
Note 1: The above amounts include only U.S. dollar amounts held by the onshore branches, OBU and offshore branches of the Bank and exclude contingent assets and contingent liabilities.
Note 2: Interest rate-sensitive assets and interest rate-sensitive liabilities refer to the revenues or costs of interest-earning assets and interest-bearing liabilities, which are affected by interest rate changes.
- 58 - 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. d. Profitability
(%)
Items 2008 2007 Before income tax 0.67 0.37 Return on total assets After income tax 0.52 0.31 Before income tax 10.13 5.49 Return on net worth After income tax 7.79 4.55 Profit margin 23.14 12.54
Note 1: Return on total assets = Income before (after) income tax/Average total assets
Note 2: Return on net worth = Income before (after) income tax/Average net worth
Note 3: Profit margin = Income after income tax/Total operating revenues
Note 4: Income before (after) income tax represents income for the years ended December 31, 2008 and 2007. e. Maturity analysis of assets and liabilities
Maturity Analysis of Assets and Liabilities December 31, 2008
(In Thousands of New Taiwan Dollars)
The Amount for the Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 1,268,630,508 $ 268,815,674 $ 196,093,349 $ 130,017,235 $ 107,140,974 $ 566,563,276 Main capital outflow on maturity 1,546,745,394 245,231,982 249,093,545 239,557,601 334,383,241 478,479,025 Gap (278,114,886 ) 23,583,692 (53,000,196 ) (109,540,366 ) (227,242,267 ) 88,084,251
Maturity Analysis of Assets and Liabilities December 31, 2007
(In Thousands of New Taiwan Dollars)
The Amount for Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Main capital inflow on maturity $ 1,085,912,000 $ 274,158,000 $ 85,486,000 $ 74,296,000 $ 109,339,000 $ 542,633,000 Main capital outflow on maturity 1,398,055,000 188,487,000 135,616,000 115,946,000 494,010,000 463,996,000 Gap (312,143,000 ) 85,671,000 (50,130,000 ) (41,650,000 ) (384,671,000 ) 78,637,000
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank (i.e., excluding foreign currency).
- 59 - Maturity Analysis of Assets and Liabilities December 31, 2008
(In Thousands of U.S. Dollars)
The Amount for the Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Capital inflow on maturity $ 4,807,114 $ 818,847 $ 682,932 $ 707,822 $ 983,847 $ 1,613,666 Capital outflow on maturity 5,574,423 1,574,428 959,680 869,274 1,081,642 1,089,399 Gap (767,309 ) (755,581 ) (276,748 ) (161,452 ) (97,795 ) 524,267
Maturity Analysis of Assets and Liabilities December 31, 2007
(In Thousands of U.S. Dollars)
The Amount for Remaining Period to Maturity Total 1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year Capital inflow on maturity $ 13,138,581 $ 4,428,168 $ 2,966,162 $ 2,455,863 $ 2,167,422 $ 1,120,966 Capital outflow on maturity 12,784,763 5,250,661 2,721,901 1,960,748 2,176,752 674,701 Gap 353,818 (822,493 ) 244,261 495,115 (9,330 ) 446,265
Note 1: The above amounts are book values held by the onshore branches and offshore banking unit of the Bank in U.S. dollars, without off-balance sheet amounts (for example, the issuance of negotiable certificates of deposits, bonds or stocks).
Note 2: If the overseas assets are at least 10% of the total assets, there should be additional disclosures.
