20190514171230296998519 En.Pdf

CTBC Financial Holding Co., Ltd. CTBC Bank Co., Ltd. Address: 27 & 29F., No. 168, Jingmao 2nd Rd., Nangang Address: No. 166, 168, 170, 186, 188, Jingmao 2nd Rd., Nangang Dist., Taipei City 115, Taiwan (R.O.C.) Dist., Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-3327-7777 Tel: +886-2-3327-7777 Website: http://www.ctbcholding.com Website: http://www.ctbcbank.com

Spokesman Taiwan Life Insurance Co., Ltd. Name: Ya-Ling Chiu Address: 8F., No. 188, Jingmao 2nd Rd., Position: Executive vice president Nangang Dist., Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-3327-7777 Tel: +886-2-8170-9888 Email: [email protected] Website: http://www.taiwanlife.com

Acting Spokesman CTBC Securities Co., Ltd. Name: Roger Kao Address: 3F., No. 168, Jingmao 2nd Rd., Nangang Dist., Taipei City Position: Senior executive vice president 115, Taiwan (R.O.C.) Tel: +886-2-3327-7777 Tel: +886-2-6639-2000 Email: [email protected] Website: http://www.ctbcsec.com

Stock Transfer Agency CTBC Venture Capital Co., Ltd. Agency: Corporate Trust Operation and Service Address: 21F., No. 168, Jingmao 2nd Rd., Nangang Dist., Taipei Department, CTBC Bank Co., Ltd. City 115, Taiwan (R.O.C.) Address: 5F., No. 83, Sec. 1, Chongqing S. Rd., Tel: +886-2-2652-2277 Zhongzheng Dist., Taipei City 100, Taiwan (R.O.C.) Website: http://www.ctbcholding.com/investment.html Tel: +886-2-6636-5566 Website: http://www.ctbcbank.com CTBC Asset Management Co., Ltd. Address: 19F., No. 168, Jingmao 2nd Rd., Nangang Dist., Certified Public Accountants Taipei City 115, Taiwan (R.O.C.) Jeff Chen, Lin Wu Tel: +886-2-8170-5377 Office: KPMG Certified Public Accountants Website: http://www.ctbcholding.com/manage.html Address: 68F., No. 7, Sec. 5, Xinyi Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.) CTBC Investments Co., Ltd. Tel: +886-2-8101-6666 Address: 12F., No. 188, Jingmao 2nd Rd., Nangang Dist., Website: http://www.kpmg.com.tw Taipei City 115, Taiwan (R.O.C.) Tel: +866-2-2652-6688 Credit Rating Institutions Website: http://www.ctbcinvestments.com Taiwan Ratings Corp. CTBC Security Co., Ltd. Address: 49F., Taipei 101 Tower, No. 7, Xinyi Rd., Sec. 5, Address: 5F., No. 188, Jingmao 2nd Rd., Nangang Dist., Taipei 110, Taiwan (R.O.C.) Taipei City 115, Taiwan (R.O.C.) Tel: +886-2-8722-5800 Tel: +886-2-2653-0355 Website: https://www.taiwanratings.com Website: http://www.ctbcholding.com/safe.html S&P Global Ratings Taiwan Lottery Corp. Address: Unit 1, Level 69, International Commerce Centre, Address: 15F., No. 188, Jingmao 2nd Rd., Nangang Dist., Taipei 1 Austin Rd. West, Kowloon, Hong Kong City 115, Taiwan (R.O.C.) Tel: +852-2533-3500 Tel: +886-2-8170-5228 Website: http://www.standardandpoors.com Website: http://www.taiwanlottery.com.tw Fitch Australia Pty Ltd., Taiwan Branch Address: Suite 1306, 13F., 205, Dunhua N. Rd., Taipei, Taiwan (R.O.C.) Tel: +886-2-8175-7600 Website: https://www.fitchratings.com/site/taiwan

Moody's Investors Service Hong Kong Ltd. Address: 24F., One Paciﬁc Place, 88 Queensway, Admiralty, Hong Kong Tel: +852-3758-1300 Website: http://www.moodys.com CONTENTS

I. Letter to Shareholders 4

II. Company Profile 9

III. Corporate Governance Report 19 (1) Organization 19 (II) Directors, supervisors, and senior managers 24 (III) Corporate governance practices 55 (IV) Information on CPAs 119 (V) Disclosures of changes in the shareholding (equity transfers and pledges) of directors, supervisors, managers, and shareholders as required by Article 11 of the Regulations Governing Approvals of the Same Person's or Same Related Parties' Application to Own More Than a Certain Percentage of the Issued Voting Shares of a Financial Holding Company 120 (VI) Information on top 10 shareholders by shareholding ratio who are related parties, spouses, or within the second degree of kinship 122 (VII) Shares and consolidated shareholding ratios of the same reinvestment business held by the Company; Company directors, supervisors, and managers; and businesses controlled directly or indirectly by the Company 123

IV. Capital Overview 124 (1) Capital and shares 124 (1I) Bonds, preferred shares, global depository receipts, employee share subscription warrants, and new restricted employee shares 132 (III) Capital utilization plan implementation 138

1 V. Operational Highlights 140 (1) Business activities 140 (II) Cross-industry and cross-selling benefits 168 (III) Market and business overview 169 (IV) Human resources 187 (V) Corporate responsibility and ethical conduct 190 (VI) Number of non-supervisory staff, their average annual employee benefit expenses, and the difference with the previous year's expenses 196 (VII) Information technology 196 (VIII) Labor relations 202 (IX) Material contracts 208

VI. Financial Information 216 (1) Condensed balance sheets and statements of comprehensive income for the past five years 216 (II) Financial analysis for the past five years 220 (III) Key performance indicators 223 (IV) Audit Committee Report for the past year's financial report 224 (V) Consolidated financial statements of parent company and subsidiaries audited by accountants in the past year 224 (VI) Impact on financial status of financial turnover difficulties of the Company and its affiliated enterprises in the past year through April 26, 2019 224

2 VII. Review and Analysis of Financial Conditions, Financial 225 Performance, and Risk Management (1) Financial conditions 225 (II) Financial performance 225 (III) Cash flow 226 (IV) Impact of significant capital expenditures on finances in 2018 226 (V) 2018 reinvestment policy, main reasons for profits or losses, improvement plan, and investment plan for the coming year 226 (VI) Risk management 227 (VII) Crisis management mechanism 245 (VIII) Other significant matters 245

VIII. Special Disclosures 246 (1) Affiliated enterprise information 246 (II) Private placement of securities by CTBC Holding in the past year through April 26, 2019 256 (III) Company shares held or disposed of by subsidiaries in the past year through April 26, 2019 256 (IV) Other supplementary information 256

IX. Matters Affecting Shareholder Equity or Securities Prices 257 from 2018 Through the end of April 2019

Appendix 1: Audit Committee Resolutions Issued in Accordance 258 With Article 14-5 of the Securities and Exchange Act

Appendix 2: Consolidated Financial Reports for 2018 265

3 I Letter to Shareholders

Dear Fellow Shareholders: After expanding at a moderate pace for the past several years, the global economic climate maintained some of this momentum at the beginning of 2018. However, uncertainty increased starting in the second quarter as it was negatively affected by successive political and economic events. These included trade conflict between China and the United States, widening disparity in various countries' economic growth and monetary policy, as well as severe market fluctuations. Taiwan was not immune to the volatility in the global economic environment, and local economic growth momentum waned as a result. As a global business operator, the impact of international political, economic, and industrial changes are particularly pronounced on the financial sector, with financial holding companies encountering considerable challenges in their operations because of these uncontrollable external factors. Faced with such difficulties, however, CTBC Financial Holding Co., Ltd. maintained its outstanding performance thanks to its solid business foundation and cooperation within the group. For 2018, CTBC Holding generated after-tax profit totaling NT$36 billion, outperforming its annual operating budget estimate. Despite the market challenges and uncertainties ahead, CTBC Holding will continue to expand its overseas business depth and breadth and maximize group synergy. In addition, our brand values—being caring, professional, and trustworthy—will guide our efforts to strengthen legal compliance and corporate governance and create mutual benefits for our clients, employees, shareholders, and community. Together, these actions will further cement our position as a leading financial institution with world-class governance and the complete trust of our clients and shareholders.

Business plans and results (1) Deepening our overseas business, with a focus on Asia Pacific Regarding our growing emphasis on overseas markets, CTBC Holding made notable progress in 2018. Across the Taiwan Strait, Xiamen Jinmeixin Consumer Finance Co., established by CTBC Bank in partnership with Xiamen Jinyuan Financial Holding Co., Ltd. and Gome Holdings Group, officially commenced business in October 2018. Not only was it the first-ever cross-strait joint venture consumer finance company, it also set a record in cross-strait financial cooperation by achieving profitability in just its first year. CTBC Holding also marked a new expansion milestone in China with the opening of CTBC Bank's Shenzhen Branch in January 2019. In the future, the Company will further expand its mainland business based on the customer base established by the existing branches, capturing the business opportunities in the Guangdong, Hong Kong, and Macau area. For the Southeast Asia markets, CTBC Bank had established subsidiaries or branches in the Philippines, Indonesia, Vietnam, and Singapore, and made an equity investment in Thailand. In the coming years, CTBC Holding will continue to seek opportunities to capture new customer base, networks, and complementary businesses as part of our efforts to improve our international reach and expand our regional financial business. Moreover, The Tokyo Star Bank in Japan has expanded its business scope by investing in private equity funds. Between 2012 and the end of 2018, it had invested in 12 private equity funds with investment totaling JPY6.46 billion and a strong investment return of 73.3%. (2) Strengthening group-wide cooperation and harnessing new synergies CTBC Holding provides a comprehensive suite of financial products and services, including banking, life insurance, securities and investment trust services. The group companies collaborate and share group resources

4 Letter to Shareholders

to maximize group synergies. At the end of 2018, CTBC Holding completed the minority share acquisition and now wholly owns CTBC Securities. Looking ahead, CTBC Holding will continue to optimize the scale of group companies through maximizing cross-sell opportunities in order to achieve greater group synergies. (3) Establishing digital core strengths and accelerating our digital transformation CTBC Holding and its subsidiaries are dedicated to providing digital financial services with a clear blueprint and development roadmap. In addition to promoting digitalization in our processes, we are developing innovative digital financial services, such as applying blockchain technology in trade finance and a platform for tracking the flow of funds. Furthermore, CTBC Holding became one of the first vendors to join FinTechSpace, a publicly funded Taipei-based incubator launched by the government as part of its efforts to encourage fintech innovation. Looking ahead, the Company will accelerate its digitalization initiatives and expand the scope of digital transformation. In doing so, we will regularly assess our progress to ensure that we adjust our strategies in a nimble, timely manner, thus achieving a steady pace of development. (4) Enhancing corporate governance and strengthening director functions CTBC Holding has a strong and diverse corporate governance system in place for our Board of Directors based on the unique business nature of each subsidiary. We seek candidates from different backgrounds who have strong leadership qualifications, international experiences, foresight, and effective communication skills. Currently, CTBC Holding has seven seasoned directors, including one legal professional. Most of our directors have business experience directly relevant to our subsidiaries. In addition, we were the first financial institution in Taiwan to have independent directors fill more than half of its board seats. These efforts are focused on strengthening our corporate governance which we will continue to enhance as necessary.

2018 business plans, strategies, and results CTBC Holding comprises numerous subsidiaries specializing in diverse services, from banking, securities, life insurance, venture capital, asset management, securities investment trust, security services, and lottery draws. In 2018, 99.67% of recognized profit using the equity method was contributed by the banking and insurance subsidiaries and 0.33% came from other businesses. In 2018, we recorded a consolidated after-tax profit of NT$36 billion and a consolidated after-tax return to common stockholder's equity of 12.09%, among one of the highest for Taiwan financial holding companies. Moreover, CTBC Holding received substantial acclaim in 2018 for its efforts in brand value, business development, financial professionalism, digital innovation, corporate governance, and corporate social responsibility, winning 205 major local and international awards—29 more than the previous year. Among these accolades, CTBC Holding was once again ranked No. 1 in the domestic financial sector in the Best Taiwan Global Brands survey. Meanwhile, CTBC Bank was Taiwan's highest-ranked bank for the sixth consecutive year in Brand Finance's Global 500 Index of the world's top banking brands, demonstrating the great achievements made by CTBC Holding in building brand value. We were also highly recognized for our corporate social responsibility efforts, receiving the 2018 Taiwan Corporate Sustainability Award, among many others, in recognition of our group's successful integration of economic, environmental, and social factors into our operating model as well as our support for sustainable development. CTBC Holding is committed to maintaining TRUST— an acronym we coined to emphasize the importance of corporate governance (Transparency), sustainable

5 Letter to Shareholders

development (Responsibility), human capital development (Understanding), products and services (Satistfaction), and public welfare (Together). We will honor our commitment to corporate sustainability and create value for our employees, clients, vendors, shareholders, and other stakeholders, positioning ourselves as not only a leading financial holding company but also one that possesses a sustainable management mindset and fulfills its corporate social responsibilities.

Latest credit ratings and effective dates Credit rating Rating agency Outlook Effective date Long-term Short-term Moody's Baa1 Stable Nov. 23, 2018 S&P Global BBB A-2 Stable Oct. 15, 2018 BBB+ F2 Fitch Stable Sept. 17, 2018 AA-(twn) F1+(twn) Taiwan Ratings twAA- twA-1+ Stable Sept. 26, 2018

2019 business overview CTBC Holding is committed to pursuing stable growth on the back of strong fundamentals. We will continue to prioritize the values of our customers and offer market-leading financial services. The Company's future plans are as follows: (1) 2019 operational guidelines 1) Expanding overseas business Our subsidiary CTBC Bank is the most international financial institution in Taiwan. It will continue to expand globally, focusing on target customers, customer relationships, and cross-border financial services. In addition, we are dedicated to improving our backend infrastructure to enable our global platforms. 2) Pursuing stable insurance business growth CTBC Holding's life insurance business has grown rapidly since we expanded into life business, becoming one of our most powerful profit engines. In the future, Taiwan Life Insurance will strengthen its infrastructure to improve operational efficiency, thereby solidifying our profit structure. Moreover, by more precisely understanding customers' needs, we will cater to and optimize customer service to respond to the ever-changing business environment. 3) Accelerating digital transformation In digital finance, CTBC Holding is working to transform its services and develop new business models. Combined with IT infrastructure enhancement and end-to-end digitalization, these will enable us to better serve our customers. (2) Operational goals 1) CTBC Holding: Strengthen collaboration and cross-selling between subsidiaries to enhance group synergy and provide well-rounded products and services to satisfy customers' needs 2) CTBC Bank: Leverage our domestic brand strengths to maximize our competitive advantage, and strengthen our existing overseas products and services by leveraging our cross-border platforms 3) Taiwan Life: Continuously enhance stable margin products and build sound investment portfolio for a solid profit foundation

6 Letter to Shareholders

4) CTBC Securities: Continue to develop omni-channels and integrate physical and digital channels to increase revenue contributions and overall market share 5) CTBC Investments: Expand onshore and offshore fund product lines to expand the scale of operations 6) CTBC Venture Capital: Optimize financial performance by identifying companies with strong growth potential and capital market recognition 7) CTBC Asset Management: Strengthen real estate management by improving occupancy rates and expand business related to urban renewal projects 8) CTBC Security: Enhance management quality and continue to offer reliable service. 9) Taiwan Lottery: Develop new products and highlight the public welfare value of the lottery to stimulate sales (3) Key operational policies 1) Build brand equity and promote corporate social responsibility 2) Enhance risk management, reinforce legal compliance, and instill a culture of vigilance against money laundering and terrorist financing 3) Strengthen corporate governance and follow evaluation indicator standards 4) Recruit and cultivate an international talent pool and foster a healthy work environment 5) Closely follow financial performance guidelines and optimize capital planning efficiency

Impact from the competitive environment, regulatory environment, and overall business environment As a result of the long-term low interest rate environment in Taiwan, achieving the desired profitability is challenging. This is compounded by the booming fintech industry, which is intensifying competition in the sector. In addition to this competition, the financial sector faced other, even more serious challenges in 2018 because of the wild fluctuations in the global financial climate. In 2019 and beyond, we intend to ensure stable profitability by keeping a close eye on market trends and assessing risks prudently while continuing to develop our overseas business and international financial services. Regarding the impact of the regulatory changes, the financial sector has been under particularly strict supervision in recent years as the competent authorities have pushed for more stringent corporate governance practices. CTBC Holding has followed this same spirit, making constant, tangible improvements to our corporate governance system. Over half of CTBC Holding's directors are independent directors, all of whom boast expertise in relevant fields such as finance, legal and corporate management practices. Given such diverse backgrounds, they are able to supervise CTBC Holding from every aspect, which is highly conducive to the Company's business operations in the long term. Looking ahead, CTBC Holding will continue to strengthen its twin profitability engines, namely, banking and insurance. Meanwhile, it will leverage opportunities for synergy by integrating the group's rich resources. With the ultimate aim of making CTBC Bank a key player Asia-wide, we will further enlarge our international presence, including through new branches and investment opportunities. We will also expand the scale of Taiwan Life and CTBC Securities. We are confident that these steps will bring us meaningfully closer to our goal of establishing CTBC Holding as a leading regional financial institution.

7 Letter to Shareholders

Future corporate development strategy Though the Company is faced with constant changes to the financial operating environment and the volatile global financial markets, the competent authorities have liberalized several digital finance business initiatives. As a result, regulators have attached growing importance to corporate governance and legal compliance best practices. CTBC Holding will harness the continued concerted efforts of our subsidiary companies to track international economic developments, exploit the opportunities afforded by digital finance, enhance our corporate governance mechanisms, and comply with all relevant laws and regulations. Going forward, we will continue to uphold our "We are family" brand spirit, be responsive to customers' needs, and develop more convenient and considerate financial services. In addition, we aspire to have the best corporate governance system in place and ultimately trust among clients and shareholders. These efforts aim to establish CTBC Holding as not only Taiwan's top financial brand but also a leading player across Asia.

Chairman

Wen-Long Yen

8 II Company Profile

(1) Date of establishment: May 17, 2002

(1I) Company history 1. CTBC Financial Holding Co., Ltd. CTBC Holding was established on May 17, 2002. Its headquarters are in Taiwan's capital, Taipei, but its workforce of 27,000 spans the country, region, and globe. CTBC Holding has eight subsidiaries: CTBC Bank, Taiwan Life, CTBC Securities, CTBC Venture Capital, CTBC Asset Management, CTBC Investments, CTBC Security, and Taiwan Lottery. In recent years, we've taken key steps to increase the scale, scope, and convenience of our financial services. In 2014, our subsidiary CTBC Bank acquired The Tokyo Star Bank, marking the first purchase of a Japanese bank by a foreign counterpart. This was followed up in July 2017 with the acquisition of a 35.6% stake in Thailand's LH Financial Group, making us its largest shareholder. In October 2018, CTBC Bank co-founded Xiamen Jinmeixin Consumer Finance Co., the first Taiwanese–Chinese joint venture of its kind, to provide consumer financial services in China. To date, CTBC Holding's banking arm has a total of 152 branches within Taiwan and 114 overseas, located in the U.S., Canada, Japan, China, Hong Kong, Singapore, India, Indonesia, Malaysia, Vietnam, Thailand, Myanmar, the Philippines, and Australia. This international network is the most extensive of any Taiwanese banking institution. In addition, in 2015, CTBC Holding expanded its presence in the insurance business by acquiring 100% of Taiwan Life, the country's oldest insurer. This has allowed us to integrate our banking, insurance, securities, and investment trust services to create practical new synergies and opportunities. We've changed a lot since our predecessor, China Securities Investment Corp., was founded in 1966, but our benevolent spirit has been a constant. It's something articulated in our brand spirit, "We are family", and our brand values of being caring, professional, and trustworthy. Looking ahead, we believe that ensuring sound corporate governance and fulfilling our responsibility as a good corporate citizen will guide us to create new value for customers, employees, shareholders, and the community. This is how we're reaching our goal of becoming "Taiwan Champion, Asia Leader"—the most trusted financial institution among clients and investors alike. Domestic awards ● Taiwan Institute for Sustainable Energy 2018 Taipei Golden Eagle Micro-movie Festival Best Film (A Foul Ball in Life) Social Inclusion Awards (A Foul Ball in Life) - Excellence Photography Awards (A Foul Ball in Life) - Excellence Photography Awards (Home Run Taiwan) - Best Social Inclusion Awards (Home Run Taiwan) - Excellence ● Risk Management, Insurance, and Finance Foundation Awards 2018 Survey of Most Preferred Financial Holding Companies Among Finance and Insurance Undergraduates: Financial Holding Company Excellence ● Global Views Monthly 2018 Corporate Social Responsibility Awards Outstanding Program Public Welfare Promotion Team - First Place Education Promotion Group - First Place 9 Company Profile

● Sports Administration 2018 Exercise Enterprise Certification ● Taiwan Institute for Sustainable Energy 2018 Taiwan Corporate Sustainability Awards Enterprise Sustainability Elite Award (Wen-Long Yen, Chairman) Chinese-language Finance and Insurance Reporting: Top 50 Platinum Award Social Inclusion Award (Taiwan Dream Project’s Education and Nutrition Initiative for Children in Remote Communities) Creative Communication Award (innovative digital service platform) Innovation Growth Award (iMortgage loan service platform) ● Industrial Development Bureau and Interbrand: No. 4 in 2018 Best Taiwan Global Brands ● YouTube: First place in Most Successful Taiwan Advertisements in Q3 2018 International awards ● Enterprise Asia Social Empowerment and Health Promotion Award Innovative Trade Finance with Blockchain Payment Confirmation Service on Blockchain ● CSRWorks International Asia’s Best Community Reporting, 2017 Asia Sustainability Reporting Awards ● Dow Jones Sustainability Indices Emerging Markets Index ● Morgan Stanley Capital International ESG Leaders Indexes ● FTSE4Good Emerging Index ● CDP Leadership A- rating ● BSI Sustainable Navigator Award ● International Data Corp. Operating Model Master, Taiwan ● The Asset Corporate Awards 2018 - Platinum Award Winners Highly Commended Initiative: Environmental Responsibility

10 Company Profile

2. CTBC Bank Co., Ltd. Our bank has been helping build customers' personal wealth and Taiwan's economy for more than 50 years. Established in 1966, CTBC Bank started business as China Securities Investment Corp. and soon grew into China Investment and Trust Co., Ltd. In 1992, it was restructured into a commercial bank with a business scope that has now grown to include deposits, loans, guarantees, forex services, offshore banking, trusts, credit cards, securities, bonds, derivatives, and online banking. Since May 17, 2002, it has been a subsidiary of CTBC Holding. To maximize its operational scope, CTBC Bank merged with Grand Commercial Bank in December 2003, acquired Fengshan Credit Cooperative in July 2004, and successfully bid for Enterprise Bank of Hualien in May 2007. The following year, on April 26, the Bank formally merged with Chinatrust Bills Finance Corp., sharply increasing the group's effectiveness. The transfer of 100% of The Tokyo Star Bank's shares was completed in June 2014, making CTBC Bank the sole shareholder in the Japanese institution. In 2017, we completed our 35.6% equity purchase in Thailand's LH Financial Group, becoming the first Taiwanese investment bank to own such a stake in a Thai financial institution. During the past five decades, we have been guided by our business principles of integrity and caring, and have introduced many innovative services along the way. We were the first bank in Taiwan to issue credit cards, to set up a customer service center, and to provide foreign currency-compatible ATMs in the country's ubiquitous convenience stores. This commitment to excellence and innovation has earned us the trust and business of individuals and companies nationwide, and we lead Taiwan's financial industry as a result. As of Dec. 31, 2018, our consolidated assets totaled NT$3.96 trillion, the most of any privately owned bank in Taiwan. In addition to its 152 domestic branches, CTBC Bank has the most extensive international network of any Taiwanese financial institution, with 114 overseas outlets located in the U.S., Canada, Japan, China, Hong Kong, Singapore, India, Indonesia, Malaysia, Vietnam, Thailand, Myanmar, the Philippines, and Australia. As we move forward and grow larger, "We are family" will remain our brand spirit. It informs our values of integrity, innovation, professionalism, teamwork, and caring as well as our mission to protect and build our customers' wealth. You can see these values in action every day as we strive to strengthen our corporate governance, fulfill our corporate social responsibility, and create value for our customers, employees, shareholders, and community. Our bank's aim is to cement its status as "Taiwan Champion, Asia Leader" by having the most effective corporate governance and being the most trusted financial institution among clients and investors alike. Domestic awards ● Reader’s Digest Trusted Brand Awards: Gold Awards for Banking, Wealth Management, Internet Financial Services, and Credit Card Issuance Bank ● Wealth Magazine 2018 Wealth Management Survey: Best Wealth Management, Best Digital Wealth Management, and Best Business Team ● Wealth Magazine 2018 Taiwan Financial Awards: Quality Award for Best Domestic Bank Image, Best Banking Service, Best Banking Product, and Best Fintech Banking ● Financial Information Service 2018 Financial Information System Annual Meeting: Best Promotion Excellence and Best Service Innovation

11 Company Profile

● Joint Credit Information Center Awards 2018: Gold Award ● Business Next Magazine 2018 Business Innovation Awards: Best Product Innovation Bronze Award ● Commercial Times 2018 Taiwan Service Industry Survey: Domestic Bank Gold Medal ● Excellence magazine 2018 Excellence in Banking Awards: Best Innovation Award ● Banking Education Association of Taiwan 2017 International Banking Competitiveness Survey ● Best Bank Award, Best Business Capability Award, Best Financial Operation Performance Award, and Leadership Vision and Business Strategy Award ● MANAGERtoday 2018 Brand Asia Awards: Merit Award in Financial Industry ● Business Today 2018 Wealth Management Banking Awards: Best Wealth Management, No. 1 in Best Product, No. 1 in Best Financial Associate Team, No. 2 in Best Marketing Innovation, No. 2 in Best Wealth Growth, No. 2 in Best Information Service, No. 3 in Best Digital Platform Experience ● Business Today Best Brand Award 2018: No. 1 in Banking ● Sports Administration, Sports Activist Award Sponsorship Gold Class and Long-Term Sponsorship ● Global View Monthly 2018 First Digital Financial Services Best Bank Awards: Excellence Award ● Taiwan Academy of Banking and Finance Best Practice Awards 2018: Best Overseas Development - Special Recognition, Best Corporate Finance - Recognition of Excellence, Best Wealth Management - Recognition of Excellence, Bes Consumer Banking - Recognition of Excellence, and Best Risk Management - Recognition of Excellence International awards ● International Data Corp. Best Bank in Asia ● Global Finance Best in Social Media Marketing and Services Best Trade Finance Bank in Taiwan Best Sub-Custodian Bank in Taiwan Best Foreign Exchange Provider in Taiwan ● Euromoney Best Private Banking Services Overall Best Net Worth-Specific Services in Taiwan Best Asset Management in Taiwan Best Commercial Banking Capabilities in Taiwan Best Research and Asset Allocation Advice in Taiwan Best Family Office Services in Taiwan Best Philanthropic Advice in Taiwan Best SRI/Social Impact Investing in Taiwan Best Succession Planning Advice and Trusts in Taiwan Best International Clients in Taiwan Best Technology in Taiwan

12 Company Profile

● The Asset Best Private Bank in Taiwan Best Trade Finance Bank in Taiwan Best Domestic Custodian in Taiwan Best Retail Online Banking Experience, Taiwan Best Retail Social-Media Banking Experience, Taiwan Most Retail Mobile Banking Experience, Taiwan Most Innovative ATM Project ("FX Machine") Taiwan Best Commodities Derivatives House, Taiwan Best Derivatives House of the Year, Taiwan Best Structured Products House, Taiwan Best Structured Investment Product Award, Commodities, Taiwan Highly Commended: Best FX Derivatives House, Taiwan Highly Commended: Best Rates Derivatives House, Taiwan Best Debt Adviser in Taiwan Best Loan Adviser in Taiwan Best Acquisition Financing in Taiwan Best Bank Capital in Taiwan Best Bond/Best Sovereign Bond - Ministry of Finance, People’s Republic of China US$3 billion bonds-role of Book runner and lead manager Best LBO (Belle International Holding HK$30 billion senior syndicated term loan facility, role of Arranger) ● The Asian Banker Achievement in Credit Risk Management Award, Asia Pacific Best Retail Bank in Taiwan Best Frictionless Robo Advisory Service in Taiwan Best Cash Management Bank in Taiwan Best Sub-Custodian Bank in Taiwan Best Transaction Bank in Taiwan Best Corporate Trade Finance Deal in Taiwan ● Private Banker International Best Customer Experience - Website, Asia Pacific Best Use of Data and Analytics, Asia Pacific Most Effective Wealth Management Platform in Greater China Highly Commended: Best Private Bank in Taiwan ● Retail Banker International Best Mortgage Offering, Asia Pacific Best ATM Innovation, Asia Pacific Highly Commended: Excellence in Loan Origination, Asia Pacific Highly Commended: Excellence in Social Media- Customer Relations and Brand Engagement, Asia Pacific

13 Company Profile

● Global Business Outlook Best Private Bank Taiwan 2018 ● Asiamoney Best Private Bank in Taiwan ● FinanceAsia Best Bank in Taiwan Best Private Bank in Taiwan ● The Banker #151 of Top 1000 World Banks 2018 ● Brand Finance #181 of Top 500 Banking Brands 2018 ● World Branding Forum Brand of the Year- National Tier ● IFR Asia Taiwan Loan House ● Asian Private Banker Excellence in Private Banking - Taiwan ● Asian Banking & Finance Domestic Foreign Exchange Bank of the Year - Taiwan Debt Deal of the Year, Taiwan ● Mandatory Provident Fund Schemes Authority Good MPF Employer Award Support for MPF Management Award ● Family Council of Hong Kong Special Mention Family-Friendly Employers Award for Breastfeeding Support ● HR Asia Magazine HR Asia Best Companies to Work for in Asia 2018 Awards- Taiwan

Latest credit ratings and effective dates Credit rating Rating agency Outlook Effective date Long-term Short-term Moody's A2 Prime-1 Stable Nov. 23, 2018 S&P Global A A-1 Stable Oct. 15, 2018 A F1 Fitch Stable Sept. 17, 2018 AA+(twn) F1+(twn) Taiwan Ratings twAA+ twA-1+ Stable Sept. 26, 2018

14 Company Profile

3. Taiwan Life Insurance Co., Ltd. Early this decade, to expand the breadth and diversity of financial services offered to our customers, CTBC Holding made entering the insurance business a priority. This was acted upon in November 2011 with the 100% acquisition of MetLife‘s local subsidiary. In January 2012, MetLife Taiwan was renamed CTBC Life, marking our point of entry into the insurance sector. CTBC Life acquired Manulife Taiwan on Jan. 1, 2014, making it stronger in terms of human resources, distribution coverage, and service scope, with a team of close to 1,000 dedicated employees. Bolstering its scale in the insurance business further, CTBC Holding's Board of Directors gave approval on May 12, 2015, for a stock exchange with Taiwan Life Insurance, which was completed on Oct. 15 that year. Subsequently, with CTBC Holding having acquired 100% of its shares, Taiwan Life officially became a subsidiary. At the beginning of 2016, the integration of Taiwan Life's resources into CTBC Life was completed, successfully creating consolidated synergies and expanding our life insurance business. Taiwan Life, the oldest life insurance company in Taiwan, was established in 1947 and privatized in 1998. Connecting deeply with the local community, Taiwan Life started off by offering a comprehensive range of insurance services and paid continual attention to market changes to develop flexible, creative commodity strategies that help improve company performance and provide a comprehensive protective network that ensures the health, wealth, and safety of the insured. Moreover, valuable commodities are promoted to maintain the company's stable long-term profitability so that both the insured and the company can enjoy steady, tangible sources of protection. Going forward, Taiwan Life will uphold CTBC Holding's service belief that, as our "We are family" brand spirit suggests, customers should be treated like family. It will work hand in hand with the group's members to offer more thoughtful financial services and innovative products to every customer. In addition, it will support CTBC Holding in pursuing our mission to "Protect and Build" value for our customers, employees, shareholders, and community. Domestic awards ● National Brand Yushan Awards 2018 Outstanding Enterprises of the Year Outstanding Enterprises Leader of the Year Best Product of the Year Best Brand of the Year ● Financial Supervisory Commission, Micro-Insurance Promotion Awards Best Micro-Insurance Promotion Award - 3rd Place Best Micro-Whole-Life Insurance Promotion Award - Excellent Best 5+2 Industrial Innovation Plan Promotion Award - Excellent ● Sports Administration, Sports Activists Awards Sponsorship Gold Class ● The Faith, Hope & Love Award (Risk Management, Insurance & Finance Foundation) Distinguished Insurance Professionalism Award Best Sense of Social Responsibility Award Best Life Representative Office Award Best Insurance Achievement Award

15 Company Profile

Best Social Contributions Award Best Channel Strategy Award- Honorable Mention Best Product Creativity Award - Honorable Mention Best Insurance Achievement Award - Honorable Mention Best Life Representative Office Award- Honorable Mention Best Professional Advisor Award (Back Office) - Honorable Mention Best Professional Advisor Award (Field Representative) - Honorable Mention International awards ● Brand Finance No. 49 of Top 100 Insurance Brands ● Enterprise Asia Health Promotion Category ● Global Business Outlook Fastest Growing Life Insurance Company–Taiwan ● Asia Insurance Review Corporate Social Responsibility Award 2018 Digital and Omni channel Technologies Category ● Asian Banking & Finance, ABF Claims Initiative of the Year New Insurance Product of the Year Digital Insurance Initiative of the Year

Latest credit rating and effective date Credit rating Rating agency Effective date Financial capability BBB+ Fitch Stable Sept. 18, 2018 AA-(twn)

4. CTBC Securities Co., Ltd. CTBC Securities was formerly known as Pou Chen Securities, which was founded in 1989. It was the largest professional brokerage in Kaohsiung, with an initial paid-in capital investment of NT$200 million. In 2000, its name was changed to Chinatrust Securities Corp. and its capital had increased to NT$3.5 billion. In 2002, it joined CTBC Holding and the following year was renamed CTBC Securities and had capital of NT$5 billion. In 2009, to increase its operational capital, BIS ratio, and EPS, CTBC Securities issued private equity, increasing its capital to NT$5.36 billion. In response to the government's so-called "Asian Cup" policy aimed at encouraging enterprises to expand, CTBC Securities widened its scope of business cooperation locally and abroad, increasing its capital to NT$6 billion in 2015. To further enhance its operating efficiency, it officially became a wholly owned subsidiary of CTBC Holding in 2018. CTBC Securities assists with corporate financing in the capital market and is committed to further enhancing its securities and future business in order to provide customers with a more diversified spectrum of trading services.

16 Company Profile

In addition to its head office, CTBC Securities has multiple branches across many cities in Taiwan, including Taipei, New Taipei, Taoyuan, Hsinchu, Taichung, Chiayi, Tainan, and Kaohsiung, to serve customers in the trading of securities listed on the Taiwan Stock Exchange, Taipei Exchange, and Taipei Exchange Emerging Stock Board. CTBC Securities has also assembled an offshore securities unit to bolster its global exposure and product variety. In the future, under CTBC Holding, CTBC Securities will roll out online ordering, app orders, telephone orders, and ordering compatible with iOS and Android smartphones to afford greater diversity in electronic trading services and to meet customers' one-stop shopping demands. With the rapid development of technology, growth of per capita income, and improvements in education, local investors are more accepting of a variety of financial products and demand has increased accordingly. High-quality product planning and financial services have become critical factors for investors, and CTBC Securities has added diverse cross-border financial services after obtaining licenses from international financial companies, helping the company to further expand its operations.

Latest credit rating and effective date Credit rating Rating agency Outlook Effective date Long-term Short-term BBB+ F2 Fitch Stable Sept. 17, 2018 AA-(twn) F1+(twn)

5. CTBC Venture Capital Co., Ltd. Founded in March 2003, CTBC Venture Capital is CTBC Holding's first venture capital company. CTBC Venture Capital invests in potential businesses in the ICT, biotech and healthcare, cultural and creative, and alternative energy fields as well as in strongly performing industries with growth potential. Leveraging CTBC Holding's vast pool of financial resources and services, CTBC Venture Capital's industry-leading management professionals are well positioned to help enterprises develop and to become entrepreneurs' most valued partners.

6. CTBC Asset Management Co., Ltd. CTBC Asset Management was founded in May 2003 mainly to take advantage of the large quantities of non- performing assets arising from Taiwan's domestic financial reform. A team of professionals was assembled to seek business opportunities and help companies improve their finances. The company manages debt trading for financial institutions and for the lease investment industry. Since its establishment, it has steadily increased its investment in non-performing liabilities as well as actively assessed the real estate and chattels from court auctions and complied with financial holding policies to assist with the handling and activation of CTBC Holding's idle assets. CTBC Asset Management intends to support the government's urban renewal policy, actively engage in the provision of advances for urban renewal projects, and help provide the owners and redevelopers of old buildings with the funds required for urban renewal projects. In light of the increasingly competitive environment, the company is shifting its investment focus toward the leasing business. To this end, it founded an investment company in Hong Kong in April 2012 specifically to invest in China. There, few barriers to establishing a financial leasing company exist and the business scope of

17 Company Profile

such firms is broad. After establishment, a company can directly begin dealing in renminbi and immediately begin increasing their presence. Future integration with financial holdings companies will enhance the effectiveness of asset disposal, maximize the synergy to enhance investment profits, and expand the scope of asset management business.

7. CTBC Investments Co., Ltd. To diversify its product and service range, CTBC Holding obtained a 98.6% stake in Truswell Securities Investment Trust Co., Ltd. in November 2012. In January 2013, its name was officially changed to CTBC Investments. In June that year, it obtained the remaining 1.4% to become the sole shareholder. CTBC Investments' principal responsibilities span securities investment trusts, discretionary investment services, offshore fund master agent services, and other government-sanctioned business. Domestic awards ● 21st TFF–Bloomberg Best Fund Awards: 3-Year Outstanding Mid-to-Small Capital Fund (won by CTBC Taiwan small-cap fund) ● 2018 Thomson Reuters Lipper Fund Awards: Taiwan 3-Year Equity Taiwan Small and Mid-Caps Fund and Taiwan 5-Year Equity Taiwan Small and Mid-Caps Fund (won by CTBC Taiwan small-cap fund)

8. CTBC Security Co., Ltd. Founded in 1995, CTBC Security became a subsidiary of CTBC Holding in December 2005. CTBC Security is principally engaged in helping corporate entities protect their property and personnel. Chosen through a meticulous screening process, its highly trained workforce over 300 employees stands out as one of the finest in the industry. CTBC Security's business scope includes planning and design for fire safety and disaster prevention, security systems consulting, security courier services, stationed guards, and personnel protection. Financial institutions constitute the majority of its clientele. CTBC Security is committed to a security-based, service-oriented business philosophy that ensures customer satisfaction.

9. Taiwan Lottery Corp. Taiwan Lottery was founded on July 10, 2006. It is a 100% subsidiary of CTBC Holding and is the CTBC Bank-delegated operator of Taiwan's public welfare lottery. Taiwan Lottery's main duties include selling lottery tickets, marketing the lottery, conducting the draw games drawings, and paying out prize winners. After winning the right to administer the third term of the government lottery franchise from 2007 to 2013, CTBC Bank was awarded the rights again for the fourth term of 2014–2023 by the Ministry of Finance. We strive for the right to run the public welfare lottery largely because it provides employment opportunities for underprivileged people. In addition, the average annual operation surplus of around NT$25 billion (plus an extra of NT$2.7 billion we donate each year) goes directly into the government welfare coffers to fund crucial social welfare programs. By successfully running the lottery, CTBC Holding is able to achieve our goals of giving back to the community and fulfilling our corporate social responsibility.

18 III Corporate Governance Report

(1)Organization

1. CTBC Holding organization chart As of April 26, 2019 Stockholders’ Meeting

Audit Committee Board of Directors Remuneration Committee General Auditor Office of General Auditor Risk Management Committee Chairman Nomination Committee Office of Chairman Corporate Governance Officer Ethics & Integrity Committee

Executive Committee

President

Credit Committee Office of President

Digital Finance Division

Corporate Planning Division

Investment Advisory Department

Investor Relations Department

Legal Department

Corporate Relations Department Cross-Border Officer, Strategy Japan Chief Technology Officer Chief Investment Officer Chief Risk Officer Chief Compliance Officer Chief Administration Officer

Financial General Information Technology Risk Management Compliance Management Administration Management Department Department Department Department Department

F i n a n c i a l O f fi c e r Accounting Officer

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2. Duties of key departments (1) Committees 1) Audit Committee Composed entirely of independent directors, the Audit Committee is responsible for assisting the Board of Directors in performing its supervisory duties. Matters for which it is responsible include formulating or modifying internal control systems; assessing the effectiveness of internal control systems; formulating or modifying procedures for asset acquisition or disposal; making deals with derivatives and performing major financial business actions; auditing matters involving stakes of directors; legally auditing deals made with stakeholders; auditing deals of major assets or derivatives; auditing the raising, distribution, or private placement of negotiable securities involving stock rights; auditing the appointment, dismissal, or remuneration of CPAs; assessing the independence and performance of these CPAs; auditing the appointment and dismissal of the Financial Officer, Accounting Officer, and internal audit head; auditing annual financial reports and semi-annual financial reports; examining M&A; and auditing other major issues stipulated by the Company or the competent authorities. 2) Remuneration Committee Members of this committee are appointed by resolution of the Board of Directors and must include at least one independent director. The committee is responsible for assisting the Board of Directors in assessing and supervising the overall remuneration policies of the Company as well as assessing and determining the remuneration levels of directors (excluding independent directors), senior managerial officers, and managerial officers. 3) Risk Management Committee This committee's members are appointed by the Board of Directors and must have at least three directors, including at least one independent director. The committee is responsible for assisting the Board of Directors in communications, oversight, and recommendations relating to risk management in order to foster a healthy culture of risk management and managerial support among all employees throughout the organization. 4) Nomination Committee Appointed by resolution of the Board of Directors, this committee's members must number three or more, with at least half of them independent directors. The committee is responsible for assisting the Board of Directors in searching for, evaluating, and nominating candidates for directors and supervisors for the Company and its subsidiaries, formulating and implementing the framework of the boards of directors and the committees of the Company and its subsidiaries, assessing the efficiency of the Board of Directors, and reviewing directors' continuing education plans. 5) Ethics and Integrity Committee Appointed by resolution of the Board of Directors, this committee's members must number three or more and include at least one independent director. The committee is responsible for assisting the Board of Directors in formulating ethics and integrity policies and preventive measures, and regularly reporting to the Board of Directors on the results of the compliance results so as to assist it and all management in the effective operation of the preventive measures established through ethical business practices. In

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addition, to ensure the effective implementation of a whistle-blowing system, the committee also reviews relevant whistle-blowing cases and their handling, as submitted by the Company and its subsidiaries, in accordance with the Procedures for Handling Illegal and Unethical or Dishonest Behavior. 6) Executive Committee This committee is responsible for advising the Chairman on management and policy formulation for issues such as major business, strategy, risk, investment, administration, and information affairs. 7) Credit Committee This committee is responsible for approving major credit risk cases of the Company and its subsidiaries. (2) Offices, divisions, and departments 1) Office of General Auditor This office is directly subordinate to the General Auditor and is responsible for auditing and supervising all business of the Company and its subsidiaries and developing relevant audit policies and measures. 2) Office of Chairman This office is directly subordinate to the Chairman and is responsible for affairs of the boards of directors and secretaries of the Company and its subsidiaries as well as work related to corporate governance other relevant matters. 3) Office of President This office is directly subordinate to the President and responsible for integrating and promoting all businesses of the Company and its subsidiaries. 4) Digital Finance Division This division, directly subordinate to the President, is responsible for duties including planning the digital finance strategies of the Company and its subsidiaries, establishing and maintaining key resource relationships with external fintech and technical innovation companies, and assessing the introduction of innovative financial operation modes. 5) Corporate Planning Division This division, directly subordinate to the President, is responsible for the mergers and acquisitions and major investments of the company and its subsidiaries, as well as the integration and implementation of CTBC Holding's overall strategies. 6) Investment Advisory Department This department, directly subordinate to the President, is responsible for studying and analyzing macroeconomic trends. 7) Investor Relations Department This department, directly subordinate to the President, is responsible for maintaining communications and relationships with investors in Taiwan and overseas. 8) Legal Department This department, directly subordinate to the President, is responsible for legal duties such as handling lawsuits and providing professional legal advice for the Company and its subsidiaries.

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9) Corporate Relations Department This department, directly subordinate to the President, is responsible for matters related to relationship maintenance and interactions with business organizations and associations. 10) General Administration Department This department, directly subordinate to the Chief Administration Officer, is responsible for developing back-office management policies for the Company and its subsidiaries as well as facilitating the logistics for human resources, public relations, and general affairs operations. 11) Financial Management Department This department, directly subordinate to the Chief Administration Officer, is responsible for managing the business performance of the Company and its subsidiaries, carrying out capital management and fundraising planning, collecting subsidiaries' financial information, and preparing CTBC Holding's financial statements. 12) Compliance Department This department, directly subordinate to the Chief Compliance Officer, is responsible for developing, managing, and implementing the compliance policies of the Company and its subsidiaries, supervising the subsidiaries' prevention of money laundering and terrorist financing, and strengthening the group's implementation of compliance plans and policies. 13) Risk Management Department This department, directly subordinate to the Chief Risk Officer, is responsible for developing risk management policies for the Company and its subsidiaries and conducting comprehensive risk assessment and control. 14) Information Technology Management Department This department, directly subordinate to the Chief Technology Officer, is responsible for developing information development strategies, information-related policies, and technical standards as well as coordinating IT-related activities between the Company and its subsidiaries.

