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TAIPEI FUBON COMMERCIAL BANK Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Six Months Ended June 30, 2017 and 2016 and Independent Auditors’ Report Key audit matters for the Bank and its subsidiaries’ consolidated financial statements for the six months ended June 30, 2017 are stated as follows: Allowance for Loans and Receivables Refer to Note 4 to the consolidated financial statements for the accounting policies on the allowance for loans and receivables. Refer to Note 5a to the consolidated financial statements for the critical estimations and judgments about the allowance for loans and receivables. Refer to Notes 11, 12 and 50 to the consolidated financial statements for the details of the other related information about the allowance for loans and receivables. To assess collectively the impairment of discounts and loans and receivables, management makes judgments on whether there are any observable data indicating impairment. Management then estimates expected future cash flows and assesses the impairment loss based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio. The methodology and assumptions used for estimating objective evidence of impairment and the amount and timing of future cash flows, such as the expected loss rate and recovery rate, are critical judgments and estimates; therefore, the allowance for loans and receivables is identified as a key audit matter. Our key audit procedures performed in respect of the above area include the following: 1. We understand and assess management’s methodology, assumptions and inputs used in the impairment model to verify whether they appropriately reflect the actual outcome. 2. We assess the consistency of the effective interest rate, the impairment occurrence rate, recovery rate, etc. used in estimating expected future cash flows and evaluating collateral values. We perform a sampling of loans and receivable cases to verify their completeness and calculation accuracy. 3. We consider related guidelines issued by the authorities and examine whether the allowance for loans and receivables complied with the regulation. Impairment of Goodwill Refer to Notes 4 and 5b to the consolidated financial statements for the accounting policies on the impairment of goodwill. Refer to Note 5a to the consolidated financial statements for the critical estimations and judgments about the impairment of goodwill. Refer to Note 22 to the consolidated financial statements for the details of the other related information about the impairment of goodwill. The assumptions for the recoverable amount of goodwill are based on the future cash flows expected to arise from the future operating results which are based on professional judgment; therefore, the impairment of goodwill is identified as a key audit matter. Our key audit procedures performed in respect of the above area include the following: 1. We determine whether there are any indications that the cash-generating units to which goodwill has been allocated have suffered any impairment loss. If any such indications exist, we estimate the recoverable amount. 2. We consider whether there is a significant difference between the actual operations after the relevant business combinations and the expected benefits on the corresponding acquisition dates, and we determine whether the disclosures in the consolidated financial statements are appropriate. - 2 - Other Matter We have also audited the parent company only financial statements of TAIPEI FUBON COMMERCIAL BANK Co., Ltd. as of and for the six months ended June 30, 2017 and 2016 on which we have issued an unmodified opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, the guidelines issued by the authorities and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Bank and its subsidiaries’ ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank and its subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee, are responsible for overseeing the Bank and its subsidiaries’ financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank and its subsidiaries’ internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank and its subsidiaries’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify - 3 - our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Bank and its subsidiaries to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Bank and its subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Bank and its subsidiaries audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the six months ended June 30, 2017 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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