37. STATEMENT OF CAPITAL ADEQUACY
Statement of Capital Adequacy
Year December 31, 2008 Analysis Consolidation Standalone Tier 1 capital $ 73,911,379 $ 73,522,955 Tier 2 capital 14,063,082 13,674,658 Eligible capital Tier 3 capital - - Eligible capital 87,974,461 87,197,613 Standardized approach 697,162,423 697,098,578 Credit risk Internal rating - based approach - - Securitization 1,416,930 1,416,930 Basic indicator approach - - Risk-weighted Operational Standardized approach/Alternative 47,541,413 47,455,438 assets risk standardized approach Advanced measurement approach - - Standardized approach 31,413,138 31,347,338 Market risk Internal models approach - - Total risk-weighted assets 777,533,904 777,318,284 Capital adequacy rate 11.31% 11.22% Tier 1 risk - based capital ratio 9.51% 9.46% Tier 2 risk - based capital ratio 1.81% 1.76% Tier 3 risk - based capital ratio - - Ratios of common stockholders’ equity to total assets 3.55% 3.55%
- 60 - Statement of Capital Adequacy
Year December 31, 2007 Analysis Consolidation Standalone Tier 1 capital $ 70,070,504 $ 69,428,703 Tier 2 capital - - Eligible capital Tier 3 capital - - Eligible capital 70,070,504 69,428,703 Standardized approach 633,958,106 633,843,825 Credit risk Internal rating - based approach - - Securitization 2,166,845 2,166,845 Basic indicator approach - - Risk-weighted Operational Standardized approach/Alternative 44,936,826 44,936,826 assets risk standardized approach Advanced measurement approach - - Standardized approach 45,657,702 45,592,964 Market risk Internal models approach - - Total risk-weighted assets 726,719,479 726,540,460 Capital adequacy rate 9.64% 9.56% Tier 1 risk - based capital ratio 9.64% 9.56% Tier 2 risk - based capital ratio - - Tier 3 risk - based capital ratio - - Ratios of common stockholders’ equity to total assets 3.60% 3.60%
Note 1: The above table was prepared in accordance with the “Regulations Governing the Capital Adequacy Ratio of Banks” and related calculation tables.
Note 2: The formula:
1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital.
2) Total risk-weighted asset = Risk-weighted assets for credit risk + (Capital requirements for operational risk + Capital requirement for market risk) x 12.5.
3) Ratio of capital adequacy = Eligible capital/Total risk-weighted assets.
4) Tier 1 risk-based capital ratio = Tier 1 capital/Risk-weighted assets.
5) Tier 2 risk-based capital ratio = Tier 2 capital/Risk-weighted assets.
6) Tier 3 risk-based capital ratio = Tier 3 capital/Risk-weighted assets.
7) Ratios of common stockholders, equity to total assets = Common stock/Total assets.
38. ADDITIONAL DISCLOSURES
Following are the additional disclosures on significant transactions and investees required by the Securities and Futures Bureau:
a. Financing provided: Not applicable.
b. Endorsement/guarantee provided: Not applicable.
c. Marketable securities held: Table 1 (attached).
- 61 -
d. Acquired and disposed of marketable securities at costs or prices of at least NT$300 million or 10% of the issued capital: None.
e. Acquired and disposed of investee investment at costs or prices of at least NT$300 million or 10% of the issued capital: None.
f. Acquisition of individual real estates at costs of at least NT$300 million or 10% of the issued capital: None.
g. Disposal of individual real estates at prices of at least NT$300 million or 10% of the issued capital: None.
h. Allowance for service fee to related parties amounting to at least NT$5 million: None.
i. Receivables from related parties amounting to at least NT$300 million or 10% of the issued capital: Table 2 (attached).
j. Sale of nonperforming loans: Table 3 (attached).
k. Financial asset securitization: None.
l. Other significant transactions which may affect the decision of financial statements users: None.
m. The information of investees: Table 4 (attached).
n. Derivative financial transactions: Please refer to Notes 6 and 33.
39. SEGMENT INFORMATION
The Bank’s operations are based on Article III of the Banking Law Article III, and the Bank does not operate in any other industry. Also, the operating income of the Bank’s foreign department did not reach 10 % of total revenue, and the foreign department’s identifiable assets did not 10% of total assets, so no on geographic area information is disclosed.
- 62 - TABLE 1
TAIPEI FUBON COMMERCIAL BANK CO., LTD.