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3. Group organization chart

As of April 26, 2019

100% CTBC Bank Corp. (Canada) CTBC Financial Holding Co., Ltd. Common shares: 2,745,695 Investment amount: NT$917,765,635

99% PT Bank CTBC Indonesia Common shares: 1,485 Investment amount: NT$1,691,023,371

100% CTBC Bank Co., Ltd. 99.6% CTBC Bank (Philippines) Corp. Common shares: 14,068,571,872 Common shares: 246,495,812 Investment amount: NT$103,412,356,447 Investment amount: NT$2,174,497,048

CTBC Capital Corp. CTBC Bank Corp. (USA) 100% 100% Common shares: 2,738.46 Taiwan Lottery Corp. Common shares: 6,429.509 100% Investment amount: NT$17,617,979,204 Preferred shares: 100,000 Common shares: 50,000,000 Investment amount: US$404,340,939.51 Investment amount: NT$500,000,000

100% The Tokyo Star Bank, Ltd. 100% TSB Servicer, Ltd. 100% CTBC Security Co., Ltd. Common shares: 700,000 Common shares: 400 Common shares: 4,769,516 Investment amount: NT$15,665,085,021 Investment amount: 367,500,000 yen Investment amount: NT$58,839,083 100% Tokyo Star Business Finance, Ltd. Common shares: 1,936,395 Investment amount: 4,669,791,825 yen

100% TLG Insurance Co., Ltd. Common shares: 200,000,000 100% Taiwan Life Insurance Co., Ltd. Investment amount: NT$3,000,000,000 Common shares: 4,179,113,472 Investment amount: NT$21,981,509,372 100% TLG Capital Co., Ltd. Common shares: 77,187,039 Investment amount: NT$200,000,000

CTBC Asset Management Co., Ltd. 100% 100% CTBC International Co., Ltd. 100% CTBC Leasing Co., Ltd. Common shares: 535,882,000 Common shares: 70,000,000 Investment amount: NT$2,071,727,504 Investment amount: NT$5,000,000,000 Investment amount: NT$2,099,150,000

100% CTBC Venture Capital Co., Ltd. 100% CTBC Capital International Co., Ltd. 100% CTBC Venture Capital Investment Common shares: 324,516,879 Common shares: 2,060,000 Management (Shanghai) Co., Ltd. Investment amount: NT$3,000,000,000 Investment amount: NT$61,796,600 Investment amount: US$2,000,000

100% CTBC Investments Co., Ltd. Common shares: 42,500,000 Investment amount: NT$891,487,689

CTBC (Mauritius) Holding Co., Ltd. 100% 100% CTBC Asia Ltd. Common shares: 17,362,707 Common shares: 134,526,116 Investment amount: US$17,362,707 Investment amount: HK$134,526,116 100% CTBC Securities Investment Service Co., Ltd. Common shares: 5,000,000 100% CTBC Securities Co., Ltd. Investment amount: NT$50,000,000 Common shares: 602,714,000 Investment amount: NT$7,138, 806,796 100% CTBC Securities Venture Capital Co., Ltd. Common shares: 30,000,000 Investment amount: NT$300,000,000

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(II)Directors, supervisors, and senior managers

1. Director and supervisor information (1) Basic information of directors (including independent directors) As of April 26, 2019 Shares held by Managers who are spouses or within Shares held when Shares held in another Shares currently held shareholder, spouse, and the second degree of kinship of each appointed person’s name minor children other Term of Common Common Common Common Date Date first % % % % Positions concurrently held Title Nationality Name Gender office shares shares shares shares Significant experience appointed appointed at this and other companies (Note 1) Preferred Preferred Preferred Preferred % % % % Title Name Relationship shares B shares B shares B shares B Preferred Preferred Preferred Preferred % % % % shares C shares C shares C shares C Chairman Republic of Wei Fu Investment Male Dec. 8, 2016 3 June 20, 2014 86,316,551 0.44% 86,316,551 0.44% 80,304,109 0.41% －－ Chairman, Kainan University Director, CTBC Bank Co., Ltd. - - - China Co., Ltd. years －－ 1,182,215 0.35% －－－－ Director, Wei Guo Real Estate Chairman, Kainan Vocational - - - Representative: －－－－－－－－ Development Co., Ltd. High School Wen-Long Yen Director, Wei Fu Investment Co., Director, Ho-Wei Investment Ltd. Co., Ltd. Director, Long-Rih Real Estate Director, Feng Luh Investment Development Co., Ltd. Co., Ltd. Director, K & Y Investment Co., Director, United Real Estate Ltd. Management Co., Ltd. Director, United Asset Director, Sung Hung Investment Management Co., Ltd. Co., Ltd. Supervisor, United Real Estate Director, Wei Huang Investment Development Co., Ltd. Co., Ltd. Department of Economics, Director, Jeffrey Koo Cultural Soochow University and Educational Foundation Director Republic of Chung Yuan Male Dec. 8, 2016 3 June 20, 2014 44,572,626 0.23% 44,572,626 0.23% 276,787 0.00% －－ Director, CTBC Life Insurance Chairman, CTBC Bank Co., Ltd. - - - China Investment Co., Ltd. years －－－－ 3,790 0.00% －－ Co., Ltd. Vice Chairman, Showa Denko Representative: －－ 299,681 0.18% 1,886 0.00% －－ Chairman, CTBC Venture Capital HD Trace Corp. Chao-Chin Tung Co., Ltd. Director, Straits Exchange Chairman, CTBC Asset Foundation Management Co., Ltd. Executive Supervisor, Chinese Chairman, CTBC Capital Corp. National Association of Industry Chairman, CTBC Bank Corp. and Commerce, Taiwan (USA) Director, The Bankers Director, The Tokyo Star Bank, Association of the R.O.C. Ltd. Supervisor, The Bankers Master’s in Materials Science, Association of Taipei University of Rochester, New York, USA

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(II)Directors, supervisors, and senior managers

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Shares held by Managers who are spouses or within Shares held when Shares held in another Shares currently held shareholder, spouse, and the second degree of kinship of each appointed person’s name minor children other Term of Common Common Common Common Date Date first % % % % Positions concurrently held Title Nationality Name Gender office shares shares shares shares Significant experience appointed appointed at this and other companies (Note 1) Preferred Preferred Preferred Preferred % % % % Title Name Relationship shares B shares B shares B shares B Preferred Preferred Preferred Preferred % % % % shares C shares C shares C shares C Director Republic of Yi Chuan Investment Dec. 8, 2016 3 June 20, 2014 65,344,869 0.34% 65,344,869 0.34% 1,676,667 0.01% －－ Chairman, CTBC Bank Corp. Director, CTBC Bank Co., Ltd. - - - China Co., Ltd. Male years －－ 1,505,459 0.45% －－－－ (USA) Chairman, CTBC Investments Representative: －－ 449,464 0.27% －－－－ General Secretary, CTBC Co., Ltd. Thomas K. S. Chen Financial Holding Co., Ltd. Chairman, CTBC Leasing Co., Vice Chairman, CTBC Bank Co., Ltd. Ltd. Chairman, CTBC International Chairman, CTBC Asset Co., Ltd. Management Co., Ltd. Director, Taipei Financial Center Department of Public Finance Corp. and Taxation, National Chengchi Director, Ho-Yeh Investment University Co., Ltd. Director, National Credit Card Center of the Republic of China Vice Chairman, CTBC Charity Foundation Director, Taipei International Community Cultural Foundation Director, CTBC Anti-Drug Educational Foundation Director, Changhua County Lukang Folk Arts Museum Director, Jeffrey Koo Cultural and Educational Foundation

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Shares held by Managers who are spouses or within Shares held when Shares held in another Shares currently held shareholder, spouse, and the second degree of kinship of each appointed person’s name minor children other Term of Common Common Common Common Date Date first % % % % Positions concurrently held Title Nationality Name Gender office shares shares shares shares Significant experience appointed appointed at this and other companies (Note 1) Preferred Preferred Preferred Preferred % % % % Title Name Relationship shares B shares B shares B shares B Preferred Preferred Preferred Preferred % % % % shares C shares C shares C shares C Independent Republic of Wen-Chih Lee Male Dec. 8, 2016 3 June 26, 2009 －－－－－－－－ Dean, College of Management, Independent Director, CTBC - - - director China years －－－－－－－－－ National Kaohsiung University of Bank Co., Ltd. －－－－－－－ Applied Sciences (since renamed Professor, Department of Wealth National Kaohsiung University and Taxation Management, of Science and Technology) National Kaohsiung University Director, Institute of Finance, of Science and Technology Economics, and Business Decision-Making, National Kaohsiung University of Applied Sciences (since renamed National Kaohsiung University of Science and Technology) Professor-cum-director, Department of Accounting, National Kaohsiung University of Applied Sciences (since renamed National Kaohsiung University of Science and Technology) Member, Kaohsiung Commerce and Trade Development Association Independent Director, Bank of Kaohsiung Co., Ltd. Ph.D. in Accounting, Graduate Institute of Business Administration, Department of Accounting, National Taiwan University

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Shares held by Managers who are spouses or within Shares held when Shares held in another Shares currently held shareholder, spouse, and the second degree of kinship of each appointed person’s name minor children other Term of Common Common Common Common Date Date first % % % % Positions concurrently held Title Nationality Name Gender office shares shares shares shares Significant experience appointed appointed at this and other companies (Note 1) Preferred Preferred Preferred Preferred % % % % Title Name Relationship shares B shares B shares B shares B Preferred Preferred Preferred Preferred % % % % shares C shares C shares C shares C Independent Republic of Wen-Chih Lee Male Dec. 8, 2016 3 June 26, 2009 －－－－－－－－ Dean, College of Management, Independent Director, CTBC - - - director China years －－－－－－－－－ National Kaohsiung University of Bank Co., Ltd. －－－－－－－ Applied Sciences (since renamed Professor, Department of Wealth National Kaohsiung University and Taxation Management, of Science and Technology) National Kaohsiung University Director, Institute of Finance, of Science and Technology Economics, and Business Decision-Making, National Kaohsiung University of Applied Sciences (since renamed National Kaohsiung University of Science and Technology) Professor-cum-director, Department of Accounting, National Kaohsiung University of Applied Sciences (since renamed National Kaohsiung University of Science and Technology) Member, Kaohsiung Commerce and Trade Development Association Independent Director, Bank of Kaohsiung Co., Ltd. Ph.D. in Accounting, Graduate Institute of Business Administration, Department of Accounting, National Taiwan University

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Shares held by Managers who are spouses or within Shares held when Shares held in another Shares currently held shareholder, spouse, and the second degree of kinship of each appointed person’s name minor children other Term of Common Common Common Common Date Date first % % % % Positions concurrently held Title Nationality Name Gender office shares shares shares shares Significant experience appointed appointed at this and other companies (Note 1) Preferred Preferred Preferred Preferred % % % % Title Name Relationship shares B shares B shares B shares B Preferred Preferred Preferred Preferred % % % % shares C shares C shares C shares C Independent Republic of Shih-Chieh Chang Male Dec. 8, 2016 3 Dec. 8, 2016 133,844 0.00% 133,844 0.00% 133,844 0.00% －－ Independent Director, CTBC Independent Director, Taiwan - - - director China years －－－－－－－－－ Life Insurance Co., Ltd. Life Insurance Co., Ltd. －－－－－－－ Member, Financial Supervisory Independent Director, TLG Commission Insurance Co., Ltd. Director, Risk Management Director, CTBC Business School Society of Taiwan Professor, Department of Risk Non-member Director, Management and Insurance, Securities Investment Trust & National Chengchi University Consulting Association of the Advisory Committee Member R.O.C. to the Risk Management Member, Financial Ombudsman Committee, Chunghwa Post Co., Institution Ltd. Director, Taiwan Insurance Consultant, Public Service Institute Pension Fund Supervisory Board Director, Taiwan Insurance Member, Futures Trust Fund Guaranty Fund Risk Management Committee, Chairman, Insurance Anti-Fraud Chinese National Futures Institute Association Member, Labor Funds Consultant for Financial White Supervisory Committee, Papers, Taiwan Financial Services Ministry of Labor Roundtable Co., Ltd. Chairman, Pan-Asia Risk and Insurance Management Association CEO, EMBA, College of Commerce, National Chengchi University Director, Department of Risk Management and Insurance, National Chengchi University Ph.D., Department of Statistics, University of Wisconsin-Madison, USA Note 1: The sixth term of the Company's Board of Directors extends from Dec. 8, 2016, to Dec. 7, 2019. The Audit Committee was established on June 26, 2009, to take on the role and responsibilities of Board supervisors. Note 2: Shareholding is as of the book closure date of April 16, 2019.

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Shares held by Managers who are spouses or within Shares held when Shares held in another Shares currently held shareholder, spouse, and the second degree of kinship of each appointed person’s name minor children other Term of Common Common Common Common Date Date first % % % % Positions concurrently held Title Nationality Name Gender office shares shares shares shares Significant experience appointed appointed at this and other companies (Note 1) Preferred Preferred Preferred Preferred % % % % Title Name Relationship shares B shares B shares B shares B Preferred Preferred Preferred Preferred % % % % shares C shares C shares C shares C Independent Republic of Shih-Chieh Chang Male Dec. 8, 2016 3 Dec. 8, 2016 133,844 0.00% 133,844 0.00% 133,844 0.00% －－ Independent Director, CTBC Independent Director, Taiwan - - - director China years －－－－－－－－－ Life Insurance Co., Ltd. Life Insurance Co., Ltd. －－－－－－－ Member, Financial Supervisory Independent Director, TLG Commission Insurance Co., Ltd. Director, Risk Management Director, CTBC Business School Society of Taiwan Professor, Department of Risk Non-member Director, Management and Insurance, Securities Investment Trust & National Chengchi University Consulting Association of the Advisory Committee Member R.O.C. to the Risk Management Member, Financial Ombudsman Committee, Chunghwa Post Co., Institution Ltd. Director, Taiwan Insurance Consultant, Public Service Institute Pension Fund Supervisory Board Director, Taiwan Insurance Member, Futures Trust Fund Guaranty Fund Risk Management Committee, Chairman, Insurance Anti-Fraud Chinese National Futures Institute Association Member, Labor Funds Consultant for Financial White Supervisory Committee, Papers, Taiwan Financial Services Ministry of Labor Roundtable Co., Ltd. Chairman, Pan-Asia Risk and Insurance Management Association CEO, EMBA, College of Commerce, National Chengchi University Director, Department of Risk Management and Insurance, National Chengchi University Ph.D., Department of Statistics, University of Wisconsin-Madison, USA Note 1: The sixth term of the Company's Board of Directors extends from Dec. 8, 2016, to Dec. 7, 2019. The Audit Committee was established on June 26, 2009, to take on the role and responsibilities of Board supervisors. Note 2: Shareholding is as of the book closure date of April 16, 2019.

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(2) Main shareholders of institutional shareholders As of April 26, 2019 Institutional shareholder Main shareholders Wen-Long Yen 37.61% Chen Li-Chin Yen 29.25% Chih-Kuang Yen 8.96% Chih-Yu Yen 8.96% Wei Fu Investment Co., Ltd. Wei Guo Real Estate Development Co., Ltd. 8.66% Wen-Tse Yen 3.58% Tai-Hsuan Hsia 1.49% United Investment Management Co., Ltd. 1.19% Shieh-Er Chang 0.30% Yi Chuan Investment Co., Ltd. Yi Kao Investment Co., Ltd. 100.00% Chung Yuan Investment Co., Ltd. Yi Chuan Investment Co., Ltd. 100.00%

(3) Main shareholders of the abovementioned institutional shareholders As of April 26, 2019 Institutional shareholder Main shareholders Chen Li-Chin Yen 67.57% Wei Fu Investment Co., Ltd. 22.86% Wei Guo Real Estate Development Co., Ltd. Wen-Long Yen 9.43% Wen-Tse Yen 0.14% Wei Fu Investment Co., Ltd. 75.02% Wei Guo Real Estate Development Co., Ltd. 23.67% Chiau-Chih Chen 0.99% Wen-Tse Yen 0.14% United Asset Management Co., Ltd. Wen-Long Yen 0.08% Wen-Si Yen 0.07% Chen Li-Chin Yen 0.01% Chih-Kuang Yen 0.01% Chih-Yu Yen 0.01% Yi Kao Investment Co., Ltd. Bo Yu Investment Co., Ltd. 100.00% Yi Chuan Investment Co., Ltd. Yi Kao Investment Co., Ltd. 100.00%

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(4) Director information As of April 26, 2019 Criteria Has professional qualifications and five or Independence status (Note) more years' experience as a lecturer as a judge, in commerce, or in a higher prosecutor, law, finance, position in a lawyer, accounting, commerce, accountant, or other field law, finance, or other related to the No. of other accounting, professional Company's public or other or technical business companies department specialist who needs at which related to the has passed they are 1 2 3 4 5 6 7 8 9 10 Company's a national serving as an business examination independent needs at and received director a public certification or private in a profession tertiary related to the educational Company's institution business Name needs Wen-Long Yen V V V V V V V V V 0 Chao-Chin V V V V V V V V V 0 Tung Thomas K. S. V V V V V V V V V 0 Chen Chung-Yu V V V V V V V V V V V 0 Wang Peter Tuen-Ho V V V V V V V V V V V V 0 Yang Wen-Chih Lee V V V V V V V V V V V V 0 Shih-Chieh V V V V V V V V V V V V 1 Chang Note: A "V" marked in a field indicates a director fulfilled that criterion, described as follows, within two years of being elected or during their term of office: 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates (not applicable for independent directors appointed by the Company, its parent company, or subsidiary in accordance with the Securities and Exchange Act or the regulations of the relevant jurisdiction). 3. Not a natural-person shareholder who holds shares, together with those held by their spouse or minor children or under other names, totaling 1% or more of the total number of outstanding Company shares or ranks among the 10 largest shareholders in terms of shares held. 4. Not the spouse, a relative within the second degree of kinship, or a lineal relative within the third degree of kinship of any person in the preceding three criteria. 5. Not a director, supervisor, or employee of an institutional shareholder who directly holds aggregate of 5% or more of outstanding Company shares or ranks among the five largest institutional shareholders in terms of shares held. 6. Not a director, supervisor, manager, or shareholder holding 5% or more of the shares of a company or institution with financial or business dealings with the Company. 7. Not a professional who, or a business owner, partner, director, supervisor, or manager of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting, or other services or consultation to the Company or its affiliates, nor the spouse of such a person (not applicable for Remuneration Committee members who perform their duties according to Article 7 of the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter). 8. Not a spouse or a relative within the second degree of kinship of other directors. 9. Not a person who satisfies any condition specified in Article 30 of the Company Act. 10. Not a government representative, a legal person, or its representative in accordance with Article 27 of the Company Act.

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2. Information on the President, vice presidents, associates, departments, and branch directors As of April 26, 2019 Shares held when Shares held by spouse Shares held in another appointed and minor children person’s name Managers who are spouses or within the Common Common Common Positions second degree of kinship of each other % % % Effective shares shares shares concurrently held Position Nationality Name Gender Education and experience date Preferred Preferred Preferred at this and other % % % B shares B shares B shares companies Title Name Relationship Preferred Preferred Preferred % % % C shares C shares C shares President Republic of China Daniel I.K. Wu Male March 18, 4,687,924 0.02% 5,155,242 0.03% －－ Education: None 一一一 2010 225,251 0.07% 70,607 0.02% －－ MBA, University of Rochester, USA －－－－－－ Experience: Director, CTBC Financial Holding Co., Ltd. CEO, Investment Business of CTBC Financial Holding Co., Ltd. CEO, Insurance Business of CTBC Financial Holding Co., Ltd. Senior Executive Vice President, CTBC Bank Co., Ltd. Director, CTBC Capital Corp. Director, GCB Finance (HK) Ltd. Chairman, CTBC Securities Co., Ltd. Director, CTBC Asset Management Co., Ltd. Director, CTBC Venture Capital Co., Ltd. Director, CTBC Asia Ltd. Chief Risk Officer Republic of China Jack T.K. Cheng Male April 26, 48,168 0.00 % 4,560,954 0.02% －－ Education: Director, CTBC Bank (USA) 一一一 2012 －－－－－－ Bachelor of Business Administration, National Taiwan University Director, CTBC Capital Corp. －－－－－－ Experience: Director, The Tokyo Star Bank, Ltd. Deputy Chief Risk Officer, CTBC Financial Holding Co., Ltd. Executive Vice President, CTBC Bank Co., Ltd. Director, CTBC Venture Capital Co., Ltd. Director, CTBC Asset Management Co., Ltd. Director, CTBC Securities Co., Ltd. Director, Chung Shin-1 Asset Management Co., Ltd. Director, Tuo Yu Asset Management Servicing Co., Ltd. Director, CT Opportunity Investment Co. Chief Republic of China Roger Kao Male Jan. 20, 2,467,527 0.01% 81,723 0.00% －－ Education: Senior Executive Vice President, CTBC Bank Co., 一一一 Administration 2017 －－－－－－ MS in Broadcast Journalism, Boston University, USA Ltd. Officer －－－－－－ Experience: Acting Spokesman, CTBC Bank Co., Ltd. General Secretary, CTBC Financial Holding Co., Ltd. Director, CTBC Security Co., Ltd. Director, CTBC Bank Co., Ltd. Director, Taiwan Lottery Corp. Executive Vice President, CTBC Bank Co., Ltd. Director, CTBC Asset Management Co., Ltd. Chairman, CTBC Insurance Brokers Co., Ltd. Chief Compliance Republic of China Aaron King Male Jan. 1, 2016 1,526,866 0.01% －－－－ Education: None 一一一 Officer －－－－－－ Master of Law, Georgetown University, USA －－－－－－ Experience: Senior Executive Vice President, CTBC Bank Co., Ltd. Partner, Lotus International Law Offices, Taipei Vice President (Legal), Hannspree, Inc. Vice President ( Legal), Taiwan Fixed Network Co., Ltd. (Taiwan Telecom Group), Taipei General Counsel, TECO Electric & Machinery Co., Ltd., Taipei Partner of Taiwan Commercial Law Offices, Taipei Prosecutor, Shilin District Prosecutors Office

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39 Corporate Governance Report

Shares held when Shares held by spouse Shares held in another appointed and minor children person’s name Managers who are spouses or within the Common Common Common Positions second degree of kinship of each other % % % Effective shares shares shares concurrently held Position Nationality Name Gender Education and experience date Preferred Preferred Preferred at this and other % % % B shares B shares B shares companies Title Name Relationship Preferred Preferred Preferred % % % C shares C shares C shares Chief Investment USA Winston Hsia Male Sept. 1, 2015 1,304,822 0.01% －－－－ Education: None 一一一 Officer －－－－－－ MBA, Wharton School, University of Pennsylvania, USA －－－－－－ Experience: Executive Vice President, CTBC Bank Co., Ltd. CEO, ShopNet Co., Ltd. President, CTBC Asset Management Co., Ltd. President, CTBC Venture Capital Co., Ltd. Director, GCB Finance (HK) Ltd. Director, Mandarin Vision Inc. Cross-Border Singapore Chung-Mao Hsiao Male Jan. 1, 2016 －－－－－－ Education: Director, AZ-Star Co., Ltd. 一一一 Strategy Officer, －－－－－－ Bachelor of Economics, Keio University, Japan Japan －－－－－－ Experience: Executive Vice President, CTBC Bank Co., Ltd. Senior Vice President, RZB Austria, Beijing Branch President, Bank Boston Securities Co., Ltd. Japan Senior Vice President, Peregrine Fixed Income Ltd., Hong Kong Senior Vice President, Lehman Brothers Hong Kong Chief Technology Republic of China Titan Chia Male April －－－－－－ Education: None 一一一 Officer 20,2018 －－－－－－ IMBA, National Chengchi University －－－－－－ Experience: Taiwan Country Leader, Global Business Service, IBM Taiwan General Secretary Republic of China Chang-Hsing Cho Male Jan. 1, 2018 571,825 0.00% －－－－ Education: Director, CTBC Venture Capital Co., Ltd. 一一一 Corporate Note 2 －－－－－－ Bachelor of Business Administration, Chinese Culture University Director, King Dragon Life Governance －－－－－－ Experience: Insurance Co., Ltd. Officer Executive Vice President, Taiwan Life Insurance Co., Ltd. General Auditor Republic of China Albert Hu Male April 7,2014 346,777 0.00% －－－－ Education: None 一一一－－－－－－ MBA, George Washington University, USA －－－－－－ Experience: Executive Vice President, CTBC Bank Co., Ltd. Vice President, AIG Credit Card Co. (Taiwan), Ltd. Vice President, Standard Chartered Bank, Taipei Manager, Citibank Taiwan Head of Office of Republic of China Jay Huang Male Jan. 1, 2019 35,363 0.00% －－－－ Education: None 一一一 General Auditor －－－－－－ Bachelor of Business Administration, National Taiwan Institute of －－－－－－ Technology Experience: Senior Vice President, CTBC Bank Co., Ltd. Financial Officer Republic of China Ya-Ling Chiu Female Jan. 20,2017 976,473 0.01% －－－－ Education: Executive Vice President, CTBC Bank Co., Ltd. 一一一 Head of Financial －－－－－－ MBA, Minnesota- Twin Cities University, USA Spokesman, CTBC Bank Co., Ltd. Management －－－－－－ Experience: Supervisor, Taiwan Lottery Corp. Department Senior Vice President, CTBC Bank Co., Ltd. Supervisor, CTBC Asset Management Co., Ltd. Assistant Vice President, Citibank Taiwan Supervisor, CTBC Leasing Co., Ltd. Vice President, ABN AMRO Supervisor, Xiamen JMX Consumer Finance Co., Ltd.

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41 Corporate Governance Report

Shares held when Shares held by spouse Shares held in another appointed and minor children person’s name Managers who are spouses or within the Common Common Common Positions second degree of kinship of each other % % % Effective shares shares shares concurrently held Position Nationality Name Gender Education and experience date Preferred Preferred Preferred at this and other % % % B shares B shares B shares companies Title Name Relationship Preferred Preferred Preferred % % % C shares C shares C shares Accounting Officer Republic of China Sting Yang Male July 1,2008 386,969 0.00% －－－－ Education: Senior Vice President, CTBC Bank Co., Ltd. 一一一－－－－－－ Bachelor of Accounting, Fu Jen Catholic University Supervisor, CTBC Investments Co., Ltd. －－－－－－ Experience: Supervisor, CTBC Venture Capital Co., Ltd. Vice President, CTBC Financial Holding Co., Ltd. Supervisor, Taiwan Lottery Corp. Supervisor, CTBC Security Co., Ltd. Supervisor, CTBC Securities Venture Capital Co., Supervisor, CTBC Venture Capital Investment Management (Shanghai) Ltd. Co., Ltd. Head of General Republic of China Derek Lo Male Jan. 20,2017 633,000 0.00% －－－－ Education: Executive Vice President, CTBC Bank Co., Ltd. 一一一 Administration －－－－－－ MBA, Madonna University, USA Department －－－－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Legal Republic of China Sean Tang Male Oct. 1,2017 －－－－－－ Education: Executive Vice President, CTBC Bank Co., Ltd. 一一一 Department －－－－－－ Master of Laws, National Chengchi University －－－－－－ Experience: Counselor and Associate Partner, Lee and Li, Attorneys-at-Law Staff Member, Ministry of Justice Prosecutor, Shilin District Prosecutors Office Head of Republic of China Yung-Chi Wang Female Aug. 1, 2018 －－－－－－ Education: None 一一一 Compliance －－－－－－ L.L.M, Boston University, USA Department －－－－－－ Experience: Vice President, CDIB Capital Group Vice President, KGI Bank Head of Risk Republic of China Sophie You Female June 856 0.00% －－－－ Education: None 一一一 Management 15,2015 －－－－－－ MBA, National Taiwan University Department －－－－－－ Experience: Manager, CTBC Bank Co., Ltd. Head of Republic of China Eric HP Wang Male Feb. 15, －－－－－－ Education: None 一一一 Information 2019 －－－－－－ Master of information management, Wisconsin-Madison University, USA Technology －－－－－－ Experience: Management Senior Managing Consultant, Global Department Business Service, IBM Taiwan Head of Corporate Republic of China Monica Chu Female Jan. 1,2017 237,391 0.00% －－－－ Education: None 一一一 Planning Division －－－－－－ MBA, National Taipei University －－－－－－ Experience: Senior Vice President, CTBC Financial Holding Co., Ltd. Acting Head of Republic of China Patrick Lin Male Jan. 1,2019 －－ 1,888 0.00% －－ Education: None 一一一 Strategic Planning －－－－－－ MBA, University of Rochester, USA Department －－－－－－ Experience: Manager, CTBC Financial Holding Co., Ltd. Head of Business Republic of China Wenchieh Wu Male Jan. 1,2017 4,642 0.00% 10,000 0.00% －－ Education: None 一一一 Management －－－－－－ MBA, National Sun Yat-sen Department －－－－－－ University Experience: Manager, CTBC Bank Co., Ltd.

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Shares held when Shares held by spouse Shares held in another appointed and minor children person’s name Managers who are spouses or within the Common Common Common Positions second degree of kinship of each other % % % Effective shares shares shares concurrently held Position Nationality Name Gender Education and experience date Preferred Preferred Preferred at this and other % % % B shares B shares B shares companies Title Name Relationship Preferred Preferred Preferred % % % C shares C shares C shares Accounting Officer Republic of China Sting Yang Male July 1,2008 386,969 0.00% －－－－ Education: Senior Vice President, CTBC Bank Co., Ltd. 一一一－－－－－－ Bachelor of Accounting, Fu Jen Catholic University Supervisor, CTBC Investments Co., Ltd. －－－－－－ Experience: Supervisor, CTBC Venture Capital Co., Ltd. Vice President, CTBC Financial Holding Co., Ltd. Supervisor, Taiwan Lottery Corp. Supervisor, CTBC Security Co., Ltd. Supervisor, CTBC Securities Venture Capital Co., Supervisor, CTBC Venture Capital Investment Management (Shanghai) Ltd. Co., Ltd. Head of General Republic of China Derek Lo Male Jan. 20,2017 633,000 0.00% －－－－ Education: Executive Vice President, CTBC Bank Co., Ltd. 一一一 Administration －－－－－－ MBA, Madonna University, USA Department －－－－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Legal Republic of China Sean Tang Male Oct. 1,2017 －－－－－－ Education: Executive Vice President, CTBC Bank Co., Ltd. 一一一 Department －－－－－－ Master of Laws, National Chengchi University －－－－－－ Experience: Counselor and Associate Partner, Lee and Li, Attorneys-at-Law Staff Member, Ministry of Justice Prosecutor, Shilin District Prosecutors Office Head of Republic of China Yung-Chi Wang Female Aug. 1, 2018 －－－－－－ Education: None 一一一 Compliance －－－－－－ L.L.M, Boston University, USA Department －－－－－－ Experience: Vice President, CDIB Capital Group Vice President, KGI Bank Head of Risk Republic of China Sophie You Female June 856 0.00% －－－－ Education: None 一一一 Management 15,2015 －－－－－－ MBA, National Taiwan University Department －－－－－－ Experience: Manager, CTBC Bank Co., Ltd. Head of Republic of China Eric HP Wang Male Feb. 15, －－－－－－ Education: None 一一一 Information 2019 －－－－－－ Master of information management, Wisconsin-Madison University, USA Technology －－－－－－ Experience: Management Senior Managing Consultant, Global Department Business Service, IBM Taiwan Head of Corporate Republic of China Monica Chu Female Jan. 1,2017 237,391 0.00% －－－－ Education: None 一一一 Planning Division －－－－－－ MBA, National Taipei University －－－－－－ Experience: Senior Vice President, CTBC Financial Holding Co., Ltd. Acting Head of Republic of China Patrick Lin Male Jan. 1,2019 －－ 1,888 0.00% －－ Education: None 一一一 Strategic Planning －－－－－－ MBA, University of Rochester, USA Department －－－－－－ Experience: Manager, CTBC Financial Holding Co., Ltd. Head of Business Republic of China Wenchieh Wu Male Jan. 1,2017 4,642 0.00% 10,000 0.00% －－ Education: None 一一一 Management －－－－－－ MBA, National Sun Yat-sen Department －－－－－－ University Experience: Manager, CTBC Bank Co., Ltd.

43 Corporate Governance Report

Shares held when Shares held by spouse Shares held in another appointed and minor children person’s name Managers who are spouses or within the Common Common Common Positions second degree of kinship of each other % % % Effective shares shares shares concurrently held Position Nationality Name Gender Education and experience date Preferred Preferred Preferred at this and other % % % B shares B shares B shares companies Title Name Relationship Preferred Preferred Preferred % % % C shares C shares C shares Head of Investor Republic of China Justine Shen Female Jan. 1,2017 1,541 0.00% －－－－ Education: None 一一一 Relations －－－－－－ Master of Commerce, University of New South Wales, AUS Department －－－－－－ Experience: Vice President, CTBC Financial Holding Co., Ltd. Head of Investment Republic of China Alan Liao Male Feb. 1,2018 527 0.00% －－－－ Education: None 一一一 Advisory －－－－－－ Master of Political Economy, National Cheng kung University Department 3,936 0.00% －－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Digital Republic of China May Su Female Jan. 1,2017 47,744 0.00% －－－－ Education: None 一一一 Finance Division －－－－－－ MBA, Imperial College London, UK －－－－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Digital Republic of China Erick Hsieh Male April 5,2017 －－－－－－ Education: None 一一一 Finance Innovation －－－－－－ Certificate in Business Administration, Warwick Business School, Department I －－－－－－ University of Warwick, UK Experience: Senior Vice President, Citibank Taiwan Consultant, Oracle Corp. Head of Digital Republic of China Benny Kuo Male Jan. 1,2017 30,160 0.00% －－－－ Education: None 一一一 Finance Innovation －－－－－－ Master of Technology Management, University of New South Wales, AUS Department II －－－－－－ Experience: Vice President, CTBC Bank Co., Ltd. Head of Republic of China Ellen Wu Female Jan. 1,2017 10,000 0.00% －－－－ Education: None 一一一 Digital Finance －－－－－－ MBA, National Taipei University Management －－－－－－ Experience: Department Vice President, CTBC Bank Co., Ltd. Head of Corporate Republic of China Joseph Huang Male April 1,2019 1,438 0.00% －－－－ Education: None Relations －－－－－－ MBA, Meiji University, JP Department －－－－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Corporate Republic of China Sean Chan Male Feb. 1,2018 1,000 0.00% －－－－ Education: None 一一一 Governance －－－－－－ European Master of Law and Economics, University of Manchester, UK Department －－－－－－ Experience: Vice President, CTBC Bank Co., Ltd. Senior Associate, Lotus International Law Office Acting Head of Republic of China Ricky Ren Male Jan. 1, 2019 10,146 0 －－－－ Education: None 一一一 Secretariat to the －－－－－－ Electronic Engineering Department, Kun Shan Junior College of Board of Directors －－－－－－ Technology Experience: Vice President, CTBC Bank Co., Ltd. Note1: Shareholding is as of the book closure date of April 16, 2019. Note2: The duties of the Corporate Governance Officer were performed form Jan. 1, 2018, but the position was resubmitted to the Board of Directors for approval on Feb 27, 2019, due changes in laws.

44 Corporate Governance Report

Shares held when Shares held by spouse Shares held in another appointed and minor children person’s name Managers who are spouses or within the Common Common Common Positions second degree of kinship of each other % % % Effective shares shares shares concurrently held Position Nationality Name Gender Education and experience date Preferred Preferred Preferred at this and other % % % B shares B shares B shares companies Title Name Relationship Preferred Preferred Preferred % % % C shares C shares C shares Head of Investor Republic of China Justine Shen Female Jan. 1,2017 1,541 0.00% －－－－ Education: None 一一一 Relations －－－－－－ Master of Commerce, University of New South Wales, AUS Department －－－－－－ Experience: Vice President, CTBC Financial Holding Co., Ltd. Head of Investment Republic of China Alan Liao Male Feb. 1,2018 527 0.00% －－－－ Education: None 一一一 Advisory －－－－－－ Master of Political Economy, National Cheng kung University Department 3,936 0.00% －－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Digital Republic of China May Su Female Jan. 1,2017 47,744 0.00% －－－－ Education: None 一一一 Finance Division －－－－－－ MBA, Imperial College London, UK －－－－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Digital Republic of China Erick Hsieh Male April 5,2017 －－－－－－ Education: None 一一一 Finance Innovation －－－－－－ Certificate in Business Administration, Warwick Business School, Department I －－－－－－ University of Warwick, UK Experience: Senior Vice President, Citibank Taiwan Consultant, Oracle Corp. Head of Digital Republic of China Benny Kuo Male Jan. 1,2017 30,160 0.00% －－－－ Education: None 一一一 Finance Innovation －－－－－－ Master of Technology Management, University of New South Wales, AUS Department II －－－－－－ Experience: Vice President, CTBC Bank Co., Ltd. Head of Republic of China Ellen Wu Female Jan. 1,2017 10,000 0.00% －－－－ Education: None 一一一 Digital Finance －－－－－－ MBA, National Taipei University Management －－－－－－ Experience: Department Vice President, CTBC Bank Co., Ltd. Head of Corporate Republic of China Joseph Huang Male April 1,2019 1,438 0.00% －－－－ Education: None Relations －－－－－－ MBA, Meiji University, JP Department －－－－－－ Experience: Senior Vice President, CTBC Bank Co., Ltd. Head of Corporate Republic of China Sean Chan Male Feb. 1,2018 1,000 0.00% －－－－ Education: None 一一一 Governance －－－－－－ European Master of Law and Economics, University of Manchester, UK Department －－－－－－ Experience: Vice President, CTBC Bank Co., Ltd. Senior Associate, Lotus International Law Office Acting Head of Republic of China Ricky Ren Male Jan. 1, 2019 10,146 0 －－－－ Education: None 一一一 Secretariat to the －－－－－－ Electronic Engineering Department, Kun Shan Junior College of Board of Directors －－－－－－ Technology Experience: Vice President, CTBC Bank Co., Ltd. Note1: Shareholding is as of the book closure date of April 16, 2019. Note2: The duties of the Corporate Governance Officer were performed form Jan. 1, 2018, but the position was resubmitted to the Board of Directors for approval on Feb 27, 2019, due changes in laws.

45 Corporate Governance Report

3.Retired chairmen or presidents hired as consultants in 2018: None.

4. Remuneration of directors, supervisors, the President, and vice presidents in 2018 (1) Remuneration of directors (including independent directors) Remuneration of directors Total of A, B, C, and D Remuneration received by directors who are employees Total of A, B, C, D, E, F, Severance pay and Compensation for Allowance for business as a percentage of net Salary, bonuses, and Severance pay and Profit distributable as employee and G as a percentage of Remuneration (A) income after tax net income after tax pension (B) directors (C) expenses (D) special allowances (E) pension (F) compensation (G) Remuneration From all From all From all From all From all From all From all From all From all from invested companies in Title companies companies companies companies companies companies companies From CTBC companies companies From From From From From From From the consolidated From in the in the in the in the in the in the in the Holding in the other than CTBC CTBC CTBC CTBC CTBC CTBC CTBC financial CTBC consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated subsidiaries Holding Holding Holding Holding Holding Holding Holding statement Holding financial financial financial financial financial financial financial financial Shares statement statement statement statement statement statement statement Cash Shares Cash statement sum Director Wei Fu Investment Co., Ltd. - - - - 87,100 87,100 - - 0.24% 0.24% ------0.24% 0.24% None Director Chung Yuan Investment Co., Ltd. Director Yi Chuan Investment Co., Ltd. Representative (Chairman) Wen-Long Yen Representative Chao-Chin Tung Representative Thomas K. S. Chen 113,764 246,104 - - 174,200 174,200 5,024 8,504 0.81% 1.19% ------0.81% 1.19% None Independent director Chung-Yu Wang Independent director Wen-Chih Lee Independent director Peter Tuen-Ho Yang Independent director Shih-Chieh Chang Note 1: The above figures do not include the remuneration paid to drivers by the Company (NT$252 thousand) or by all companies in the consolidated financial statement (NT$2,153 thousand). Note 2: The above allowances for business expenses include directors’ car rental and gasoline expenses paid by the Company (NT$2,074 thousand) and by all companies in the consolidated financial statement (NT$3,811 thousand). Note 3: The above remuneration differs from that categorized as "income" under income tax law; as such, this information is for disclosure purposes only and not for taxation purposes. Note 4: Except as disclosed above, Company directors did not receive any additional pay in 2018 for serving any company in the financial statement (e.g., for acting as a consultant to individuals who are not employees).

46 Corporate Governance Report

3.Retired chairmen or presidents hired as consultants in 2018: None.

4. Remuneration of directors, supervisors, the President, and vice presidents in 2018 (1) Remuneration of directors (including independent directors) Unit: NT$ thousand Remuneration of directors Total of A, B, C, and D Remuneration received by directors who are employees Total of A, B, C, D, E, F, Severance pay and Compensation for Allowance for business as a percentage of net Salary, bonuses, and Severance pay and Profit distributable as employee and G as a percentage of Remuneration (A) income after tax net income after tax pension (B) directors (C) expenses (D) special allowances (E) pension (F) compensation (G) Remuneration From all From all From all From all From all From all From all From all From all from invested companies in Title companies companies companies companies companies companies companies From CTBC companies companies From From From From From From From the consolidated From in the in the in the in the in the in the in the Holding in the other than CTBC CTBC CTBC CTBC CTBC CTBC CTBC financial CTBC consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated subsidiaries Holding Holding Holding Holding Holding Holding Holding statement Holding financial financial financial financial financial financial financial financial Shares statement statement statement statement statement statement statement Cash Shares Cash statement sum Director Wei Fu Investment Co., Ltd. - - - - 87,100 87,100 - - 0.24% 0.24% ------0.24% 0.24% None Director Chung Yuan Investment Co., Ltd. Director Yi Chuan Investment Co., Ltd. Representative (Chairman) Wen-Long Yen Representative Chao-Chin Tung Representative Thomas K. S. Chen 113,764 246,104 - - 174,200 174,200 5,024 8,504 0.81% 1.19% ------0.81% 1.19% None Independent director Chung-Yu Wang Independent director Wen-Chih Lee Independent director Peter Tuen-Ho Yang Independent director Shih-Chieh Chang Note 1: The above figures do not include the remuneration paid to drivers by the Company (NT$252 thousand) or by all companies in the consolidated financial statement (NT$2,153 thousand). Note 2: The above allowances for business expenses include directors’ car rental and gasoline expenses paid by the Company (NT$2,074 thousand) and by all companies in the consolidated financial statement (NT$3,811 thousand). Note 3: The above remuneration differs from that categorized as "income" under income tax law; as such, this information is for disclosure purposes only and not for taxation purposes. Note 4: Except as disclosed above, Company directors did not receive any additional pay in 2018 for serving any company in the financial statement (e.g., for acting as a consultant to individuals who are not employees).

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(2) Directors’ remuneration brackets Director(s) Director(s) Total of the first four items (A+B+C+D) Total of all seven items (A+B+C+D+E+F+G) Director's remuneration bracket From all companies in the From all companies in the From CTBC Holding From CTBC Holding consolidated financial statement consolidated financial statement Chao-Chin Tung, Chao-Chin Tung, Under NT$2,000,000 Thomas K. S. Chen Thomas K. S. Chen NT$2,000,000 (inclusive)–NT$5,000,000 Chung-Yu Wang, Chung-Yu Wang, (exclusive) Wen-Chih Lee Wen-Chih Lee Shih-Chieh Chang, Shih-Chieh Chang, NT$5,000,000 (inclusive)–NT$10,000,000 Shih-Chieh Chang, Peter Tuen-Ho Yang, Shih-Chieh Chang, Peter Tuen-Ho Yang, (exclusive) Peter Tuen-Ho Yang Chung-Yu Wang, Peter Tuen-Ho Yang Chung-Yu Wang, Wen-Chih Lee Wen-Chih Lee NT$10,000,000 (inclusive)–NT$15,000,000 (exclusive) NT$15,000,000 (inclusive)–NT$30,000,000 (exclusive) NT$30,000,000 (inclusive)–NT$50,000,000 Thomas K. S. Chen Thomas K. S. Chen (exclusive) Wen-Long Yen, Wen-Long Yen, Wen-Long Yen, Wen-Long Yen, Chao-Chin Tung, Chao-Chin Tung, NT$50,000,000 (inclusive)–NT$100,000,000 Wei Fu Investment Co., Ltd., Wei Fu Investment Co., Ltd., Wei Fu Investment Co., Ltd., Wei Fu Investment Co., Ltd., (exclusive) Chung Yuan Investment Co., Ltd., Chung Yuan Investment Co., Ltd., Chung Yuan Investment Co., Ltd., Chung Yuan Investment Co., Ltd., Yi Chuan Investment Co., Ltd. Yi Chuan Investment Co., Ltd. Yi Chuan Investment Co., Ltd. Yi Chuan Investment Co., Ltd. NT$100,000,000 (inclusive) or more Total 10 10 10 10 Note: The above remuneration differs from that categorized as "income" under income tax law; as such, this information is for disclosure purposes only and not for taxation purposes.