MARKETABLE SECURITIES HELD DECEMBER 31, 2008 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
December 31, 2008 Relationship Shares/Units/ Holding Company Type and Issuer/Name of Marketable Securities with Holding Financial Statement Account Percentage of Market Value or Note Par Value Carrying Value Company Ownership (%) Net Asset Value (in Thousands)
Fubon Leasing Co., Ltd. Stock Mao Fong Leasing - Unquoted equity instruments 4,314 $ - 4.21 $ - Note 3 Yen-Tai Foreign Exchange Co., Ltd. - Unquoted equity instruments 240 2,400 2.00 3,463 Note 1
Fubon Real Estate Beneficiary certificate Management Co., Ltd. Fubon Chi Hsiang I Beneficiary Affiliate Available-for-sale financial assets 1075 16,097 - 16,097 Note 2 Cathay II Beneficiary - Available-for-sale financial assets 800 7,072 - 7,072 Note 2 Cathay I Beneficiary - Available-for-sale financial assets 15,504 146,668 - 146,668 Note 2
Taipei Fubon Bank Life Beneficiary certificate Insurance Agency Co., Ltd. ING Taiwan Select Bond Fund - Financial assets at fair value through profit or loss 2,813 32,900 - 32,900 Note 2
Fubon Venture Capital Co., Stock Ltd. Yin King Industrial Co., Ltd. - Unquoted equity instruments 988 8,211 3.11 11,642 Note 1 Minton Optic Industry Co., Ltd. - Unquoted equity instruments 2,246 29,465 3.57 19,909 Note 1 XAVi Technologies Corporation - Unquoted equity instruments 1,142 14,849 2.67 7,385 Note 1 General Plastic Industrial Co., Ltd. - Available-for-sale financial assets 92 1,195 0.11 1,195 Note 2 Uniplus Electronics Co., Ltd. - Available-for-sale financial assets 2,365 3,665 0.95 3,665 Note 2 Loyalty Founder Enterprise Co., Ltd. - Available-for-sale financial assets 1,671 3,510 1.42 3,510 Note 2 Liton Technology Corp. - Available-for-sale financial assets 1,158 4,724 1.23 4,724 Note 2 Himax Technologies, Inc. - Available-for-sale financial assets 192 10,127 0.11 10,127 Note 2
Note 1: Net asset values were based on the investees’ unaudited financial statements as of and for the year ended 2008.
Note 2: Market prices were based on the net asset values or closing prices as of December 31, 2008.
Note 3: Stop operating for a year.
- 63 - TABLE 2
TAIPEI FUBON COMMERCIAL BANK CO., LTD.
RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE ISSUED CAPITAL DECEMBER 31, 2008 (In Thousands of New Taiwan Dollars)
Overdue Amounts Received Receivable Allowance for Bad Company Name Related Party Relationship Turnover Rate in Subsequent Ending Balance Amount Action Taken Debts Period
Taipei Fubon Commercial Bank Fubon Financial Parent company $ 998,242 Not applicable None Not applicable None None Co., Ltd. Holdings Co., Ltd. (Note)
Note: The receivable resulted from linked-tax receivable.
- 64 - TABLE 3
TAIPEI FUBON COMMERCIAL BANK CO., LTD.
SALE OF NONPERFORMING LOANS DECEMBER 31, 2008 (In Thousands of New Taiwan Dollars or U.S. Dollars)
Gain or Loss on Transaction Date Counter Parties (Note) Loans (Note) Carrying Value Selling Price Attachment Relationship Disposal
April 7, 2008 The Deutsche Bank Distressed Asset Group Credit card $ 199,209 $ 81,995 $ (117,214 ) - -
- 65 - TABLE 4
TAIPEI FUBON COMMERCIAL BANK CO., LTD.