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(3) Remuneration of the President and vice presidents Unit: NT$ thousand

Bonuses and special Total of A, B, C, and D as a percentage Salary (A) Severance pay and pension (B) Profit distributable as employee compensation (D) allowances (C) of net income after tax

From all From all From all From all companies in the Remuneration from invested From CTBC Holding Title Name companies companies companies consolidated financial statement From all companies companies other than From CTBC in the From CTBC in the From CTBC in the From CTBC in the consolidated subsidiaries Holding consolidated Holding consolidated Holding consolidated Holding financial Cash Shares Cash Shares financial financial financial statement statement statement statement President Daniel I.K. Wu (Note 1) Chief Investment Officer Winston Hsia Cross-Border Strategy Officer, Japan Chung-Mao Hsiao Chief Compliance Officer Aaron King (Note 2) Chief Administration Officer Roger Kao Chief Risk Officer Jack T.K. Cheng (Note 3) General Secretary Chang-Hsing Cho 81,982 118,898 2,667 4,457 241,901 403,158 18,580 - 19,010 - 0.96% 1.51% None General Auditor Albert Hu Financial Officer Ya-Ling Chiu Accounting Officer Sting Yang Head of Corporate Planning Division Monica Chu Head of Digital Finance Division May Su Chief Technology Officer Titan Chia (Note 4) Acting Chief Compliance Officer Alex Lu (Note 5)

Note 1: Term of office: The duties of the President were suspended from Jan. 1, 2018, to June 6, 2018. Note 2: Term of office: The duties of the Chief Compliance Officer were suspended from Jan. 1, 2018, to March 6, 2018. Note 3: Term of office: The duties of the Chief Risk Officer were performed from Jan. 1, 2018, to Dec. 31, 2018; the duties of the Acting President were performed from Jan. 1, 2018, to June 6, 2018. Note 4: Term of office: The duties of this role were performed from April 20, 2018, to Dec. 31, 2018. Note 5: Term of office: The duties of the Acting Chief Compliance Officer were performed from Jan. 1, 2018, to March 6, 2018. Note 6: The remuneration of drivers was NT$0 thousand. Note 7: The above remuneration differs from that categorized as "income" under income tax law; as such, this information is for disclosure purposes only and not for taxation purposes. Note 8: The data disclosed herein is for the period of Jan. 1, 2018, to Dec. 31, 2018.

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(3) Remuneration of the President and vice presidents Unit: NT$ thousand

Bonuses and special Total of A, B, C, and D as a percentage Salary (A) Severance pay and pension (B) Profit distributable as employee compensation (D) allowances (C) of net income after tax

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(4) President and vice presidents' remuneration brackets Name(s) From all companies in the consolidated Remuneration bracket From CTBC Holding financial statement Under NT$2,000,000 Alex Lu, Sting Yang NT$2,000,000 (inclusive) Roger Kao Alex Lu –NT$5,000,000 (exclusive) NT$5,000,000 (inclusive) Ya-Ling Chiu, May Su Sting Yang, May Su –NT$10,000,000 (exclusive) NT$10,000,000 (inclusive) Monica Chu Monica Chu, Ya-Ling Chiu –NT$15,000,000 (exclusive) NT$15,000,000 (inclusive) Albert Hu, Chang-Hsing Cho, Titan Chia, Jack Albert Hu, Titan Chia, Chang-Hsing Cho –NT$30,000,000 (exclusive) T.K. Cheng, Chung-Mao Hsiao, Aaron King NT$30,000,000 (inclusive) Aaron King, Jack T.K. Cheng –NT$50,000,000 (exclusive) NT$50,000,000 (inclusive)– Winston Hsia Roger Kao, Winston Hsia, Chung-Mao Hsiao NT$100,000,000 (exclusive) NT$100,000,000 (inclusive) or more Daniel I.K. Wu Daniel I.K. Wu Total 14 14 Note: The above remuneration differs from that categorized as "income" under income tax law; as such, this information is for disclosure purposes only and not for taxation purposes.

(5) Employee compensation distributed to managers Unit: Thousand shares; NT$ thousand As of Dec. 31, 2018 Percentage of Title Name Shares Cash Total total income after tax President Daniel I.K. Wu (Note 1) Chief Investment Officer Winston Hsia Cross-Border Strategy Officer, Japan Chung-Mao Hsiao Chief Compliance Officer Aaron King (Note 2) Chief Administration Officer Roger Kao Chief Risk Officer Jack T.K. Cheng (Note 3) General Secretary Chang-Hsing Cho Manager - 18,580 18,580 0.05% General Auditor Albert Hu Financial Officer Ya-Ling Chiu Accounting Officer Sting Yang Head of Corporate Planning Division Monica Chu Head of Digital Finance Division May Su Chief Technology Officer Titan Chia (Note 4) Acting Chief Compliance Officer Alex Lu (Note 5) Note 1: Term of office: The duties of the President were suspended from Jan. 1, 2018, to June 6, 2018. Note 2: Term of office: The duties of the Chief Compliance Officer Department were suspended from Jan. 1, 2018, to March 6, 2018. Note 3: Term of office: The duties of the Chief Risk Officer were performed from Jan. 1, 2018, to Dec. 31, 2018; the duties of the Acting President were performed from Jan. 1, 2018, to Dec. 31, 2018. Note 4: Term of office: The duties of this role were performed from April 20, 2018, to Dec. 31, 2018. Note 5: Term of office: The duties of the Acting Chief Compliance Officer were performed from Jan. 1, 2018, to March 6, 2018. Note 6: The data disclosed herein is for the period of Jan. 1, 2018, to Dec. 31, 2018. Note 7: The employee remuneration distributed in 2018 was an estimated NT$18,580 thousand. The actual distribution of compensation to employees shall be in accordance with that included in the list approved by the Company's Board of Directors.

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(6) Employees with the 10 largest compensation packages of profit distributable as employee compensation 1) 2018 Unit: Thousand shares; NT$ thousand As of Dec. 31, 2018 Total compensation Title Name Shares Cash President Daniel I.K. Wu Chief Investment Officer Winston Hsia Chief Compliance Officer Aaron King Chief Administration Officer Roger Kao - 18,580 Chief Risk Officer Jack T.K. Cheng General Secretary Chang-Hsing Cho General Auditor Albert Hu Financial Officer Ya-Ling Chiu Note: The employee compensation distributed in 2018 was an estimated NT$18,580 thousand. The actual distribution of compensation to employees is in accordance with that included in the list approved by the Company's Board of Directors.

2) 2017 Unit: Thousand shares; NT$ thousand As of Dec. 31, 2018 Total compensation Title Name Shares Cash President Daniel I.K. Wu Chief Investment Officer Winston Hsia Chief Administration Officer Roger Kao Chief Risk Officer Jack T.K. Cheng Chief Compliance Officer Aaron King - 18,630 General Auditor Albert Hu Head of Corporate Planning Division Monica Chu Head of Digital Finance Division May Su Financial Officer Ya-Ling Chiu Note: The employee compensation distributed in 2017 totaled NT$18,630 thousand.

(7) Remuneration for retired chairmen and general managers to return as consultants: None. (8) Comparison of the remuneration of directors (including independent directors), the President, and vice presidents as a percentage of net income after tax The remuneration paid by CTBC Holding and all companies in the consolidated financial statement to CTBC Holding's directors, President, and vice presidents in 2018 totaled NT$1,061,431 thousand (accounting for approximately 2.95% of the net income after tax in 2018). The total remuneration paid in 2018 was approximately 15.61% higher than that in 2017, which was NT$918,144 thousand; this increase was mainly caused by a rise in the exercise price of stock appreciation rights.

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(9) Remuneration policy The managerial capabilities, strategic planning, and execution skills of CTBC Holding's management staff are fundamental to its operating performance. To integrate the personal goals of managers with the short- and long-term business objectives of the Company and the interests of shareholders, the Company's managerial remuneration policy is based on the principle of offering a competitive fixed, market-based salary in addition to variable pay determined according to the operating performance of the Company and the personal performance of individual managers. Variable pay generally accounts for a higher percentage of total remuneration than does the fixed-salary amount, with particular weight given to long-term incentives. The remuneration of managers is closely linked to performance targets and includes financial and non- financial indicators. These financial indicators include revenue and profit whereas the non-financial indicators include sound compliance and risk management, succession planning and leadership development, and medium- and long-term responsibilities such as improving the Company's corporate social responsibility and maintaining its favorable reputation. This approach encourages executives and managers to give due attention to the long-term business goals of the Company and to cultivate outstanding talent in order to create a win–win–win situation for the Company, its employees, and its shareholders and to fulfill the Company's corporate social responsibility. The Company's director remuneration policy is formulated based on separate internal policies, namely the Measures for the Remuneration of Non-Independent Directors and the Measures for the Remuneration of Independent Directors. Directors' remuneration is based on market remuneration survey data and the packages provided by financial sector peers, with the market standard adopted as a benchmark. The importance of individuals to the Company's operating performance and risk management is also taken into consideration by assessing their personal performance, the time they have invested in the Company, the responsibilities they have undertaken, and their contribution to the accomplishment of the Company's short- and long-term business objectives as well as to its financial position. The remuneration of directors, as described above, is reviewed by the Remuneration Committee and the Board of Directors. Such reviews are conducted in a timely manner as determined by the Company's actual operating conditions, in addition to relevant laws and regulations, and seek to strike a balance between sustainable operation and risk management. The remuneration payable by CTBC Holding to its directors, President, and vice presidents include long- term incentives in the form of stocks or stock appreciation rights, which are not paid out in full at the end of the current fiscal year and are tied to the Company's current and future share price, thereby ensuring that the management shares a common interest in the Company's continued performance success.

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(III)Corporate governance practices

1. Board of Directors meeting attendance As part of its sixth term, the Board of Directors convened 17 meetings (A) between Jan. 1, 2018, and Dec. 31, 2018, with its attendance as follows: Meetings Meetings In-person Title Name attended in attended attendance Notes person (B) by proxy rate (B/A) Chairman Wei Fu Investment Co., Ltd. Representative: Wen-Long Yen 17 - 100.00% - Director Chung Yuan Investment Co., Ltd. Representative: Chao-Chin Tung 15 2 88.24% - Director Yi Chuan Investment Co., Ltd. Representative: Thomas K. S. Chen 17 - 100.00% - Independent Chung-Yu Wang 17 - 100.00% - director Independent Peter Tuen-Ho Yang 17 - 100.00% - director Independent Wen-Chih Lee 17 - 100.00% - director Independent Shih-Chieh Chang 15 2 88.24% - director Other matters required to be disclosed: (1) In the event that a Board meeting fulfills any of the following conditions, the meeting date, motion content, independent directors' opinions, and Company's response are specified: 1) Matters listed in Article 14-3 of the Securities and Exchange Act: The Company has established an Audit Committee. Matters listed in Article 14-5 of the Securities and Exchange Act are included among the matters listed in Article 14-3 of the Act; please refer to the Appendix. 2) Excluding the aforementioned matters, any Board resolution to which an independent director had a dissenting or qualified opinion noted on the record or submitted in writing: All Board resolutions were passed by all attending directors. (2) In the event that a conflict of interest required the avoidance of a director, the names of the director and independent director, motion content, reason(s) for recusal, and voting result are specified: Reason(s) Term and Motion content Name for Voting result meeting avoidance Jan. 31, A proposal was introduced for the Chairman's 2017 year- Wen-Long Yen Conflict of The stakeholder did 2018; end bonus and stock appreciation rights. (The motion interest not participate in the 6th term, was passed at the 14th meeting of the fourth term of the discussion or voting, in 22nd Remuneration Committee on Jan. 30, 2018.) accordance with the law, meeting and the proposal was of the unanimously approved by Board of the rest of the attending Directors directors. A proposal was introduced for the independent directors' Chung-Yu Conflict of The stakeholders did 2017 year-end bonuses. Wang interest not participate in the Peter Tuen-Ho discussion or voting, in Yang accordance with the law, Wen-Chih Lee and the proposal was Shih-Chieh unanimously approved by Chang the rest of the attending directors.

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Reason(s) Term and Motion content Name for Voting result meeting avoidance April 27, In view of the Company's business needs, an amendment to Wen-Long Yen Conflict of The stakeholders did 2018; its Regulations for the Remuneration of Non-Independent Chao-Chin interest not participate in the 6th term, Directors was proposed. (The motion was passed at the Tung discussion or voting, in 27th 17th meeting of the fourth term of the Remuneration Thomas K. S. accordance with the law, meeting Committee on April 26, 2018.) Chen and the proposal was of the unanimously approved by Board of the rest of the attending Directors directors. A proposal was introduced for the Company to distribute Wen-Long Yen Conflict of The stakeholders did NT$260,823,014 in director remuneration for 2017 in Chao-Chin interest not participate in the accordance with its Articles of Incorporation. (The motion Tung discussion or voting, in was passed at the 17th meeting of the fourth term of the Thomas K. S. accordance with the law, Remuneration Committee on April 26, 2018.) Chen and the proposal was unanimously approved by the rest of the attending directors. Nov. 23, A proposal was introduced to appoint CTBC Bank as the Wen-Long Yen Director of The stakeholders did 2018; lead underwriter for the Company's public underwriting of CTBC Bank not participate in the 6th term, unsecured subordinated common corporate bonds within Chao-Chin Chairman of discussion or voting, in 36th a NT$10 billion limit. (The motion was passed at the 33rd Tung CTBC Bank accordance with the law, meeting meeting of the fourth term of the Audit Committee on Thomas K. S. Director of and the proposal was of the Nov. 22, 2018.) Chen CTBC Bank unanimously approved by Board of Chung-Yu Independent the rest of the attending Directors Wang director of directors. CTBC Bank Wen-Chih Lee Independent director of CTBC Bank Dec. 21, A proposal was introduced for Taiwan Life to issue common Shih-Chieh Independent The stakeholder did 2018; shares through a private placement for a capital increase of Chang director of not participate in the 6th term, NT$24,999,600,000. (The motion was passed at the 34th Taiwan Life discussion or voting, in 37th meeting of the fourth term of the Audit Committee accordance with the law, meeting on Dec. 20, 2018.) and the amendment was of the The amendment content was as follows: unanimously approved by Board of To replenish Taiwan Life's capital, strengthen its financial the rest of the attending Directors structure, and provide for its future operating needs, directors. it is proposed that the company issue common shares through a private placement for a capital increase of NT$9,999,600,000. The above is submitted for deliberation. To replenish Taiwan Life's capital, strengthen its financial Shih-Chieh Independent The stakeholder did structure, and provide for its future operating needs, it Chang director of not participate in the was proposed that the common shares issued through the Taiwan Life discussion or voting, in private placement by Taiwan Life be fully subscribed to, with accordance with the law, this cash injection not exceeding NT$24,999,600,000, a and the amendment was provisional subscription price of NT$30 per share, and a unanimously approved by provisional subscription of 833,320,000 shares. (The motion the rest of the attending was passed at the 34th meeting of the fourth term of the directors. Audit Committee on Dec. 20, 2018.) The amendment content was as follows: To replenish Taiwan Life's capital, strengthen its financial structure, and provide for its future operating needs, it is proposed that the common shares issued through the private placement by Taiwan Life be fully subscribed to, with the cash injection not exceeding NT$9,999,600,000, a provisional subscription price of NT$30 per share, and a provisional subscription of 333,320,000 shares. The above is submitted for deliberation.

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(3) Targets for enhancing the function of the Board of Directors in the current and recent fiscal years (e.g., establishment of an audit committee and improvement of information transparency) and progress toward them: 1) The Company established an Audit Committee and a Remuneration Committee in 2009. 2) To improve its corporate risk governance, the Company established a Risk Management Committee on June 29, 2011. 3) To facilitate the sound functioning of its Board of Directors, the Company established a Nomination Committee on Dec. 23, 2016. 4) To foster business integrity across its culture and management, the Company established an Ethics and Integrity Committee on April 27, 2018.

2. Audit Committee operations (1) The Audit Committee is comprised completely of independent directors. Its purpose is to assist the Board of Directors in carrying out its supervisory duties. Its functions and powers are as follows: 1) Formulate and amend the internal control system pursuant to the provisions Article 14-1 of the Securities and Exchange Act. 2) Assess the effectiveness of the internal control system. 3) Formulate and amend handling procedures for the acquisition or disposal of assets and engagement in derivatives transactions or significant financial business actions pursuant to the provisions of Article 36-1 of the Securities and Exchange Act. 4) Review matters involving the interested relationships of directors. 5) Review transaction matters involving interested parties pursuant to the law. 6) Review substantial asset or derivative transactions. 7) Review the raising, issuing, and private placement of negotiable equity-type securities. 8) Review the appointment, dismissal, and remuneration of CPAs and assess their independence and performance. 9) Review the appointment and dismissal of financial, accounting, and internal audit supervisors. 10) Review annual and semiannual financial reports. 11) Deliberate on merger and acquisition matters. 12) Review any other significant matters as stipulated by the Company or competent authority.

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(2) As part of its fourth term, the Audit Committee convened 15 meetings (A) between Jan. 1, 2018, and Dec. 31, 2018, with its independent director attendance as follows: In-person Meetings attended Meetings attended Title Name attendance rate Notes in person (B) by proxy (B/A) Independent director Shih-Chieh Chang 15 - 100.00% - Independent director Chung-Yu Wang 15 - 100.00% - Independent director Peter Tuen-Ho Yang 15 - 100.00% - Independent director Wen-Chih Lee 15 - 100.00% - Other matters required to be disclosed: 1. In the event that an Audit Committee meeting fulfills any of the following conditions, the meeting date, motion content, resolution outcome, and Company's response are specified: (1) Matters listed in Article 14-5 of the Securities and Exchange Act: Please refer to the Appendix. (2) Excluding the aforementioned matters, any other resolutions that were passed by two-thirds or more of all directors but have not yet been approved by the Audit Committee: Please refer to the Appendix. 2. In the event that a conflict of interest required the avoidance of an independent director, the name of the independent director, motion content, reason(s) for recusal, and voting result are specified: Reason(s) Term and Motion content Name for Voting result meeting avoidance Nov. 22, A proposal was introduced to appoint CTBC Bank as the Chung-Yu Independent The stakeholders did 2018; lead underwriter for the Company's public underwriting of Wang director of not participate in the 4th term, unsecured subordinated common corporate bonds within a CTBC Bank discussion or voting, in 33rd NT$10 billion limit. Wen-Chih Lee Independent accordance with the meeting of director of law, and the proposal the Audit CTBC Bank was unanimously Committee approved by the rest of the attending directors. Dec. 20, A proposal was introduced for Taiwan Life to issue common Shih-Chieh Independent The stakeholder did 2018; shares through a private placement for a capital increase of Chang director of not participate in the 4th term, NT$24,999,600,000. Taiwan Life discussion or voting, in 34th The amendment content was as follows: accordance with the meeting of To replenish Taiwan Life's capital, strengthen its financial law, and the amendment the Audit structure, and provide for its future operating needs, was unanimously Committee it is proposed that the company issue common shares approved by the rest of through a private placement for a capital increase of the attending directors. NT$25,000,000,000. The above is submitted for deliberation. To replenish Taiwan Life's capital, strengthen its financial Shih-Chieh Independent The stakeholder did structure, and provide for its future operating needs, it Chang director of not participate in the was proposed that the common shares issued through the Taiwan Life discussion or voting, in private placement by Taiwan Life be fully subscribed to, accordance with the with the cash injection not exceeding NT$24,999,600,000, law, and the amendment a provisional subscription price of NT$30 per share, and a was unanimously provisional subscription of 833,320,000 shares. approved by the rest of The amendment content was as follows: the attending directors. To replenish Taiwan Life's capital, strengthen its financial structure, and provide for its future operating needs, it is proposed that the common shares issued the through private placement by Taiwan Life be fully subscribed to, with the cash injection not exceeding NT$25,000,000,000 and a provisional subscription price of NT$30 per share. The Board of Directors is also requested to authorize the Chairman to select an amount within the aforementioned range. The above is submitted for deliberation.

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3. Communication of independent directors with internal audit supervisors and accountants: The internal audit supervisors and accountants report on and provide information regarding auditing and finances to the Audit Committee on a regular basis. (1) Communication between accountants and Audit Committee: 1) Legal basis A. Statements of Auditing Standards (SAS) No. 62, "Communication with those Charged with Governance"; SAS No. 58, "Communicating Key Audit Matters in the Independent Auditor's Report"; SAS No. 29, "Consideration of Laws and Regulations in an Audit of Financial Statements"; and SAS No. 43, "The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements". B. Communication of the Audit Committee with the chief internal auditor and the CPA that require disclosure in the annual report to shareholders in accordance with the Regulations Governing Information to be Published in the Annual Reports of Financial Holding Companies. 2) In 2018 through the publication date of this annual report, the Company's CPAs, Jeff Chen and Lin Wu of KPMG, communicated with the Company's independent directors and chief internal auditor on several occasions. These communications were as follows: Date Topic Content Outcome March 2, 2018 Independent directors Determining significant audit attention and key audit matters for 2017. No dissenting March 12, 2018 Independent directors 1. That the audit scope was not restricted in the 2017 audit procedure, opinions and that the report fully disclosed relevant audit conclusions, with the auditors expressing an unqualified opinion. 2. Audit planning for 2018. Independent directors Audit findings of 2017 financial reports and key audit points of internal Chief internal auditor control and related results. March 21, 2018 All directors Determining key audit matters for 2017. July 25, 2018 Independent directors Determining significant audit attention and key audit matters for the first half of 2018. Aug. 27, 2018 Independent directors That the audit scope was not restricted in the 2018 first half audit procedure, and that the report fully disclosed relevant audit conclusions, with the auditors expressing an unqualified opinion. Independent directors Audit findings of the first half of 2018 financial reports and key audit Chief internal auditor points of internal control and related results. Jan. 15, 2019 Independent directors Determining significant audit attention and key audit matters for 2018. March 18, 2019 Independent directors 1. That the audit scope was not restricted in the 2018 audit procedure, and that the report fully disclosed relevant audit conclusions, with the auditor expressing an unqualified opinion. 2. Audit planning for 2019. Independent directors Audit findings of 2018 financial reports and key audit points of internal Chief internal auditor control and related results. (2) Communication engagement between the General Auditor and the Audit Committee 1) Statutory basis A. Article 16 of the Regulations Governing Establishment of Internal Control Systems by Public Companies stipulates that the General Auditor shall attend meetings of and deliver a report to the Board of Directors. B. Article 10 of the Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries stipulates that an internal audit unit shall report its audit work to the Board of Directors and the Audit Committee at least once every six months. C. Article 7 of the Corporate Governance Best Practice Principles for Financial Holding Companies stipulates that the responsible persons of a holding company (directors and supervisors) shall hold regular panel discussions with internal auditors regarding the reviews of internal control system deficiencies. A record of the discussions shall be kept, the resolutions shall be followed up on, and the corrective actions shall be implemented.

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2) The General Auditor of CTBC Holding, in addition to attending meetings of the Audit Committee and the Board of Directors, shall report on a semi-annual basis to the Audit Committee and the Board of Directors on the recommendations or deficiencies discovered by financial examination authorities, accountants, internal audit units, and self-inspection as well as on the corrective actions listed in the internal control statement. The General Auditor shall also report the other significant matters, if any, on a case by case basis. Relevant reports in 2018 through to the publication date of this annual report are as follows: Date Method Matters communicated Result Feb. 26, 2018 Audit Committee Report on the implementation of the internal control system in the second Noted half of 2017 March 2, 2018 Panel discussion with Communication on internal audit-related matters Noted internal auditors Aug. 21, 2018 Panel discussion with Communication on internal audit-related matters Noted internal auditors Aug. 28, 2018 Audit Committee Report on the implementation of the internal control system in the first Noted half of 2018 Dec. 20, 2018 Audit Committee Annual internal audit plan for 2019 Noted Feb. 22, 2019 Panel discussion with Communication on the internal audit related matters. Noted internal auditors Feb. 25, 2019 Audit Committee Report on the implementation of the internal control system in the second Noted half of 2018

3. Status of corporate governance implementation and deviations from the Corporate Governance Best Practice Principles for Financial Holding Companies Execution status Deviations from the Corporate Governance Best Practice Assessment item Yes No Summary Principles for Financial Holding Companies and reasons thereof 1. Shareholding structure and shareholder equity within the Company (1) Has the Company implemented V (1) The Company values the opinions of its shareholders. It maintains a Contact IR page on its (1) No deviation internal operating procedures Investor Relations website's Investor Services section, on which it discloses online, phone, and for processing shareholders' email channels through which shareholders can submit suggestions or queries. The Company suggestions, queries, disputes, and designates a specific managerial department to process each suggestion or query. litigation, and are the procedures implemented accordingly? (2) Does the Company maintain V (2) The Company maintains lists of major shareholders based on the shareholder list after the date (2) No deviation a list of major shareholders on which share transfers are suspended and on the information regarding the equity changes that have actual control over of insiders and major shareholders submitted to the Company per relevant regulations. The the Company and a list of the Company publishes this information in its annual report and on its website. ultimate controllers of those major shareholders? (3) Has the Company implemented V (3) The Company engages in credit transactions and non-credit-related transactions with affiliated (3) No deviation risk management mechanisms companies in accordance with the Financial Holding Company Act, the Banking Act, and related and firewalls between itself and regulations. affiliated companies?

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Execution status Deviations from the Corporate Governance Best Practice Assessment item Yes No Summary Principles for Financial Holding Companies and reasons thereof 2. Constitution and obligations of the Board of Directors (1) Excluding remuneration and audit V (1) In addition to maintaining its Remuneration Committee and Audit Committee as required by law, (1) No deviation committees, has the Company the Company has established a Risk Management Committee, Nomination Committee, and Ethics assembled any functional & Integrity Committee. committees at its own discretion? 1. Audit Committee: The Audit Committee comprises independent directors who assist the Board of Directors in executing supervisory duties. Its audit responsibilities include the (1) fair presentation of financial reports; (2) evaluation of the hiring, dismissal, and independence and performance of attesting CPAs; (3) effective implementation of the internal control system; (4) adequacy of internal legal compliance procedures and planning; (5) management of existing or emerging risks; and (6) examination of mergers and acquisitions. 2. Remuneration Committee: The Remuneration Committee's members are appointed by the Board of Directors. It must comprise no fewer than three members, with at least one independent director, and an independent director must act as its convener. The Committee assists the Board in (1) formulating and regularly reviewing the performance assessment and remuneration policy, system, standards, and structures for directors, senior executives, and managers, and (2) regularly assessing and determining the remuneration of directors, senior executives, and managers. 3. Risk Management Committee: The Risk Management Committee's members are appointed by the Board of Directors. It must comprise no fewer than three members, with at least one independent director and at least one member who has experience in identifying, assessing, and managing the risk exposure of large, complex companies. The Committee was established to aid the Board of Directors in communication, reporting, and recommendations in support of the risk management practices of decision makers, thereby enabling the decision-making and supporting actions to exert a widespread influence on the organization and all its employees. 4. Nomination Committee: The Nomination Committee's members are appointed by the Board of Directors. It must comprise no fewer than three members, with at least half of them independent directors. The Committee assists the Board of Directors to (1) define the diversity requirements (e.g., profession, technical skills, experience, and gender) and independence criteria for seeking, assessing, and nominating director and supervisor candidates for the Company and its subsidiaries; (2) construct, develop, and review the organizational structure of the boards and committees of the Company and its subsidiaries; (3) devise and inspect continuing education plans for directors; (4) formulate corporate governance best practices for the Company; and (5) determine matters that should be handled by the committees as instructed by the Board. 5. Ethics & Integrity Committee: The Ethics & Integrity Committee's members are appointed by the Board of Directors. It must comprise no fewer than three members, with at least one independent director. The Committee is responsible for formulating and monitoring integrity management policies and prevention programs. It regularly reports the status of these efforts to the Board of Directors to assist the Board and senior management in ensuring the effective operation of preventative measures established to execute business integrity in accordance with the Procedures for Handling Illegal and Unethical or Dishonest Behavior. The Committee regularly verifies reports submitted in the Company and its subsidiaries regarding relevant cases and their handling in order to ensure the effectiveness of the offense-reporting system. The Committee also regularly verifies cases of unethical behavior submitted from the internal Employee Incentives and Punishment Committee regarding employees of the Company and its subsidiaries

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Execution status Deviations from the Corporate Governance Best Practice Assessment item Yes No Summary Principles for Financial Holding Companies and reasons thereof (2) Does the Company regularly V (2) The Company implements quality verification procedures annually to evaluate the independence (2) No deviation assess the independence of its and competence of certified public accountants. The evaluation covers an assessment of the financial statement auditors? independence of the CPAs' tenure and rotation. The results of the 2019 assessment were reported to the Audit Committee on March 20, 2019, and were approved by the Board of Directors on March 21, 2019. An assessment of CPAs Lin Wu and Jeff Chen, of KPMG, determined that there was no violation of the standards of independence (see Note) and that they can therefore provide services to the Company. In addition, statements to that effect were obtained from the accountants. According to the requirements of the CTBC Holding Corporate Governance Best Practice Principles, if the Company has not replaced an accountant for seven consecutive years, an accountant is subject to disciplinary action or his/her independence has been compromised, the Company shall consider whether it is necessary to replace the accountant and report to the Board of Directors. The 2019 annual assessment concluded that no such circumstances existed. Note: Summary of auditor independence assessment: Fulfills Assessment Assessment item independence result requirements 1. The accountant does not have a direct or significant indirect Ye s V financial relationship with the Company. 2. The accountant does not have a lender or guarantor Ye s V relationship with the Company or any Board member. 3. The accountant does not have a close business relationship or Ye s V potential employment relationship with the Company. 4. Within the past two years, neither the accountant nor any Ye s V member of the accountant's auditing team has served as a Company director, manager, or other staff who could significantly affect the Company's audit. 5. The accountant does not provide any non-auditing services that Ye s V could affect the auditing service provided to the Company. 6. The accountant has not previously brokered Company shares Ye s V or other securities it offers. 7. The accountant has never served as a defender or mediator on Ye s V behalf of the Company in disputes with a third party. 8. The accountant has no kinship with Company directors, Ye s V managers, or other staff who could significantly affect the Company's audit. 9. A statement of independence has been obtained from the Ye s V accountant. 10. The accountant is not a related party of the Company. Ye s V

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Execution status Deviations from the Corporate Governance Best Practice Assessment item Yes No Summary Principles for Financial Holding Companies and reasons thereof 3. If the Company is a TWSE/TPEx- V The Company has established a Corporate Governance Officer role under the Office of Chairman. No deviation listed company, has it set up a full- or This officer, appointed by Board meeting, is responsible for corporate governance matters, including part-time corporate governance unit providing information required by directors to conduct business, planning directors' continuing or selected a member of personnel education, assisting directors in legal compliance, handling matters related to the Board of Directors to be in charge of corporate and shareholders' meetings and the production of the meeting minutes, and planning corporate governance affairs (including but not governance policies and supervising corporate governance implementation. The Corporate limited to furnishing information Governance Department under the Office of Chairman is responsible for supervising matters related required for business execution by to corporate governance policy and strategy. It is also charged with coordinating the development directors and supervisors, handling of corporate governance among related internal and external units. The Secretary Department of matters relating to Board meetings the Board of Directors has been appointed to handle administrative matters, including those relating and shareholders' meetings according to Board meetings and shareholders' meetings as well as producing meeting minutes and furnishing to the law, handling corporate information required for directors to conduct business. Other staff members are tasked with registration and amendment corporate registration, matters related to changes in registration, safeguarding related documents and registration, and producing minutes seals, and monitoring information disclosure operations. of Board meetings and shareholders' meetings)? 4. Has the Company established a V (1) The Company maintains a dedicated unit tasked with annually confirming data accuracy with its No deviation communication channel for its stakeholders by referencing written documents. stakeholders (including but not (2) The Company has set up a Contact IR page in the Investor Relations website's Investor Service limited to shareholders, employees, section to disclose contact details, including of the spokesperson, acting spokesperson, Audit and customers)? Committee convener, institutional investor relations and shareholder service personnel to handles issues of interest to stakeholders. (3) The Company has established a stakeholders page on its website to facilitate direct communication with its employees, investors, customers, and suppliers. (4) Stakeholders can also interact with the Company regarding economic, environmental, and social governance through a stakeholder survey on the Company's website. The Company makes disclosures regarding major stakeholder concerns and its corresponding goals in its annual CSR Report. 5. Information disclosure (1) Has the Company established V (1) The Company's website discloses financial, business, corporate governance, and other information. (1) No deviation a website disclosing financial, business, and corporate governance-related information? (2) Does the Company have V (2) The Company's primary website is in Chinese, but an English version is also available. Related units (2) No deviation other information disclosure are charged with collecting information for and disclosing it on the website. The Company also has channels (e.g., maintaining designated a spokesperson and an acting spokesperson. an English-language website, In addition, slideshow presentations and audio recordings used in investor conference are uploaded appointing responsible people to the Company's Investor Relations website in the Events & Filings section's Events Calendar page. to handle information collection and disclosure, creating a spokesperson system, and webcasting investor conferences on the Company's website)?

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Execution status Deviations from the Corporate Governance Best Practice Assessment item Yes No Summary Principles for Financial Holding Companies and reasons thereof 6. Does the Company have other V For details, please refer to "8. Others". No deviation information crucial to understanding its corporate governance (including but not limited to situations regarding employee rights and interests, employee care, investor relations, the rights and interests of stakeholders, the continuing education of directors and supervisors, the implementation status of risk management policies and risk measurement standards, the implementation status of customer policies, situations concerning the purchase of accountability insurance for directors and supervisors, and donations made to public interest groups)? 7. Describe improvements that have been made based on the latest corporate governance evaluation results issued by the Corporate Governance Center of the Taiwan Stock Exchange. If no improvements have been made, propose priorities for change and relevant measures: The Company was rated in the top 21%–35% of companies in the 2018 Fourth Corporate Governance Evaluation. The Company took the following steps for improvement based on the evaluation results: (1) Engaged an external consulting company to provide advice on strengthening the functions of the Company's Board of Directors as well as the independence of directors and how effectively they can perform their duties. (2) Amended the Guidelines for the Board of Directors and Functional Committee Proposals to strengthen the functions of the Board of Directors and the procedures for proposals. (3) Amended the Corporate Governance Best Practice Principles to standardize the term of the Company's independent directors as no more than three terms, thereby strengthening their independence and enhancing the Board's operational efficiency. (4) Established an Ethics & Integrity Committee. (5) Established the Procedures for Handling Illegal and Unethical or Dishonest Behavior.

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8. Other (1) Deviations from Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies and reasons thereof: Execution status Deviations from Corporate Governance Best Practice Assessment item Principles for Yes No Summary TWSE/TPEx Listed Companies and reasons thereof 1. Has the Company established and V The Company has established the CTBC Holding Corporate Governance Best Practice Principles No deviation disclosed its corporate governance and made revisions as necessary to strengthen its corporate governance. The updated principles were principles in accordance with disclosed on the Company's website and the Market Observation Post System. the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies? 2. Does the Company have internal V To regulate such conduct, the Company has formulated its Regulations for the Prevention of Insider No deviation regulations in place to prevent Trading, Policy for Preventing Insider Trading, Code of Ethical Conduct, Ethical Corporate Management insider trading? Best Practice Principles, Procedures for Ethical Management and Guidelines for Conduct, and a Code of Conduct for employees, all of which have been posted on the Company's website. 3. Has the Board of Directors V The Company uses a candidate nomination system to elect directors, who are appointed for a term No deviation established and executed a of three years. The Board of Directors comprises seven directors, of whom four are independent diversity policy for its members? directors and three are general directors. Candidates for director are selected based on the Board's overall composition. The knowledge, skills, and literacy Board members require to properly execute their duties are stipulated in the Rules for Director Elections. The duties of the Board of Directors are specified in the Company's Articles of Incorporation. Of the current directors, five are over 70 years old whereas the two others are under the age of 60. Each of the four independent directors has professional experience in business decision-making, accounting and finance, risk management, and the law. The diversity of the Company's directors is disclosed on its website. 4. Does the Company have Board V The Company established the Board of Directors Evaluation Measures for CTBC Holding and No deviation of Directors performance Subsidiaries, which was approved by a Board meeting in 2015, and conducts a Board performance assessment guidelines and assessment at the end of December every year. The assessments are performed on the overall methods in place? Does it perform operations of the Board of Directors, and each director is required to conduct a self-assessment. The such an assessment on a yearly assessment items for the Company's Board of Directors encompass the following five areas: basis? 1) the Board's involvement in the Company's business activities; 2) improvement in its decision-making quality; 3) its composition and structure; 4) its election of directors and the continuing education and training of its directors; and 5) its internal controls. The assessment items for individual Board members encompass at least the following six areas: 1) understanding of the Company's goals and missions; 2) understanding of director duties and functions; 3) involvement in the Company's business activities; 4) internal relations management and communication; 5) expertise and continuing education; and 6) internal controls. The assessment results are graded on five levels: excellent, very good, good, fair, and to be improved. The Corporate Governance Department reports the assessment results to the Board of Directors and proposes improvement measures. The 2018 assessment, made in accordance with the aforementioned regulations, yielded an "excellent" rating. 5. Has the Company designated a V The Company tasks CTBC Bank with handling shareholder affairs. No deviation professional shareholder services agent to handle shareholder affairs?

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(2) Training of directors and independent directors Training period Organizing Name Course From To agency April 12, 2018 April 12, 2018 Wen-Long CTBC Bank The Impact of National Risk Assessment Results on Financial Institutions April 12, 2018 April 12, 2018 Ye n CTBC Bank How Financial Institutions are Used for Money Laundering in the Lead-up to Criminal Activity Aug. 22, 2018 Aug. 22, 2018 CTBC Bank An Overview of the Banking Industry's Role in Money Laundering Aug. 22, 2018 Aug. 22, 2018 CTBC Bank Anti-money-laundering Challenges Posed by Fintech and U.S. Federal Regulatory Compliance Sept. 12, 2018 Sept. 12, 2018 Taiwan New Trends in Sustainable Decision-making: TCFD Climate-related Corporate Financial Disclosures Governance Association Sept. 12, 2018 Sept. 12, 2018 Taiwan Case Studies of the Principle of Fair Dealing in the Financial Service Corporate Industry Governance Association April 12, 2018 April 12, 2018 Chao- CTBC Bank The Impact of National Risk Assessment Results on Financial Institutions April 12, 2018 April 12, 2018 Chin Tung CTBC Bank How Financial Institutions are Used for Money Laundering in the Lead-up to Criminal Activity Aug. 22, 2018 Aug. 22, 2018 CTBC Bank An Overview of the Banking Industry's Role in Money Laundering Aug. 22, 2018 Aug. 22, 2018 CTBC Bank Anti-money-laundering Challenges Posed by Fintech and U.S. Federal Regulatory Compliance Sept. 12, 2018 Sept. 12, 2018 Taiwan New Trends in Sustainable Decision-making: TCFD Climate-related Corporate Financial Disclosures Governance Association Sept. 12, 2018 Sept. 12, 2018 Taiwan Case Studies of the Principle of Fair Dealing in the Financial Service Corporate Industry Governance Association April 12, 2018 April 12, 2018 Thomas K. CTBC Bank The Impact of National Risk Assessment Results on Financial Institutions April 12, 2018 April 12, 2018 S. Chen CTBC Bank How Financial Institutions are Used for Money Laundering in the Lead-up to Criminal Activity Aug. 22, 2018 Aug. 22, 2018 CTBC Bank An Overview of the Banking Industry's Role in Money Laundering Aug. 22, 2018 Aug. 22, 2018 CTBC Bank Anti-money-laundering Challenges Posed by Fintech and U.S. Federal Regulatory Compliance Sept. 12, 2018 Sept. 12, 2018 Taiwan New Trends in Sustainable Decision-making: TCFD Climate-related Corporate Financial Disclosures Governance Association Sept. 12, 2018 Sept. 12, 2018 Taiwan Case Studies of the Principle of Fair Dealing in the Financial Service Corporate Industry Governance Association

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Training period Organizing Name Course From To agency April 12, 2018 April 12, 2018 Chung-Yu CTBC Bank The Impact of National Risk Assessment Results on Financial Institutions April 12, 2018 April 12, 2018 Wang CTBC Bank How Financial Institutions are Used for Money Laundering in the Lead-up to Criminal Activity Aug. 22, 2018 Aug. 22, 2018 CTBC Bank An Overview of the Banking Industry's Role in Money Laundering Aug. 22, 2018 Aug. 22, 2018 CTBC Bank Anti-money-laundering Challenges Posed by Fintech and U.S. Federal Regulatory Compliance Sept. 12, 2018 Sept. 12, 2018 Taiwan New Trends in Sustainable Decision-making: TCFD Climate-related Corporate Financial Disclosures Governance Association Sept. 12, 2018 Sept. 12, 2018 Taiwan Case Studies of the Principle of Fair Dealing in the Financial Service Corporate Industry Governance Association April 12, 2018 April 12, 2018 Peter CTBC Bank The Impact of National Risk Assessment Results on Financial Institutions April 12, 2018 April 12, 2018 Tuen-Ho CTBC Bank How Financial Institutions are Used for Money Laundering in the Lead-up Yang to Criminal Activity May 8, 2018 May 8, 2018 Taiwan Stock Summit Forum of New Corporate Governance Blueprints for Listed Exchange Companies Aug. 22, 2018 Aug. 22, 2018 CTBC Bank An Overview of the Banking Industry's Role in Money Laundering Aug. 22, 2018 Aug. 22, 2018 CTBC Bank Anti-money-laundering Challenges Posed by Fintech and U.S. Federal Regulatory Compliance Sept. 12, 2018 Sept. 12, 2018 Taiwan New Trends in Sustainable Decision-making: TCFD Climate-related Corporate Financial Disclosures Governance Association Sept. 12, 2018 Sept. 12, 2018 Taiwan Case Studies of the Principle of Fair Dealing in the Financial Service Corporate Industry Governance Association April 12, 2018 April 12, 2018 Wen-Chih CTBC Bank The Impact of National Risk Assessment Results on Financial Institutions April 12, 2018 April 12, 2018 Lee CTBC Bank How Financial Institutions are Used for Money Laundering in the Lead-up to Criminal Activity Aug. 22, 2018 Aug. 22, 2018 CTBC Bank An Overview of the Banking Industry's Role in Money Laundering Aug. 22, 2018 Aug. 22, 2018 CTBC Bank Challenges on anti-money-laundering by the US Federal Anti-Money Laundering Act and financial technology Sept. 12, 2018 Sept. 12, 2018 Taiwan New Trends in Sustainable Decision-making: TCFD Climate-related Corporate Financial Disclosures Governance Association Sept. 12, 2018 Sept. 12, 2018 Taiwan Case Studies of the Principle of Fair Dealing in the Financial Service Corporate Industry Governance Association

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Training period Organizing Name Course From To agency April 12, 2018 April 12, 2018 Shih- CTBC Bank The Impact of National Risk Assessment Results on Financial Institutions April 12, 2018 April 12, 2018 Chieh CTBC Bank How Financial Institutions are Used for Money Laundering in the Lead-up Chang to Criminal Activity May 8, 2018 May 8, 2018 Taiwan Stock Summit Forum of New Corporate Governance Blueprints for Listed Exchange Companies Aug. 22, 2018 Aug. 22, 2018 CTBC Bank An Overview of the Banking Industry's Role in Money Laundering Aug. 22, 2018 Aug. 22, 2018 CTBC Bank Anti-money-laundering Challenges Posed by Fintech and U.S. Federal Regulatory Compliance Sept. 12, 2018 Sept. 12, 2018 Taiwan New Trends in Sustainable Decision-making: TCFD Climate-related Corporate Financial Disclosures Governance Association Sept. 12, 2018 Sept. 12, 2018 Taiwan Case Studies of the Principle of Fair Dealing in the Financial Service Corporate Industry Governance Association (3) The company has established relevant handling procedures for risk management policies, consumer protection policies, and the recusal of directors from proposals in which they have an interest. (4) Directors' purchase of liability insurance and the continuing education they have received are disclosed in the Market Observation Post System's Corporate Governance zone: http://mops. twse.com.tw (5) Donations to political parties, interested parties, and public interest groups: None. (6) Investor relations and stakeholder interests: The Company strives to ensure that it discloses information in a fair, transparent, and timely manner. The Company's website has a stakeholders section that provides information for multi-directional communication among all parties. An Investor Relations site is also maintained, providing shareholders with real- time Company information, including corporate governance disclosures, financial information, credit ratings, events and announcements, stock information, and investor services. (7) Employee rights and interests and employee care: Please refer to "V. Operational Highlights, VIII. Labor relations". (8) Other important information (e.g., corporate governance regulations and disclosure) that may enhance understanding of the Company's corporate governance operations can be found in the Corporate Governance section of the corporate website (http://ir.ctbcholding.com/html/ gov.php).

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4. Remuneration Committee operations (1) The Remuneration Committee shall, in accordance with Article 4 of its charter, faithfully perform the following functions and powers while upholding the duty of care and duty of loyalty expected from an administrator in good faith and submit its recommendations to the Board of Directors for discussion: A. Formulate and regularly deliberate on the policy, system, and standard language structure of the performance evaluation and remuneration of directors and managers. B. Regularly evaluate and formulate the payroll remuneration of directors and managers. (2) Remuneration Committee members Criteria Has professional qualifications and five or Independence status more years' experience (Note 2) as a lecturer as a judge, or in a higher prosecutor, position in a lawyer, commerce, accountant, law, finance, in No. of other or other accounting, commerce, public professional or other law, finance, companies at or technical Title department accounting, which they specialist who Notes (Note 1) related or other are serving a has passed 1 2 3 4 5 6 7 8 to the field related remuneration a national Company's to the committee examination business Company's member and received needs at business certification a public needs in a profession or private related to the tertiary Company's educational business needs institution Name Independent Chung-Yu Wang V V V V V V V V V 0 director Independent Peter Tuen-Ho V V V V V V V V V V V 0 director Yang Independent Wen-Chih Lee V V V V V V V V V V 0 director Note 1: Title denotes whether the member is a director or independent director or has a different position. Note 2: A "V" marked in a field indicates a member fulfilled that criterion, described as follows, within two years of being elected or during their term of office: (1) Not an employee of the Company or any of its affiliates. (2) Not a director or supervisor of the Company or any of its affiliates (not applicable for independent directors appointed by the Company, its parent company, or subsidiary in accordance with the Securities and Exchange Act or the regulations of the relevant jurisdiction). (3) Not a natural-person shareholder who holds shares, together with those held by their spouse or minor children or under other names, totaling 1% or more of the total number of outstanding Company shares or ranks among the 10 largest shareholders in terms of shares held. (4) Not the spouse, a relative within the second degree of kinship, or a lineal relative within the third degree of kinship of any person in the preceding three criteria. (5) Not a director, supervisor, or employee of an institutional shareholder who directly holds an aggregate of 5% or more of outstanding Company shares or ranks among the five largest institutional shareholders in terms of shares held. (6) Not a director, supervisor, manager, or shareholder holding 5% or more of the shares of a company or institution with financial or business dealings with the Company. (7) Not a professional who or a business owner, partner, director, supervisor, or manager of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting, or other services or consultation to the Company or its affiliates, nor the spouse of such a person. (8) Not a person who satisfies any condition specified in Article 30 of the Company Act.

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(3) Remuneration Committee meeting attendance 1) The Company's Remuneration Committee comprises three members. 2) The fourth term of the committee extends from Dec. 8, 2016, to Dec. 7, 2019. As part of this term, the committee convened 9 meetings (A) between Jan. 1, 2018, and Dec. 31, 2018, with its attendance as follows: Meetings attended Meetings attended In-person attendance Title Name Notes in person (B) by proxy rate (B/A) Peter Tuen-Ho Yang Peter Tuen-Ho stepped into the Convener 9 - 100.00% Yang convener position on April 26, 2018 Committee member Chung-Yu Wang 9 - 100.00% - Committee member Wen-Chih Lee 9 - 100.00% - Other matters required to be disclosed: a. In the event that the Board of Directors declines to adopt or modifies a recommendation of the Remuneration Committee, the meeting date, motion content, Board resolution outcome, and the Company's handling of the opinions of the Remuneration Committee (if the remuneration approved by the Board of Directors exceeds that recommended by the Remuneration Committee, the difference and reasons thereof): None. b. If any member has a dissenting or qualified opinion noted on the record or in writing regarding any resolution of the Remuneration Committee, the committee meeting date, motion content, the opinions of all committee members, and the handling of their opinions: None. (4) Remuneration Committee practices Term and Motion content and result meeting Jan. 31, 2018; 1. A proposal regarding the total amount and calculation principles of annual bonuses issued by CTBC Holding 6th term, 22nd and its subsidiaries in 2017 and regarding the amount of annual bonuses issued to managers and business meeting of advisers the Board of 2. A proposal regarding the total amount and calculation principles of stock appreciation rights issued by CTBC Directors Holding and its subsidiaries in 2017 and regarding the status of their issuance to managers 3. A proposal regarding the Chairman's year-end bonus and stock appreciation rights for 2017 Remuneration Committee resolutions (Jan. 30, 2018): All attending Remuneration Committee members agreed to adopt the resolution(s). Handling of Remuneration Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). March 21, 2018; 1. A proposal regarding the Company's principles and salary cost adjustment in 2018 and regarding the amount of 6th term, 24th managers' salary adjustments meeting of 2. A proposal regarding the hiring of the Company's head of technology. the Board of Remuneration Committee resolutions (March 20, 2018): All attending Remuneration Committee members agreed Directors to adopt the resolution(s). Handling of Remuneration Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). April 27, 2018; 1. In view of the Company's business needs, an amendment to the Regulations for the Remuneration of Non- 6th term, 27th Independent Directors meeting of 2. A proposal for the Company to distribute NT$260,823,014 in director remuneration for 2017 in accordance the Board of with its Articles of Incorporation Directors 3. A proposal regarding a plan for paying all of the remuneration of all of the Company's employees in 2017 in the form of cash Remuneration Committee resolutions (April 26, 2018): All attending Remuneration Committee members agreed to adopt the resolution(s). Handling of Remuneration Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

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Term and Motion content and result meeting June 21, 2018; A proposal regarding a plan to formulate the Company's Principles of Specified Managers' Shareholding Ratios to 6th term, 29th facilitate sustainable business and development meeting of Remuneration Committee resolutions (June 20, 2018): All attending Remuneration Committee members agreed the Board of to adopt the resolution(s). Directors Handling of Remuneration Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). Oct. 31, 2018; 1. A proposal regarding the status of the Company's distribution to managers of its 2017 employee remuneration 6th term, 34th 2. A proposal regarding the planned revision of the Company's salary-related measures in order to improve the meeting of overall salary system the Board of Remuneration Committee resolutions (Oct. 29, 2018): All attending Remuneration Committee members agreed Directors to adopt the resolution(s). Handling of Remuneration Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). Nov. 23, 2018; 1. A proposal regarding the planned revision of the method of annual bonus distribution for employees in order 6th term, 36th to strengthen the competitiveness of managers' salaries meeting of Remuneration Committee resolutions (Nov. 22, 2018): All attending Remuneration Committee members agreed the Board of to adopt the resolution(s). Directors Handling of Remuneration Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). Dec. 21, 2018; 1. A proposal regarding the promotion and salary increases of managers in 2019 6th term, 37th 2. A proposal regarding the engagement of business advisers in 2019 meeting of the Board of 3. A proposal regarding the revision of the Measures for the Administration of Overseas-Posted Personnel, to Directors take effect on Jan. 1, 2019, in order to improve the Company's overseas management system Remuneration Committee resolutions (Dec. 20, 2018): All attending Remuneration Committee members agreed to adopt the resolution(s). Handling of Remuneration Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

5. Inquiries into corporate governance principles and related regulations Please refer to the CTBC Holding website (http://ir.ctbcholding.com/html/gov.php).

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6. Implementation of corporate social responsibility Execution status Deviation from the Corporate Social Responsibility Best Assessment item Yes No Summary Practices for TWSE/ TPEx and reasons thereof 1. Corporate governance implementation (1) Has the Company V (1) The Company has established Code of Corporate Social Responsibility and revises it at intervals to (1) No deviation established a stay current with CSR developments at home and abroad. To implement the abovementioned principle, corporate social the Company's Corporate Sustainability Committee, which is steered by executive leaders, regularly responsibility policy/ convenes relevant units to refine methods of advancing CSR and to track outcomes. In 2018, the system and evaluated Company's work in CSR received numerous domestic and international honors, including inclusion as a the outcomes component of the Dow Jones Sustainability Indices Emerging Markets Index, the Morgan Stanley Capital thereof? International ESG Leaders Index, and the FTSE4Good Emerging Markets Index, as well as receiving the Leadership A- distinction for three consecutive years from the CDP (formerly the Carbon Disclosure Project) and six prizes at the 2018 Taiwan Corporate Sustainability Awards, where Chairman Wen- Long Yen received the highest individual honor, the Enterprise Sustainability Elite Award, validating the performance of the Company's environmental, social, and governance practices. (2) Does the Company V (2) Since 2007, the Company has prepared CSR reports on its own initiative, and it promulgated the CTBC (2) No deviation provide training on Holding Corporate Social Responsibility Best Practice Principles in 2012. The Company adheres to these corporate social best practice principles when promoting CSR within the organization. Furthermore, the Company's responsibility on a Corporate Sustainability Committee issues CSR-related information and regularly conducts CSR training. regular basis? In 2018, three meetings were convened over numerous matters, including the following: 1. Learning from external experts, who shared views on topics including "climate risks and opportunities in the financial industry". 2. Devising CSR plans and policies for the year. 3. Organizing projects and campaigns relating to stakeholder communication and assessing issues of concern. 4. Evaluating and following up on the effectiveness of each project. 5. Participating in CSR award assessments and discussing international trends. 6. Sharing CSR practices adopted by domestic and foreign financial institutions. (3) Has the Company V (3) Since 2011, the Company has tasked designated staff with CSR-related strategy planning and promotional (3) No deviation tasked a dedicated activities. There are seven designated staff members; they currently work in a CSR unit under the or part-time unit General Administrative Department of CTBC Holding, undertaking CSR-related campaigns. The with promoting Company has a Corporate Sustainability Committee, with the President of CTBC Holding acting as CSR, and has senior the chairman of the committee, independent directors as supervisors, the Chief Administrative Officer management been as the deputy chairman, and the presidents of CTBC Holding subsidiaries as the committee members. authorized by the The Corporate Sustainability Committee serves as the resource integration unit, consolidating human Board to take resources, corporate governance, legal affairs, auditing, general affairs, risk management, personal charge of proposing banking, institutional banking, and the group's eight subsidiaries. Issues and policies related to the CSR CSR policies and of CTBC Holding are compiled by the Corporate Sustainability Committee, which regularly identifies reporting to the stakeholders that they may come into contact with over the course of business, and it discusses and Board? allocates resources regarding a number of CSR aspects such as corporate governance, employee care, responsible investments and products, community involvement, and environmental sustainability. The Committee evaluates and determines the annual targets of various CSR categories and regularly performs management and supervision tasks, which are then reported in regular meetings and reviewed by the Chairman of the Committee before escalating to CTBC Holding's Executive Committee and the Board of Directors. The final amendments and decisions are made by the Board before it implements them. Under the operation of the Company's Corporate Sustainability Committee, various CSR tasks are executed through a top-down approach in the organization to ensure effective and comprehensive execution. The Company has submitted all its plans relating to its Code of Corporate Social Responsibility, Ethical Corporate Management Best Practice Principles, and other CSR-related policies and regulations to the Board of Directors for approval, and has asked relevant departments to act accordingly. Specific CSR cases are each carried out after approval of the Board of Directors. In this way, we have ensured management efficiency.

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Execution status Deviation from the Corporate Social Responsibility Best Assessment item Yes No Summary Practices for TWSE/ TPEx and reasons thereof CSR cases reported to the Board of Directors in 2018: Relevant Board Time Frequency Content field resolution Social March 20 Annual Taiwan Lottery donation to CTBC Business School Approved (NT$80 million in 2018) March 20 Annual Taiwan Lottery donation to CTBC Anti-Drug Approved Educational Foundation (NT$47 million in 2018) March 21 Annual CTBC Bank donation to CTBC Charity Foundation Approved (NT$54 million in 2018) March 21 Annual CTBC Bank donation to CTBC Foundation for Arts Approved and Culture (NT$44 million in 2018) April /27 Annual CTBC Bank donation to CTBC Business School Approved (NT$32 million in 2018) Nov. 23 Annual CTBC Bank Charity Fund Chairitable Trust donation to Approved CTBC Charity Foundation (NT$2 million in 2018) Dec. 27 Annual Taiwan Life donation to CTBC Charity Foundation as Approved micro-insurance premium (NT$11,190 in 2018) Corporate April 27 Annual The Company's annual emerging risk mechanism and Approved governance identification results April /27 Once The Company's human rights polices Approved Nov. 23 Once CTBC Bank becoming Equator Principles signatory Approved Dec. 21 Annual CTBC Bank modification of the Measures of CTBC Approved Bank on Investment Risks (4) Has the Company V (4) Since 2006, CTBC Holding employees have abided by the Company's Code of Conduct, which specifies (4) No deviation established a the corporate ethics and obligations with which they must comply. The Company not only uses the reasonable salary Code of Conduct in its annual employee performance assessment but also rewards and penalizes remuneration employees in special circumstances. Such rewards and penalties are handled by the Employee Incentives policy? Has the and Punishment Committee in accordance with the Company's regulations concerning rewards and Company integrated disciplinary actions. the employee The Company has a comprehensive performance management system that ties employee remuneration performance to the Company's strategic goals and individual performance. Employees are offered opportunities for evaluation system professional advancement based on their performance; those with outstanding results and potential are with its CSR policy offered bonuses and training. Through an open and transparent promotion mechanism, the Company and established an enables outstanding talent to rise through the ranks, offering them greater responsibilities and favorable effective reward and remuneration to drive the positive overall development of the organization. disciplinary system? In most cases, the annual remuneration of a Company employee comprises 12 months' salary and a duty bonus, along with a year-end bonus based on the Company's operating performance and the individual employee's performance. There was virtually no gender pay gap at the managerial or general level at the Company's Taiwan sites in 2018. The Company's average annual pay raise was 3.0%; the highest raise was 17.1%, which included a promotional increase.

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Execution status Deviation from the Corporate Social Responsibility Best Assessment item Yes No Summary Practices for TWSE/ TPEx and reasons thereof 2. Fostering a sustainable environment (1) Is the Company V (1) The Company's headquarters, CTBC Financial Park, meets the eight major standards of Taiwan's green (1) No deviation committed to building assessment indexes: Greenery, Soil Water Retention, Daily Energy Saving, CO2 Reduction, achieving the Construction Waste Reduction, Indoor Environment, Water Resource, and Sewage & Garbage efficient use of Improvement. resources and to using renewable materials that have less impact on the environment? (2) Has the Company V (2) The Company assembled an Environmental Sustainability Task Force. The task force regularly holds (2) No deviation developed an management meetings and management review meetings to work toward environmental targets. In environmental 2017, all 151 Taiwan bank branches earned ISO 50001 Energy Management, ISO 14001 Environmental management system Management, and ISO 14064-1 Greenhouse Gas Emissions Reporting certification. In 2018, it expanded that is appropriate its certification scope to include 175 sites in Taiwan and three international standards, namely ISO 14064- to its industry? 1, ISO 14001, and ISO 50001. In the same year, its Hong Kong branch received ISO 14064-1 certification. Furthermore, it received a Leadership A- rating from CDP for three consecutive years. In 2018, for the second year in a row, the Company won the Silver Award at the R.O.C. Enterprise Environmental Protection Awards from the Taiwan Cabinet's Environmental Protection Administration, and became the first financial institution in Taiwan to obtain renewable energy certification from the Ministry of Economic Affairs. (3) Does the Company V (3)1). The Company has installed an environmental and energy management system in accordance with the (3) No deviation monitor the ISO 50001 and ISO 14001 standards. Our environment and energy policy is as follows: impact of climate a Engage in self-compliance with laws and regulations and the extensive purchase of products with change on business energy-saving labels. operations, conduct b Regularly hold training programs and promote environmental protection and energy management. a greenhouse c Integrate related resources and implement environmental and energy management programs. gas inventory, d Continue to implement environmental energy improvement and conduct regular reviews to achieve and formulate the goal of sustainability. strategies for e Leverage corporate inﬂuence and link with surrounding enterprises to form a green energy cycle. energy conservation 2). CTBC Holding has been promoting a diverse range of resource integration projects every year. It and carbon and successfully achieved its most recent three-year energy target by reducing energy consumption by greenhouse gas 6%. Starting from 2017, another three-year plan was launched, this one with the target of reducing reduction? energy consumption by 2% every year for a cumulative reduction of 6%, or 1.72 million kwh, thereby preventing 900,000 tons of greenhouse gas emissions. 3). The Company has continually promoted environmental protection and energy conservation. The total carbon emissions volume was 43,020.48 tons of CO2/year in 2017, and this was reduced further to 46,466.31 tons of CO2/year in 2018. As of the end of December 2018, energy-saving projects at CTBC Financial Park and other Company buildings have reduced carbon emissions to 414.33 tons of CO2/year.

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Execution status Deviation from the Corporate Social Responsibility Best Assessment item Yes No Summary Practices for TWSE/ TPEx and reasons thereof 3. Upholding public interests (1) Has the Company V (1) The Company's Corporate Social Responsibility Best Practice Principles mandate that the Company shall (1) No deviation developed its adhere to international human rights conventions and related laws and regulations to protect labor rights. policies and The Company has established a policy to support human rights in its Code of Conduct and devised procedures in work rules in accordance with the regulations of the Labor Standards Act. Furthermore, based on the accordance with law provisions of the Act of Gender Equality in Employment as well as the Sexual Harassment Prevention Act, and the International the Company has established Regulations for Establishing Measures of Prevention, Correction, Complaint, Bill of Human and Punishment of Sexual Harassment in the Workplace to ensure workplace rights and a harassment- Rights? free environment. The Company and its subsidiaries regularly elect labor representatives in accordance with the law and convene periodic labor meetings to discuss issues regarding employee equity and welfare. The Company's regulations and employee handbook are available on its website for employee use. (2) Does the Company V (2) The Company has set up an employee hotline to provide employees a means of delivering feedback (2) No deviation have means directly and quickly. All feedback is handled in a confidential manner to protect the identity and rights of through which the submitters. We maintain multiple channels of communication so they can reach out in the way that's employees may raise most comfortable for them: complaints? Are 1). By post: Employees can address mail to the Human Resources Department, including directly to the employee complaints departmental head. being handled 2). In person: Employees can speak in person to any HR supervisor. properly? 3). By email: Staff can email the HR team ([email protected]). 4). By phone: The employee hotline can be reached at (02) 3327-8804. 5). Online: The General Administrative Department has a dedicated feedback form on its website (http:// ga.chinatrust.com.tw). (3) Does the Company V (3) The Company provides employees with a comfortable, safe, and healthy work environment through a (3) No deviation provide employees comprehensive range of facilities and programs, including a smoke-free workplace policy, access control with a safe and measures, quarterly Occupational Health and Safety Committee reviews, general on-the-job health healthy work and safety education and training, fire drills, general health assessors, a cafeteria, a breastfeeding room, environment? a library, a staff lounge, a fitness center, and job site monitoring, such as of CO2 emissions and lighting levels. Such provisions enable employees to feel comfortable in their place of work and help them lead a healthier, more sustainable life. In 2018, CTBC Financial Park received ISO 45001 Occupational Health and Safety Management Systems certification, demonstrating the Company's aspiration and commitment to occupational health and safety. (4) Does the Company V (4) The Company holds town hall meetings on a quarterly basis to inform employees about material matters (4) No deviation have channels for and business operations. Executive managers also send emails as necessary to update employees on how communicating the Company has handled any emergency situations encountered while during business operations. with employees on a regular basis and does it inform them of operational changes that may be of significant impact? (5) Does the V (5) Depending on business needs and work requirements, the Company sends employees to participate (5) No deviation Company offer its in internal or external training programs or to attend overseas seminars. The training courses include employees effective professional competency and skills training, management skills training, practical operations, language, and occupational experience sharing. Based on employee development and organizational needs, job rotations are granted empowerment as necessary. training programs? (6) Has the Company V (6) To protect customer interests, the Company has set up various communication channels such as a 24- (6) No deviation established hour toll-free customer service hotline, email service, and stakeholders page on the Company's website. any consumer In addition, subsidiary CTBC Bank has established customer care management practices, including protection the Voice of Customer mechanism and customer complaint improvement plan to ensure customers' mechanisms satisfaction and protect their interests. Subsidiary Taiwan Life has established regulations for resolving and complaint financial consumer disputes, publicizing them on its official website. In addition, it has created a customer procedures service hotline with dedicated staff and has established a complaints services division that provides regarding its transparent and effective complaint processing and related services. R&D, purchasing, production, operation, and services? 75 Corporate Governance Report

Execution status Deviation from the Corporate Social Responsibility Best Assessment item Yes No Summary Practices for TWSE/ TPEx and reasons thereof (7) Does the Company V (7) The Company conducts the marketing and labeling of products and services in accordance with the (7) No deviation comply with Financial Holding Company Act, the Banking Act, and related regulations, and implements a strict internal applicable laws, control system. For the marketing and labeling of insurance products and services, subsidiary Taiwan regulations, and Life has established guidelines for preparing insurance products for commercialization, a merchandise international management policy, and guidelines for the disclosure of investment-oriented insurance products' offering guidelines in the documents. All of the above complies with the relevant domestic regulations. marketing and labeling of products and services? (8) Has the Company V (8) Since 2012, the Company has implemented a Supplier CSR Advocacy Policy that requires suppliers to sign (8) No deviation evaluated the a commitment to business ethics, employee rights and assistance, environmental protection, and other records of suppliers' issues before executing any single transaction of NT$1 million or more. impact on the environment and society before doing business with them? (9) Do the contracts V (9) The Company has included this content in its Corporate Social Responsibility Best Practice Principles (9) No deviation between the and announced the updated principles' implementation. Company and its major suppliers include termination clauses that come into force if a supplier violates the Company's corporate social responsibility policy and causes a significant negative impact on the environment or society? 4. Enhancing information V On its official website, the Company has created a dedicated CSR section that details its corporate principles No deviation disclosure: Has the and policies pertaining to CSR. The Company also publishes its annual CSR Report in hard and soft copies Company disclosed to adequately disclose our efforts and practices with regard to its economic, social, and environmental relevant and reliable responsibilities. The electronic version of the report is publicly accessible on both CTBC Holding's website CSR information on its and the Market Observation Post System. Hard copies are distributed to our bank branches across Taiwan website and the Market as well as to parties in other industries. In addition, the Company has been invited to attend various types of Observation Post sustainability forums and meetings to share CSR-related experiences with other industry experts. System? 5. If the Company has established the corporate social responsibility principles based on the Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies, please describe any discrepancy between the principles and their implementation: No deviation 6. Other important information to facilitate a better understanding of the Company's corporate social responsibility practices: (1) The Company published its first CSR report in 2007. This year marks the 12th year of the report, which primarily covers the Company's efforts in the areas of corporate sustainability, corporate governance, customer service, socially responsible products, human capital development, environmental sustainability, and social investment. Through its CSR reports, the Company aims to fulfill its responsibility to all stakeholders, including employees, customers, shareholders, and the public and to provide them with the best care. (2) For information regarding other aspects of CTBC Holding's CSR efforts, please refer to the CSR section of the Company's website: http://www.ctbcholding.com/care_ index.html. 7. If the CSR reports have received verification from external certification institutions, this should be stated below: The Company's most recent CSR report was verified in May 2018 by the British Standards Institution, a third-party verification organization. It verified the materiality, inclusiveness, and responsiveness of the report based on the AA1000 guaranteed standards and Global Reporting Initiative (GRI) standards. The disclosed content complied with the core options provided in the standards.

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7. Implementation of business integrity management Execution status Deviations from the Ethical Corporate Management Best Assessment item Practice Principles Yes No Summary for TWSE/TPEx Listed Companies and reasons thereof 1. Establishment of integrity policies and solutions (1) Has the Company V (1) The Company has established the CTBC Holding Ethical Corporate Management Best Practice (1) No deviation disclosed, in a Principles, with which the Board of Directors and management levels are required to comply. On April memorandum 27, 2018, the Board of Directors passed a resolution to establish the Ethics & Integrity Committee in or external order to strengthen business integrity across the Company's culture and management. correspondence, the policies and practices it has in place to maintain business integrity? Are its Board of Directors and management actively implementing these policies and practices? (2) Does the Company V (2) The Company forbids dishonest conduct, the scope of which is defined in the Code of Conduct (for (2) No deviation have any measures employees), Code of Ethical Conduct (for directors and managers), Ethical Corporate Management Best against dishonest Practice Principles, and Procedures for Ethical Management and Guidelines for Conduct. Integrity policies conduct? Are these are implemented through education and training, internal auditing, and regular reporting to the Board of measures supported Directors. by proper procedures, behavioral guidelines, disciplinary actions, and compliance systems? (3) Has the Company V (3) The Company's business operations have a strict internal control and risk management mechanism. (3) No deviation taken steps to prevent In addition to conducting business activities in accordance with the regulations of the competent occurrences listed authorities, the Company has assembled legal compliance, audit, and risk management units to ensure in Paragraph 2 of the strict monitoring of business activities. The aforementioned measures also ensure corporate ethical Article 7 of the Ethical management by encompassing regulations against bribery, conflicts of interest, and the provision or Corporate Management acceptance of improper benefits. Best Practice Principles for TWSE/TPEx Listed Companies or business activities that have a relatively high risk of unethical conduct? 2. Implementation of ethical corporate management (1) Does the Company V (1) The Company avoids transacting with any party that has a record of dishonest business conduct. For (1) No deviation evaluate the integrity dealings with clients and suppliers, the Company adopts a know-your-customer (KYC) approach and of all counterparties contract management policies, requiring transacting parties to be reviewed by the legal affairs unit in with which it has advance to clarify related rights, obligations, and legitimacy. The contracts signed with agents, suppliers, business relationships? customers, and other business-transacting parties include clauses mandating compliance with integrity Are integrity clauses management policy and effectuating termination if counterparties are involved in dishonest conduct. included in the agreements it signs with business partners? (2) Does the Company V (2) The Company has charged units with promoting the implementation of integrity management in (2) No deviation have a unit specializing accordance with the nature of their business activity. For example, the finance department ensures or otherwise involved the effective implementation of accounting systems, and the human resource department designates in business integrity? employees to attend integrity management courses. In addition, the Company has tasked the Corporate Does this unit report Governance Department with formulating integrity management regulations. The implementation status its progress to the of integrity management is reported to the Ethics and Integrity Committee and the Board of Directors Board of Directors on a every six months. regular basis?

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Execution status Deviations from the Ethical Corporate Management Best Assessment item Practice Principles Yes No Summary for TWSE/TPEx Listed Companies and reasons thereof (3) Does the Company V (3) The Company has policies and regulations preventing conflicts of interest in the Specification (3) No deviation have any policy of Procedure for the Board of Directors (for directors), Code of Conduct (for employees), and preventing conflicts of Procedures for Ethical Management and Guidelines for Conduct. These policies and regulations have interest and channels been effectively implemented. Article 16 of the Specification of Procedure for the Board of Directors facilitating the reporting specifies the policy for director recusal over conflicts of interest. If any director or a juristic person of such conflicts? represented by a director is an interested party regarding any agenda item, and when such a relationship is likely to prejudice the interests of the Company, the director may express his or her opinions or answer questions regarding the agenda item but may not participate during discussion or voting on it. Furthermore, the person shall recuse himself or herself during discussion and voting on that item and may not act as another director's proxy to exercise voting rights on that matter. Per the Code of Conduct, the Company requires employees to maintain awareness of situations that may influence their job performance or constitute a conflict of interest, avoid any personal action or pecuniary advantage that might conflict with Company interests, and prevent any abuse of power for personal gain or the inappropriate benefit of others. (4) Has the Company V (4) The Company's accounting system is based on generally accepted accounting principles and its internal (4) No deviation implemented effective control system is developed in accordance with the Implementation Rules of Internal Audit and Internal accounting and internal Control System of Financial Holding Companies and Banking Industries for the purpose of promoting control systems for the sound corporate management and ensuring effective operational efficiency, reliability, and regulatory purpose of maintaining compliance in its reporting. The audit unit also uses internal auditing and self-auditing systems to examine business integrity? Are the design of the internal control system and how effectively it has been implemented. these systems reviewed by internal or external auditors on a regular basis? (5) Does the Company V (5) The Company tasks its Corporate Governance Department with producing educational materials on (5) No deviation organize internal or integrity management and regularly providing training to directors and employees. Educational materials external training on a on integrity management are provided to newly elected directors when they take office and training regular basis to maintain in integrity management is included in the orientation provided for newly recruited employees. The business integrity? Company requires the compliance officer of every unit to participate in at least 15 hours compliance training courses per year. Furthermore, the Company publishes a monthly summary of legal compliance cases on its internal information network for employees' reference. 3. Operation of the Company's whistleblowing system (1) Does the Company V (1) The Company has established the Procedures for Handling Illegal and Unethical or Dishonest Behavior. (1) No deviation provide incentives and Whistleblowers may report any illegal, unethical, or dishonest behavior to the Company by phone, means for employees email, or post by providing sufficient information for the Company to properly follow up on the matter. to report malpractice? The Company assigns dedicated personnel to handle reports and has developed a complete set of Does the Company specifications for accepting, investigating, and handling them. assign dedicated personnel to investigate malpractice reports? (2) Has the Company V (2) The Company has incorporated standard procedures, including confidentiality measures, into the (2) No deviation implemented any Procedures for Handling Illegal and Unethical or Dishonest Behavior and Procedures for Ethical standard procedures or Management and Guidelines for Conduct to guide the handling of reports of dishonest employee confidentiality measures conduct. The Company assigns designated personnel to investigate such reports and maintains the for handling malpractice confidentiality of the handling process and related information. Those accused of wrongdoing are granted reports? the opportunity to provide clarifications during the investigation. Whistleblowers and investigators are entitled to protection. If an employee is confirmed as being involved in conduct that violates the principles of integrity management, he or she is penalized in accordance with related regulations. (3) Has the Company V (3) The whistleblowing protection provided by the Company includes ensuring the confidentiality of (3) No deviation provided proper whistleblowers' identities and the content of their reports, to avoid unfair retaliation and treatment, and whistleblower prohibiting unfavorable action against whistleblowers or anyone who assists them in whistleblowing as protection? stipulated by the relevant regulations. These protections enable whistleblowers to confidently report or otherwise make statements regarding improper or illegal conduct or to offer relevant suggestions.

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Execution status Deviations from the Ethical Corporate Management Best Assessment item Practice Principles Yes No Summary for TWSE/TPEx Listed Companies and reasons thereof 4. Enhancement of V The Company has established both Chinese and English versions of its website to disclose integrity No deviation information disclosure management-related regulations and information. The site's content is updated as necessary by various units Has the Company disclosed depending on the nature of the information. The Company also discloses its Ethical Corporate Management its integrity principles and Best Practice Principles and Code of Ethical Conduct on the Market Observation Post System and related progress on its announces related information in accordance with the Taiwan Stock Exchange Corporation Procedures for website and the Market Verification and Disclosure of Material Information of Companies with Listed Securities. Observation Post System? 5. If the Company has established Ethical Corporate Management Best Practice Principles in accordance with the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies, describe any discrepancy between the principles and their implementation: The Company used the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies as the model for its Ethical Corporate Management Best Practice Principles. The Company modifies the content of the principles as necessary to align them with legal and practical requirements, and it provides regular reports on the status of integrity management in the Company to the Ethics & Integrity Committee and the Board of Directors. All Company operations are in accordance with the Company's Ethical Corporate Management Best Practice Principles. 6. Other important information that facilitates a better understanding of the Company's implementation of ethical corporate management (e.g., details about the evaluation and amendment of ethical management rules): (1). To implement integrity management, the Company has established Ethical Corporate Management Best Practice Principles, a Code of Conduct, and other relevant specifications and requires all units to abide by the relevant regulations. (2). The Company established the Ethics & Integrity Committee in April 2018 to strengthen the function of the Board and implement business integrity across its culture and management. (3). The Company has established the Procedures for Handling Illegal and Unethical or Dishonest Behavior. It also maintains dedicated whistleblowing channels, namely a phone line, email inbox, and mailbox, the contact details for which it has published on the "Legal disclosure" page of its website for internal and external parties' reference. (4). The Company requires transacting parties to complete a Qualification Examination Form detailing whether they have issued a dishonored check within the past six months along with related company information. This process helps prevent the Company conducting transactions with "bad" suppliers or partners. Before engaging in a business transaction, the Company investigates any potential agent, supplier, customer, or other business-transacting partner to determine whether it is involved in such conduct. (5). The Company regularly arranges for its directors to attend corporate governance and integrity management courses to improve their supervisory and corporate management capabilities. In 2018, the directors attended multiple courses specifically aimed at furthering their professional knowledge of corporate governance and integrity management, namely New Trends in Sustainable Decision-making: TCFD Climate-related Financial Disclosures, and Case Studies of the Principle of Fair Dealing in the Financial Service Industry. In addition, the Company requires all its directors and employees to complete annual integrity management training.

8. Other material information regarding corporate governance Please refer to the CTBC Holding website (http://ir.ctbcholding.com/html/gov.php).

9. Matters required to be disclosed by the Corporate Governance Best Practice Principles for Financial Holding Companies Please refer to the CTBC Holding website (http://ir.ctbcholding.com/html/gov.php).

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10.Matters required to be disclosed by the Corporate Governance Best Practice Principles for Financial Holding Companies: (1) Internal Control Statement

Internal Control Statement

To: Financial Supervisory Commission, On behalf of CTBC Financial Holding Co., Ltd., we hereby certify that for the fiscal year of 2018, the company has duly complied with the "Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries" in implementing our internal control system, risk management mechanism, regular reports to the Board of Directors and Audit Committee; and conducting audits by an independent audit department. Under prudent evaluation, we hereby certify that, with exception to items listed in the attachment, the company's compliance with relevant laws and regulations and internal controls have been effectively implemented for the year 2018. This statement will form part of the company's annual report and prospectus to be disclosed to the public, and we are liable for false information or omissions in its material contents under Articles 20, 32, 171, and 174 of the Securities and Exchange Act. Sincerely yours,

Chairman

President

General Auditor

Chief Compliance Officer

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(2) Issues and corrective actions for CTBC Holding's internal control system (As of Dec. 31, 2018) Target Issue for improvement Corrective actions completion date 1. The Financial Supervisory Commission (FSC) conducted a full-scope examination of CTBC Holding (1) CTBC Bank revised the Procedures for Completed in 2018 and found that business trips of certain employees in subsidiary CTBC Bank involved a major the Preparation of Audit Working Papers. shareholder, indicating the improper application of entertainment expenses and travel expenses incurred (2) CTBC Bank reviewed and revised the during these employee business trips. internal guidelines on employee business trips and required that after such trips, related materials and the call reports to be compiled for the supervisor's approval and then filed for reference. 2. It was found that an employee of CTBC Bank had taken advantage of the position to access and abuse (1) CTBC Bank strengthened and reiterated Completed the financial information of a certain deposit account. As a consequence, the FSC imposed a reprimand relevant operation procedures. on the Bank and required the Bank to dismiss the employee due to the dishonest behavior. (2) The employee was dismissed. 3. The People's Bank of China imposed an administrative fine of RMB 225 thousand on CTBC Bank CTBC Bank Shanghai Branch enhanced and Completed Shanghai Branch due to insufficient balance of its required reserves for RMB deposits. reiterated relevant control mechanism. 4. The FSC conducted a limited-scope examination of Taiwan Life in 2017 and found that the approval Taiwan Life revised relevant internal Completed procedures of internal guidelines failed to follow the internal containment principle, the hedging needs guidelines. and risk monitoring for investment in private equity funds were improper, the investment in emerging stocks was not in accordance with the internal guidelines, and no limit control was in place for investment in overseas subordinated bonds. As a consequence, the FSC imposed an administrative fine of NT$600 thousand and three reprimands on Taiwan Life. 5. The FSC conducted a limited-scope examination on the anti-money laundering and countering the Taiwan Life revised relevant internal Completed financing of terrorism on Taiwan Life in 2017 and found the deficiencies of failing to follow underwriting guidelines. review procedures for the clients from the non-compliance nations or regions listed by international anti-money laundering organizations, client identification procedures, high-risk client strengthening control mechanism, monitoring procedures for suspicious money laundering transactions, assessment procedures of the reporting and the name screening mechanism. As a consequence, the FSC imposed an administrative fine of NT$600 thousand and four reprimands on Taiwan Life. 6. The FSC conducted a limited-scope examination of the legal compliance system of CTBC Holding From 2017, Taiwan Life rectified this issue per Completed in 2017, and found the deficiencies regarding the Institutional Risk Assessment for the Anti-Money the FSC's recommendations. Laundering and Countering the Financing of Terrorism performed by Taiwan Life in 2016. As a consequence, the FSC imposed a reprimand on Taiwan Life. 7. The FSC conducted a full-scope examination of Taiwan Life in 2017. Some major examination issues were Taiwan Life enhanced compliance awareness Corrective plans required by the FSC to be separately submitted to the Board of Directors for its attention and approval. by revising relevant internal operating submitted to the In addition, the FSC imposed an administrative fine of NT$2.4 million and nine reprimands on Taiwan Life procedures and contracts, establishing review FSC on Oct. 26, due to violations of the Insurance Act. The relevant issues are summarized as follows: and control processes, and reinforcing legal 2018, and Jan. 11, (1) The asset segmentation management procedure for interest-sensitive rate insurance products was compliance procedures. 2019 improper. (2) Board resolutions that conditionally approved transactions involving legal issues failed to be fully implemented and transactions were conducted with non-statutory qualified trading counterparts. (3) The handling of the discretionary investment of owned funds by a related company was inappropriate. (4) The commission rebate procedure related to investment in foreign funds was not followed. (5) The delegation of authority for portfolio investment was inappropriate. (6) Custody contracts with unreasonable content were signed. (7) Electronic records of consent declarations by the policy holders for online insurance were not properly stored. (8) Social engineering exercises for information security were not properly conducted. (9) Beneficiaries in certain insurance policy were apparently unrelated to the purpose of such insurance. (10) The fund sources for large premiums were not investigated and whether declarations were required was not assessed. 8. The FSC conducted a limited-scope examination of the anti-money laundering practices of Taiwan Life Taiwan Life revised the control system, and Corrective plans in 2018 and found deficiencies in the system setup and review processes for suspicious transaction enhanced and reiterated relevant review submitted to the monitoring, inspection work, identification of the ultimate beneficial owner of corporate clients, and procedures. FSC on Jan. 3, system logs for clients' assessment of anti-money laundering and countering the financing of terrorism. As 2019, and Feb. 1, a consequence, the FSC imposed four reprimands on Taiwan Life. 2019 9. The FSC imposed an administrative fine of NT$1.8 million on TLG Insurance because its information TLG Insurance strengthened information Completed security management failed to take proper security measures for files containing personal data, leading to security measures and obtained Information the leakage of such information. Security Management System and Personal Information Management System certification.

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Target Issue for improvement Corrective actions completion date 10. The FSC conducted a limited-scope examination of the legal compliance system of CTBC Holding CTBC Investments revised relevant internal Completed in 2017 and found that CTBC Investments did not use systems to facilitate the daily monitoring of guidelines and implemented a system clients' fund subscriptions and thus failed to properly implement anti-money laundering and countering database to facilitate compliance. the financing of terrorism measures. As a consequence, the FSC imposed one reprimand on CTBC Investments. 11. The FSC conducted a limited-scope examination of the Targeted Date Fund of CTBC Investments in Completed 2018 and imposed three reprimands. The relevant findings are summarized as follows: (1) The bonds purchased by the Emerging Sovereign Bond Fund, whose individual maturity dates were (1) CTBC Investments took corrective longer than the fund's duration, accounted for over 60% of the fund's net asset value, which was not actions in accordance with the consistent with the investment strategies disclosed in the sales documents and the fund prospectus. recommendations of the competent In addition, no related control mechanism had been established. authority. (2) The overseas advisory firm was authorized to send settlement instructions to the designated (2) CTBC Investments revoked the previous custodians, leading to incompliance with the settlement procedures that had been submitted to the authorization to the overseas advisory FSC in 2017. firm and signed an addendum with the advisory firm to amend the related terms and conditions of the original advisory contract accordingly. (3) Some of the bond issuers' critical financial information, which might influence the credit risk analysis (3) In order to deliver proper credit risk results, was not disclosed and analyzed in the investment analysis reports. analysis, CTBC Investments strengthened the contents of the investment analysis reports to ensure the reports could cover the bond issuers' financial strengths and weaknesses. 12. It was found that CTBC Securities did not duly review the eligibility of customers applying to (1) CTBC Securities abolished the use of Completed. calculate the margin requirement based on the Standard Portfolio Analysis of Risk (SPAN) method SPAN method on April 16, 2018. for futures trading, in violation of futures laws and regulations. As a consequence, the FSC imposed (2) CTBC Securities revised relevant internal an administrative fine of NT$240 thousand on CTBC Securities and directed the firm's attention to procedures. relevant improvements.

(3) CPA audit reports required to be disclosed in cases where the CPA is entrusted to audit the internal control system: None.

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11.In the past two years as of the date of publication, penalties for unlawful practices handed to the Company and its subsidiaries and actions taken to correct major deficiencies (1) CTBC Holding Cause and amount Disclosure 2019, to Corrective 2017 Corrective actions 2018 Corrective actions April 26 actions Indictments of managers or None None None employees relating to unlawful conduct performed in the course of doing business Unlawful practices penalized by In the absence of a clear policy 1. Reviewed and None None the FSC for the handling of such cases, improved the a Board meeting approved proposal process the provision of bail funds for to ensure the employees involved in a case management team relating to employee litigation. provides sufficient The Company was found to information for the be significantly lacking in its Board of Directors governance, internal control, to effectively and legal compliance systems, perform its duties. specifically in violation of Article 2. Strengthened 51 of the Financial Holding the functions Company Act. In accordance of independent with the provisions of directors to increase Subparagraph 16 of Article 60 their independence and Paragraph 1 of Article 54 of and effectiveness. the Act, a fine of NT$10 million 3. Reviewed, expanded, was imposed and corrective and revised the actions were ordered. Company's litigation policies.

Corrective actions ordered by None None None the FSC Disciplinary actions taken by Please refer to 2017's "Unlawful Please refer to 2017's None None the FSC in accordance with practices penalized by the FSC" "Unlawful practices Paragraph 1 of Article 54 of the for additional details regarding penalized by the FSC" Financial Holding Company Act the case. for corrective actions. Individual or total actual annual None None None losses of more than NT$50 million, the nature of the losses, and the loss amounts resulting from fraud, major incidents (e.g., fraud, theft, misappropriation and theft of assets, sham transactions, forged documents and securities, acceptance of kickbacks, losses from natural disasters, losses from external forces, cyberattacks, and the theft and disclosure of confidential business and customer data), or security incidents caused by failure to comply with safety maintenance regulations.

83 Corporate Governance Report

Cause and amount Disclosure 2019, to Corrective 2017 Corrective actions 2018 Corrective actions April 26 actions Other matters required to be None The FSC conducted a full– 1. CTBC Bank revised None disclosed by the FSC scope examination of CTBC the Procedures for the Holding in 2018 and found Preparation of Audit that business trips of certain Working Papers. employees in subsidiary 2. CTBC Bank reviewed CTBC Bank involved a major and revised the internal shareholder, indicating the guideline on employee improper application of business trips and entertainment expenses and required that after such travel expenses incurred trips, related materials during employee business and the call reports to trips. be compiled for the supervisor's approval and then filed for reference.

(2) CTBC Bank Cause and amount Disclosure Corrective 2017 Corrective actions 2018 Corrective actions 2019, to April 26 actions Indictments CTBC Bank employees On Oct. 11, 2018, the Regarding the 2017 case This case has entered the trial phase None of managers surnamed Chen, Taipei District Court in the left column, a CTBC and is waiting to be heard by the or employees Chang, and Ke, among found all defendants Bank employee surnamed court. relating to other employees, were guilty. They all lodged Chang was additionally unlawful conduct indicted for violating appeals, which are indicted on Jan. 4, 2018, for performed in the the Securities and ongoing. violating the Securities and course of doing Exchange Act.

84 Corporate Governance Report

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 Corrective actions 2019, to April 26 actions Fined by the FSC 1. The FSC imposed 1. CTBC Bank revised None On March 15, (1) Strengthened for violation of the an administrative related operating 2019, CTBC Bank the review law fine of NT$240,000 procedures and received a penalty system on the person bolstered its letter from the FSC implemented responsible for the efforts to increase stating that it was before and late announcement awareness of them. fined NT$240,000 after trading. on the Taiwan Stock for violations of (2) Continued Exchange's Market the Securities and to enhance Observation Post Exchange Act and the education System of loan asset other regulations and training disposal (amounting due to the failure for relevant to US$10 million) of "the special trust personnel. by CTBC Bank's account opened Singapore Branch. for the National investments in 2. In accordance with 2. strategic services" to Article 129(7) of (1) CTBC Bank transfer the shares the Banking Act, the implemented a it held in accordance FSC imposed an magnetic tape with relevant administrative fine backup system and regulations. of NT$2,000,000 on related monitoring unexpected deletion recordings when of audio recordings data errors occur. as well as for (2) On March 28, deficiencies in the 2018, CTBC Bank implementation of submitted to the the Bank's internal FSC the results control system, in of the evaluation violation of Article it conducted on 45-1(1) of the specific corrective Banking Act. actions relating

85 Corporate Governance Report

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 Corrective actions 2019, to April 26 actions Corrective 1. CTBC Bank's 1. 1. CTBC Bank improperly 1. None measures ordered mishandling of (1) CTBC Bank implemented KYC (1) CTBC Bank modified the by the FSC in financial derivative modified its processes and had classification of client risk attribute accordance transactions, internal rules insufficient control on analysis, and adopted a system to with 61-1 of the including improper for the approval the authority granted to review and check the logic of the Banking Act identity verification process of granting financial advisers when contents provided by clients. for the client and limits, including conducting structured (2) The Bank introduced a new clerks signed and taking into note business, which authority granting control system sealed transaction consideration the impeded the sound featuring an additional layer confirmation letters limits granted by operation of the Bank. of checks for transactions and on behalf of clients, other banks and Corrective measures adjusted the authority levels of which impeded the the differentiation were ordered in financial advisers. sound operation on management accordance with Article of the Bank. of limits base on 61-1(1) of the Banking Corrective measures hedging or non- Act. were ordered in hedging purposes. case, as organized by institutions recognized by the competent authority, or business-related professional courses related to the case, as organized by such institutions.