INFORMATION ON INVESTEES DECEMBER 31, 2008 (In Thousands of New Taiwan Dollars)
Consolidated Investment Investment as of December 31, 2008 Net Income of Total Investment Gain Investor Company Investee Company Location Main Businesses and Products Shares Imitated Note Shares Percentage of Carrying the Investee Percentage of (Loss) (Thousands) Shares Shares (Thousands) Ownership Amount Ownership
Taipei Fubon Financial-related Commercial Bank Co., Ltd. Fubon Leasing Co., Ltd. Taipei Sales, maintenance and lease of 61,608 100.00 $ 397,458 $ 1,739 61,608 - 61,608 100.00 $ 1,739 Notes 1 and 4 machinery and equipment Fubonbank Insurance Agent Co., Ltd. Taipei Property insurance agency 300 100.00 5,484 1,118 300 - 300 100.00 1,118 Note 1 Taipei Fubon Commercial Bank Life Taipei Life insurance agency 2,000 100.00 776,848 712,818 2,000 - 2,000 100.00 712,818 Note 1 Insurance Agent Co., Ltd. Taipei Foreign Exchange Inc. Taipei Foreign exchange market maker 780 3.94 7,800 108,353 780 - 780 3.94 - Note 2 Taiwan Futures Exchange Taipei Futures exchange and settlement 2,964 1.26 25,250 1,421,108 2,964 - 2,964 1.26 - Note 1 Fubon Securities Finance Co., Ltd. Taipei Securities financing 22,676 5.67 213,975 337,447 97,531 - 97,531 24.38 - Note 2 Taiwan Asset Management Corporation Taipei Evaluating, auctioning, and 30,000 1.70 300,000 1,532,978 30,000 - 30,000 1.70 - Note 2 managing for financial institutions’ loan Taiwan Financial Asset Service Co., Ltd. Taipei Auction 10,000 5.88 100,000 19,187 10,000 - 10,000 5.88 - Note 2 Mondex Taiwan Inc. Taipei Information process services 197 3.35 1,804 (1,913 ) 395 - 395 6.69 - Note 2 Financial Information Service Co., Ltd. Taipei Planning and developing the 9,100 2.28 91,000 849,540 9,100 - 9,100 2.28 - Note 2 information system of across banking institution and managing the information web system Sunny Asset Management Corporation Taipei Purchasing for financial 503 8.39 5,031 6,984 503 - 503 8.39 - Note 2 institutions’ loan assets VISA Inc. USA Intermediary and agent of the credit 115 - 161,601 25,309,116 115 - 161,601 - - Note 1 card business MasterCard Inc. USA Intermediary and agent of the credit - - 345 (7,992,990 ) - - - - - Note 1 card business
Non-financial related Fubon Real Estate Management Co., Ltd. Taipei Investigation, consultation, 4,891 30.00 55,953 20,499 4,891 - 4,891 30.00 6,148 Note 1 management and real estate evaluation of construction plans Fubon Venture Capital Co., Ltd. Taipei Venture capital Investment 1,000 5.00 6,251 - 9,800 - 9,800 49.00 - Note 3 Taipei Rapid Transit Corporation Taipei Public transportation 13 - 100 596,057 13 - 13 - - Note 2 Taiwan Power Company Taipei Management of power facilities 374 - 3,252 (76,566,087 ) 374 - 374 - - Note 2 Easy Card Corporation Taipei Issue and research of IC card 2,500 5.00 25,000 (16,930 ) 2,500 - 2,500 5.00 - Note 2 Taiwan High Speed Rail Corporation Taipei Management of high speed rail 50,694 0.48 500,000 (25,009,697 ) 482,679 - 482,479 4.58 - Note 2 Taiwan Aerospace Corp. Taipei Aerospace industry 1,700 1.25 17,000 75,518 3,400 - 3,400 2.50 - Note 2 E-Hsin International Corp. Miaoli Import and export trade business 7,200 2.40 - - 7,200 - 7,200 2.40 - Synvision Technology Service Co. Taipei Operating steam power paint 814 0.33 - - 814 - 814 0.33 - symbiotic Ascentek Venture Capital Corp. Kaohsiung Venture capital investment 2,800 4.28 28,000 39,023 2,800 - 2,800 4.28 - Note 2 P.K. Venture Capital Investment Corp. Taipei Venture capital investment 7,500 5.00 49,736 (12,295 ) 7,500 - 7,500 5.00 - Note 2 Apex Venture Capital Co., Ltd. Taipei Venture capital investment 2,517 4.67 25,169 (8,099 ) 5,034 - 5,034 9.35 - Note 2 Hsu-Pang Venture Capital Co., Ltd. Taipei Venture capital investment - - 8,500 ------Note 3 Pacific Venture Capital Co., Ltd. Taipei Venture capital investment 771 5.12 8,150 4,256 1,541 - 1,541 10.24 - Note 2
Note 1: The investment gain (loss) was based on the investee’s audited financial statements for the year ended December 31, 2008. Note 2: The investment gain (loss) was based on the investee’s unaudited financial statements for the year ended December 31, 2008. Note 3: The Company is under liquidation. The carrying amount is collecting. Note 4: The Company is under liquidation.
- 66 - TABLE 5
TAIPEI FUBON COMMERCIAL BANK CO., LTD.