86 Corporate Governance Report

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 Corrective actions 2019, to April 26 actions 2. In handling the 2. 2. A CTBC Bank clerk, 2. None loans of Dingxing (1) CTBC Bank exploiting the position, (1) Host system strengthening Group, CTBC Bank modified its viewed the deposit CTBC Bank established a control failed to conduct internal rules for history of an online system featuring a new layer credit investigations the collection commodity seller's of checks for record inquiries: or verify the of required bank account. Using In addition to supervising the authenticity of documents related information about number of inquiries made by each transactions and had to bills receivable deposits made by real employee logged in to the system deficiencies in its loans. online shoppers, the each day, CTBC Bank added a verification of credit (2) CTBC Bank clerk claimed to have threshold for the number of applications and ensured that made those same inquiries regarding the same ID credit analysis, which relevant personnel deposits in order or account made within a certain impeded the Bank's completed either to receive products period. If the number of such sound operation. workshops without making any inquiries made by an employee Corrective measures related to the payment. This case exceeds the threshold, a report were ordered in case, as organized revealed that CTBC is delivered to the manager, accordance with by institutions Bank had failed to prompting them to conduct a spot Article 61-1(1) of recognized by establish a proper check. In this manner, the Bank's the Banking Act. the competent supervision and control and management functions courses related of conduct, thus customers who have not sought to the case, as impeding the Bank's their assistance, the system organized by such sound operation. delivers a report to a manager to institutions. Considering that conduct review and control. CTBC Bank voluntarily (3) CTBC Bank will include the above investigated the case control measures in the self- and reported the inspection of individual units. observed deficiencies (4) In January 2017, CTBC Bank after the event reiterated its Code of Conduct occurred, and acted to its staff, emphasizing the properly to protect importance of business integrity. In the customer's rights, addition, to deepen its employees' the FSC requested understanding of the requirements that the Bank make in Code of Conduct, the Bank corrective measures organized an online course in accordance with named "2017 Code of Conduct Article 61-1(1) of the Promotion", which was held from Banking Act and dismiss Dec. 4 to 31, 2017 in six phases. the clerk. Committee; the employee, surnamed Chung, was terminated.

87 Corporate Governance Report

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 Corrective actions 2019, to April 26 actions 3. CTBC Bank 3. None None conducted improper (1) CTBC Bank identity verification modified its internal when handling rules for the financial derivative approval process transactions, which of granting limits, impeded the sound including but not operation of the limited to taking Bank. Corrective into consideration measures were of the limits granted ordered in by other banks, accordance with differentiation on Article 61-1(1) of management of the Banking Act. limits based on declare that they were not personally involved in preparing the customer's financial statement. (2) CTBC Bank reiterated the content of the Code of Conduct to relevant personnel. In addition, the Bank ensured that relevant personnel completed either workshops related to the case, as organized by institutions recognized by the competent authority, or business-related professional courses related to the case, as organized by such institutions.

88 Corporate Governance Report

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 Corrective actions 2019, to April 26 actions 4. CTBC Bank acted 4. None None improperly in (1) CTBC Bank its handling of reiterated relevant financial derivative rules to the transactions, which business unit impeded the sound involved. operation of the (2) The Bank also Bank. Corrective ensured that measures were relevant personnel ordered in completed either accordance with workshops Article 61-1(1) of related to the the Banking Act. case, as organized authority, or business-related professional courses related to the case, as organized by such institutions. 5. CTBC Bank had 5. None None deficiencies in its (1) CTBC Bank management and now prepares a supervision of quarterly report the private equity and submits it investments by its to the Board of subsidiary Tokyo Star Directors. Bank, which impeded (2) The subsidiary is the sound operation under supervision of the Bank. to facilitate the Corrective measures establishment were ordered in of relevant accordance with risk control Article 61-1(1) of mechanisms. the Banking Act. Disciplinary None None None actions taken by the FSC in accordance with Paragraph 1 of Article 54 of the Financial Holding Company Act

89 Corporate Governance Report

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 Corrective actions 2019, to April 26 actions Individual or total CTBC Bank had CTBC Bank constantly None None actual annual bilateral loan exercised its rights as losses of more business with certain a creditor by engaging than NT$50 corporate clients in litigation to ensure million, the nature who failed to repay its rights and interests, of the losses, and loans as scheduled, and also strengthened the loss amounts thus constituting a its relevant risk control resulting from default. There was mechanisms. fraud, major also suspicion of a incidents (e.g., loan fraud scheme, fraud, theft, the amount of losses misappropriation from which exceeded and theft of assets, NT$50 million. sham transactions, forged documents and securities, acceptance of kickbacks, losses from natural disasters, losses from external forces, cyberattacks, and the theft and disclosure of confidential business and customer data), or security incidents caused by failure to comply with safety maintenance regulations. Other matters to None None None be disclosed as required by the FSC. Note: The cases disclosed herein refer to those in which managers or employees of the Company and its subsidiaries were indicted for unlawful action performed in the course of doing business from 2017 to April 26, 2019; cases with indictment dates outside this period were outside the scope of those disclosed herein.

90 Corporate Governance Report

(3) Taiwan Life Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions Indictments of managers None None None or employees relating to unlawful conduct performed in the course of doing business Unlawful practices (1) Taiwan Life (1) Taiwan Life (1) Taiwan Life (1) Taiwan Life None penalized by the FSC 1. 1. 1. 1. (1) The verification (1) The case repayment The FSC inspected the (1) Compiled a post- mechanism of the has been made and investment business of investment evaluation claims information the implementation of Taiwan Life in 2017 and report on a semi- system was internal advocacy and found the violation of the annual basis in incomplete. As a system adjustments are Insurance Act (Report No. accordance with result, payments proceeding, such as the 106S025). In accordance Article 7 of the were not correctly display of prompts and the with Paragraph 4 of Procedures for the calculated according modification of claim and Article 171-1 of the Investment Treatment to the provisions of payment rules. Insurance Act, a fine of Unlisted Domestic the products, thereby of NT$600,000 was Stocks. violating the insurance imposed. (2) Strengthened industry solicitation stocks. In addition, 148-3 of the Insurance in response to Act and Items 2 and 3 relevant irregularities, of Subparagraph 3 of engages in more Article 8 and Article timely contact with 17 of the Regulations investment targets Governing Business and maintains written Solicitation, Policy records thereof. The Underwriting and risk management unit Claim Adjusting of must be notified in Insurance Enterprises. a timely manner of relevant information in order to facilitate the company's risk management.

91 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (2) Because of the (2) An internal review of the 2. 2. mishandling of reviews claim refusal case format has Regarding the insurance Immediately contacted the for claim refusals, been launched; reference business, the FSC found vendor to determine the related letters sent to policy terms must now that Taiwan Life had reasons for verification the policyholders did be stated in the notice of violated provisions failure and re-executed not include relevant review results and a sample of the Insurance Act. the transaction check policy terms, which shall be formulated to In accordance with operations for the specific was in contravention follow. Paragraph 4 of Article period of time of provisions of 171-1 of the Insurance FSC letter No. Act, a fine of NT$600,000 Jin-Guan-Bao-Li- was imposed. the protection of the 3. 3. rights and interests The FSC inspected the (1) of policyholders and general business of  If the segment asset hindered the sound Taiwan Life and found must be moved out operation of Taiwan certain violation (Report in consideration of Life. In accordance No. 106F136). A fine market conditions, and with Paragraph 5 of of NT$2.4 million was if there is no suitable Article 171-1 of the imposed in accordance opportunity for sale, Insurance Act, a fine with Paragraph 4 of the asset shall be of NT$600,000 was Article 171-1 of the transferred to the non- imposed. Nov. 29, 2018>  Operational processes 2. 2. have been enhanced. The FSC inspected the The deficiencies were fully If the segment asset is IT business of Taiwan Life rectified by July 3, 2017, and transferred, relevant and found the violation of Taiwan Life has responded written assessment the Personal Information to the competent authority documents shall be Protection Act and the regarding this case. properly retained. Insurance Act (Report (2) No. 105F137). Taiwan Life Taiwan Life’s Board was ordered to rectify resolutions must be this within a month followed up on by the according to the Personal Office of Chairman. Information Protection The business units shall Act, fined NT$600,000, report to the Office and required to take of Chairman after the a corrective action in completion of those accordance with the follow-up matters Insurance Act.

92 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions 3. 3. Regarding the Asia Plaza (1) In accordance with the investment by Taiwan Life, Procedures for Engaging the FSC’s inspection of Appraisers for Real Estate CTBC Holding’s general Investment approved by business found Taiwan Taiwan Life’s Board of Life in violation of the Directors on Nov. 8, 2016, Insurance Act (Report No. the number of appraisal 105H001). In accordance institutions was increased with Paragraph 4 of from 10 to more than 15. Article 171-1 of the In addition, the candidates Insurance Act, a fine must be decided by the in- of NT$6 million was charge unit and the internal imposed. objectivity of the process and to avoid the same appraiser being continually engaged. (2) The Checklist for Acquisition or Disposal of Real Estate for Investment Purpose has been formulated:  The investment unit shall present complete information on the reasons for differences in valuations, the reasonableness of valuations, and other material information to the Board of Directors for approval of the investment.  The investment unit shall present prior public auction information of the target and credit checking result to the Board of Directors for reference.  The Guidelines for Domestic Real Estate Investment has been revised to tighten the control mechanism overseeing counterparties’ ultimate beneficiaries.

93 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (3) The Checklist for the Acquisition or Disposal of Real Estate for Investment Purposes specifies that the investment unit shall ensure that the analysis regarding the gap between the contractually guaranteed rent income of the target premise and market rent thereof be prepared for the Board of Directors’ decision-making. The investment unit shall also review whether, if calculated by market price, the income still meets the statutory rate of return for real estate investment. (2) TLG Insurance (2) TLG Insurance (2) TLG Insurance (2) TLG Insurance In engaging in 1. Check daily the consistency 1. 1. compulsory of the output number of the The FSC conducted TLG Insurance has automobile liability policy underwriting and the a general business established stronger insurance business, number of policy issuance. inspection of TLG control measures as TLG Insurance did 2. Check the handling status of Insurance and found that follows: not transfer relevant the abovementioned matters TLG Insurance did not (1) An insurance agent underwriting data twice a month. duly review the travel was requested to to the designated insurance applications; deliver relevant automobile liability rather, the policies were insurance documents insurance information issued based solely on and lists thereof to operations center information emailed from TLG Insurance before within four working the insurance agents. insurance policy taking days from the effective A fine of NT$600,000 effect. TLG Insurance date of insurance was imposed. (2) An insurance agent 19 of the Compulsory was requested to Automobile Liability work with potential Insurance Act. In policyholders to accordance with complete the online Paragraph 4 of Article insurance applications 48 of the Compulsory six days before the Automobile Liability policy effective date Insurance Act, a fine and shall send the of NT$60,000 was applications thereof imposed. Insurance would cancel the transaction if there is any delay.

94 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions 2. 2. TLG Insurance’s TLG Insurance has relevant information adopted the following security management improvements: did not comply with (1) Human resources for the provisions of the information security: Personal Information delegated departments Protection Act regarding and personnel to the adoption of conduct security appropriate security management. measures to prevent (2) Information security personal data from framework (re- being stolen or leaked. establishment of the Furthermore, internal protection mechanism control procedures of for infrastructure, TLG Insurance were including equipment found in violation of the and personnel standards provided in education and Subparagraphs 4, 8, and training): installing 10, Paragraph 1 of Article IPS and WAF devices 6 of the Implement Rules, and rebuilding the host which is established server; completing according to Paragraph a thorough review of 1 of Article 148-3 of the information security; Insurance Act. A fine establishing a video- of NT$1.8 million was recording mechanism; imposed in accordance adjusting network with Paragraph 4 of segmentation (Prod/ Article 171-1 of the UAT/DMZ); and Insurance Act. (information security education/ISMS management). (3) Information security: PIMS and ISMS were introduced and verified before the end of 2018.

95 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions Corrective actions (1) Taiwan Life (1) Taiwan Life (1) Taiwan Life (1) Taiwan Life (1) Taiwan Life (1) Taiwan Life ordered by the FSC 1. 1. 1. 1. 1. 1. Please refer to the case Please refer to the corrective The FSC inspected (1) Taiwan Life shall The FSC inspected (1) Taiwan Life modified disclosed in Item (2) actions disclosed in Item (2) of Taiwan Life’s insurance actively increase its the business of AML, and launched its of Case 1 under 2017 Case1 under 2017 "Unlawful risk management and proportion of paid CFT and prevention system parameters per "Unlawful practices practices penalized by the FSC" found the violation of premiums, and has of proliferation of the inspection opinions penalized by the FSC" of of Taiwan Life Insurance Act (Report developed a five-year weapons of Taiwan and also uploaded the Taiwan Life No. 105F140), which improvement plan to Life in 2018 and found relevant cases to the would impede the sound raise this rate from certain defects (Report trading logfile of the operation of Taiwan 31% in 2017 to 50% No. 107F114). The FSC system. Life. Four corrective in 2022. In addition, therefore ordered (2) actions were ordered the instalment- Taiwan Life to take ① Taiwan Life developed in accordance with payment ratio has four corrective actions relevant training Paragraph 1 of Article 149 been set as one of in accordance with materials regarding the of the Insurance Act. the key performance Paragraph 1, Article 149 review of corporate at monthly internal Guan-Bao-Shou- ② Corporate clients' meetings in order to Zi-10704283162, dated review levels were adjust the business Jan. 11, 2019> raised to enhance the strategy as needed. case review mechanism. The ultimate aim ③ New system check is to gradually have points were set installment products to facilitate the be the main force for identification process promotion, thereby of beneficial owner of shifting the market corporate clients. demand away from ④ When the information paid-up products. of beneficial owner(s) (2) Taiwan Life established holding 25% shares Management Rules of corporate client is for Investment in not available, Taiwan the Mainland China Life will raise the Insurance Industry client risk level in the on March 22, 2017, to system and enhance serve as the basis for customer due diligence managing the post- upon establishing new investment activities. business relations. (3) Taiwan Life’s (3) Management ① Taiwan Life regularly Guidelines for Foreign reviews the rationality Exchange Risk were of the risk values and revised and approved makes adjustments in by the President of accordance with the Taiwan Life on May 3, rules if overestimated 2017. risks are identified.

96 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (4) Since the fourth ② Taiwan Life conducted quarter of 2016, the a comprehensive financial reports of review of its risk Taiwan Life have calculation, especially been disclosed in for those exceptional accordance with circumstances, and Subparagraph 12, carried out double Paragraph 1 of checks to ensure Article 15 of the the risk factors are Regulations Governing reasonable. the Preparation of (4) Taiwan Life reiterated Financial Reports by its advocacy and Insurance Enterprises. provided relevant training by ways of case study in order to enhance the money- laundering review skills of operating personnel.

97 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions 2. 2. 2. 2. Regarding the Taiwan (1) Taiwan Life emphasized that The FSC inspected the (1) Life personnel violating only approved promotional investment business ① To strengthen the internal policy by material may be used of Taiwan Life in 2017 internal control improperly amending externally and restricted and found violations system, the internal promotional the use of USB in laptops of of the Insurance Act main investment materials to produce the sales staff to prevent similar (Report No. 106S025). management and risk educational and training incidents. Three corrective actions monitoring policies materials for insurance (2) The audit work of the were ordered by the have been submitted broker, a corrective action internal auditor would focus, FSC in accordance with to the Board of was ordered by FSC. among other things, on the Paragraph 1 of Article 149 Directors for approval. Shou-Zi-10704546292, certain internal dated Aug. 14, 2018> policies originally approved by the head of the investment department have been revised to be approved by the President and reported to the Board of Directors for reference. (2) In the case that the denominated currency of the investment is different from payment currency thereof, the investment unit shall notify the foreign exchange management unit of the timing for receiving the payment of investment principal so that the foreign exchange management unit may adjust the hedging position.

98 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (3) A differentiated approach was adopted to manage the subordinated bond investment based on FSC Letter No. 10402506902 for different categories of subordinated bonds (subordinated debts, perpetual subordinated debt, and noncumulative perpetual subordinated debts). 3. 3. Taiwan Life was found to (1) The amended AML/ have violated provisions CFT Manual for New of the Insurance Act Personal Insurance and four corrective Plans requests a actions were ordered customer to provide in accordance with declarations for Paragraph 1 of Article 149 financial conditions if of the Insurance Act. the customer is from customer is classified as high risk.

99 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (2) With respect to OIU customer identity verification, in addition to adjusting the relevant review content and verification documents, abnormal transactions potentially related to money laundering shall be clearly specified. When abnormal circumstances are detected, such as policyholders or premiums from high- risk areas with an annual premium of NT$5 million or more (including the equivalent in foreign currency) per policy or a premium that clearly exceeds the policyholder’s income or financial ability based on his/her profession, the case shall be immediately reported to the in- charge supervisor in accordance with the Reporting Guidelines for the Handling of Money Laundering and Terrorist Financing Prevention.

100 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (3) To be consistent with the practice, "Extensively engage in new contracts" in the Customer Transaction Monitoring Guidelines was revised to specifically refer to a potential policy holder who applies for three or more policies within 90 days with an accumulated premium of NT$500,000 or more. (4) The continuous transaction-monitoring provisions of the Lending Credit Review Guidelines have been revised based on the inspection findings.

101 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (5) ① Where case policyholders are concerned, Taiwan Life has renewed the suspicious transaction reporting process and adjusted their customer risk levels. ② The reporting for suspicious transactions has been completed. When the media reports on a major case involving crimes related to money laundering or terrorist financing, Taiwan Life will include the name of the person involved in an internal watch list so that operation units may review the past transactions of the customer concerned. If any suspicious transaction is identified, Taiwan Life will report to the relevant authorities if necessary. 4. 4. The FSC inspected the To avoid deficiencies compliance of CTBC discovered through Holding and found an internal audit being incompleteness in excluded from the risk Taiwan Life’s AML/CFT assessment due to a delay, risk assessment in 2016 Taiwan Life’s Compliance (Report No. 106H029) . Department shall send A corrective action was the risk assessment result ordered in accordance to the Audit Department with the provisions of before reporting to the Paragraph 1 of Article Board of Directors to 149 of the Insurance Act. ensure new audit findings

102 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions 5. 5. The FSC inspected the (1) During the process general business of of investment evaluation Taiwan Life and found and decision-making, if certain violation of the there are any interunit regulations (Report No. discussions on material 106F136). Nine corrective matters, the relevant actions were ordered information clarified or in accordance with the confirmed shall be duly provisions of Paragraph recorded for future 1 of Article 149 of the reference. Insurance Act. (2) Investment has been updated to include selection processes, such as selection procedures, record keeping, and other relevant matters.

103 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions ② The Performance Review Form for Discretionary Investment under quarterly Investment Report of Discretionary Investment to be submitted to the Board of Directors has been adjusted. For those underperforming accounts, the analysis of underperforming, the proposed adjustments, and the recommendations shall be specified in the Performance Review Form. Furthermore, the proposal of the quarterly investment report to the Board of Directors shall include the overall performance review of each discretionary investment account and the recommendation to achieve the goal.

104 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (3) A comprehensive inspection of a fund company concerning the commission refund was completed on March 31, 2018, and a refund process has been duly established. (4) The responsibility assignment matrix has been updated to include the authorization level for investments linked to same equity reaching certain cumulative amount to strengthen transaction authorization control. (5) Based on the inspection’s findings, a new contract with the custodian bank was executed on July 24, 2018. (6) The comprehensive electronic recordkeeping of users' activity and consent declarations was completed on March 26, 2018, with records maintained in log-format.

105 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (7) ① The business email accounts used by administrative staff of branches have been included in the list of those subject to social engineering testing. ② Since the completion of the fourth-quarter drill in 2017, the relevant training and testing have been conducted through Taiwan Life’s internal e-learning platform. (8) ① If the purpose of the insurance is for employee benefits or retirement planning, the relevant internal rules in connection with verifying the beneficial owner of the legal person shall be complied, including 1. Products other than low-risk life insurance: verifying family members of the insured or legal heir(s) 2. Low-risk life insurance products: verifying more than 50% of family members of the insured or legal heir(s). ② No exception is accepted to avoid unlawful use as tools for corporate funds.

106 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (9) Adjusted respective internal rules and required documents for the remittance of premiums or repayments, in accordance with Taiwan Life Letter No. 1073630020, dated April 13, 2018. The remittance statement was amended accordingly. The updated rules/ documents specify the qualification of remitters, required supporting documents for the remittance, and the customer’s declaration of the source of funds, which would be the basis for determining whether money laundering activity is suspected and subject to reporting.

107 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (2) TLG Insurance (2) TLG Insurance 1. 1. Deficiencies were (1) A management identified in the handling mechanism for the of account payable, clearance of accounts which unfavorably payable was included affected the protection in TLG Insurance’s of policyholders’ rights Rules for Payment and interests and the Management Measures, sound operation of TLG effective on Jan 1, Insurance. A corrective 2018. action was ordered. (2) A cross-checking 2018 to regularly map the list of accounts payable and the list of new insurance policies. TLG Insurance would offset the amount payable against the premium receivable of newly issued policies of the same policyholder, or notify the policyholder to collect the amount payable. (3) The monthly operations of the management mechanism shall be reported to the Non-Life Insurance Association on a regular basis. (4) The accounting adjustment for the unpaid amounts that were previously accounted for as revenue was completed on Dec. 4, 2017. The relevant unpaid amounts were duly booked as account payables.

108 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions (5) By Jan. 25, 2018, notifications were given to all holders entitled to the unpaid amounts under NT$100 and other group injuries policy. (6) The qualified policyholders have been fully notified, but only 31.7% have replied, for whom TLG Insurance has paid the amounts in full. The aforementioned cross-checking program screened out policyholders who were entitled to unpaid amounts from the list of recently issued policies. Accordingly, TLC Insurance arranged refunds and thus increased the repayment rate to 36.04%. Monthly cross-checks and policyholder notifications will continue in order to increase the rate further.

109 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions ① Since second quarter of 2018, sales staff of TLG Insurance made in-person visits by area according to the address of the payable accounts (both new and existing accounts). As of Sept. 27, 2018, the repayment ratio had increased to 62.59% from 50.62%, with an amount of NT$3.91 million. There were legal persons entitled to unpaid amounts totaling approximately NT$350,000 were found to have been declared dissolved or closed, for which TLG Insurance was unable to make payment. Therefore, including the abovementioned amount, the repayment ratio was increased to 68.12% with the amount of NT$4.26 million. ② TLG Insurance endeavoured to make notifications and payments, achieving an increased repayment ratio of 11.97% since June 5, 2018. The Audit Department has included this improvement in the general audit inspection for tracking in order to protect consumers’ rights and interests.

110 Corporate Governance Report

Cause and amount Disclosure 2017 Corrective actions 2018 Corrective actions 2019, to April 26 Corrective actions 2. 2. For auto insurance The record has been applications made online, corrected and the system the electronic records of has been modified in users’ activity or consent order to duly record declarations were not users’ activities or fully retained. A corrective consents. action was ordered. Disciplinary actions taken None None None by the FSC in accordance with Paragraph 1 of Article 54 of the Financial Holding Company Act Individual or total actual None None None annual losses of more than NT$50 million, the nature of the losses, and the loss amounts resulting from fraud, major incidents (e.g., fraud, theft, misappropriation and theft of assets, sham transactions, forged documents and securities, acceptance of kickbacks, losses from natural disasters, losses from external forces, cyberattacks, and the theft and disclosure of confidential business and customer data), or security incidents caused by failure to comply with safety maintenance regulations. Other matters required None None None to be disclosed by the FSC

111 Corporate Governance Report

(4) CTBC Securities

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 2019, to April 26 Corrective actions actions Indictments of None None None managers or employees relating to unlawful conduct performed in the course of doing business Unlawful practices None None None penalized by the FSC Corrective actions The FSC inspected the business of 1. CTBC Securities no longer engages None In the concurrent operations 1. CTBC Securities ordered by the FSC convertible bonds and derivatives of in financial advisory business since in the futures brokerage abolished the use of CTBC Securities and found that CTBC Sept. 2015. business conducted by SPAN on April 16, Securities had received the referral 2. To clarify the principle of placement CTBC Securities, it failed to 2018. fees from Far Eastern International in the book building services, properly review customers’ 2. CTBC Securities Bank in the capacity of a financial quantitative indicators regarding qualifications in the course modified traders’ advisory, and had cooperated with the customer contributions were of its use of the Standard incentive programs bank to place the convertible bonds, deemed necessary. The Investment Portfolio Analysis of Risk to link traders’ which was not fair for book building, Banking Department thus revised (SPAN), thus violating CTBC bonuses with thus violating the provisions of FSC the principles on Dec. 27, 2016, Securities’ internal control their review of Letter No. Jin-Guan-Zheng-Quan- to specify the considerations policies. A fine of NT$240, 000 clients’ credit and Zi-10300348301 as well as Paragraph 2, and criteria for the placements was imposed in accordance qualifications, thereby Article 2, and Paragraph 1, Article 28 of allocation. with Subparagraph 2, improving the quality the Regulations Governing Securities 3. To comply with the provisions of Paragraph 1, Article 119 of of KYC. Firms. A corrective action was FSC Letter No. Jin-Guan- Zheng- the Futures Trading Act. ordered in accordance with Article 65 Quan-Zi-10300348301, dated department shall be punished and Operation Processes of the Financial the CTBC Securities shall report the Planning and Advisory Business result to the FSC. was amended on April 18, 2017. checklist to confirm whether a case is in line with the abovementioned letter, and for the reference of the supervisors, as well as to enhance the management of the financial advisory and consulting business. Disciplinary actions None None None taken by the FSC in accordance with Paragraph 1 of Article 54 of the Financial Holding Company Act

112 Corporate Governance Report

Cause and amount Disclosure Corrective 2017 Corrective actions 2018 2019, to April 26 Corrective actions actions Individual or total None None None actual annual losses of more than NT$50 million, the nature of the losses, and the loss amounts resulting from fraud, major incidents (e.g., fraud, theft, misappropriation and theft of assets, sham transactions, forged documents and securities, acceptance of kickbacks, losses from natural disasters, losses from external forces, cyberattacks, and the theft and disclosure of confidential business and customer data), or security incidents caused by failure to comply with safety maintenance regulations. Other matters required None None None to be disclosed by the FSC

(5) CTBC Venture Capital: None. (6) CTBC Asset Management: None. (7) CTBC Investments

Cause and amount Disclosure 2019, to Corrective 2017 Corrective actions 2018 Corrective actions April 26 actions Indictments of managers None None None or employees relating to unlawful conduct performed in the course of doing business Unlawful practices penalized None None None by the FSC

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Cause and amount Disclosure 2019, to Corrective 2017 Corrective actions 2018 Corrective actions April 26 actions Corrective actions ordered The FSC inspected the 1. 1. None by the FSC general business of The FSC inspected CTBC Holding (1) CTBC Investments revised CTBC Investments from from June 9 to June 15, 2017, its Procedures for Money May 25, 2017, to June and CTBC Investments from Laundering and Terrorist 6, 2017. A corrective April 25 to May 3, 2018. It found Financing Risk Assessment action was ordered for the following violation by CTBC and Inspection on Aug. the following violations: Investments, for which a corrective 29, 2017, to enforce its 1. 1. action was ordered: Item 2(1)⑩ requirement that "if a The assessment (1) CTBC Investments of CTBC Investments’ Directions customer involved in a items and operating revised its for Preventing Money Laundering special case reported procedures for Procedures for and Terrorist Financing required on TV, print, online, or determining customers’ Money Laundering that “if a customer involved in a other media subscribes money laundering and and Terrorist special case reported on TV, print, or orders products, terrorist financing Financing Risk online, or other media subscribes careful attention shall be risk levels were found Assessment and or orders products, careful paid to potential money to be inappropriate, Inspection on June attention shall be paid to potential laundering activities" such that they failed 30, 2017, to treat money laundering activities.” specifically by including, in to comply with Item customers with However, as of June 15, 2017, its daily monitoring, the 3 of the Guidelines professions such as CTBC Investments was not determination of whether for Evaluating Risks of lawyer, accountant, monitoring daily subscription data customers are involved in Money Laundering and notary, landlord, and and thus not properly conducting such news reports. Terrorist Financing. real estate agent as related AML/CFT operations, (2) To facilitate the daily high-risk customers thereby violating Paragraph 2, monitoring described in and to enhance the Article 6 of the Regulations the preceding paragraph, reviews of such Governing the Establishment CTBC Investments customers. of Internal Control Systems by subscribed to the Dow (2) To further clarify Service Enterprises in Securities Jones Risk & Compliance its operating and Futures Markets. depth and integrity of procedures on its monitoring sources, June 30, 2017, to on June 1, 2018, CTBC specifically require Investments gained access the timely recording to CTBC Holding’s of changes in database of daily news customers’ identity reports relating to and background significant domestic cases information. and started maintaining its own list of the individuals involved in these cases. Information from the abovementioned Dow Jones database is included in the company’s daily monitoring operations.

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Cause and amount Disclosure 2019, to Corrective 2017 Corrective actions 2018 Corrective actions April 26 actions 2. 2. 2. 2. The criteria of AML/ On Aug. 29, 2017, The FSC inspected CTBC CFT typology screening CTBC Investments Investments from June 12 to June were found to be revised its Procedures 20, 2018. It found the following either inconsistent for Money Laundering violations: with the Directions and Terrorist Financing (1) No monitoring measures had (1) Regarding the bond for Preventing Money Risk Assessment and been established to detect maturity date issue, CTBC Laundering and Inspection and the when the maturity date of Investments identified the Terrorist Financing screening criteria used a target maturity bond fund relevant investment objects or not duly included in its systems, effective exceeded the fund’s maturity as well as developed and during the actual Sept. 1, 2017. date, thereby violating the implemented a corrective operations. (2) Authorized overseas (2) CTBC Investments consultants sent instructions amended contracts with to custodians, which was overseas consulting inconsistent with the overseas firms and custodian investment settlement banks, reviewed procedures prescribed in the trading implementation offering plan submitted to the discrepancies, discussed FSC. exceptional situations, and implemented a tracking mechanism. (3) Evaluation reports made before (3) CTBC Investments funds’ bond investments did not required inclusion of analyze key elements affecting relevant companies’ the bond issuer’s credit risk. financial strengths A corrective action was and weaknesses in its ordered in accordance subsequent investment with Article 102 of the analysis reports in order to Securities Investment Trust enhance the completeness and Consulting Act. Disciplinary actions taken None None None by the FSC in accordance with Paragraph 1 of Article 54 of the Financial Holding Company Act Individual or total actual None None None annual losses of more than NT$50 million, the nature of the losses, and the loss amounts resulting from fraud, major incidents (e.g., fraud, theft, misappropriation and theft of assets, sham transactions, forged documents and securities, acceptance of kickbacks, losses from natural disasters, losses from external forces, cyberattacks, and the theft and disclosure of confidential business and customer data), or security incidents caused by failure to comply with safety maintenance regulations Other matters required to None None None be disclosed by the FSC

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(8) CTBC Security: None. (9) Taiwan Lottery: None.

12. Resolutions made at shareholders' meetings and material resolutions made at Board meetings

(1) Material resolutions made at the 2018 Annual General Shareholders' Meeting and their execution status Resolution Execution status 1. Approval of the Company's 2017 final Submitted on June 28, 2018, to the Banking Bureau of the FSC for approval and filing. statement of accounts 2. Approval of the ratification of the The resolution was passed at the 2018 Annual General Shareholders' Meeting. The cash Company's 2017 earnings distribution dividend for Year 2017 for the allotment of preferred shares B was NT$14,383,418 plan and the cash dividend for the allotment of common shares was NT$1.08 per share, amounting to NT$34,650,427,493. The record date for the distribution of cash dividends for common shares and preferred shares was Aug. 3, 2018. 3. Approval of amendments to clauses in The amended clauses have taken effect. the Company's Operating Procedures for the Acquisition or Disposal of Assets 4. Approval of amendments to some The amended clauses have taken effect. clauses of the Company's Articles of Incorporation

(2) Material resolutions made by the Board of Directors in 2018 through April 26, 2019: 1) 22nd meeting of the sixth term of the Board of Directors on Jan. 31, 2018 ※ Approval of the Company's 2018 annual operating budget, operating expenses budget, and capital expenditure budget. ※ Approval of the Company's 2018 operating plan. 2) 24th meeting of the sixth term of the Board of Directors on March 21, 2018 ※ Approval of the appointment of KPMG Taiwan as the accountant for certification of the Company's 2018 financial statements and tax report. ※ Approval of the Company's 2017 internal control system statement. ※ Approval of the amendment to the Company's Operating Procedures for the Acquisition or Disposal of Assets. ※ Approval of the Company's appointment of a Chief Technology Officer. ※ Approval of the main proposal for the date, venue, and agenda of the Company's 2018 Annual General Shareholders' Meeting. 3) 25th meeting of the sixth term of the Board of Directors on March 21, 2018 ※ Approval of the 2017 consolidated financial statement prepared by the Company and the audit report issued by the accounting firm. 4) 27th meeting of the sixth term of the Board of Directors on April 27, 2018 ※ Approval of the 2017 earnings distribution plan prepared by the Company. ※ Approval of the Company's 2017 business report. ※ Approval of some clauses of the Company's Articles of Incorporation. ※ Approval of the Company's employee remuneration for 2017.

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5)29th meeting of the sixth term of the Board of Directors on June 21, 2018 ※ Approval of changes to the Company's spokesperson and acting spokesperson. ※ Approval of the record date for the distribution of the cash dividend for common shares and the dividend for preferred shares for 2018, set for July 15, 2018. 6)30th meeting of the sixth term of the Board of Directors on July 27, 2018 ※ Approval of the amendments to the Company's Rules of Procedure for the Board of Directors. 7)32nd meeting of the sixth term of the Board of Directors on Aug. 29, 2018 ※ Approval of the consolidated financial statement prepared by the Company for the second quarter of 2018 and the audit report issued by the accounting firm. 8)33rd meeting of the sixth term of the Board of Directors on Sept. 28, 2018 ※ Approval of a proposal for CTBC Holding to acquire a 0.08% minority stake of CTBC Securities in cash to improve the business decision-making efficiency of the subsidiary and to reduce administrative expenses and management costs. 9)34th meeting of the sixth term of the Board of Directors on Oct. 31, 2018 ※ Approval of the remuneration to the accounting firm for the certification service provided for the Company's 2018 annual financial statements and tax return. ※ Approval of the Company's proposal to distribute unsecured subordinated common corporate bonds of a value of no more than NT$10 billion. 10)35th (extraordinary) meeting of the sixth term of the Board of Directors on Nov. 12, 2018 ※ Approval of CTBC Bank's proposal to participate in the development of internet-only banking and to become a co-founder of such services. 11)36th meeting of the sixth term of the Board of Directors on Nov. 23, 2018 ※ Approval of amendments to the group's accounting policies. ※ Approval of amendments to the Company's accounting system. ※ Approval of the Company's proposal to appoint CTBC Bank as the lead underwriter in the open underwriting of the Company's unsecured subordinated common corporate bonds within a NT$10 billion limit. 12)37th meeting of the sixth term of the Board of Directors on Dec. 21, 2018 ※ Approval of Taiwan Life's proposal to issue common shares through a private placement for a capital increase of NT$9,999,600,000, for the purpose of replenishing capital, strengthening its financial structure, and providing for its future operating needs. ※ Approval of a proposal to fully subscribe to common shares issued through the private placement by Taiwan Life, with the cash injection not exceeding NT$9,999,600,000, a provisional subscription price of NT$30 per share, and a provisional subscription of 333,320,000 shares, in order to replenish Taiwan Life's capital, strengthen its financial structure, and provide for its future operating needs. ※ Approval of the Company's proposal to issue preferred shares C for a cash injection in 2018. ※ Approval of CTBC Bank to participate in the development of an internet-only bank. It is planned to participate in a joint venture establishing LINE Bank at the invitation of LINE Financial Taiwan Ltd. The invested capital would be NT$10 billion. CTBC Bank is expected to hold 5% of the shares (NT$500 million in investment) and hold one board of directors seat, as well as sign a Joint Venture Agreement to regulate the progress of the investment plan.

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13)38th meeting of the sixth term of the Board of Directors on Jan. 25, 2019 ※ Approval of the Company's 2019 annual operating budget, operating expenses budget, and capital expenditure budget. ※ Approval of the Company's 2019 operating plan. ※ Approval of the amendment to the Company's Operating Procedures for the Acquisition or Disposal of Assets. 14)40th meeting of the sixth term of the Board of Directors on March 21, 2019 ※ Approval to appoint the accounting firm KPMG to be the CPA for the Company's 2019 financial statements and tax report. ※ Approval of the Company's 2018 internal control system statement. ※ Approval of some clauses of the Company's Articles of Incorporation. ※ Approval to recommend candidates to the seventh term of the Company's Board of Directors. ※ Approval of the main proposal for the date, venue, and agenda of the Company's 2019 Annual General Shareholders' Meeting. 15)41st meeting of the sixth term of the Board of Directors on March 21, 2019 ※ Approval of the consolidated financial statement prepared by the Company for 2018 and the audit report issued by the accounting firm. 16)42nd meeting of the sixth term of the Board of Directors on April 26, 2019 ※ Approval of the 2018 earnings distribution plan prepared by the Company. ※ Approval of the Company's 2018 business report. ※ Approval of some clauses of the Company's Articles of Incorporation. ※ Approval of the Company's employee remuneration for 2018. ※ Approval of the amendatory agenda of the Company's 2019 Annual General Shareholders' Meeting. ※ Approval of conducting the Board performance evaluation by an external professional institution. ※ Approval of the list of seventh-term director and independent directors candidates of the Company's 2019 Annual General Shareholders' Meeting.

13.Main content of any material resolutions passed by the Board of Directors between Jan. 1, 2018, and April 26, 2019, that are noted on the record or in writing for which any director or independent director had a dissenting opinion: None.

14.Personnel involved in financial statements (e.g., chairmen, presidents, financial directors, and internal audit directors) who resigned or were dismissed between Jan. 1, 2018, and April 26, 2019: None.

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(IV)Information on CPAs

1. CPA fees (1) Unit: NT$ thousand Non-audit fee Accounting Audit Audit CPA Policy Business Human Note(s) firm fee Other Sub-total period design registration resources KPMG Jeff Chen "Other" includes fees for tax agreement appointment Jan. 1, 2018, contracts, cash 2,733 - 80 - 2,230 2,310 to Dec. 31, capital increase Lin Wu 2018 accounting, document printing, and projects advisory consultations.

(2) Information regarding the replacement of an accounting firm where the auditing fees for the replacement year decrease from those of the previous year, thereby requiring disclosure of the reduction amount, percentage, and reason: Not applicable. (3) Information regarding auditing fees that decreased 15% or more from the previous year, thereby requiring disclosure of the reduction amount, percentage, and reason: Not applicable.

2. Matters requiring disclosure regarding CPA changes (1) Regarding former CPAs Date of replacement Approved by the Board of Directors on March 28, 2017 Reason for and description of Internal organizational changes within the CPA firm replacement Party CPA Appointer Circumstances Appointment terminated or Proactive termination of declined by the appointer or N/A N/A appointment CPA Non-acceptance or continuance N/A N/A of appointment The opinion and reason for any The CPA expressed an unqualified opinion in 2016. The CPA's opinion was not modified regarding audit report expressing anything judicial cases. other than an unqualified Regarding offshore structured notes cases, the CPA expressed a modified unqualified opinion in opinion in the past two years 2015. Accounting principle or practice Financial report disclosure Ye s Dissenting opinions with the Audit scope or steps Company Other None V Explanation: None Additional disclosures None

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(2) Regarding succeeding CPAs Accounting firm KPMG CPA Jeff Chen, Lin Wu Appointment date Approved by the Board of Directors on March 28, 2017 Consultation opinions and results of any inquiries made to the CPA before its appointment regarding accounting methods or principles for None specific transactions and its opinion on a financial report Written opinions of succeeding CPAs that differ from those of former None CPAs

(3) Response of former CPAs regarding the provisions of Articles 10.6.1 and 10.6.2.3 of the Regulations Governing Information to be Published in Annual Reports of Financial Holding Companies: Not applicable due to internal organizational changes within the accounting firm.

3. Information regarding any Chairman, President, or financial or accounting manager who worked for the CPA or an affiliated enterprise in the past year: None.

(V) Disclosures of changes in the shareholding (equity transfers and pledges) of directors, supervisors, managers, and shareholders as required by Article 11 of the Regulations Governing Approvals of the Same Person's or Same Related Parties' Application to Own More Than a Certain Percentage of the Issued Voting Shares of a Financial Holding Company 1. Changes in equity Unit: Share 2018 2019, as of April 26 Shares Pledged Title Name held Pledged shares Shares held shares Increase Increase (decrease) Increase (decrease) Increase (decrease) (decrease) Weifu Investment 50,000 12,000,000 - - Co., Ltd. - (5,000,000) - - Chairman Representative: - - - - Wen-Long Yen - - - - Chung Yuan - - 299,681 (C) - Investment Co., - - - - Director Ltd. Representative: - - 1,886 (C) - Chao-Chin Tung - - - - Yi Chuan - 1,505,459 (B) 449,464 (C) - Investment Co., - (1,505,459) (B) - - Director Ltd. Representative: 946,256 - - - Thomas K. S. Chen (130,000) - - - Independent - - - - Chung-Yu Wang director - - - - Independent Peter Tuen-Ho - - - - director Yang - - - -

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2018 2019, as of April 26 Shares Pledged Title Name held Pledged shares Shares held shares Increase Increase (decrease) Increase (decrease) Increase (decrease) (decrease) Independent - - - - Wen-Chih Lee director - - - - Independent - - - - Shih-Chieh Chang director ------President Daniel I.K. Wu ------Chief Risk Officer Jack T.K. Cheng (98,000) - - - Chief - - - - Administrative Roger Kao - - - - Officer Chief Compliance Officer - - - - Compliance Aaron King - - - - Supervisor of the Head Office Chief Investment - - - - Winston Hsia Officer - - - - Cross-Border - - - - Strategy Officer, Chung-Mao Hsiao - - - - Japan Titan Chia Chief Technology - - - - (took office on Officer - - - - April 20, 2018) Chief Secretary Corporate - - - - Chang-Hsing Cho Governance - - - - Director - - - - General Auditor Albert Hu ------Financial Officer Ya-Ling Chiu ------Accounting Officer Sting Yang - - - - Senior Deputy - - - - Monica Chu General Manager - - - - Note 1: For the changes in the number of sharers, the preferred shares B and C are marked as (B) and (C), respectively. An unmarked share is a common share.

2. Equity transfer information (transaction counterparty is a related person) The relationship between the Reason transaction counterparty and the Transaction Transaction Transaction Name for equity company's directors, supervisors Shares Note(s) date counterparty price transfer and shareholders is a shareholding ratio of more than 10% Jack T.K. Common Gift June 20, 2018 Yu Chi Cheng - 98,000 22.35 Cheng stock

3. Equity transfer information (transaction counterparty is a related person): None.

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(VI) Information on top 10 shareholders by shareholding ratio who are related parties, spouses, or within the second degree of kinship: None. Unit: Share; % As of April 26, 2019 The top 10 shareholders with kinship with each other as related person Shares held by the Shares held by spouse and Total shares held in the or spouse, second degree individual minor children name of others Name relative, etc., their name Note(s) or name and relationship. (Note 4) Shareholding Shareholding Shareholding Shares Shares Shares Name Relationship ratio ratio ratio China Life Insurance Co., Ltd. 1 583,440,303 2.92% －－－－－－－ Representative: Alan Wang Yi Kao Investment Co., Ltd. 2 567,580,574 2.84% －－－－－－－ Representative: Wu, Feng-Fu Fubon Life Insurance Co., Ltd. 3 442,656,943 2.21% －－－－－－－ Representative: Richard M. Tsai 4 Government of Singapore 375,664,571 1.88% －－－－－－－ Nan Shan Life Insurance Co., 5 Ltd. 373,330,053 1.87% －－－－－－－ Representative: Y. T. Du Shin Kong Life Insurance Co., 6 Ltd. 361,313,335 1.81% －－－－－－－ Representative: Tung-Chin Wu CTBC Bank Trust Account for CTBC Financial Holding 7 335,597,466 1.68% －－－－－－－ Employee Welfare Savings Committee Chuan Wei Investment Co., Ltd. 8 313,835,344 1.57% －－－－－－－ Representative: Chih-Kuang Yen 9 Labor Pension Fund 313,158,277 1.57% －－－－－－－ Bank of Taiwan Co., Ltd. 10 Representative: Joseph Jye- 310,876,426 1.55% －－－－－－－ Cherng Lyu Note 1: All of the top 10 shareholders shall be listed. For legal entity shareholder, the name of the legal entity shareholder and the name of the representative shall be separately listed. Note 2: The calculation of the shareholding ratio refers to the calculation of the shareholding ratio in the name of the individual, spouse, minor children or another individual. Note 3: The shareholders listed in the previous disclosure, including legal entities and natural persons, shall disclose the relationship between them according to the financial reporting company's financial reporting standards. Note 4: Calculation of the number of shares and shareholding ratio includes common and preferred shares.

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(VII) Shares and consolidated shareholding ratios of the same reinvestment business held by the Company; Company directors, supervisors, and managers; and businesses controlled directly or indirectly by the Company A p r i l 2 6 , 2 0 1 9 Unit: Thousand shares; % Investments by directors, supervisors, managers, Comprehensive Company investment and direct or indirect investment Investee business (Note 1) controlling businesses Shareholding Shareholding Shareholding Shares Shares Shares ratio ratio ratio CTBC Bank Co., Ltd. 14,068,572 100.00% - - 14,068,572 100.00% CTBC Securities Co., Ltd. 602,714 100.00% - - 602,714 100.00% CTBC Venture Capital Co., Ltd. 324,517 100.00% - - 324,517 100.00% CTBC Asset Management Co., Ltd. 535,882 100.00% - - 535,882 100.00% CTBC Security Co., Ltd. 4,770 100.00% - - 4,770 100.00% Taiwan Lottery Corp. 50,000 100.00% - - 50,000 100.00% Taiwan Life Insurance Co., Ltd. 4,179,113 100.00% - - 4,179,113 100.00% CTBC Investments Co., Ltd. 42,500 100.00% - - 42,500 100.00% Note 1: CTBC Holding investment is in accordance with Article 36 of the Financial Holding Company Act.

123 IV Capital Overview

(I)Capital and shares

1. Capital sources Unit: Thousand shares; NT$ thousand As of April 26, 2019 Month, Authorized capital Paid-in capital Notes Issue price year Shares Amount Shares Amount Capital source Other Capital increase of NT$3,333,300 January 2018 60 23,000,000 230,000,000 19,830,320 198,303,196 thousand due to the issuance of Note1 preferred shares B Capital increase of NT$1,666,600 May 2019 60 23,000,000 230,000,000 19,996,980 199,969,796 thousand due to the issuance of Note 2 preferred shares C Note 1: Approved per letter No. Jin-Guan-Zheng-Fa-Zi-1060037505, dated Oct. 3, 2017, for the issuance of 333,330 thousand preferred shares in a cash capital increase. Note2: Approved per letter No. Jin-Guan-Zheng-Fa-Zi-1070348778, dated Jan. 17, 2019, for the issuance of 166,660 thousand preferred shares in a cash capital increase. Issue date is April 3, 2019, which is the record date. Upon approval by Taiwan Stock Exchange, preferred shares C will be listed in May 2019.

Unit: Thousand shares As of April 26, 2019 Share Authorized capital Notes type Issued shares Unissued shares Total shares Common shares 19,496,990 3,003,020 23,000,000 Listed shares Preferred shares 499,990 Note: The issue date of 166,660 thousand preferred shares C is April 3, 2019, which is the record date. Upon approval by Taiwan Stock Exchange, preferred shares C will be listed in May 2019.

2. Shareholder composition (1) Composition of common share holders As of April 26, 2019 Foreign Status of Other Government Financial institutional Treasury shareholders institutional Individuals Total agencies institutions and individual stock Quantity investors investors Shareholders 8 101 981 1,945 457,728 0 460,763 Shares held 1,286 3,216,235,941 3,204,759,821 8,018,012,886 5,057,979,635 0 19,496,989,569 Percentage 0.00% 16.50% 16.44% 41.12% 25.94% 0.00% 100.00% Note: Shareholding is as of the book closure date of April 16, 2019.

(2) Composition of preferred share B holders As of April 26, 2019 Foreign Status of Other Government Financial institutional Treasury shareholders institutional Individuals Total agencies institutions and individual Stock Quantity investors investors Shareholders 0 28 103 74 38,445 0 38,650 Shares held 0 221,375,816 84,416,008 1,537,633 26,000,543 0 333,330,000 Percentage 0.00% 66.41% 25.33% 0.46% 7.80% 0.00% 100.00% Note: Shareholding is as of the book closure date of April 16, 2019.

124 Capital Overview

(3) Composition of preferred share C holders As of April 26, 2019 Foreign Status of Other Government Financial institutional Treasury shareholders institutional Individuals Total agencies institutions and individual Stock Quantity investors investors Shareholders 0 24 126 79 48,319 0 48,548 Shares held 0 94,356,063 50,757,595 921,428 20,624,914 0 166,660,000 Percentage 0.00% 56.61% 30.46% 0.55% 12.38% 0.00% 100.00% Note: Shareholding is as of the book closure date of April 16, 2019.

3. Distribution profile of shareholders (1) Common shares The par value for each share is NT$10 As of April 26, 2019 Number of Share range Shares held Percentage shareholders 1 － 999 161,192 33,977,828 0.17% 1,000 － 5,000 170,470 385,110,803 1.98% 5,001 － 10,000 50,869 379,228,733 1.95% 10,001 － 15,000 22,519 274,757,536 1.41% 15,001 － 20,000 13,912 246,492,314 1.26% 20,001 － 30,000 13,894 339,300,483 1.74% 30,001 － 50,000 11,452 445,282,200 2.29% 50,001 － 100,000 8,592 599,366,030 3.07% 100,001 － 200,000 4,018 550,569,284 2.82% 200,001 － 400,000 1,810 499,567,927 2.56% 400,001 － 600,000 574 278,617,557 1.43% 600,001 － 800,000 267 183,584,674 0.94% 800,001 － 1,000,000 171 152,863,629 0.78% 1,000,001 － 1,200,000 120 131,388,730 0.67% 1,200,001 － 1,400,000 94 122,047,725 0.63% 1,400,001 － 1,600,000 57 85,479,385 0.44% 1,600,001 － 1,800,000 47 79,833,560 0.41% 1,800,001 － 2,000,000 61 115,890,775 0.59% 2,000,001 or more 644 14,593,630,396 74.86% Total 460,763 19,496,989,569 100.00% Note: Shareholding is as of the book closure date of April 16, 2019.

125 Capital Overview

(2) Preferred shares B The par value for each share is NT$10 As of April 26, 2019 Number of Share range Shares held Percentage shareholders 1 － 999 33,066 3,173,901 0.95% 1,000 － 5,000 4,995 7,095,781 2.12% 5,001 － 10,000 296 2,183,704 0.66% 10,001 － 15,000 84 1,055,518 0.32% 15,001 － 20,000 47 830,764 0.25% 20,001 － 30,000 35 892,337 0.27% 30,001 － 50,000 38 1,517,600 0.46% 50,001 － 100,000 33 2,562,227 0.77% 100,001 － 200,000 13 1,945,744 0.58% 200,001 － 400,000 6 1,467,794 0.44% 400,001 － 600,000 8 3,961,916 1.19% 600,001 － 800,000 3 2,140,412 0.64% 800,001 － 1,000,000 3 2,817,035 0.85% 1,000,001 － 1,200,000 2 2,280,215 0.68% 1,200,001 － 1,400,000 1 1,294,000 0.39% 1,400,001 － 1,600,000 2 2,984,459 0.90% 1,600,001 － 1,800,000 3 5,069,000 1.52% 1,800,001 － 2,000,000 0 0 0.00% 2,000,001 or more 15 290,057,593 87.01% Total 38,650 333,330,000 100.00% Note: Shareholding is as of the book closure date of April 16, 2019.

126 Capital Overview

(3) Preferred shares C The par value for each share is NT$10 As of April 26, 2019 Number of Share range Shares held Percentage shareholders 1 － 999 32,985 1,914,732 1.15% 1,000 － 5,000 15,408 16,498,830 9.90% 5,001 － 10,000 70 481,133 0.29% 10,001 － 15,000 21 248,976 0.15% 15,001 － 20,000 2 36,383 0.02% 20,001 － 30,000 16 399,647 0.24% 30,001 － 50,000 4 149,357 0.09% 50,001 － 100,000 8 574,824 0.34% 100,001 － 200,000 5 709,393 0.43% 200,001 － 400,000 4 1,202,757 0.72% 400,001 － 600,000 3 1,429,464 0.86% 600,001 － 800,000 0 0 0.00% 800,001 － 1,000,000 4 3,673,000 2.20% 1,000,001 － 1,200,000 1 1,100,000 0.66% 1,200,001 － 1,400,000 0 0 0.00% 1,400,001 － 1,600,000 2 3,037,000 1.82% 1,600,001 － 1,800,000 2 3,331,121 2.00% 1,800,001 － 2,000,000 1 1,890,000 1.13% 2,000,001 or more 12 129,983,383 78.00% Total 48,548 166,660,000 100.00% Note: Shareholding is as of the book closure date of April 16, 2019.

4. Major shareholders The par value for each share is NT$10 As of April 26, 2019 Shareholder (Note 1) Shares held Percentage China Life Insurance Co., Ltd. 583,440,303 2.92% Yi Kao Investment Co., Ltd. 567,580,574 2.84% Fubon Life Insurance Co., Ltd. 442,656,943 2.21% Government of Singapore 375,664,571 1.88% Nan Shan Life Insurance Co., Ltd. 373,330,053 1.87% Shin Kong Life Insurance Co., Ltd. 361,313,335 1.81% CTBC Bank Trust Account for CTBC Financial Holding Employee Welfare Savings Committee 335,597,466 1.68% Chuan Wei Investment Co., Ltd. 313,835,344 1.57% Labor Pension Fund 313,158,277 1.57% Bank of Taiwan Co., Ltd. 310,876,426 1.55% Note 1: Shareholders accounting for the top 10 shareholding ratios are listed; the calculation of shareholding ratio includes common and preferred shares. Note 2: Shareholding is as of the book closure date of April 16, 2019.

127 Capital Overview

5. Main shareholders that are institutional shareholders As of April 26, 2019 Institutional shareholder Main shareholders and their shares held China Development Finance Holding Corp. 25.33% KGI Securities Co., Ltd. 9.63% Cathay Life Insurance Co., Ltd. 3.34% Videoland Inc. 2.35% Government of Singapore 1.73% China Life Insurance Co., Ltd. Labor Pension Fund 1.34% Chan, Lin-Lang 1.27% Norges Bank 1.19% JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary 1.13% Agency Vanguard Emerging Markets Stock Index Fund, A Series of Vanguard International 1.08% Equity Index Funds Yi Kao Investment Co., Ltd. Bo Yu Investment Co., Ltd. 100.00% Fubon Life Insurance Co., Ltd. Fubon Financial Holding Co., Ltd. 100.00% First Commercial Bank Trustee Account For Representative of Ruen Chen Invest- 68.17% ment Holding Co., Ltd. Y. T. Du 3.25% Ruen Hua Dyeing & Weaving Co., Ltd. 0.28% Ruentex Leasing Co., Ltd. 0.13%

Nan Shan Life Insurance Co., Ltd. Chi-Pin Investment Company 0.11% Boon-Teik Koay 0.10% Pou Chi Investments Co., Ltd. 0.05% Pou Yih Investments Co., Ltd. 0.05% Pou Huei Investments Co., Ltd. 0.05% Pou Hwang Investments Co., Ltd. 0.05% Shin Kong Life Insurance Co., Ltd. Shin Kong Financial Holding Co., Ltd. 100.00% Eagleright Management Co., Ltd. (BVI) 95.24% Chuan Wei Investment Co., Ltd. Chih-Kuang Yen 4.76% Bank of Taiwan Co., Ltd. Taiwan Financial Holding Co., Ltd. 100.00%

128 Capital Overview

6. Market price, net worth, earnings, and dividends per share Year As of 2017 2018 Item April 26, 2019 Before adjustment 20.75 23.00 21.05 Highest After adjustment 20.75 23.00 - Market price Before adjustment 17.50 19.60 19.70 per share Lowest (Note 1) After adjustment 17.50 19.60 - Before adjustment 19.23 21.25 20.45 Average After adjustment 19.23 21.25 - Net asset value Before distribution 15.46 15.14 16.90(Note 2) per share After distribution 14.37 (Note 3) N/A Weighted average shares 19,469,822 19,488,302 19,496,990(Note 2) Earnings per Before adjustment 1.91 1.85 0.57(Note 2) share Earnings per share (Note 1) After adjustment 1.91 (Note 3) N/A Before adjustment 1.08 (Note 3) - Cash dividends (Note 1) After adjustment 1.08 (Note 3) - Dividends per Retained earnings dividends - (Note 3) - share Stock dividends Capital surplus dividends - (Note 3) - Accumulated undistributed dividends - - - Price/earnings ratio (Note 4) 10.07 (Note 3) - Return on Price/dividend ratio (Note 5) 17.81 (Note 3) - investment Cash dividend yield rate (Note 6) 5.62% (Note 3) - Note 1: Retrospective adjustment has been made according to the number of shares distributed from the earnings or capital surplus transferred to capital. Note 2: Calculated based on internal financial data current as of March 31, 2019. Note 3: Withheld as it had not been approved by the Annual General Shareholders' Meeting as of the publication date of this annual report. Note 4: The price/earnings ratio is the average market price (after adjustment) to the earnings (after adjustment) per share. Note 5: The price/dividend ratio is the average market price (after adjustment) to the cash dividends (after adjustment) per share. Note 6: The cash dividend yield rate is the cash dividends per share (after adjustment) to the average market price (after adjustment).

7. Dividend policy and implementation status (1) Dividend policy If the Company has fiscal year-end earnings, they shall be utilized for the following uses in the stated order: tax payment, adjustments per financial and accounting principles, deficit reduction, the legal reserve, the special statutory reserve or reversal, and preferred share dividends. If residual earnings exist, they shall be combined with the beginning retained earnings for the accumulated distributable earnings. The earnings distribution shall be proposed by the Board and sent for shareholders' meeting approval before being distributed or changed.

129 Capital Overview

The Company, in seeking sustained growth and increasing profitability while adhering to the provisions of all relevant laws, adopts a residual dividend policy. In accordance with the Company's business plan, shareholder dividends and bonuses are distributed as follows: 1) The annual shareholder dividends and bonuses distributed constitute no less than 20% of the available residual earnings for the current year; the current year's residual earnings available for distribution referred to herein is based on the balance calculated using the annual undistributed residual earnings stated in the first paragraph of this subsection minus adjustments in compliance with the financial and accounting principles and reversals of special statutory reserve by law in the current year, which may be distributed to preferred shares but not yet distributed. 2) The distribution of shareholder dividends and bonuses is based on cash and/or stock. The cash dividend constitutes no less than 10% of the total distributable dividends. The aforementioned dividend policy may be adjusted in view of the Company's business operation, investment, and merger and acquisition funding needs as well as material legal amendments and other circumstances, but the cash dividend shall constitute no less than 1% of the total dividends. Any adjustment shall be proposed by the Board of Directors and approved at a shareholders' meeting. The Company may retain earnings for cash dividends less than NT$0.1 per share. (2) Dividend distributions proposed at the most recent shareholders' meeting (2019) 1) It was proposed that a cash dividend for preferred shares B of NT$749,993 thousand and a cash dividend for common shares of NT$19,496,990 thousand (NT$1 per share) be distributed from the retained earnings of fiscal year 2018 according to the record shown in the shareholder book on the record date of distribution. 2) In the event that any of the following affects the number of outstanding shares on the record date for the distribution of cash dividends or the base date for the capital increase or reduction, consequently changing the common share dividend payout ratio, the Board of Directors is to be authorized by a shareholders' meeting to handle matters relating to the payout ratio change: a capital increase or reduction; the repurchase or sale of Company shares or the transfer, conversion, or cancellation thereof; the conversion of employee share subscription warrants into common shares at the request of employees; or the disposal of shares by shareholders.

8. Impact on 2019 business performance and EPS of the stock dividend distribution proposed at the previous shareholders' meeting No financial forecast was announced for the Company for 2019; therefore, no disclosure of such information is applicable.

9. Information relating to the compensation of employees, directors, and supervisors (1) Proportion or range of employee, director, and supervisor compensation as set forth in the Company's Articles of Incorporation: 0.05% of the current year's profit as employee compensation and no more than 0.7% as director and supervisor compensation.

130 Capital Overview

(2) The basis for estimating employee, director, and supervisor compensation, for calculating the number of shares to be distributed as employee compensation, and the accounting treatment of the discrepancy, if any, between the actual distributed amount and the estimated figure, for the current period Employee, director, and supervisor compensation in 2018 is recognized as the current-period expenses based on the Company's pre-tax income before the deduction of employee, director, and supervisor compensation at the end of the accounting period, multiplied by the percentage set by the Company's Articles of Incorporation. Differences between the actual amount, as approved by the Board of Directors, and the original estimate will be accounted for as changes in accounting estimates and recognized as a profit or loss in the following year. (3) Any approval by the Board of Directors regarding the distribution of compensation 1) Employee and director compensation distributed in cash or stock: The cash compensation of employees was NT$18,664 thousand whereas the cash compensation of directors was NT$261,300 thousand. 2) Discrepancies between the actual amount and the original estimates, and the reasons and handling thereof: A. Compensation discrepancies: The accrued expenses for employee in 2018 were NT$18,580 thousand. The discrepancy between the actual distribution amount and the accrued expenses for employee was NT$84 thousand. B. Reason and handling: The discrepancies occurred because the monthly closing amount of pre-tax income before the deduction of employee, director, and supervisor compensation used to estimate the accrued expense differed from the final amount provided to the auditor. The difference will be treated as a change in accounting estimates in 2019. 3) The amount of employee compensation distributed in stocks, and that amount as a proportion of the sum of the after-tax net income stated in the Company's financial report for the current period and as a proportion of total employee compensation: This is not applicable because the Company did not distribute any employee compensation in stock. (4) The actual distribution of employee, director, and supervisor compensation for 2017 (including the number of shares, monetary amount, and stock price of the shares distributed) and any discrepancy between the actual distribution and the recognized employee, director, or supervisor compensation, and the reason and handling thereof: 2017 Compensation Recognized distributed with Difference Reason and handling expense Board approval Distribution status The monthly closing amount of (1) Employee compensation pre-tax income that was used distributed NT$18,630 NT$18,834 NT$204 to estimate accrued expenses in cash thousand thousand thousand differed from the audited amount. distributed The difference will be treated as in stock - - - a change in accounting estimates (2) Compensation to directors NT$260,823 NT$263,679 NT$2,856 and recognized as a profit or loss and supervisors thousand thousand thousand for 2018.

131 Capital Overview

10. Buyback of treasury stock: None.

(II) Bonds, preferred shares, global depository receipts, employee share subscription warrants, and new restricted employee shares

1. Corporate bonds (1) Corporate bonds As of April 26, 2019 2012-1 domestic subordinated 2015-1 senior unsecured 2018-1 subordinated unsecured corporate Corporate bond type unsecured corporate bond corporate bond bond Tranche B Tranche B & C Issue date Feb. 20, 2012 Aug. 3, 2015 Jan. 16, 2019 Face value NT$10,000,000 NT$1,000,000 NT$10,000,000 Issuing and transaction Republic of China Market (TPEx- Republic of China Market Republic of China Market (TPEx-listed) location (Note) listed) (TPEx-listed) Issue price (NT$) At 100% of face value At 100% of face value At 100% of face value Total NT$2,400,000,000 Tranche B: NT$6,300,000,000 NT$10,000,000,000 Tranche C: NT$5,500,000,000 Tranche A: NT$4,000,000,000 Tranche B: NT$6,000,000,000 Coupon rate Fixed at 1.80% per annum Tranche B: Fixed at 1.35% per Tranche A: Fixed at 1.30% per annum annum Tranche B: Fixed at 1.55% per annum Tranche C: Fixed at 1.65% per annum Maturity 10 years; Tranche B: 5 years; Tranche A: 7 years; maturity: Feb. 20, 2022 maturity: Aug. 3, 2020 maturity: Jan. 16, 2026 Tranche C: 7 years; Tranche B: 12 years; maturity: Aug. 3, 2022 maturity: Jan. 16, 2031 Seniority Subordinated Senior Subordinated Guarantor N/A N/A N/A Trustee Mega International Commercial Mega International Commercial Bank SinoPac Co., Ltd. Bank Co., Ltd. Bank Co., Ltd. Underwriter N/A N/A N/A Certified lawyer Modern Law Office: Hui-Chi Kuo True Honesty International True Honesty International Law Office: Hui-Chi Law Office: Hui-Chi Kuo Kuo CPAs KPMG: Fu-Wei Chen, Leou-Fong KPMG: Chun-Kuang Chen, KPMG: Chun-Kuang Chen, Lin Wu Yang Leou-Fong Yang Repayment method Lump sum upon maturity Lump sum upon maturity Lump sum upon maturity Outstanding principal NT$2,400,000,000 NT$11,800,000,000 NT$10,000,000,000 Terms of redemption or None None None early repayment

132 Capital Overview

2012-1 domestic subordinated 2015-1 senior unsecured 2018-1 subordinated unsecured corporate Corporate bond type unsecured corporate bond corporate bond bond Tranche B Tranche B & C Restrictions If the payment of interest or the Target investors are restricted 1. Target investors are restricted to professional repayment of principal for the bond to professional investors as investors as defined in the Taipei Exchange Rules causes the Company's group capital defined in the Taipei Exchange Governing Management of Foreign Currency adequacy ratio to fall below the Rules Governing Management Denominated International Bonds. minimum requirement, the payment of Foreign Currency 2. If the payment of interest or the repayment of of interest or the repayment of Denominated International principal for the bond causes the Company's principal shall be temporarily Bonds. group capital adequacy ratio to fall below suspended. Interest payments or the minimum requirement, the payment of principal repayments may be paid interest or the repayment of principal shall be only when the aforementioned ratio temporarily suspended. Interest payments or meets the minimum requirement principal repayments may be paid only when (interest may be accumulated; the aforementioned ratio meets the minimum interest on interest and the requirement (interest may be accumulated; repayment of principal rollovers are interest on interest and the repayment of calculated at coupon rates). principal rollovers are calculated at coupon rates). Included as eligible capital Yes No Yes Credit rating agency, Rating agency: Fitch Australia Pty Rating agency: Fitch Australia Rating agency: Fitch Australia Pty Ltd., Taiwan rating date, Ltd., Taiwan Branch Pty Ltd., Taiwan Branch Branch and corporate bond Credit rating: A-(twn) (bond rating) Credit rating: AA-(twn) (issuer Credit rating: AA-(twn) (issuer rating) rating Rating date: Sept. 17, 2018 rating) Rating date: Sept. 17, 2018 Rating date: Sept. 17, 2018 Other Common None None None rights shares, global attached depository receipts, or other securities converted (exchanged or subscribed) up to the publication of this annual report Issuance and None None None conversion (exchange or subscription) method Possible dilution of equity None None None and impact on equity of existing shareholders due to subscription or issuance terms of issuance, conversion and exchange of corporate bonds Custodian of exchanged None None None assets Note: Corporate bonds are not overseas corporate bonds and are traded on OTC markets.

(2) Convertible bonds: None. (3) Exchangeable bonds: None. (4) Shelf registration for issuing bonds: None. (5) Corporate bonds with warrants: None. (6) Private placement of corporate bonds in the last three years: None.

133 Capital Overview

2. Issuance of preferred shares Issue date (Note) Dec. 25, 2017 April 3, 2019 Item (CTBC Holding preferred shares B) (CTBC Holding preferred shares C) Face value NT$10 NT$10 Issue price NT$60 per share NT$60 per share Shares issued 333,330,000 166,660,000 Total NT$19,999,800,000 NT$9,999,600,000 Rights and Dividend and bonus 1. The dividend yield is set at 3.75% per annum (equal 1. The dividend yield is set at 3.2% per annum (equal obligations distribution to the sum of a 7-year interest rate swap (IRS) to the sum of a 7-year IRS 0.99% + 2.21%) on the 1.0825% + 2.6675%) on the issue price. The 7-year issue price. The IRS rate shall be reset every seven IRS rate shall be reset every seven years on the next years on the next business day following the expiry business day following the expiry of each seven-year of each seven-year period; the record date for pricing period; the record date for interest reset shall be is one business day of Taipei financial industry prior two business days of Taipei financial industry prior to the pricing date. The record date for interest to the IRS reset date. The 7-year IRS rate is the reset is two business days of Taipei financial industry arithmetic mean of the 7-year IRS rates appearing prior to the IRS reset date. The 7-year IRS rate is the on the Reuters pages PYTWDFIX and COSMOS3 arithmetic mean of the 7-year IRS rates appearing at 11:00 a.m. (Taipei time) on the record date for on the Reuters pages TAIFXIRS and COSMOS3 at interest reset. If such a rate cannot be obtained, the 11:00 a.m. (Taipei time) on the record date for pricing Company will make a good-faith determination of and the record date for interest reset. If such a rate the rate based on a reasonable market price. cannot be obtained, the Company will make a good- faith determination of the rate based on a reasonable market price. 2. If the Company has fiscal year-end earnings, they 2. Except where dividends are not distributed or are shall be utilized for the following uses in the stated canceled in the circumstances of item 4 below, order: tax payment, adjustments per financial and dividends shall be distributed annually in cash on a accounting principles, deficit reduction, the legal lump sum basis. Each year after the annual financial reserve, and the special statutory reserve or statements are accepted at the shareholders' meeting, reversal; the balance shall first be used to pay the the Board of Director shall set the record date to pay preferred shares B dividend for the current year. the dividends of the preceding fiscal year. The dividends of the year of issuance and redemption year shall be calculated based on the actual number of days of issuance in the then-current year. 3. The Company has discretion over the distribution 3. If the Company has fiscal year-end earnings, they shall of the preferred shares B dividend. The Company be utilized for the following uses in the stated order: may decide not to distribute the dividend if there tax payment, deficit reduction, the legal reserve, the are no earnings in a fiscal year, the earnings are special statutory reserve, and preferred share dividend. insufficient to distribute the dividend, distributing the dividend would cause the capital adequacy ratio to fall below the regulatory requirement, or in other circumstances. Holders of preferred shares may not object to such a decision, which shall not constitute an event of default. 4. Preferred shares B are noncumulative. Holders of 4. The Company has discretion over the distribution of preferred shares B do not have the right to claim the preferred shares C dividend. The Company may any of the unpaid or omitted dividends in the future. decide not to distribute the dividend if there are no earnings in a fiscal year, the earnings are insufficient to distribute the dividend, distributing the dividend would cause the capital adequacy ratio to fall below the regulatory requirement, or in other circumstances. Holders of preferred shares may not object to such a decision, which shall not constitute an event of default. 5. Holders of preferred shares B are not entitled to 5. Preferred shares C are noncumulative. Holders of cash or stock dividends of common shares derived preferred shares C do not have the right to claim any from earnings or capital reserves. of the unpaid or omitted dividends in the future. 6. Excluding the dividends stipulated in item 1, holders of preferred shares C are not entitled to common shares' cash or stock dividends derived from earnings or the capital reserve.

134 Capital Overview

Issue date (Note) Dec. 25, 2017 April 3, 2019 Item (CTBC Holding preferred shares B) (CTBC Holding preferred shares C) Liquidation claim priority Holders of preferred shares B have a prior claim on Holders of preferred shares C have a prior claim on the Company's assets over holders of common shares the Company's assets over holders of common shares if the Company is liquidated; however, this claim shall if the Company is liquidated, in the same order as for be capped at the respective issue number of preferred the compensation of the various preferred shares issued shares B upon liquidation. by the Company; however, this claim shall be capped at the respective issue number of preferred shares C upon liquidation. Voting and election rights Holders of preferred shares B do not have voting Holders of preferred shares C do not have voting rights rights or suffrage. However, they may be elected as or suffrage. However, they may be elected as directors directors and have voting rights at preferred shares B and have voting rights at preferred shares C shareholders' shareholders' meetings on agenda items related to the meetings on agenda items related to the rights and rights and obligations of preferred shares B. obligations of preferred shares C. Other When new shares are issued, holders of preferred When new shares are issued, holders of preferred shares B have the same pre-emptive right as common shares C have the same pre-emptive right as common shareholders to subscribe for new shares. shareholders to subscribe for new shares. Amount recalled or NT$0 NT$0 converted Balance not yet recalled NT$19,999,800,000 NT$9,999,600,000 or converted Terms of recall or 1. Outstanding preferred shares B cannot be 1. Preferred shares C cannot be converted to common conversion converted to common shares, and holders of shares, and holders of preferred shares do not have preferred shares B do not have the right to request the right to request that the Company redeem these Outstanding that the Company redeem these shares. shares. preferred 2. Preferred shares B are perpetual but may be 2. Preferred shares C are perpetual but may be redeemed shares redeemed in whole or in part at the issue price any in whole or in part at the issue price any time after time after seven years of issuance at the option of seven years of issuance at the Company's discretion. the Company. Unredeemed preferred shares shall Unredeemed preferred shares shall retain the rights retain the rights and obligations of the issuance and obligations of the issuance terms prescribed terms prescribed above. If the Company decides herein. to distribute dividends in the current year, the dividends to be distributed as of the redemption date shall be calculated based on the actual number of days of issuance in the current year. Highest 63.20 - 2018 Lowest 60.40 -

Market price Average 61.90 - per share Highest 64.40 - Year-to-date April 26, Lowest 63.00 - 2019 Average 63.97 - Amount converted or subscribed as of the Preferred shares B cannot be converted to common Preferred shares C cannot be converted to common publication of this annual shares. shares. Other rights report Issuance and conversion/ None None subscription rules Dilution and other effects on the equity of existing shareholders due to the None None issuance of preferred shares Note 1: This cash capital increase for preferred shares B was issued on Dec. 25, 2017, and the same date was set as the record date for the capital increase (i.e., the issue date). The capital increase shares were issued and listed on Jan. 26, 2018. Note 2: This cash capital increase for preferred shares C was issued on April 3, 2019, and the same date was set as the record date for the capital increase (i.e., the issue date). As of the publication of this annual report, the capital increase shares have not yet been issued or listed for trading.

135 Capital Overview

3. Issuance of global depository receipts: None.

4. Issuance of employee share subscription warrants: None.

5. Issuance of new restricted employee shares: None.

6. Mergers and acquisitions with other financial institutions (1) Mergers and acquisitions with financial institutions in the past year through April 26, 2019 To improve the business decision-making efficiency of its subsidiary CTBC Securities, CTBC Holding signed a share conversion contract with CTBC Securities in accordance with a resolution passed by the Board of Directors on Sept. 27, 2018. Under this contract, CTBC Holding, with cash consideration, acquired the minority share holdings of CTBC Securities, in the amount of 494,776 shares, accounting for 0.0821% of the total. At a transaction price based on the NT$12.6 BVPS disclosed in CTBC Securities' financial statement for the second quarter of 2018, the total transaction amount was approximately NT$6.23 million. The conversion was completed on Dec. 3, 2018, with CTBC Securities becoming a wholly owned subsidiary of CTBC Holding. The price adequacy opinion of this acquisition was produced by ASAM LLP, which provided the following evaluation: "Upon evaluation and analysis, ASAM LLP considers it to be reasonable that CTBC Holding acquire 0.0821% non-controlling equity of CTBC Securities at a price of NT$12.6 per share." (2) Mergers and acquisitions with financial institutions in the past five years 1) CTBC Holding received approval from the Board of Directors on May 12, 2015, to acquire 100% of the shares of Taiwan Life Insurance Co., Ltd. through share conversion, exchanging 1 common share of Taiwan Life with 1.44 common shares of CTBC Holding (hereafter referred to as the "share exchange ratio"). Because CTBC Holding obtained the approval of the Board of Directors on July 21, 2015, to use earnings for a cash dividend distribution and capital increase, the share exchange ratio was adjusted to 1.6129 using the formula listed in the share conversion contract between both parties. The share conversion was completed on Oct. 15, 2015. The price adequacy opinion of this share conversion was produced by Ernst & Young Taiwan, which provided the following evaluation: "The reasonable range of stock exchange ratio based on the evaluation record date (Dec. 31, 2014) as evaluated by Ernst & Young Taiwan is approximately 1.10–1.56 of CTBC Holding's common shares in exchange for each common share of Taiwan Life. For this transaction, Ernst & Young Taiwan considers that CTBC Holding's use of 1.44 of its common shares in exchange for every common share of Taiwan Life falls within the range as evaluated above. Therefore, this stock exchange ratio is reasonable. CTBC Holding passed a resolution at a shareholders' meeting on June 29, 2015, to issue common shares at a cash dividend of NT$0.81 per share and at a stock dividend of NT$0.81 per share, allocating a total of NT$1.62 per share. The Board of Directors of CTBC Holding passed a resolution on July 21, 2015, stipulating Aug. 14, 2015, as the record date for the capital increase and cash dividend allocation. Following the consideration of the allocation of the stock dividend, the reasonable range of stock exchange ratio is approximately 1.23–1.75 of CTBC Holding's common shares in exchange for each common share of Taiwan Life. According to the share conversion contract, CTBC Holding's use of 1.6129 of its common shares in exchange for every common share of Taiwan Life falls within the range as evaluated above. Therefore, this stock exchange ratio is reasonable."

136 Capital Overview

2) Taiwan Life and CTBC Life are wholly owned subsidiaries of CTBC Holding. The merger and acquisition of Taiwan Life and CTBC Life was approved by the Board of Directors on Oct. 15, 2015, as an effort to effectively integrate resources, expand the Company's life insurance business, and maximize group synergies to lead to an increased economy of scale. CTBC Life and Taiwan Life merged on Jan. 1, 2016, with Taiwan Life the surviving company. The stock exchange ratio was 1.23 of Taiwan Life's common shares in exchange for each common share of CTBC Life. The price adequacy opinion of this acquisition was produced by PwC Taiwan, which provided the following evaluation: "The stock exchange ratio was evaluated by PwC Taiwan based on the premise that Taiwan Life is the wholly owned subsidiary of CTBC Holding. Considering the nature of the tangible and consolidated targets of this transaction, PwC deems that calculating the stock exchange ratio of this merger and acquisition on the basis of implied value is reasonable. PwC Taiwan conducted necessary review and evaluation analysis on the financial statement, key assumptions of embedded value, calculation results, and relevant information based on relevant evaluation data. According to a summary of the aforementioned review and evaluation results, exchanging 1.23 common shares of Taiwan Life for each common share of CTBC Life in the current M&A is reasonable and conforms to Article 45 of the Financial Holding Company Act and Article 4 of the Regulations Governing Transactions Other Than Loans between Insurance Enterprises and Interested Parties regarding the prohibition of offering terms that are more favorable than other comparable counterparties." 3) The Board of Directors of CTBC Holding subsidiary CTBC Bank passed a resolution on June 8, 2016, and a share subscription contract was signed with Thailand's LH Financial Group for newly issued common stock and 35.6% of existing equity, totaling 7.545 billion shares, with a total transaction amount of approximately 16.6 billion baht. The Bank subsequently appointed three directors and two independent directors to LHFG as well as the board of its subsidiary, LH Bank, to facilitate the business development of both. The transaction was completed on July 27, 2017. The price adequacy opinion of this acquisition was produced by PwC Taiwan, which provided the following evaluation: "Necessary review and evaluation analysis were conducted by PwC Taiwan on the evaluation method, assumptions, and conclusions of the valuation as well as other key considerations adopted for determining the transaction price. Moreover, various latent risks that may influence the transaction price were evaluated and analyzed. According to a summary of the aforementioned review and evaluation results, PwC Taiwan considers the estimated transaction price of 16.6 billion Thai baht as the estimated transaction price to be reasonable." (3) Acquisition or transfer of new shares issued by financial institutions in 2018 through April 26, 2019, upon resolution of the Board of Directors: None.

137 Capital Overview

(III)Capital utilization plan implementation

1. Public issues or private placements of securities that have not been completed as of the quarter preceding the publication of this annual report Preferred shares C were issued in a cash capital increase in 2018.

(1) Plan content 1) Approval date and document number: Letter No. Jin-Guan-Zheng-Fa-Zi-1070348778, dated Jan. 17, 2019. 2) Total capital required: NT$9,999,600,000 3) Capital source: The issuance of 166,660,000 preferred shares C in a cash capital increase with a face value of NT$10 per share and issue price of NT$60 per share to raise a total of NT$9,999,600,000. 4) Planned projects, scheduled capital utilization progress, and expected benefits: Unit: NT$ thousand Estimated capital Planned project Expected completion date Total capital required utilization progress Q2 2019 Investment 100% owned subsidiary: Q2 2019 9,999,600 9,999,600 Taiwan Life 5) Expected benefits The Company's capital increase through the issuance of preferred shares C will strengthen its capital and financial structure. If the Company's financial figures are calculated at the end of September 2018 after taking into account the 9,999,600,000 preferred shares issued for investment in 100%-owned subsidiary Taiwan Life, the capital adequacy ratio of the group can be increased from 123.37% to 127.61%, the double leverage ratio can be reduced from 118.03% to 117.48%, and the net debt ratio can be reduced from 18.28% to 17.73%. The issuance of preferred shares C will effectively increase the group's net qualified capital, strengthen its capital and financial structure, increase its competitiveness in the industry, and enhance its overall performance, thereby positively benefiting the future development of the group as a whole. After the fundraising is completed, all of the capital will be used to subscribe for Taiwan Life's private placement of common stock, serving to replenish Taiwan Life's capital and increase its capital adequacy ratio. The capital adequacy ratio will be increased from 227% to 254% by the end of 2019, and it is estimated to remain at over 250% for the next three years (2019–2021). According to the financial projections for the next three years, the annual after-tax net profit can increase by NT$100,000,000, NT$400,000,000, and NT$700,000,000 in 2019, 2020, and 2021, respectively.

138 Capital Overview

(2) Implementation 1) The Company's cash capital increase through its NT$9,999,600,000 issuance of preferred shares C was completed on April 3, 2019. These funds had been used to subscribe Taiwan Life's private placement of common stock on April 11, 2019, and the investment had been completed by the second quarter of 2019. The execution for the capital utilization plan is as following: Unit: NT$ thousand As of Q1 Planned project Implementation status Note 2019 Target 0 Amount used The Company had subscribed Taiwan Investment in a 100% owned Actual 0 Life's private placement of common stock subsidiary: Taiwan Life Target 0% on April 11, 2019 and the plan had been Execution progress completed. Actual 0% 2) Description of the operating conditions of the invested enterprise and the impact on the Company's investment profit and loss The after-tax net profit for the invested enterprise in the past three years is as follows: Unit: NT$ thousand After-tax net profit Item 2016 2017 2018 Taiwan Life 4,933,914 10,205,001 8,297,625 As the Company's main source of profit is its subsidiaries' profits, if it subscribes Taiwan Life's private placement of common shares of NT$9,999,600,000, Taiwan Life's annual after-tax net income can be increased by NT$100,000,000, NT$400,000,000, and NT$700,000,000 in the next three years (2019– 2021). Furthermore, assuming that annual after-tax net income will be increased by NT$700,000,000 each year from 2022, the capital recovery will be around 15.57 years and the return on investment will be accumulate to NT$10,300,000,000, indicating that this investment will positively affect the Company's profitability and earnings per share.

2. Projects completed in the past three years, the benefits of which are yet to materialize: None.

139 V Operational Highlights

(I)Business activities

1. Business scope (1) CTBC Holding 1) Business activities CTBC Holding is a financial holding company and as such is entitled to invest in and conduct business related to banking, bills financing, credit cards, trusts, insurance, securities, futures, venture investment, securities investment trusts, foreign financial institutions, and other finance-related activities as approved by the competent authorities. 2) Primary subsidiaries The subsidiaries of CTBC Holding are CTBC Bank, Taiwan Life, CTBC Securities, CTBC Venture Capital, CTBC Asset Management, CTBC Investments, CTBC Security, and Taiwan Lottery. 3) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Investment income under equity method 38,869 99.67% Other revenue 128 0.33% Total 38,997 100.00% 4) Planned financialproducts and services: Please refer to "(4) Research and development".

(2) CTBC Bank 1) Business activities A. Institutional banking, capital markets, and overseas business a. Taiwan business We provide diversified financial services including loans, transaction financing, cash management, fiduciary and agent services, and international trade financing. b. International business The Company leverages CTBC Bank's overseas reach and integrated platform to provide Taiwan- based businesses with cross-border services while actively developing overseas customer bases. It is continuing to strengthen its financial hub functions in Hong Kong, Singapore, and New York and to refine its focus on the cross-border financial needs of Greater China, Southeast Asia, North America, and Japan. In addition, the Bank's overseas personal banking business operations are developing diversified and differentiated financial products and services in line with the specific stage of development of various markets and the target customers in them. c. Capital markets The Bank provides tailored solutions to meet its clients' financial requirements. These services include syndication lending, structured finance, and financial advisory services. To fulfill clients' hedging and financing needs, the Bank offers wide-ranging foreign exchange and derivative products and services as well as the design and provision of structured products and proprietary trading. B. Retail banking

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a. Wealth management CTBC Bank offers personal currency deposits, financial planning, asset allocation planning and consultation, and financial services for the purchase of various financial products. b. Consumer banking The Bank provides a variety of personal unsecured loans, including regular and revolving credit in addition to guaranteed lending in products such as home loans, on-lending, installment financing, policy-oriented loans, and home equity loans. c. Payment business The Bank provides issuance and acquisition services for credit cards, stored value cards, and debit cards, and it is developing mobile payment, e-wallet, third-party payment, fee payment, and cross- border transaction platform services. 2) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Institutional banking, capital markets, and overseas business 50,536 52.99% Retail banking 42,499 44.56% Other business 2,342 2.45% Total 95,377 100.00% Note: For CTBC Bank on a consolidated basis 3) Planned financial products and services: Please refer to "(4) Research and development".

(3) Taiwan Life 1) Business activities Taiwan Life provides life insurance products. Its products are primarily marketed through banking insurance, sales personnel, insurance brokers, and direct means. Insurance applications are required to pass approval procedures before being underwritten by insurers. 2) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Life insurance 253,726 85.81% Health insurance 14,135 4.78% Injury insurance 1,535 0.52% Annuity insurance 26,274 8.89% Total 295,670 100.00% 3) Planned financial products and services: Please refer to "(4) Research and development".

(4) CTBC Securities 1) Business activities A. Underwriting CTBC Securities' services mainly involve IPO and M&A counseling for TWSE, TPEx, and TPEx Emerging Stock Board listed companies and prospects. It assists these firms in raising capital, which in turn provides liquidity to the capital market and accelerates economic development.

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B. Financial consultation services The company's professional advisers assist domestic and foreign clients with M&A as well as foreign investment. C. Securities brokerage CTBC Securities is entrusted by investors with the sale and purchase of securities on the listed, over- the-counter, and emerging securities markets; margin financing operations; securities lending; and open- ended loan operations. D. Reconsignment services It is also entrusted by investors with the sale and purchase of securities on international markets including the Dow Jones, Hong Kong Stock Exchange, Shanghai-Hong Kong Stock Connect, and Singaporean and Japanese exchanges. E. Futures brokerage This service involves accepting investors' trade orders for futures and options. F. Proprietary trading These business activities include securities trading in both the stock exchange and over-the-counter markets as well as the development and underwriting of conditional bond-trading services, the exchange of convertible/exchangeable corporate bonds, the operation of futures and options in domestic and foreign futures exchanges, and other proprietary-related business approved by the competent authorities. G. Derivative products This comprises the issuance and hedging of call (put) options, callable bull/bear contracts, and other authorities-approved derivative transactions. H. Digital securities CTBC Securities plans and designs electronic platform services and manages customer groups through digital channels. 2) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Proprietary 700 49.06% Underwriting 51 3.57% Brokerage 676 47.37% Total 1,427 100.00% 3) Planned financial products and services: Please refer to "(4) Research and development".

(5) CTBC Venture Capital 1) Business activities CTBC Venture Capital seeks long-term holdings in companies yet to list on the TWSE or TPEx. 2) Revenue breakdown In 2018, CTBC Venture Capital made 19 investments totaling NT$682 million. Of these, 13 cases were in new investments and six were cash injections in existing investments, and they comprised six local investments and 13 foreign investments. Combined with its existing portfolio, CTBC Venture Capital now has 94 cases on hand with total invested capital of NT$4.133 billion, of which 66.11% (NT$2.732 billion)

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has been invested locally, with the remaining 33.89% (NT$1.401 billion) invested abroad. Its portfolio, classified by industry, is summarized below. Unit: NT$ million Revenue source Amount Proportion Information technology software and hardware 818 19.79% Cultural and creative industries 667 16.14% Consumer products industry 242 5.86% Biotech industry 475 11.50% Traditional industry 1,074 25.98% Green energy industry 29 0.70% Precision machinery industry 175 4.23% Other industries 653 15.80% Total 4,133 100.00% 3) Planned financial products and services: Please refer to "(4) Research and development".

(6) CTBC Asset Management 1) Business activities A. Domestic distressed debt purchasing B. Consulting services for non-performing loans (NPLs) C. Claims collections and management services D. Investment derived from real estate and movable property sold on the foreclosure market or public government auctions E. Investment and activation of idle assets of its parent and affiliate companies F. Provision of advances for urban renewal projects G. Acceptance of consignments from affiliates to rent, sell, or manage and maintain real estate, and implementation of urban renewal projects H. Investment in financial leasing businesses in China 2) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Gain on disposal of non-performing assets 31 4.83% Interest revenue 509 79.28% Other gains/losses 102 15.89% Total 642 100.00% 3) Planned financial products and services: Please refer to "(4) Research and development".

(7) CTBC Investments 1) Business activities CTBC Investments' main services include securities investment trusts, discretionary investment, foreign agency services, and other business activities approved by the competent authorities. By the end of December 2018, the company managed assets totaling NT$121.6 billion. Going forward, CTBC

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Investments will continue focusing on designing and offering stable income products and marketing them primarily through custodian banks and channels within the financial holding group. 2) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Management fee income 560 99.82% Other operating income 1 0.18% Total 561 100% 3) Planned financial products and services: Please refer to "(4) Research and development".

(8) CTBC Security 1) Business activities A. Stationed security a. Banking security services b. Security services at office buildings, business premises, and residential communities B. Consultative services on anti-theft, fire safety, and disaster prevention measures 2) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Stationed security at business and residential complexes 85 36.17% Banking security services 150 63.83% Total 235 100.00% 3) Planned financial products and services: Please refer to "(4) Research and development".

(9) Taiwan Lottery 1) Business activities Taiwan Lottery's main operations comprise the issuance, sale, marketing, prize claims, and management of Taiwan's public welfare lottery on behalf of CTBC Bank. 2) Revenue breakdown Unit: NT$ million Revenue source Amount Proportion Lottery service income 1,149 100.00% 3) Planned financial products and services: Please refer to "(4) Research and development".

2. Business plans for 2019 (1) CTBC Holding CTBC Holding adheres to the principle of putting sound management first and seeks to establish long- term relationships with its clients based its on professional, customer-centric services. Its subsidiaries are engaged in banking, insurance, and securities and are committed to providing customers with the most complete suite of financial services and products. Based in Taiwan, CTBC Holding is actively expanding into international markets and establishing itself as a regional financial institution. To further stand out in the fiercely competitive sector, it will continue strengthening its corporate governance and compliance, creating

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greater value for shareholders. Specific business plans for the future are as follows: 1) Strengthen operational efficiency and enhance profitability. 2) Maintain the steady development of the life insurance business and lay the foundation for increased profitability. 3) Integrate the group's resources and accelerate its digital finance expansion. 4) Deepen cooperation within the group and harness new opportunities for synergy. 5) Seek strategic partners and achieve additional breakthroughs in overseas development. 6) Advance corporate governance and follow the standards of evaluation indicators. 7) Ensure legal compliance and prevent money-laundering and terrorist-financing activity.