OVERDUE LOANS AND RECEIVABLE DECEMBER 31, 2008 AND 2007 (In Thousands of New Taiwan Dollars, %)
December 31, 2008 December 31, 2007 Nonperforming Loan Loss Loan Loss Items NPL Ratio Coverage Ratio Nonperforming Loan (NPL) Total Loans Reserves Total Loans NPL Ratio Reserves Coverage Ratio (Note 2) (Note 3) Loan (NPL) (Note 1) (LLR) (LLR) Public treasury Secured $ - $ 9,185,074 - $ - - $ - $ 19,997,561 - $ - - loan Unsecured - 68,765,000 - - - - 50,822,381 - - - Secured - 695,771 - 1,314 - - 573,769 - - - Finance loan Unsecured - - - 102 - - - - 1,416 - Secured 1,969,897 159,785,279 1.23% 1,131,298 57.43% 2,413,844 126,286,613 1.91% 914,510 37.89% Corporate loan Unsecured 2,411,483 248,811,409 0.97% 1,653,795 68.58% 2,902,981 220,731,898 1.32% 2,412,881 83.12% Mortgage (Note 4) 1,205,305 239,319,813 0.50% 465,209 38.60% 1,689,749 208,934,639 0.81% 496,008 29.35% Cash card 4,278 171,189 2.50% 34,556 807.76% 172 399,444 0.04% 33,688 19,586.05% Consumer loan Micro credit (Note 5) 300,178 9,649,394 3.11% 1,075,021 358.13% 545,049 12,783,126 4.26% 1,299,141 238.35% Secured 24,826 1,083,143 2.29% 15,072 60.71% 34,042 2,270,726 1.50% 17,594 51.68% Other (Note 6) Unsecured 96,778 20,803,307 0.47% 46,077 47.61% 298,886 19,477,557 1.53% 72,286 24.19% Total 6,012,745 758,269,379 0.79% 4,422,444 73.55% 7,884,723 662,277,714 1.19% 5,247,524 66.55% Overdue Account Delinquency Allowance for Overdue Account Delinquency Allowance for Coverage Ratio Coverage Ratio Receivable Receivable Ratio Credit Losses Receivable Receivable Ratio Credit Losses Credit card 221,371 24,798,397 0.89% 864,119 390.35% 299,173 29,467,634 1.02% 1,194,119 399.14% Account receivable - factoring with no recourse - 23,876,048 - - - - 24,005,000 - - - (Note 7) Excluded NPLs as a result of debt consultation and 2,032,772 3,611,594 loan agreements (Note 8) Excluded overdue receivables as a result of debt 2,056,601 3,155,136 consultation and loan agreements (Note 8) Excluded NPLs as a result of consumer debt clearance - - (Note 9) Excluded overdue receivables as a result of consumer 342,098 - debt clearance (Note 9)
Note 1: For loans, overdue loans represent the amounts of reported overdue loans as defined in the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans” issued by the Ministry of Finance. For credit cards, overdue receivables are under the Banking Bureau’s regulations dated July 6, 2005 (Ref. No. 0944000378).
Note 2: For loan, NPL ratio = NPL/Total loans. For credit cards, delinquency ratio = Overdue receivable/Account receivable.
Note 3: For loans, coverage ratio = LLR/NPL For credit cards, coverage ratio = Allowance for credit losses/Overdue receivables.
Note 4: Household mortgage refers to loans granted for the purchase, construction or repair of the residence owned by the borrower or the borrower’s spouse or children and the residence is used to secure the loan fully.
Note 5: Micro credits are under the Banking Bureau’s regulations dated December 19, 2005 (Ref. No. 09440010950).
(Continued)
- 67 - Note 6: Other consumer loans refer to secured or unsecured loans excluding mortgages, cash cards, micro credits, and credit cards.
Note 7: Under the Banking Bureau’s requirements in its letter dated July 19, 2005 (Ref. No. 094000494), a provision for bad debt should be recognized once no compensation obtained from a factoring or insurance company for accounts receivable-factoring with any recourse.
Note 8: The disclosure of excluded NPLs and excluded overdue receivables resulting from debt consultation and loan agreement is based on the Banking Bureau’s requirement dated April 25, 2006 (Ref: 09510001270).
Note 9: The disclosure of excluded NPLs and excluded overdue receivables resulting from consumer debt clearance is based from the Banking Bureau’s requirement dated September 15, 2008 (Ref: 09700318940). (Concluded)
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