(2) CTBC Bank 1) Institutional banking, capital markets, and overseas business A. Cultivate and retain medium- and large-sized customers in Taiwan, improve product cross-selling capabilities, expand customer base, increase the proportion of commission to revenue, and meet the cross-border financial needs of overseas customers. B. Address specific customer groups according to their industries' individual professional and labor characteristics and leverage the Bank's product portfolio and customization capabilities to offer differentiated financial services. C. Maintain the competitive edge of the Bank's niche corporate financial products in Taiwan as well as its brand image as a leader and innovator. D. Effectively utilize the Bank's overseas branch offices to enhance its profitability and deepen its reputation as the best financial partner for Taiwanese businesspeople: a. Integrate resources at home and abroad, examine customer needs, and leverage the advantages of CTBC Bank in order to provide a comprehensive and convenient cross-strait service platform for Taiwanese businesses. b. Extend the customer supply chain for Taiwanese businesses to further provide for the financial needs of those operating overseas. E. Actively develop non-Taiwanese customer groups and seize business opportunities offered by medium- sized China-based enterprises operating across Greater China. In Southeast Asian countries, select target industries in which to focus operations, expand the base of medium- and large-sized customers, and continue to promote business transformation and growth, including deepening local customer bases, grasping opportunities resulting from China–U.S. competition, and leveraging the Bank's region-wide presence to serve cross-border customers. In North America, cultivate the business opportunities of medium-sized Asian companies and utilize CTBC Bank's fortified presence in Asia to provide cross-border services and actively grasp cross-platform business opportunities in North America. F. Improve the service model, efficiency, and industry expertise of SMEs and continue to expand the business volume from the SME market. G. Maintain a leading position in financial transactions and establish a night-trading service platform and become a leading financial product provider for traders in Greater China. H. For retail banking services in overseas markets, develop business models and products and services

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that fit the target customers of each country, and continually improve service and customer experience. 2) Retail banking In 2019, a new strategy will be adopted for retail banking business. The approach is aimed at improving short-term business strength and long-term competitiveness and it comprises the following: A. New customers a. Leverage payroll services, branches, and digital channels to strengthen customer acquisition. b. Continue to activate and deepen existing customer relationships. B. New sources a. Stimulate fund growth with new financial products and value-added services. b. Expand the consumer banking base with financing-based mortgages and rapid processing. c. Deepen customer relationships with core payment products and a diverse range of applications. C. New technology Enable the simultaneous utilization of customer contact and operations platforms. D. Continue to grow high net worth and corporate (SMEs) customer bases, namely those with net worth or value of NT$100 million or more a. For high net worth customers, accelerate the deployment of differentiated services by employing a relationship management model. b. Refine the categorization of small business customers and enhance the products and digital platforms for high net worth customers. E. Overseas platform Strengthen the infrastructure of overseas private banks, prioritize legal compliance, and stabilize their core operations.

(3) Taiwan Life In the short term, expand insurance income and strengthen infrastructure as follows: 1) Adjust the merchandise sales structure to stabilize the profit-making base in the future: A. Own channel: Promote long-term regular premiums, health and injury insurance, and investment-type products as well as increase mortality and expense margins. B. Bank custodian channel: Increase business volume and guide the selling direction toward foreign currency products, traditional fixed payment products, and investment-type commodities. C. Digital services: Upgrade internet and app insurance operations, optimize customer platform and cross-industry cooperation, and consolidate customer base. 2) Better identify customer needs and re-establish sales-service process Conduct detailed customer segmentation and manage customer groups according to their individual attributes, and provide instant customer service consultations and services on the LINE messaging platform. 3) Upgrade systems, processes, and staff abilities in order to enhance operational efficiency A. Advance the transformation of existing information systems and the establishment of new core IT systems. B. Improve customer service contact points, optimize acceptance processes, and improve operational efficiency.

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4) Promote foreign currency insurance policies and increase stock positions under the principle of controllable risks, expand the spread, and reduce hedging costs.

(4) CTBC Securities 1) Business strategies A. Integrate the underwriting business with the capital markets in Greater China and Southeast Asia to build a leading securities dealer. B. By attracting digital flows and through bank co-marketing partnerships, expand brokerage market share through virtual and real channels, bring stable business with low capital assumption, and drive up securities ROE. C. Conduct customer behavior surveying and risk control monitoring using Big Data and establish various forecast models. D. Officially launch an app trading platform and subsidiary ledger. Create market buzz through product differentiation and marketing activities and assist front-line business personnel in promoting business online and offline. E. Expand the scale and revenue ratio of the reconsignment business and continue to develop new products, supplemented by the establishment of new business teams. F. Implement multi-transaction projects and strategic development and maintain profit stability by extending market operations outside the Taiwan Stock Exchange and hedging with various trading strategies. G. Continue to expand the source of institutional clients, leverage the competitive advantages of CTBC Holding, utilize existing channels and personnel coordination among subsidiaries, create more added value and profits, and provide diverse, all-round services for CTBC Holding's institutional clients. H. Expand the customer base and increase the source of profits by establishing overseas exchange options trading, securities borrowing, and other new businesses approved by the competent authority, where there are potential investment benefits. I. Cultivate the warrants issuance market and cooperate with the competent authorities to promote warrant trading. J. Deepen investment in subsidiaries' businesses and the Hong Kong subsidiary in particular in order to build a business platform for Greater China. Assist the Hong Kong subsidiary in developing its licensed business under the FSC's localization policy and seek cross-border investment opportunities while meeting the group's overseas investment needs. 2) Important policies for achieving business objectives A. Continue to improve compliance with money-laundering prevention laws and other regulations and fully exercise the functions of the risk management mechanism. B. Strengthen CTBC Securities' governance and various management systems and implement an independent director system. C. Deepen talent resources and continue learning from world-class investment banks. D. Build a foundation for consolidating existing strengths and laying the foundation for sustainable growth. E. Develop a stable and profitable trading model.

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(5) CTBC Venture Capital Along with other CTBC Holding subsidiaries, continue leveraging the synergy of the group's resources in order to provide customers with a full range of solutions. The specific business plan is as follows: 1) In line with the development direction of the industry, pursue superior financial investment performance by exploring high-quality companies with significant growth potential and capital market recognition. In accordance with the Taiwan government's industrial development policy, actively support its "5 plus 2" industrial innovation plan in relevant fields and projects such as smart machinery, green energy technology, biotechnology and pharmaceuticals, defense, new agriculture, the circular economy, and the Asian Silicon Valley; cultivate low-profile yet well-performing businesses and facilitate the industrial upgrading of companies in various fields; continue to develop talented overseas-based Taiwanese businesspeople; and actively identify and review potential IPO targets in China, Taiwan, Hong Kong, Macau, and Southeast Asia. 2) Further expand investment in the cultural and creative industry and maintain a market-leading position. Continue to establish a complete investment team, develop potential sources with high commercial value, and assist cultural and creative industry entities to enter the capital market to become listed companies. Furthermore, engage with the industry to increase the company's media exposure, foster a positive public image for it, and maintain its position as an investment industry leader. 3) Cooperate with government funds to expand investment scale, diversify risks, and increase income sources. The management team will use its own funds and policy funds to expand investment scale, adjust investment portfolio risk, and generate other venture capital investment sources as well as to increase management fee income by managing the qualification of government funds.

(6) CTBC Asset Management The short term is expected to see NPLs remain limited and market competition to be fierce. Therefore, the business focus for 2019 is to strengthen the management and activation of invested real estate, continue to build a domestic real estate investment portfolio, expand urban renewal-related business, manage NPL business, and strengthen the implementation of legal compliance. 1) Strengthen the management of invested real estate CTBC Asset Management has purchased several pieces of non-operating real estate from its affiliate CTBC Bank and has obtained additional properties off the foreclosure market. In 2019, it will actively dispose of real estate, including residential real estate with poor rental efficiency; accelerate the realization of investment income; and seek to maximize the value-added benefits of its real estate. Furthermore, it will continue to activate commercial real estate and work to quickly achieve full occupancy of idle real estate to contribute a stable net cash flow for itself and the group. 2) Continue to build and expand domestic real estate investments CTBC Asset Management will continue to seek entities with development and value-added potential or stable profitability on the foreclosure market as well as public auctions held by government agencies (including real estate, movable property, and property rights). Moving forward, it will continue to develop its domestic real estate business into a stable source of the future earnings.

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3) Expand urban renewal-related business In addition to identifying opportunities for urban renewal, promoting urban renewal plans, and acting as an implementer for such cases, it will promote the accelerated reconstruction of potentially unsafe structures based on the company's real estate and that of the group. CTBC Asset Management will also actively seek potential urban renewal projects administered by the government or non-government sectors in the Taipei and New Taipei area, acting as an urban renewal implementer, helping integrate landowners into the urban renewal process, and receiving income in the form of development profits or consulting service fees. 4) Steady management of NPL business For NPL cases involving the collection of benefits, the company will continue to refine its collection operations and accelerate the collection of creditors' rights in order to bolster investment income and optimize the collection process. In addition, it will continue seeking NPL investment opportunities from other non-financial institutions, such as bad debts and overdue accounts receivable, as well as other leasing company investment opportunities. 5) Strengthen the implementation of legal compliance This year, CTBC Asset Management will strengthen the implementation of its legal compliance procedures in accordance with external and internal regulations. In particular, a KYC policy will be implemented in a timely manner to avoid situations in which penalties are imposed for the violation of external regulations. 6) Financial leasing in China To reduce the impact of the China–U.S. trade war, the company will continue to focus its leasing business on its established target customer group, industry, and regional development strategies. Furthermore, taking into account the three elements of quantity, profit, and quality as well as multi-asset portfolios, it will steadily expand its customer base and promote scaled growth to achieve asset security and a base of secure profitability. The main business plan includes the following objectives: A. Clarify the direction of operations regarding various customer segments and increase the proportion of clients who are high-quality SMEs in China. B. Suspend expansion operations and centralize resources to focus on the development of customer bases in relatively sound industries and in areas with stable political and legal environments in the eastern, southern, and coastal Chinese markets. In China's central and western regions, prioritize enhancing industry penetration and ensuring consistency in the identification of target customers. C. Accelerate the deployment of key supplier channels, establish an index of potential customers, promote cooperation with equipment suppliers, and build fast-track channels for target industries. D. Establish a database of rental asset information and enhance asset integration analysis and management capabilities. E. Increase the benefits of policies promoted by local governments. In response to the strengthened regulatory requirements of the competent authorities, CTBC Asset Management will exercise greater caution in determining industry investment targets and will tighten its customer access threshold and selection of lease items. F. Stabilize existing capital sources, optimize capital costs, continue to diversify funding channels, and increase capital in a timely manner to strengthen the company's capital composition with the permission of the competent authority and in accordance with the holding company's capital plan.

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(7) CTBC Investments In 2019, greater variation is likely in both market competition and the economic environment. It is expected that in the resulting environment of reduced profit opportunities and increased risks, investors will become more conservative. Therefore, in new product design and investment management, soundness and growth opportunities are the main investment considerations, with the priority being to protect investors' assets. The direction of short-term business development is as follows: 1) The company will obtain differentiated management incentives for the Incentive Plan for SITE in order to accelerate the speed of product issuance and the competitiveness of its product design. 2) Strengthen integration with life investment products to enhance asset scale and income stability. 3) In response to the loosening of regulations, by means of the money trust platform and the characteristics of diversity and high flexibility, cooperate with the Bank's retail banking operations, leverage the capital of high net worth customers' savings for investment purposes, and grasp new business opportunities in the retail private equity market. 4) Leverage the advantages of the group and actively participate in the pension management market. Furthermore, from when investment advisers take roles advising on corporate saving programs and private school pension funds, utilize banking trust cooperation to provide product suggestions, accumulate investment performance data, and establish a customer service process. 5) Recruit senior investment management talent and utilize overseas consultant resources to continually strengthen management performance in order to provide investors with a stable, long-term ROI.

(8) CTBC Security 1) Improve the recruitment and retention of highly qualified employees, implement on-board training, strengthen the practical education and training provided to employees, and, when appropriate, arrange for experts to teach basic self-defense skills. 2) Communicate and implement strategic cooperation programs with property management companies and target top-level customers in office buildings and luxury residential complexes in order to expand CTBC Security's provision of high-level security management services. 3) Target more business from large residential and corporate complexes and recruit industry-best security practitioners in order to provide stable, high-quality service. 4) Improve operation and management quality and increase brand recognition of CTBC Security among consumers.

(9) Taiwan Lottery During the third term of public welfare lottery (2007–2013), the compound sales growth rate of lottery tickets was 11.53%. In 2014 and 2015, the annual sales peaked at more than NT$130 billion, since which the market has matured; as such, high double-digit growth is unlikely to be achieved. In addition, the growth of private consumption has been low in recent years as the public's real disposable income has not increased, with spending habits tending to be more conservative and necessity-focused as a result. Since 2016, sales have been declining. Numerous additional factors have further limited the development of the lottery business, such as limitations on the prize payout rate, the stricter inspection of retailers’ management required by the competent authorities, the absence of funding allocated over the past five years to promote

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the public welfare nature of the lottery, and the restriction against online sales, which runs in stark contrast to the consumption habits of younger people. In seeking to cultivate the lottery market, promote the charitable nature of the lottery, encourage ticket sales, and achieve steady growth, Taiwan Lottery's main plans are as follows: 1) Develop innovative products A. Draw games: Replace old games with new, more engaging alternatives. B. Scratch cards: Establish a cross-industry alliance to develop new games and innovative new types of prizes, such as free scratch cards as well as combination cash-and-gift prizes, and make scratching a winning card a more engaging and enjoyable consumer experience. 2) Strengthen diversified marketing A. Develop internet traffic monitoring and online word-of-mouth marketing, including partnering with YouTube and Instagram influencers. B. Build a members club for app users. C. Introduce and promote digital payment methods. D. Upgrade retailers’ segment management. E. Promote a legislative amendment to legalize online lottery sales. 3) Highlight the lottery's public welfare purpose A. Launch an advertising campaign to emphasize the public welfare benefits of the lottery. B. Continue to publicize donations made by large prize winners.

3. Industry overview (1) CTBC Holding Regarding industry competition, the FSC revised the Regulations Governing the Investing Activities of a Financial Holding Company in 2018 to encourage financial holding companies and banks to promote consolidation. However, such cases of market consolidation have remained limited in recent years. According to the competent authorities, as of 2018, there were 16 financial holdings companies, 38 domestic banks, and 23 life insurance companies. In general, the domestic financial market is still saturated and excessive market competition remains. Regarding the impact of new technologies, fintech is being used to develop more efficient financial services for application in various scenarios, providing practical resolutions for everyday problems encountered by customers. Furthermore, because traditional financial players are severely challenged by the current industrial environment, heavy investment is being devoted to digital fintech. According to the FSC, domestic financial companies have invested more than NT$10 billion in fintech development, indicating the substantial importance that the industry has placed on it. Regarding supervision and legal compliance, the cost of information security and legal compliance for financial institutions has been significantly increased by the rising standards of corporate governance and compliance. In addition, in the future, the competent authorities may refer to the Basel Capital Accord to formulate and impose more stringent capital requirements on banks' reinvestment in finance-related businesses. As such, financial holding companies should pay closer attention to the capital utilization efficiency.

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(2) CTBC Bank While the global economy enjoyed a recovery in 2017, it encountered divergent performances in 2018, mainly due to uncertainties such as trade conflict between major economies. Although strong economic expansion was recorded in the U.S., growth slowed in numerous countries and regions worldwide, including the European Union, China, and Japan; however, emerging markets in Southeast Asia sustained stable growth as they benefited from global supply chain changes. With its economic growth maintained at above 2.5% in 2018, slightly lower than the 3.1% of the previous year, Taiwan's economic performance remained relatively strong. Divergence was also seen in major countries' monetary policies, some of which shifted away from tightening. The U.S. Federal Reserve adjusted its interest rate by 1 percentage point, whereas the European countries and Japan slowed their pace of monetary policy normalization. China lowered its deposit reserve ratio four times and released liquidity through various methods. Taiwan's Central Bank, due to mild price movements, maintained its discount rate at a relatively low 1.375%. Overall in 2018, due to numerous uncertainties, including the slowing momentum of global economic growth, divergent development of monetary policies, and U.S.–China trade conflict, financial markets experienced higher volatility and the overall banking business remained cautious. In terms of institutional banking and overseas business, the global outlook will continue to improve, with the overall economic growth momentum of the overseas market expected to be strong going forward. Taiwanese business customers are an important customer group across Asia while Chinese enterprises have a growing demand for capital and cross-border financial services due to their growing cross-border operations. The participation of Southeast Asian countries in regional free trade agreements and the implementation of China's Belt and Road initiative will drive infrastructure financing opportunities and generate capital market business opportunities. Meanwhile, Taiwan's New Southbound Policy is encouraging enterprises to invest in Southeast Asia. In addition, with the gradual recovery of the North American economy, the Donald Trump administration is actively attracting foreign investment to the United States. Foreign direct investment from Taiwanese businesspeople in the United States is on course to reach NT$1 trillion; this, combined with the expected rapid rise in demand for financial services across North America and Asia, is forecast to provide ample business opportunities in the future. However, due to increased capital scarcity, business model management and cross-selling will be key to improving operational efficiency, while effective risk management and maintaining good asset quality will be critical core capabilities for banks. In the retail banking business, the number of Taiwan's high net worth customers and their assets will both continue to grow steadily. This, along with the aging population and sub-replacement fertility rate, is increasing demand for retirement planning, integrated family wealth management, and inheritance services. The laws and regulations governing the deposit, loans, and wealth management business have become more rigorous, thereby affecting the development of the retail banking business. Customer needs are also complex and highly diverse; as a result, how to best interpret customer needs while also taking potential risks and rewards into account constitutes a particularly difficult challenge. In addition, the technology environment has matured, innovative new digital financial services continue to emerge, and the competent authorities are supporting the opening of various online financial services, especially in the electronic payment business; as a result, the traditional financial industry faces challenges from new fintech operators and, in response, must continually invest in digital development and strengthen their cooperation with various types of mobile payment services. As fintech players continue to claim shares of the electronic payment and credit market by

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leveraging their online membership bases and technological advantages, overall competition in the industry is increasingly intense. The various transaction behaviors of customers have largely migrated to mobile and online channels, while the complexity of transactions at physical branches has increased. Customer demand in terms of financial services and their convenience, speed, and quality are on the rise. Determining the optimal approaches to integrating virtual and physical platforms and providing customers with a consistent, high-quality, real-time service experience remains a crucial task for the retail banking business.

(3) Taiwan Life The U.S. Federal Reserve continued to raise interest rates in 2018. To meet the needs of customers, traditional products were based mainly around variable-interest rate life insurance, while investment-type commodities sold well because of the good performance of the investment environment in the first half of the year. As of 2018, the premiums of new contracts in the industry totaled approximately NT$1.38 trillion, representing an increase of 9.5% over the previous year. In addition, the cost of hedging instruments has risen because of the continued expansion of the Taiwan–U.S. interest margin. Life insurance companies have increased their foreign currency commodity sales and reduced their exchange risk to maintain their ROI. To strengthen the robustness of the insurance industry, the FSC continues to promote a package of policies, including increasing the interest rates of liability reserve funds for long-term guaranteed policies; lowering premiums; promoting long-term care, micro, and guaranteed products that have yielded benefits; and providing the industry stabilization fund with preferential withdrawal interest rates. The capital adequacy ratio takes the form of a reverse economic cycle that allows companies to maintain stock positions for the long term when the market is struggling. A number of life insurance companies have responded to these policies and increased their sales of guaranteed products in 2018.

(4) CTBC Securities From Black Monday in 1987 to the Asian Financial Crisis in 1997 and the U.S. subprime mortgage crisis in 2008, stock market crises seem to occur at intervals of approximately 10 years. The 2018 cycle appeared to begin in February, when U.S. stocks plunged seemingly without warning, resulting in a global stock market crash. In the second half of the year, the world's major markets slumped again because of various factors, such as the expansion of China–U.S. trade conflict and the inversion of short- and long-term yield rates of U.S. public debt. Three major global indexes—the German DAX, French CAC 40, and British FTSE 100—fell more than 10% throughout the year, while China's SSE Composite Index lost nearly 25% of its value. The U.S. stock market has also faced notable turbulence. In Taiwan in the first half of 2018, although the market saw increases in foreign capital, strongly weighted electronic stocks (mainly Apple supply chain companies) generally continued their weak performance from the fourth quarter of 2017, while many long-term so-called "bull and bear indexes" held. However, with the support of returning domestic capital, the price-raising subject groups (in silicon wafers, passive components, and MOSFETs) and weighted non-electronics companies, the market remained close to 10,000 points, even closing over 11,000 on two occasions (11,270 and 11,261). In the second half of the year, however, the positive effects of the new iPhone release ended and the U.S.–China trade war intensified. The Taiwan stock market subsequently dipped back below 10,000 points, ending a two-year upward trend as well as the longest period above 10,000 points in the index's history. Throughout 2018, foreign investors sold off stocks

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in the Taiwan market totaling over NT$350 billion, an amount second only to the over NT$470 billion sold off during the 2008 financial crisis. The TAIEX ended the year at 9,727.41 points, down 8.6%. It recorded a range of 1,869.49 points between its highest and lowest points in 2018, slightly higher than the 1,609.77-point range of the previous year. Meanwhile, the TPEx fell more sharply, decreasing 16.82%, as a result of losses in weighted groups (silicon wafers, PAs, and memory). Compared with China's SSE Composite Index, Japan's Nikkei 225, and South Korea's KOSPI, which fell by 24.59%, 12.08%, and 17.28%, respectively, in 2018, the overall performance of Taiwan stocks was reasonable. Furthermore, in 2018, the quarterly ratio of the day- trading volume of listed companies increased from NT$33.96 trillion in 2017 to up to NT$41.01 trillion in 2018; however, such growth momentum has shown signs of slowing (the annual growth rates of 2017 and 2018 were 40.1% and 20.8%, respectively). In 2019, in addition to the uncertainties of U.S.–China trade negotiations and Brexit, cross-strait political issues are expected to surface again in the lead-up to Taiwan's 2020 presidential election, which may result in more relative equity and currency market this year. In terms of the overall profit performance of TWSE/TPEx listed companies, they recorded a cumulative profit of NT$2.14 trillion in 2018—a slight decrease of 1.24% from the NT$2.17 trillion for the same period in 2017. Export value for the year also hit a record high of US$336.05 billion, representing growth of 5.9% from 2017. In the second half of the year, however, as the negative influence of the trade war intensified and the usual positive effect of a new Apple product launch failed to fully materialize, monthly exports experienced consecutive negative growth (November and December), prompting the Cabinet's Directorate General of Budget, Accounting and Statistics to adjust GDP growth for 2018 downward from 2.69% to 2.66%. The market research institute's forecast for 2019 is an even more conservative 2.2%–2.5%, suggesting that Taiwan businesses will have difficulty avoiding the negative influences of the trade war in the short term and that the country's emphasis on hardware manufacturing remains a key variable affecting its future economic fate. In addition, according to a Taiwan Securities Association report, in view of the overall operating performance of domestic securities firms in 2018, the after-tax net profit of the firms totaled approximately NT$28.169 billion, down 29.7% from NT$40.053 billion in 2017. As of the end of 2018, the total number of securities firms was 68. This was two fewer than at the same time the previous year, indicating that global stock market volatility has increased the difficulty of operations and that the securities industry's business environment has yet to achieve an optimal balance. Going forward, the challenges facing the sector seem likely to increase.

(5) CTBC Venture Capital According to KPMG's "Venture Pulse: Q4 2018 Global analysis of venture funding" report, US$64.4 billion of venture capital was invested worldwide during the fourth quarter of 2018, up 23.85% from the previous quarter. The cumulative amount of global venture capital invested in 2018 reached US$254 billion, exceeding the US$174.6 billion invested in 2017 and showing that the global early-stage capital market remains hot. The most popular fields of investment in 2018 included artificial intelligence, automation, cybersecurity, agricultural technology, and biotechnology. According to geographic breakdowns of venture capital investment, the Americas remained the center of global venture capital investment in 2018, accounting for 53.54% of such investment.

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The trade war between China and the United States intensified in the second half of 2018, adding fresh uncertainty and risk to a market that had been expecting the economic recovery of 2017 to continue. Major international bodies such as the IMF, HIS Markit, the Economist Intelligence Unit, and the World Bank have lowered their economic growth forecasts for 2019. Increasing turbulence has also appeared in the capital market, which will compound the uncertainty of the overall venture capital investment market in 2019.

(6) CTBC Asset Management The domestic non-performing asset market is divided into NPL and court auction markets: 1) NPL market According to FSC data on NPLs sold by domestic financial institutions, the average amount of loans released annually peaked between 2001 and 2007, during which they averaged approximately NT$180 billion. The amount has decreased substantially since 2008; in the years of 2014 to 2017, the totals were NT$16.37 billion, NT$500 million, NT$1.64 billion, and NT$2.69 billion, respectively. However, the total was NT$0 of publication in 2018. The primary reasons for the decline from the previous decade and the current flat market are as follows: the NPL ratio of banks has remained low, the competent authorities have raised the threshold for banks to sell NPLs, the housing market has seen a only a limited decline in recent years as prices have remained relatively high, and the disposal time of collateral has been shortened. 2) Court auction market The total number of items to be tendered in the court auction market fell from 319,729 in 2002 to an estimated 155,475 in 2018. The decrease is believed to have been caused by the NPL ratio of banks remaining low, the housing market seeing only a limited decline in recent years as prices have remained relatively high, and the disposal time of collateral being shortened. If interest rates remain low, the court auction market is not expected to see a significant increase in the number of auctions in the short term. 3) Financial leasing industry in China From a market trend perspective, between 2009 and 2017, the balance of financial leasing contracts in China increased from RMB 370 billion to RMB 6.06 trillion, growing at a compound annual growth rate of over 41%. In 2018, the market size had grown to RMB 6.65 trillion. From a policy perspective, financial leasing was listed as a key sector in the Chinese government's Thirteenth Five-Year Plan. Policies of the central government encourage the development of financial leasing in emerging fields, facilitate business model innovation, and assist lease financing companies and financial leasing companies to actively serve key government efforts such as the Belt and Road initiative, the development of the Beijing–Tianjin–Hebei area and the Yangtze River Economic Belt, the Made in China 2025 campaign, and the so-called New-Type Urbanization program. It also encourages financial leasing that actively invests in the real economy and helps enterprises develop the internet and manufacturing fields, the internet of things, agricultural modernization, medical care quality, and educational resources in third- and fourth-tier cities, as well as its "Go Out" foreign investment campaign. With the accelerated pace of China-based international operations, a number of large-scale, specialized, international multinational leasing groups have been established. From a regulatory perspective, the General Office of the State Council of China issued its Guiding Opinions on Accelerating Development of the Financial Leasing Industry and Guiding Opinions on Promoting the Sound Development of the Financial Leasing Sector on Sept. 7 and 8, 2015, respectively.

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The policies include comprehensive arrangements for the development of the financial leasing industry, specifically by reforming institutions and mechanisms, accelerating the development of key areas, innovating development modes, and strengthening interim and ex-post supervision, with the goal of leading the world in the scale and competitiveness of the financial leasing market by 2020. On March 28, 2017, the People's Bank of China and five government units, including the Ministry of Industry and Information Technology, jointly issued the Guidelines on Financial Support for the Building of a Strong Manufacturing Country, stating that China should accelerate the development of financial leasing business in the manufacturing sector and support the expansion of market applications and the improvement of international competitiveness in key high-end manufacturing fields, in accordance with its Made in China 2025 campaign and Guidance Opinions of the State Council on Deepening Integration of Manufacturing Industry and Internet policy.

(7) CTBC Investments In 2018, Taiwan's financial market was faced with large fluctuations and the growth rate of the overall fund market decreased. According to the Securities Investment Trust & Consulting Association of the R.O.C., as of the end of 2018, the overall market size had increased by NT$61.3 billion, including a domestic fund increase of NT$253.4 billion. Overseas funds decreased by NT$310.4 billion and discretionary products increased by NT$116.3 billion. Since the start of 2018, 109 new domestic funds have been launched, of which 42 are exchange traded funds and 35 are fixed-income funds. Of the 42 ETFs, 27 are bond ETFs, totaling NT$190.5 billion. Of the fixed- income funds, 83% are target maturity funds, which were the focus of new product issuance in 2018. The discretionary market continues to prevail, largely because of the types of discretionary policies and the attractiveness of their professional management and dividends. Its growth rate in the past two years was up to 20%, with the authorized investment of investment-oriented policies accounting for NT$740.6 billion, making it a critical source of scale growth for the overall fund market. The FSC issued its Plan to Advance Excellence for SITEs in June 2015 as part of its efforts to specifically enhance Taiwan's asset management talent and technology, expand the scale of its asset management, and facilitate its international development. Various preferential measures may be applicable for securities investment trust enterprises that meet certain conditions stipulated in the plan. For example, these enterprises may be entitled to more flexible ceilings on the number of funds submitted for approval and a wider investment ratio for fund utilization. Such benefits are intended to accelerate investment trust product issuance as well as business development.

(8) CTBC Security 1) Security industry conditions A. Security companies in Taiwan are mainly engaged in stationing security guards at fixed locations such as office buildings and residential communities, whereas less than 10% are specialized in or concurrently engaged in system, cash-in-transit, or personal security. B. The stationing of security guards is a highly competitive market in Taiwan, with relatively slim profits, uneven personnel quality, and unstable service quality. However, this service is the largest segment of Taiwan's security industry, accounting for more than 90% of it.

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C. An excessive number of new security companies have been using low pricing as their main means of competition, causing lower staff salaries and in turn higher turnover rates and problematic recruitment and training. Customers have become increasingly dissatisfied with the deteriorating service quality, spurring them to seek lower rates or to switch security providers. This has resulted in a vicious cycle and operational difficulties for many security companies. 2) Future development A. Despite the aforementioned problems, the growing importance attached by people to their safety and property means the popularity of security services will only grow. Home security is believed to hold the greatest market potential. B. There are no obvious economies of scale in the stationed security market because the service requires few fixed costs. Furthermore, it is a labor-intensive field, so few companies have been made obsolete in the segment and, as a result, an oligopoly is unlikely to emerge. C. Large-scale security operators will continue to pursue market share in order to maintain any small degree of economy of scale they have established; furthermore, in the face of competition, some small security operators may ultimately choose to close or become a specialized firm for specific markets or services (based on, for example, service type and geographical distinction) or to merge with or be purchased by another company.

(9) Taiwan Lottery The growth of lottery sales have stagnated worldwide, primarily because of the disengagement of younger demographics. The best means of revitalizing and sustaining growth in the market is thus attracting younger customers by actively developing online betting and digital payment methods. Taiwan's public welfare lottery market is now mature after seeing its annual sales peak at approximately NT$130 billion in 2014 and 2015. As is the case for many lottery markets worldwide, sales in Taiwan are difficult to revive without regulatory loosening and adjustment. In addition, private consumption appears unlikely to grow substantially within the next few years, with consumption of such non-necessities to be particularly conservative, further limiting the development space of the lottery industry.

4. Research and development (1) CTBC Holding As fintech poses the prospect of rapid, continuous changes in the industry, innovation is pivotal to standing out in the fiercely competitive environment. Meanwhile, the competent authorities are continuing to tighten compliance and information security requirements for financial institutions. In recognition of these circumstances, CTBC Holding has recruited relevant professionals and continued to review its internal mechanisms to enhance its legal compliance and information security awareness. The Company has also continued to strengthen its internal risk management system and has enhanced its overall operational efficiency by investing in IT infrastructure; harnessing related synergies by making full use of the group's resources; providing customers with complete financial services by integrating deposits, loans, mortgages, credit cards, mutual funds, securities, futures, insurance policies, and other business plans; and creating differentiated, added-value services. CTBC Holding and its subsidiaries spent a total of NT$457 million on R&D consultant services in 2017 and NT$373 million in 2018, totaling approximately NT$830 million over

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the two years. In the future, in line with CTBC Holding's general strategy, more active investment will be made in relevant R&D projects.

(2) CTBC Bank 1) R&D progress in the past two years and future prospects A. Institutional banking, capital markets, and overseas business a. In the past two years, CTBC Bank has strengthened its overseas products, services, and internal support and has provided comprehensive and immediate hedging and investment strategies to meet the needs of different customers in various industries. b. The Company also strengthened the functioning of its electronic network trading platform and banking transaction system at home and abroad in order to meet the demands of multinational fund procurement and online transactions for corporate clients c. It also provided new trade financing products for various countries and strengthened its cross- border platform product lines to meet customers' demands for trade financing in various markets domestically and internationally. d. The Bank developed customized product services in accordance with the segmentation of the industry chain. e. It designed industrial projects for SME customers, customized products based on precise industry characteristics, and provided customers with more efficient, higher quality services. f. The employee welfare trust business lead the industry by providing more compressive services, including an innovative automatic investment function. g. In line with the development of offshore renminbi financial markets in Taiwan and overseas, the Bank provided customers with underwriting and financial advisory services to satisfy their funding and investment needs in primary and secondary markets. h. Overseas retail banking market (a) CTBC Bank improved its product lines of various countries and expanded its storage services for individuals and SMEs based on the needs of various markets and customers. (b) The Bank enhanced its service and customer experience and attracted target customers for whom it is their primary bank. B. Retail banking As part of its emphasis on customer experience, the Bank launched the following services in response to digital trends and the rapid development of fintech: a. Digital innovative financial business CTBC Bank launched its Digital 4U service with the help of a team of tech and market intelligence experts, focusing on four integrated digital financial management projects, namely Smart GO, Smart Choice, Smart Loan, and Smart Accounting, to help customers better understand their fund flows from investments, insurance, loans, and accounting. Smart GO makes investing a smoother, easier experience by intelligently recommending investment portfolios and allocations. Smart Loan similarly streamlines loan-related tasks by utilizing artificial intelligence, Big Data, and cloud computing, offering an industry-leading one-hour loan application service. b. Physical branch transformation

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The Bank's 152 branches across Taiwan have been upgraded in line with its digital business plan. Furthermore, it has introduced a new mobile service that allows staff to introduce products and offer personalized financial advice to customers and potential customers, firmly putting in the past the restraint of having to conduct such business in-branch. c. Expanded mobile payment service map CTBC Bank was the first bank in Taiwan to partner with the three major NFC mobile payment platforms of Apple Pay, Google Pay, and Samsung Pay in addition to the LINE Pay system. This has offered the Bank's customers unrivaled ability to use credit and debit cards for international- standard secure, convenient, and innovative payment. d. App redesign By applying the tenants of design thinking and using feedback from over 70 user interviews, the Bank redesigned its mobile banking app. The updated version of the app, rebranded Home Bank, was released in April 2018. In addition to featuring an industry-leading voice-command transfer function, the app enables customers to log in through biometric methods, namely fingerprint and facial recognition, as well as through pattern drawing. It also provides seven highly marketable features, including easy login, quick access, and multiple payment methods to solve customers' pain points 2) Future R&D plans A. Institutional banking and overseas business a. In line with its strategy to develop a regional financial hub, build an integrated transnational regional trading platform to resolve difficulties often faced by customers in opening accounts in different countries, deliver constant improvements to the security of online transactions, provide financial services for cross-border transactions, and move CTBC Bank closer to its goal of becoming a powerhouse regional bank. b. Focus on market R&D and grasp opportunities to provide innovative products. c. Optimize the customized product services offered in accordance with various industry chain segments. d. Stay current with international financial regulatory standards by strengthening the Bank's product management platform and system and its risk management mechanism. e. Develop digital financial services in Southeast Asia to enhance the customer service experience there. In Japan, target middle-class customers by precisely designing a customer-oriented business model and providing distinctive financial consulting services that enhance the local subsidiary's wealth management and operation abilities. Furthermore, provide cross-border financial services for customers in North America, including those with Greater China business or backgrounds. B. Retail banking a. Continue to invest in the Bank's customer database system, improve its predictive model, and introduce semantic analysis in various business areas. Accordingly, enable the conversion of previously unusable non-literal records into digital materials that can be systematically analyzed for the purpose of identifying service problems in advance, identifying business opportunities or obtaining competitive information, and making effective use of customer records.

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b. Invest further in the improvement of products and services in order to build capacity to meet the financial needs of individuals and SMEs of different scales and scopes. Furthermore, continue adopting new technologies to strengthen professional wealth management, consumer finance, and payment services and ensure the provision of high-quality, convenient, and on-demand retail banking services. c. Harness digital financial policy liberalization, technology trends, and customer behavior changes; continually improve the efficiency of customer service portals and the online trading risk control mechanism; integrate middle- and back-office processes to more rapidly introduce services required by customers; and further strengthen customer development in digital channels. Through operational approaches that leverage, among other things, service scenarios and digital products, provide better- tailored service to various customer groups, convert data into revenue, and realize other business goals.

(3) Taiwan Life 1) R&D progress in the past two years and future prospects A. Taiwan Life continually launched network service projects to improve customer service efficiency. B. In 2017, the company established a digital lab to constantly optimize its mobile tools for the benefit of operators. The transaction rate was improved and, by the end of 2018, nine related patents had been obtained. C. Taiwan Life developed an innovative claim settlement service that, combined the "eACH instant remittance" available through a number of banks, allows a claim to be processed within 30 minutes. A patent for the service has been obtained. 2) Future R&D plans A. Taiwan Life will continue to respond to the opening of laws and the application of technology to optimize and innovate insurance products such that they more closely match customer needs while also benefiting the company. B. The company will further improve its industry-leading customer experience, from sales to service, including continually optimizing operators' mobile tools, introducing new network service projects, and collecting sales and service trip data and customer information for analysis and management.

(4) CTBC Securities 1) R&D progress in the past two years and future prospects In 2017, CTBC Securities continued to advance its online platform and services, including by incorporating sub-brokerage profit and loss illustrations into its platform, providing fingerprint login and quick future order placement functions, and greatly streamlining the credit-check process. Furthermore, in an industry first for Taiwan, it created an after-hours futures trading system. In 2018, the company launched more services, including a mobile passbook app, electronic account statements for sub-brokerage investors, API trading functions, and an OSU transaction support system. Meanwhile, it debuted an online margin- trading rate simulation and calculation service and introduced a pioneering video-recorded online signing process for existing customers who wish to open a CTBC Securities Investment Service account. A new app was also developed to facilitate customer transactions and help them along their investment journey. Supplementing the app is the ability to open subaccounts under existing accounts for both deposits and withdrawals, greatly enhancing CTBC Securities' overall digital services.

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2) Future development plans A. As a customer-centric company and with the aim of becoming the leading digital securities trading brand, identify the various needs of customers and explore them using data analytics, adapt UI/UX concepts and a design-thinking framework in our agile development process to provide the optimal user experience for our products and services. B. Through Big Data analysis, transform personal and market data into a useful simulation model that can be applied to business development and strengthening connections with customers. Use this quantitative model as a predictive measure for customizing the company's offerings to individual customers in order to precisely meet their investment needs. C. Enhance quantitative analysis ability and apply a technical analysis indicator-based modular support system to reduce potential investment losses caused by traders' subjective judgments. D. Enter the second and third stages of the aforementioned expansion of stock exchange information fields and launch its S-trade securities transaction system. Develop new business functions for stock and futures exchanges, institute high-value proprietary trading, and introduce new data centers and analytical tools. Develop a CTBC Holding credit risk database, adjust the structure of its intraday inquiry system, and launch a dealer securities lending business. Additionally, develop a financing and lending system for offshore securities units and switch securities wholesaler partner. Upgrade the AS/400 securities and futures trading system, establish remote backup disaster recovery data centers for electronic trading, and develop automated checking and monitoring. Plan its future program change process, develop automated testing processes, and optimize the customer relationship management sub-brokerage system. Furthermore, conduct cloud assessments and enhance the operation and maintenance efficiency of CTBC Securities' Longtan data centers. Develop dedicated sub-brokerage or gateway remote backup and, for proprietary bond trading, optimize the bond transaction value review and self-service billing processes. Also develop an AS/400 server monitoring and audit management system, enhance penetration test detection, and practice information security protection and defense effectiveness management. Upgrade the operating systems of its PCs to Windows 10, enhance its advanced continuous penetration protection and data leakage prevention systems, and introduce assessment and analysis of the automatic monitoring system. Strengthen personal data security protection and the stability of trading systems as well as network and information security protection architecture. In addition, compare fixed-line network operators, reduce operating costs, spread operational risks, and make timely adjustments to ensure that investors' transactions are secure and efficient and that their rights and interests are protected.

(5) CTBC Venture Capital 1) The company deepened its management of interpersonal connections in the upstream, midstream, and downstream segments of individual industries and gained more insight on specific industrial dynamics, expanded the scope of its industrial research, and strengthened its ability to judge and analyze the depth and breadth of industries. 2) Through information exchange with its peers, CTBC Holding, and its banking, securities, and accounting affiliates, CTBC Venture Capital actively participated in industrial and commercial exhibitions and seminars at home and abroad in order to develop new revenue sources.

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3) The company strengthened its post-investment management, enhanced its risk awareness, increased its investment success rate, and effectively increased the ROI of its portfolio.

(6) CTBC Asset Management 1) R&D progress in the past two years and future prospects A. Domestic asset management business CTBC Asset Management has deepened its employees’ professional skills and know-how in the fields of real estate and accounting and organized relevant training on related regulations, including urban renewal and construction. Going forward, Going forward, CTBC Asset Management will continue to increase the investment experience and skills of its employees, gradually building an industry-best business model and effectively improving the return rate of its investment portfolio in the process. B. Leasing in China a. Optimize risk management and further ensure the sound management and efficiency of credit, market, operational, asset and liability, liquidity, and other risks. b. Establish a core leasing system to provide information on its management and automation operations. c. Establish a customer repayment analysis system to enhance risk observation and forecasting capabilities. d. Expand the diversification and localization of credit reference methods to enhance related capabilities. e. Complete integration of the People's Bank of China's credit reference system to resolve any remaining asymmetry in customer credit information. 2) Future R&D plans A. Domestic asset management business a. Conduct research on activating idle group assets in a diversified manner. b. Look into acting as the implementer or agent of urban renewal cases and participate in urban renewal projects. c. Study and evaluate emerging trends in the domestic real estate market as well as the supply and demand thereof. B. Leasing in China a. Conduct an in-depth study of key regional industries and sub-industries and perform in-depth research on related operations to provide insight on industrial ecology and market dynamics. b. In accordance with the direction of the industry, develop supplier channels for key industry chains and strengthen channel system management and data analysis capabilities. c. In response to the end of service of the People's Bank of China's credit reference system, perform follow-up planning and ready for the establishment of the second-generation system. d. Construct a lease risk pricing module and a Chinese SME rating module to more accurately reflect risk premiums. e. Formulate industry policies, establish an industry economic measures forecast module, and improve risk prediction capabilities.

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f. Establish a leasing asset database and rating system; improve initial evaluations, second-hand market analysis, and residual value management capabilities; build asset exit channels; and improve asset management capabilities.

(7) CTBC Investments 1) R&D progress in the past two years and future prospects A. Mutual funds: Launch new products, including target maturity bond funds, Chinese equity ETFs, bond ETFs, and investment solutions for unit-linked insurance plans, in order to offer choices that fit a wide variety of client needs. B. Private placement funds: In response to the loosening of regulations, design new private placement funds for high net worth individuals through the "money trust" platform. C. Strengthen customer and distributor services, such as by redesigning the official website to enhance query and transaction functions, in order to harness the opportunities posed by the rising mobile commerce trend. 2) Future R&D plans A. In response to the needs of Taiwan's aging society and learning from the development of the national pension systems of major developed economies like the U.S. and Japan, design investment solutions for personal opt-in investment pension policies and other retirement products. B. To adapt to the technologically driven market disruption and the changing of investor behaviors, continue investing in electronic trading platforms and a related risk management mechanism in order to better serve clients and develop new customers.

(8) CTBC Security In the future, CTBC Security will face challenges posed by the entry into the market of high-quality competition. As such, it will urge the government to formulate practical, long-term policies that will facilitate the appropriate development of the security industry. Meanwhile, the company will seek to become an industry leader in banking security services and will actively study means of enhancing loss prevention and risk management in order to ultimately grow its public image and trust. In terms of new product development, CTBC Security will conduct research into the cash transportation and replenishment security business.

(9) Taiwan Lottery Taiwan Lottery will continue to conduct market penetration, purchasing behavior, and case-based market research for specific products; strengthen its digital marketing model, actively explore new markets, and develop new customer bases; and participate in international lottery industry activities and communicate with peers to better understand industry trends, all with the ultimate aim of enhancing its sales performance. 1) R&D progress in the past two years and future prospects A. To better understand the needs of target markets, the company invested in consumer surveys and case-based market research. B. In October 2018, company representatives attended the 2018 World Lottery Summit in Argentina,

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studied the performance of other lottery issuers, and actively participated in other international industry activities as part of its efforts to identify and leverage global lottery trends. 2) Future R&D plans A. Continue to plan new product offerings, expand access service projects, and strengthen cross-industry alliances as well as e-marketing to expand the lottery market. B. In terms of lottery market research, study the qualitative and quantitative purchasing behavior and attitude of consumers and continue monitoring the latest developments in lottery markets worldwide in order to guide domestic product replacement and sales promotion activities. C. Establish payment systems and digital platforms to increase opportunities for young consumer groups to access lottery products and increase their willingness to purchase.

5. Short- and long-term business development plans (1) CTBC Holding 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term A. Leverage brand benefits and expand existing competitive edge. B. Strengthen legal compliance and corporate governance. C. Continue to improve capital management and capital efficiency. D. Simultaneously advance autonomous and non-autonomous growth and seek opportunities for mergers and acquisitions to further ensure steady growth. E. Integrate group resources, put digital finance at its core, and continue its digital transformation. F. Lay a foundation for its life insurance business to remain stable and serve as a profit-making engine for CTBC Holding. G. Take advantage of cross-border platforms and expand deeper into markets across Asia. (2) CTBC Bank 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term A. Institutional banking, capital markets, and overseas business a. Maintain a leading position in Taiwan's financial industry and provide customers with industry-leading financial services while continually cooperating with internal and external parties to enhance the Bank's product innovation capabilities, including for commercial banking products and capital market products. b. Establish a strong presence in Hong Kong, Singapore, and New York as part of efforts to become a financial hub for multinational clients in Greater China, Southeast Asia, and North America. c. Actively expand into new markets with high growth rates, expand its service areas, optimize and innovate its service model for SMEs, and become a leading bank for quality SMEs through customer group operations and deepening relationships. d. Continually improve its service processes, capital efficiency, and operational and management capabilities. e. Steadily expand into overseas retail banking markets and cultivate local niche markets to ensure stable profit:

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(a) In accordance with the environmental and industrial development of each country, and based on the characteristics of branch business, identify target customer groups and products. (b) Fully utilize the Bank's cross-border platform and product capabilities to provide comprehensive regional financial services. B. Retail banking Supported by its personalized, digitalized, and diversified services, become a customer-centered all- round retail bank; give consideration to improvement and innovation, to its three business engines of wealth management, payment finance, and consumer finance, and to its five key customer groups (high net worth, wealthy, high potential, enterprises, and digital services); and deepen customer operations according to its 10 established strategies in order to increase revenue. a. Wealth management: Optimize wealth management and strengthen the management of high net worth customers. b. Consumer business: Expand payroll and housing mortgage business and differentiate related business models for corporate customers. c. Payment business: Retain core customers and build new business models and business scenarios. d. Operating platform: Build a new digital model to attract and engage customers, including by integrating traditional and digital platforms with Big Data. e. Overseas platform: Have private banking business take root in regional markets and enter the consumer finance market in China.

(3) Taiwan Life 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term A. Based on the strategy of "seeking asset growth on the back of stable profits", the specific business plan is as follows: Classify various products by income and pursue returns to scale a. Bank custodian channel: Adopt a consultancy marketing sales model and build a team of expert consultants for all-round financial management. b. Digital services: Strengthen customer interaction and service to improve integration, integrate contact channels in order to sell complex products, and create a digital business model. B. Offer services for all age groups a. From when their needs arise to product selection and purchase to follow-up services, offer younger customers a variety of tailored services. b. For the Sandwich Generation (35–60 years old), provide financial management planning services for each stage of life. c. Provide services that specifically address the needs of aging customers. C. Upgrade systems, processes, and workforce to enhance core competencies a. Establish a precise analysis model to gain insight into the company's customer bases. b. Create and optimize internal processes to improve operational efficiency. D. Strengthen asset-liability matching and consolidate stable profits a. In response to the asset allocation adjustment mandated by International Financial Reporting

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Standard 17, the current and subsequent impact of net value fluctuations will be reduced. b. Expand yield-oriented real estate allocations and increase the high-quality, high-yield parts.

(4) CTBC Securities 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term A. Actively develop new types of finance and securities commodities, recruit talent, establish a development platform for Greater China, expand overseas business opportunities, and move toward the goal of developing an all-around international investment banking securities business in Greater China. B. Integrate the group's resources to provide investors with a digital securities platform and one-stop shopping for securities, foreign securities, futures, and other commodities. C. Externally cooperate with the relevant investment units of various CTBC Holding subsidiaries and academic institutions to increase financial information capabilities and increase profit margins. D. Continue to seek large underwriting cases, expand market share, and actively participate in financing cases for TWSE/TPEx listed companies in the overseas capital market in order to provide customers with more complete capital market financing products. E. Continue to strengthen the professional competencies of trading personnel to improve operational performance through information-assisted and hedging trading systems. F. Expand the issuance and trading volume of warrants and establish a brand image of quality warrants in order to create and find market inroads.

(5) CTBC Venture Capital 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term A. Taking the Greater China region as the core development area, gradually establish an overseas investment platform and continue to manage the scale of asset management, driving the company's growth into a venture capital fund with a presence across Asia Pacific. B. Continue to seize opportunities for international cooperation, recruit and retain international talent and accumulate foreign cooperation experience, and, to expand the scope of financial products and services in response to international business needs and to effectively utilize CTBC Holding resources and harness synergy with other group subsidiaries, provide customer with their required funds as well as with financial planning and business development strategies. With these practices, CTBC Venture Capital hopes to stand out from the general venture capital industry by offering more diverse, more professional financial services.

(6) CTBC Asset Management 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term A. Domestic asset management business: For the real estate business of other group subsidiaries, the feasibility of renting, escrow, or activation will be examined by CTBC Asset Management in order to maximize benefits for CTBC Holding. In addition, research and develop relevant operational

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procedures to assist customers in bidding for foreclosed homes. Furthermore, where permitted by the law, expand into overseas markets and continue to search for suitable investment targets domestically and regionally, as well as steadily improve profitability by expanding investment scope in order to achieve the business objective of sustainable growth. B. Leasing in China: CTBC Leasing's objectives for its five-year development strategy comprise two stages: adjusting business models and optimizing infrastructure (2017–2018) and accelerating the scale of development and increasing market penetration (2019–2021). Its short- and long-term growth strategies and action plans are formulated based on three principles—establishing teams and optimizing human resources, establishing systems and strengthening foundations, and building systems and improving efficiency—in order to adjust its business plans and improve its infrastructure with the vision of becoming Greater China's most comprehensive financial service provider. In the future, the company will move forward in the following directions: a. Strengthen customer channel development and management as well as two-way customer base operations, deepen its supplier channels, strengthen its system management and data analysis capabilities, and continue to increase its regional focus on industry operations. b. Create value through its leasing platform and improve group synergy. c. Adjust its regional operating models and strengthen its risk prevention and asset quality. Establish reliable incentives and elimination mechanisms, recruit outstanding local talent, and build a leasing valuation team. d. Improve system resource infrastructure and leasing asset management capabilities, fully localize human resources, establish specialized leasing business models, and create long-term competitive advantages.

(7) CTBC Investments 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term Facing the competitive market environment dominated by large asset management companies in Europe and the United States, CTBC Investments will continue to expand its market share in Taiwan through the service advantages of CTBC Holding's subsidiaries and further improve its overall operating performance. The specific business development plans are as follows: A. Customer-focused: Adopt a dual development strategy of domestic and foreign fund products and develop diversified products and services in response to differing financial environments in order to meet customers' various investment and financial needs. B. Expand the service network: For the sales channels, which are centered on CTBC Holding's subsidiaries, further expand them to include three external channels: banking, life insurance, and securities. Provide tailored education, training, and investment information services according to the attributes of individual channels and develop exclusive products by deepening its cooperation with specific channels. C. Assemble an elite workforce: Actively recruit and cultivate outstanding investment research talent to be able to provide customers with long-term stable investment returns and achieve their target returns. The primary goal in this area is establishing an Asian investment research team, which can further enhance the operational efficiency of overseas funds.

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D. Diversified service platforms: Strengthen and optimize its customer service and information system functions and provide convenient and diversified information channels for partners and customers in the face of increasingly complex investment environments. E. Rigorous risk control: Through its quality control and system assistance, together with its independent risk monitoring team, review each portfolio in a timely manner and conduct regular investment process reviews to ensure that investment teams can grasp the risk level contained in the portfolio as the market environment changes as well as ensure that the investment strategy and performance of each fund meets the original estimated risk and achieves its expected ROI.

(8) CTBC Security 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term A. In the face of fierce competition, evaluate potential M&A with small security operators. B. Research the cash transportation and replenishment security business. C. In moving forward, be guided by its principle of prioritizing service and brand quality.

(9) Taiwan Lottery 1) Short-term: Please refer to "2. Business plans for 2019". 2) Long-term Continue responding to changes in market trends, developing innovative products, and strengthening its digital marketing to attract younger customers and expand its market size. Further communicate with and lobby the competent authorities to loosen relevant regulations to help it maintain stable growth in the lottery market and achieve its annual sales and profits targets. Finally, continue highlighting the public welfare value of the lottery and maintaining the core concept: Buy lottery for public welfare to accumulate merits.

(II)Cross-industry and cross-selling benefits

Subsidiaries of CTBC Holding with cross-selling potential include CTBC Bank, Taiwan Life, CTBC Securities, CTBC Venture Capital, CTBC Asset Management, CTBC Investments, CTBC Security, and Taiwan Lottery. Through cross-selling, Taiwan Life can provide life insurance products to meet the insurance needs of CTBC Bank customers; CTBC Securities can provide securities underwriting services for the Bank's corporate clients and to meet the securities brokerage needs of individual clients; and CTBC Investments can meet the investment and financial management needs of the group's banking and insurance customers. All of the above are examples of cross-selling among subsidiaries of CTBC Holding, with the aim of meeting the needs of consumers for one-stop shopping and thereby enhancing the overall quality of the group's financial services.

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(III)Market and business overview

1. Sales and provision areas of major products and services in the financial market Major products Major sales and provision areas and services Taiwan is the main sales area for CTBC Holding's various institutional banking products. For overseas markets in recent years, the Company has taken advantage of the integration of CTBC Institutional Bank's overseas network and platform and provided Taiwanese customers with complete cross- banking, border services. In addition, non-Taiwanese customer groups have been cultivated; the group's capital presence in the financial centers of Hong Kong, Singapore, and New York have been strengthened; markets, and and the cross-border financial needs of customers in Greater China, Southeast Asia, North overseas America, and Japan have been emphasized. Regarding the overseas retail banking business, CTBC business Holding continued to develop its deposit, payment, cash management, wealth management, and loan business in Japan, North America, and Southeast Asia in accordance with the development of specific markets and the needs of target customers. Taiwan is the main sales area for wealth management business. The Company has a Wealth comprehensive range of channels and product lines in the domestic market to fully Banking business management meet local customers' financial needs. Taiwan is the main sales area for guaranteed loan and unsecured lending business. Loan In this area, the Company maintains comprehensive channels and complete product business lines in the local market, combined with digital channel flow, and has optimized its Retail capital lending process to meet customers' lending needs. banking Taiwan is the main sales area for credit card and emerging payment models. CTBC Holding has continued to develop new products in order to acquire new customers; strengthen existing products and services; deepen relationships with its existing Payment customers; and conduct business management and resource allocation. Furthermore, business both independently and in cooperation within various industries, the Company has developed e-wallet and third-party payment platforms to deepen integration in customers' lives. Securities Taiwan is the main sales area in this business segment. business Venture capital Taiwan is the main business area for venture capital operations, supplemented by business in the United States business and Asia Pacific. Asset Taiwan, Europe, and the United States are the main sales areas. For specifically the financial leasing business, management China is the main sales area. business Security business Taiwan is the main sales area. Lottery business Taiwan, including its offshore islands such as Penghu, Kinmen, and Matsu, is the main sales area. Insurance Taiwan is the main sales area. business Investment trust Taiwan is the main sales area. business

2. Future market supply and demand (1) CTBC Holding 1) Supply According to the competent authorities, as of 2018, Taiwan was home to 16 financial holding companies, 38 domestic banks (with approximately 3,400 branches), and 23 life insurance companies. In general, the domestic financial market is saturated and characterized by fierce competition. Price competition is prevalent in the industry, resulting in low interest rate spreads in terms of deposits and loans. Operating costs are gradually rising because of factors such as legal compliance and anti-money laundering requirements. If the unfavorable current conditions of the overall business environment persist, operating difficulty may increase for small financial institutions, with some potentially exiting the market or merging.

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2) Demand In the first half of 2018, the domestic economy maintained a moderate expansion; however, GDP growth slowed in the third quarter as a result of global economic instability, including from the China–U.S. trade dispute. Looking ahead to 2019, if the aforementioned trade conflict intensifies further, a continued impact on the global economy can be expected. Countries worldwide have lowered their economic growth forecasts for 2019; Taiwan's Central Bank has forecast 2.33% growth for the year. Due to the predictions of slowing economic growth, overall financial demand tends to be conservative; however, demand for high- quality, low-volatility financial commodities for capital preservation is expected to increase.

(2) CTBC Bank 1) Supply A. Institutional banking, capital markets, and overseas business In the domestic market, the interest rate spreads for corporate deposits and loans have not been able to be effectively improved and have thus remained low. However, with a trend of interest rate increases now established in the United States, the spreads are expected to grow further. In addition, the competent authorities have continued to promote deregulation. This means open banking business projects may be undertaken, thereby encouraging innovation and effectively improving the competitiveness of domestic banks. However, financial institutions must abide by the law, obey disciplinary rules, and pay close attention to risks and information security measures, all of which will increase these banks' operating costs. In the overseas market, CTBC Bank has continued to actively expand its position in response to incentives from Taiwan's central government for operators to join its New Southbound Policy push. In Southeast Asia, the Bank is on a competitive footing with other Taiwanese banks in terms of number of locations and it maintains a moderate growth rate. Across the region, the Bank's penetration rate remains low while the retail banking business has development potential. However, with the popularity of internet coverage and the improvement of digital financial efficiency, the market share of non-bank financial institutions has gradually increased, while the competition of retail banking has also intensified. Furthermore, the Chinese population in North America is continuing to grow, and banks are devoting greater effort to satisfying this customer group. In Japan, the Bank will provide financial management advisory services and loan services to both retirees and younger customers to meet their long- term wealth accumulation and capital needs. In China, with the gradual accumulation of branches and licenses and the advantages of CTBC Bank's cross-border business services, the Bank will be able to provide domestic and foreign financial services for China-based enterprises. B. Retail banking Trade disputes between China and the United States affected the global economic situation in 2018, including Taiwan's economic growth. In 2019, with GDP growth and inflation expected to slow gradually, it is expected that the Central Bank of Taiwan will keep its interest rate policy unchanged, the spreads against the U.S. dollar will increase, and the investment market will take a conservative wait- and-see attitude. The relevant laws and regulations continue to require strict management and control over the sales and risks of wealth management products. The Bank actively promotes diversified asset allocation and

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continuously strengthens the scope of its product range, which still presents opportunities for wealth management. Various digital finance technologies and business segments have developed rapidly, with customer behavior and expectations as well as market competition having changed dramatically as a result. The competent authorities have actively guided the opening of various online businesses. The loosening of regulations and the introduction of third-party payment systems, electronic ticketing, e-wallets, P2P loan companies, and internet-only banking has resulted in the flourishing integration of online and offline transactions. Meanwhile, competition is intensifying between financial and non-financial operators. 2) Demand A. Institutional banking, capital markets, and overseas business Due to the slow momentum of the global economic recovery, domestic market demand has not seen a significant recovery and overall lending growth has been weak. The wider Asian economy is still relatively strong. Despite the pressure of an economic downturn, authorities in China have maintained market liquidity and stable economic growth through various measures, such as increasing infrastructure investment, moderately injecting liquidity into the market, and reducing enterprise costs. As such, financial demand in CTBC Bank's overseas markets is expected to continue. In the overseas retail banking market, more than half of the Indonesian and Philippine populations do not have a bank account, signaling these countries' high development potential. In North America, the home buying and mortgage business from Chinese customers remains stable; furthermore, wealth management demand is growing along with the increasing number of wealthy Chinese customers. Japan continues to slide deeper into its status as an aging society; its retired population currently possesses more than 60% of wealth in the country while younger workers need to start accumulating wealth. The market still has basic demands for various financial management consultancy and loan services. B. Retail banking Regarding the domestic customer structure, the aging of the population is continuing rapidly. By 2036, people aged 65 years or more are forecast to account for 30% of the total population. Also in coming years, digital customers who value shared and digital experiences will enter the workforce in larger numbers. With the steady growth of SMEs in economic development, the demands are expected to change and become increasingly diverse. The Bank's high net worth customer base has grown steadily. In 2018, it reached approximately 320,000 in number, representing NT$19 trillion in assets. This is also resulting in growing demand for integrated family money management and wealth inheritance, which are important business opportunities along with those presented by aging and retirement planning. Fintech services continue to mature and innovate. Most customers now have access to financial services through physical and digital channels, including via mobile devices. As the Bank endeavors to provide a consistent, real-time digital service experience, meeting the needs of digital natives and other tech-savvy users, rather than baselessly holding on to traditional service models, is key to achieving customer satisfaction.

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(3) Taiwan Life 1) Supply At present, Taiwan's life insurance market comprises 23 companies. In 2018, the United States continued to raise interest rates. With customers expecting interest rate increases in the future, traditional insurance products were mainly been based on variable-rate life insurance that year. Investment-oriented products sold well because of the good performance of the capital market in the first half of the year. Products linked to target maturity funds also saw strong sales. In addition, the cost of hedging instruments rose because of the continued expansion of the Taiwan–U.S. interest margin. Life insurers have strengthened their foreign currency commodity sales and reduced their exchange risk to maintain their ROI. Taiwan officially became an aged society in 2018. In response, the competent authorities have promoted a steady stream of policies aimed at encouraging the sale of guaranteed goods, such as by increasing the interest rates of liability reserve funds for long-term guaranteed policies; reducing premiums; promoting long-term care, micro, and guaranteed products that have demonstrated benefits; and providing an industry stabilization fund with a preferential withdrawal interest rate. In response to these policies, many life insurers have increased their sales of guaranteed products. With the advancement of technology, life insurance companies are gradually applying technology to all aspects of the insurance value chain. At present, they have conducted survival surveys through video calls, accelerated the claims settlement process through the eACH instant remittance mechanism, and set up a "self-insurance" machine at an airport to allow customers to purchase travel and other insurance services by themselves at any time. The scope of the application of technology is expected to continue expanding in the future. 2) Demand As of 2018, the premiums of new contracts totaled NT$1.38 trillion, of which traditional products accounted for approximately NT$876.5 billion. Taiwanese insurance customers prefer financial products and expect the U.S. to continue raising interest rates; as a result, foreign currency products and traditional variable-rate life insurance were in the greatest demand in 2018. Investment-oriented products drove demand because of the favorable performance of the capital market in the first half of the year, and new contract premiums totaled NT$503.4 billion for the year as of 2018, during which time target maturity fund-linked products were popular. Taiwan's society is rapidly aging. As it does, insufficient social welfare funding is emerging as a serious problem; in addition, the health insurance system has undergone multiple changes. As people here seek to ensure the quality of their medical care, their willingness to pay out of pocket for their own health expenses has increased. Furthermore, Taiwan's sub-replacement fertility rate has spurred many in the country to prepare more carefully for their retirement. Thus, the demand for supplemental products purchased to counter the insufficient publicly provided social welfare is expected to grow substantially; such products include annuity, medical, and long-term care insurance. The public's preferences have also changed in terms of purchasing channels due to the now ubiquitous presence of online and mobile communication. Online sales performance has grown significantly since the competent authorities opened up the internet as an approved sales channel for endowment insurance. As of 2018, online insurance premiums totaled approximately NT$1.9 billion—an increase of 226% compared with the previous year. In response to the development of digital technology, customers expect that the insurance industry will

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provide the same convenient sales experience as offered in other industries. As a result, more attention is being paid to ensure the consistency of both the digital and physical services of Taiwan Life.

(4) CTBC Securities 1) Supply The number of national securities companies was reduced from 221 in 1997 to 74 in December 2018. Citing increased information and anti-money laundering costs, the competent authorities encouraged mergers within the industry. Going forward, the number of companies is likely to continue decreasing because of various factors, including M&A among financial holding companies. However, the polarized development trend of large-scale vs. niche markets means that competition in the securities industry will continue to intensify. In addition, the brokerage branch business model has evolved into a means of channel marketing. In the future, securities firms should also move toward comprehensive channel integration in the provision of products and services. In terms of brokerage products, as well as existing TWSE stocks, futures, and options, securities dealers are provide investors with overseas securities reconsignment services in order to enhance their profitability. Furthermore, as digitalization continues and with the ubiquity of smartphones, customers' contact and management channels will no longer be restricted to or by physical channels. With the relaxing of rules and regulations for online businesses, competition is increasing among fintech startups and dealers at home and abroad, who are offering investors diverse investment experiences and channels. At the same time, many securities firms of the financial holding type have launched their own customer acquisition apps or have cooperated with third- party startups to differentiate their apps through technological innovation and process improvement. Because of the past booming development of the capital market, the number of domestic securities firms has grown substantially, causing excessive competition in the underwriting market and indirectly affecting the service quality of underwriters. The business has exhibited a trend of internationalization as a result, with overseas-based brokers seeking to enter the Taiwan market. As such, the fierce competition in the underwriting business will remain. Furthermore, Taiwan's economic and industrial development has been below that of emerging markets in recent years and it has proven difficult to attract large-scale industries to be listed here. In response to the government's New Southbound Policy, the underwriting business has been gradually seeking more opportunities for Taiwanese companies based in China and Southeast Asia to return to Taiwan to go public. The competition in the warrants market is still intense, with more than 20 securities firms actively issuing warrants. No impending change in this competitive environment is expected. In recent years, the FSC has allowed more securities-related businesses, including the establishment of offshore securities units and applications for the issuance of exchange-traded notes. In doing so, its intent has been to facilitate the introduction of securities firms to develop diversified goods and services and to actively promote cooperation with Southeast Asian financial markets in order to activate Taiwan's capital market. 2) Demand To accelerate the development of the securities industry, the competent authorities have in recent years planned and loosened a number of regulations, including to facilitate the establishment of subsidiary ledgers, two-way securities lending, and unlimited-use loans, in order to activate funds. In terms of the

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underwriting business, to strengthen the capital market, the competent authorities are continuing to make legislative amendments, and the future development of the capital market is expected to be positive. In addition to the increasing number of domestic TWSE/TPEx-listed companies, considerable demand exists for IPO and refinancing services provided by underwriters. Furthermore, since the policy change that allowed foreign companies to go public in Taiwan, many Taiwanese companies that are based in the United States, Singapore, Malaysia, and China have returned to Taiwan to list on the TWSE or TPEx. This deregulation has brought considerable business opportunities to the underwriting market. The penetration rate of emerging platforms, such as those for mobile devices, has exceeded 85%, indicating clear market demand for digital securities services. In recent years, the FSC has given financial institutions the green light to invest in fintech industries and has promoted investment in the field, opening more opportunities for the development of innovative technology and digital channels. Meanwhile, as income and education levels have increased over the years, so too have investors' acceptance and demand for various financial products, extending from those in Taiwan's stock market to those in overseas markets. The trading volume has recorded record highs year after year and has exceeded NT$2 trillion, showing that the provision of diversified products and financial services has become an important consideration for investors. As are result, securities companies have extended their operations and product lines overseas.

(5) CTBC Venture Capital 1) Supply An innovative and vigorous entrepreneurial spirit is necessary for domestic economic development. In the current circumstances of increasingly fierce international competition, rapid industrial restructuring, and the rise of emerging economies, Taiwan must compete with other countries on the same stage in terms of entrepreneurial environment. A flexible venture capital environment is paramount to improving Taiwan's entrepreneurial environment. In seeking to promote venture capital investment in Taiwan, the government has made indirect investments through the National Development Fund. These efforts are anticipated to promote Taiwan's industrial innovation, drive the growth of the knowledge economy, improve the current investment environment, and increase international competitiveness through venture capital business combined with capital, technology, interpersonal networks, talent, management, and investment flexibility in addition to other professional capacities. 2) Demand Every year, as the economic environment changes, CTBC Venture Capital seeks out industries with the potential for explosive growth. In the past, the most popular investment projects have been in the semiconductor, new energy, and technology, media, and telecommunications sectors. However, because of the economic cycle, the internet, and consumer behavioral changes, core adjustments have been made to the venture capital industry's conventional investment portfolios, with the addition of popular new targets such as biotech, traditional industry upgrading, the internet of things, the cultural and creative industry, AI, self-driving vehicle technology, and fintech.

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(6) CTBC Asset Management 1) Supply A. Investment and disposal of domestic non-performing asset-related industries The average NPL ratio in the domestic banking industry was maintained at a low level in 2018 (0.24% as of that year). In accordance with an FSC amendment, banks were requested to press for the payment of NPLs, and the sales conditions of NPLs were limited. Therefore, the number of cases in the NPL market was dramatically reduced. In 2018, no amount of NPL sales was recorded among domestic financial institutions, constituting a sharp contrast from the average sales figure of NT$189.16 billion recorded between 2001 and 2008. As the NPL ratio of domestic banks remains low, the number of court cases brought by banks seeking to force repayment is not expected to rise significantly in the short term until the Central Bank raises interest rates considerably. Cases in the foreclosure market are also not expected to see any significant short-term growth. B. Financial leasing industry in China According to the China Leasing Union and Tianjin Binhai Financial Leasing Institute, the financial leasing business in China has maintained steady growth in three sectors: financial, domestic, and foreign-funded leasing. The number of enterprises had increased from 9,676 at the end of 2017 to 11,777 at the end of 2018, representing growth of 21.7%. A total of 117 domestic leasing companies were among the newly added firms. Furthermore, 1,984 foreign-funded leasing enterprises (for a total of 11,311 such firms) were newly established, accounting for 96% of the industry. The industry's registered capital increased from approximately RMB 3.2331 trillion at the end of 2017 to approximately RMB 3.2763 trillion at the end of 2018, representing growth of 1.34%. Of the most recent total, the contribution of financial leasing increased approximately RMB 28.8 billion from the previous year, whereas domestic leasing increased approximately RMB 6 billion. Foreign-funded leasing, meanwhile, increased approximately RMB 8.3 billion from RMB 2.8300 trillion to RMB 2.8383 trillion, accounting for 86.60% of the industry's total registered capital. 2) Demand A. Investment and disposal of domestic non-performing asset-related industries Sources of public auction cases in the domestic NPL market have gradually declined and asset management companies have disposed of their existing NPL positions over the same period. Currently, many asset management companies have difficulty finding sources of NPL cases. In addition, the current capital market is still relatively loose. Therefore, asset management companies are turning to the foreclosure market or government agency public auctions to find suitable real estate investment targets. However, without a significant increase in market supply, the competition among tenders and auctions will intensify further and the transaction prices of such cases will gradually increase. B. Financial leasing industry in China As of the end of 2018, the balance of Chinese financial leasing contracts was approximately RMB 6.65 trillion, representing a 9.38% increase of RMB 570 billion from the RMB 6.08 trillion recorded for the same period the previous year. Of the total, financial leasing enterprises had a leasing contract balance of approximately RMB 2.5 trillion, an increase of approximately RMB 220 billion from RMB 2.2800 trillion in the same period last year, representing a rise of 9.65% and accounting for 37.6% of the industry total. Domestic leasing enterprises had a leasing contract balance of approximately RMB 2.08

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trillion, an increase of approximately RMB 200 billion from RMB 1.88 trillion in the same period the previous year, representing a rise of 10.64% and accounting for 31.3% of the industry total. Meanwhile, foreign-funded leasing enterprises had a leasing contract balance of approximately RMB 2.07 trillion, an increase of approximately RMB 150 billion from RMB 1.92 trillion in the same period last year, representing a rise of 7.81% and accounting for 31.1% of the industry total. Amid the regulatory system transfer and financing difficulties leasing enterprises are facing from banks in 2018, the industry's growth rate slowed as expected. Although the operating risk of many leasing companies has increased, their development remains healthy and stable overall, with no signs of industrial or regional risks.

(7) CTBC Investments 1) Supply In 2018, the financial market was faced with large fluctuations and the growth rate of the overall fund market declined. According to the Securities Investment Trust & Consulting Association of the R.O.C., as of the end of 2018, the overall market size had increased by NT$61.3 billion, with domestic funds increasing by NT$253.4 billion, overseas funds decreasing by NT$310.4 billion, and discretionary products increasing by NT$116.3 billion. Since 2018, 109 new domestic funds have been established, of which 42 are ETFs and 35 are fixed income funds. Of the 42 ETFs, 27 are bond ETFs totaling approximately NT$190.5 billion. Of the fixed income funds, 83% are target maturity funds, which were the main focus of new product issuance in 2018. The discretionary market continues to prevail because of its various policies, professional management, and favorable dividends. Its growth rate in the past two years has been up to 20% while the authorized investment in investment-oriented policies has reached NT$740.6 billion, which also constitutes an important source of growth for the overall fund market. 2) Demand Since the recovery from the 2008 financial crisis began, the global market has experienced a sustained bull market. However, faced with the gradual monetary tightening of the Central Bank and slowing economic growth, the market is facing more downside risks. In 2018, the market recorded at least three corrections. As a result, investor demand for domestic and foreign funds had started to slow. As of the end of 2018, domestically approved domestic and overseas funds, together with discretionary funds, totaled NT$7.6641 trillion. This represented an increase of NT$61.3 billion from the end of 2017; however, the overall 2018 growth rate had slowed from the previous year. In the face of market turbulence, overseas funds have introduced stock funds of multiple asset and income types, which have been well received by investors. Furthermore, the discretionary market, through cooperation between Taiwan Life and CTBC Investments, along with increased demand for receipts of interest due to the retirement of investors, has attracted funds to life insurance investment products. Together, these developments have all brought fresh opportunities to the entire fund market.

(8) CTBC Security The company will analyze the strengths, weaknesses, and potential countermeasures regarding the security market's supply and demand, growth, market area and target market, competition strategy and niches, and development prospects.

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1) Supply More than 600 domestic security companies currently operate in Taiwan, employing approximately 85,000 registered employees. Because of oversupply and excessively low market prices, profitability is difficult to achieve. However, based on analysis of the security industry's density domestically and in Japan, CTBC Security believes room for growth remains in Taiwan's industry. 2) Demand The challenges restraining the industry's development are related to the low prices of public bids for security guard services, the slow amendment of the laws and regulations on the security industry and management of apartment buildings, the frequent change of legally agreed upon working hours for all security employees, and the large number of vacant security positions. Following the privatization of government-owned enterprises, more security companies are expected to enter the market. How the government and security companies ultimately choose to develop the industry remains an open question worthy of review.

(9) Taiwan Lottery 1) Supply In response to the changing needs of the market, Taiwan Lottery is adjusting the structure of its existing lottery products as well as actively researching and developing innovative products that are more diversified, are more entertaining and engaging, and have higher winning rates. The company is also employing various marketing models to expand its lottery channels in order to integrate lottery products into consumers' lives. 2) Demand In 2018, sales growth in most mature lottery markets around the world stagnated. With the exception of areas that saw slight rises as a result of legal increases in the prize payout rate or the promotion of online betting by lottery issuers, most lottery markets saw flat or negative growth. Taiwan's public welfare lottery market entered a mature stage after its annual sales peaked at approximately NT$130 billion in 2014 and 2015. As is the case for overseas lottery issuers, Taiwan Lottery faces difficulty recapturing lottery sales growth if it is unable to develop online betting that reflects the living and consumption habits of younger people. In addition, private consumption momentum in Taiwan is unlikely to grow in the next few years, thus the consumption behavior regarding non-necessities will tend to be conservative. Numerous factors have further limited the development of the lottery industry, such as the statutory restrictions on the prize payout rate, the demand of the competent authorities and legislators for stricter issuance management and review, the competent authorities' lack of funding to promote the image of the public welfare lottery for five consecutive years, and the ban on online betting. Faced with these severe challenges, Taiwan Lottery is actively developing new products and employing innovative marketing techniques. It is also planning to establish a digital payment system as a means of expanding the market and spurring demand.

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3. Business objectives (1) Continue to deepen domestic presence in order to maintain leading market position. (2) Strengthen the products and financial services of overseas subsidiaries and branches in their local markets, enhance the integration of cross-border platforms, and continue steady operation. (3) Strictly manage asset quality and pursue business opportunities in China and Southeast Asia. (4) Strengthen the Company's corporate governance and enhance its brand image. (5) Expand overseas business to simultaneously pursue organic growth and evaluate new investment opportunities. (5) Continue fintech development and the digital transformation of the original business. (6) Strengthen capital structure, steadily manage asset quality, develop diversified business models, and continually increase non-interest business income. (7) Bolster the image of the public welfare lottery and develop a steady stream of new products in order to enhance sales momentum and achieve sales targets, thereby enlarging the Bank's sources of interest-free funds and wealth management commissions. (8) Continue to expand insurance and recurring investment income to lay a solid foundation for profitability. (9) For the securities business, increase the proportion of fee income to overall revenue by launching digital securities accounts and an offline ordering platform. In addition, utilize CTBC Holding's resources, continue to expand its customer and revenue contributions, and increase its overall market share. (10) Expand investment business scale by leveraging CTBC Holding's resources, designing customized products, and enriching its domestic and foreign product lines. (11) Integrate the resources of CTBC Holding subsidiaries, harness new synergies, and increase overall revenue. (12) Comply with all relevant laws and regulations and strictly prevent money laundering and terrorist financing.

4. Strengths and weaknesses of development prospects (1) CTBC Holding 1) Strengths A. Brand value: Over its decades of operation, CTBC Holding has developed a highly favorable public image built on its "We are family" brand spirit and its principles of being caring, professional, and trustworthy. A global brand value survey in 2018 ranked CTBC Holding as having the highest brand value in Taiwan's financial industry. This public image, however, has been earned not only through its trusted financial services; the Company's philanthropic efforts are also long-running and widely appreciated. Its annual Light Up a Life campaign, now in its 34th year, raises funds for use on the ground with vulnerable groups, including by investing in sports, anti-drug programs, arts and literature, and education B. Sound risk management: CTBC Holding also has built a reputation for sound risk management. It carefully complies with the requirements of the competent authorities and the Basel Accord in its capital planning, is continuing to develop new risk monitoring technologies and systems in response to the expansion of the group's business and business plans, and is introducing data-driven practices that will actively improve the effectiveness of its risk management. C. Leading financial performance in the industry: CTBC Holding's net income after taxes totaled NT$36 billion in 2018, leading the industry in profits. It also fully satisfied the financial indicator standards set by the competent authority.

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D. Actively invest in digital finance: CTBC Holding is actively pursuing its digital transformation, as part of which it is seeking to strengthen the mobile accessibility of various financial services, provide customers with the most convenient and timely service, improve efficiency, reduce costs, and launch new digital financial products. The Company's multi-faceted approach is a sign of its commitment to developing digital finance and of the remarkable achievements it has already made in the field. 2) Weaknesses A. Excessive market competition: Domestic financial institutions face problems from excessive competition. In the fierce external business environment, various financial institutions have adopted a cost-oriented competition strategy, which has limited the industry's profitability. In the future, because of the continued opening up of the financial industry and the impact of emerging digital technologies, the industry will not only face competition from within but will also be affected by non-financial industry players, which will compound its existing operational difficulties. B. Increased legal compliance standards: In recent years, the competent authorities of various countries have implemented stricter legal compliance requirements for financial institutions, and many large international financial institutions have received heavy fines for non-compliance. The requirements for legal compliance, in areas such as anti-money laundering and internal control, have also been tightened continually; those of overseas regulatory agencies have proved particularly stringent. For financial industry operators that maintain overseas branches, such higher supervision standards bring with them increased operating costs. C. More stringent capital requirements: The Basel Accord has put in place stricter requirements for the Bank's re-investment, finance-related business. Therefore, it is incumbent upon CTBC Holding to pay closer attention to capital efficiency, and related growth rates may be limited in the future.

(2) CTBC Bank 1) Strengths A. Institutional banking, capital markets, and overseas business a. In recent years, overseas investment by Chinese enterprises has continued to grow, particularly in the Belt and Road area. This investment highlights the growing scale of Chinese cross-border financing and regional finance, which has mainly centered in Asia. b. After ASEAN's members launched the bloc's free trade agreement, the region's financing demands continued to increase for the financial and infrastructure sectors. CTBC Bank is well positioned to engage in this business as its network in Southeast Asia is more competitive than those of its Taiwan- based peers. c. Rapid wealth accumulation in Asia is positive for the overall market development of CTBC Bank. d. The stable recovery of the North American economy, the increasing population of wealthy Chinese customers there, and the advantages of CTBC Bank's Asia-centric business model will drive business opportunities. e. Japanese household income has continued to grow, driven by the Shinzo Abe administration's loose monetary policy. In addition, Japan's government-driven institutional reforms, such as the gift tax, estate tax, and tax exemption system for small investments, have promoted the activation and transfer of generational wealth, thereby creating wealth management business for the financial industry.

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B. Retail banking Domestic business has been growing steadily. Demand in the retail banking market has remained strong and the development and opening of digital financial and electronic payment services has led to the growth of wealth management, payment, and consumer finance business, while competition has also become more intense. CTBC Bank's strong physical and digital financial service presence, together with its experts in professional financial management, payment, and loan services, will continue enabling the Bank to provide customers with a diverse range of quality, personalized digital services. The introduction of new technologies such as Big Data and mobile apps, along with the Bank's active digital transformation, will further enhance the customer experience and operational efficiency of retail banking. 2) Weaknesses A. Institutional banking, capital markets, and overseas business a. Financial supervision is increasingly strict. Various countries are attaching greater importance to compliance, such as internal control, anti-money laundering, KYC, Common Reporting Standard, consumer protection, and information security issues. Compliance-related costs are growing accordingly. b. Basel III has further increased the capital and liquidity requirements for banks, again increasing their capital costs. c. For some subsidiaries that are smaller in scale, the introduction of more rigorous regulations has led to increases in compliance costs. Certain subsidiaries have also been affected by the reduced financial liquidity of the market and the low interest rate environment. These circumstances are particularly challenging for the deposit and loan businesses. B. Retail banking The competent authorities have tightened the compliance requirements for the management of retail banking services while KYC, anti-money laundering, fair dealing, and sales risk supervision has also been tightened, underlining the question of how best the retail business can expand earnings while balancing risks and ensuring legal compliance. Competition in each business line is intense. The flourishing of fintech and competition from other industries has led to investments in similar directions by competing industries. In response to the complex and varying needs of large customers, how to continually address customer needs, provide consistent and timely services through appropriate channels, enhance the overall business depth and breadth for customers, and maintain innovation momentum and profitability are crucial challenges moving forward.

(3) Taiwan Life 1) Strengths A. Aging-related insurance needs and insufficient publicly provided social welfare are spurring customers to switch to commercial insurance. B. The rise of digital technology has driven the transformation of the insurance value chain and increased opportunities to reach customers. C. The capital adequacy ratio adopts a counter-cyclical mechanism, allowing companies to hold on to

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stock positions for the long term when the market struggles and avoid selling them at a loss for the capital demand. D. The increase in traditional foreign currency-denominated insurance policy reserves is not included in the foreign investment quota, which is advantageous for foreign currency-denominated insurance sales. E. Fluctuations in the investment market and interest rate increases in the United States have driven the demand for foreign currency assets and stable investment-oriented products. F. Compliance with the International Accounting Standards 17 is expected to see insurers return to the sale of more conventional insurance products and make for more robust operations in the future. 2) Weaknesses A. Wealth management-type products (e. g., spreads) are preferred on the market, and the sales of guaranteed products are limited; thus, more resources are required to understand customer needs. B. Hedging costs have increased significantly because of the expansion of Taiwan–U.S. spreads. Combined with volatility in the stock market and a limited bond investment quota for foreign currency- denominated listings, this has made maintaining the return rate on investment difficult. C. Because IFRS 17 will affect net value and one-offs, it is expected that product sales and asset allocation will be challenging in the future.

(4) CTBC Securities 1) Strengths A. CTBC Securities has maintained a long-term presence in overseas markets and has gradually increased the proportion of its overseas business. Meanwhile, the government's New Southbound Policy has promoted regional interaction, development, and cooperation and the competent authorities have strongly encouraged the return of Taiwanese businesses to be listed in Taiwan. These policies have proved favorable to the investment banking business of securities firms. B. CTBC Securities' international financial business and wealth management platform, particularly with its cross-strait reach, provides more flexible investment channels for investors, meaning they do not have to move funds overseas for wealth management. CTBC Securities can meet the needs of both parties with the platform while achieving profitability in the process. C. The stock exchange has introduced new types of financial products, has opened up to new businesses, and is planning a more time-efficient order-matching system, all of which are helpful to stimulating investment momentum. D. The already ubiquitous new platforms of mobile communication, instant messaging, and online communities have accelerated the spread of securities investment information and increased securities trading liquidity, which are positive for the activation of the stock market and are forecast to increase the profits of CTBC Venture Capital. E. With the government's acceleration of the opening of customer agent business, foreign-invested institutions increased the weighting of the TAIEX, and with the easing of various business controls, the ratio of investment by domestic and foreign enterprises will gradually increase, in turn significantly increasing the stability and trading volume of the stock market. F. The competent authorities continued to promote the warrants business and the visibility of warrants products have increased beyond that of the past.

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G. The FSC continued to promote its "Finance 3.0" policy and securities firms have more actively invested in digital services. In the future, having a larger and wider physical presence will not necessarily be an advantage for securities firms; rather, the advantage will lay in their digital competitiveness and digital service differentiation. 2) Weaknesses A. Excessive competition: Because of the excessive competition in the domestic securities market, many firms have adopted a price-based competition strategy, and the commission income has not reached a reasonable level, reducing the firms' profit margins. B. Although the stock exchange's taxation system has been modified, it has continued to affect the confidence of the capital market, the volume of which has not yet recovered to its previous levels. The company maintains fewer branches than its peers, which is unfavorable for warrant marketing activities. C. The company's capital is much lower than that of larger securities firms; therefore, the capital employment and capacity available for the development of new business is relatively limited.

(5) CTBC Venture Capital 1) Strengths A. With the substantial support of the government, emerging industries have become the focus of corporate investment. In recent years, the government has sought to revitalize the economy through mid- and long-term industrial restructuring. Specifically, its "5 plus 2" industrial innovation plan focuses on the industries and projects of smart machinery, green energy technology, biotechnology and pharmaceuticals, defense, new agriculture, the circular economy, and the Asian Silicon Valley. These industries have also become key investment areas for venture capitalists. B. The government devoted resources to strengthening the development of the cultural and creative industry. It introduced the Japan-aimed Taiwan Plus initiative, among others, hoping to bolster Taiwan's competitiveness by cultivating its soft power. It also helped to develop software and hardware to enrich local cultural life by creating a "cultural life cycle development project", building a cultural industry ecosystem, better leveraging cultural practices, and promoting industrial development. C. Changes in consumer behavior have led to more innovative investment opportunities. The development of the internet and financial communication platforms has changed the behavioral patterns of consumers. For example, in Taiwan as in other countries, the conventional consumption habits surrounding music have fundamentally changed; rather than listening to pre-purchased music, be it physical or digital, many people now prefer experiential consumption, such as streaming music and attending live concerts. Furthermore, the rise of electronic payments will see the method overtake traditional payment methods, while various online platforms dominate consumers' online lives and spending. These changes in consumer behavior will be more closely integrated with development of online and offline industries and will also create more innovative investment opportunities. 2) Weaknesses A. Affected by the international economic and financial situation, Taiwan's industrial structure has changed and large-scale, high-quality cases are scarce. In the face of the decline in the number of venture capitalists and investment sources, in addition to the increased investment costs resulting from competition, investment risk has increased. B. As East Asian integration has gradually taken shape, the conditions for international competition

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have deteriorated. In the face of global economic integration, particularly regional integration in Asia, Taiwanese enterprises will be marginalized unless they are unable to break through the bottleneck and receive the benefits of free trade. C. Financial holding companies and banks whose mainly business is commercial banking are still barred from establishing venture capital investment businesses in China, which may reduce the competitiveness of Taiwan's financial holding and venture capital industries in China.

(6) CTBC Asset Management 1) Strengths A. Domestic asset management business: The integration of CTBC Holding's resources will help improve the efficiency of its asset disposal. In addition, the Company will be boosted by its experienced, stable, and united management teams, professional employee workforce, and performance-oriented corporate culture. B. Leasing in China a. The Chinese central government's policies have contributed to the reshaping of the country's economic structure, facilitated enterprises' development into advanced high-end manufacturers and the emergence of strategic emerging industries, and encouraged technological innovation, transformation, and enterprise upgrading. It is estimated that during the so-called 13th Five-Year Plan period (2016–2020), financial leasing in China will have a compound annual growth rate of more than 30% and that the space for further market growth will remain large. b. The General Office of the State Council's Guiding Opinions on Accelerating Development of the Financial Leasing Industry identified the main tasks in four areas (i.e., reform and restrict the institutional mechanism for the development of financial leasing, accelerate the development of financial leasing in key areas, support the development of financial leasing innovation, and strengthen the interim and ex-post supervision of financial leasing) and policy measures in five areas (i.e., construct a legally based and compliant business environment, improve related fiscal and taxation policies, expand financing channels, improve public services, and strengthen the training of talent) with the intent to comprehensively and systematically accelerate the development of the country's financial leasing industry. c. In May 2018, the Ministry of Commerce issued the Notice of the General Office of the Ministry of Commerce on Matters concerning the Adjustments to the Duties of Administration of Financial Leasing Companies, Commercial Factoring Companies and Pawnshops. The duty of regulating the supervisory rules for financial leasing companies was assigned to the China Banking Regulatory Commission, tasking it with eliminating the industry's policy risks at the national level, thereby accelerating the industry's restructuring and the creation of market order. d. The relaxing of regulations for financial leasing companies has allowed them to apply for access to the People's Bank of China credit reference system to resolve the problem of asymmetric corporate credit information and to enhance their risk identification capabilities. e. Financial leasing enterprises in China have become increasingly aware of the registration of movable property. In 2018, the registration of movable property in the financial leasing industry increased significantly, and the awareness and discipline of the involved enterprises has proved to facilitate the healthy development of the entire industry.

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2) Weaknesses A. Domestic asset management business a. In recent years in Taiwan, asset management companies have actively participated in the bidding process, with imbalances in supply and demand driving market prices to record highs. b. The domestic real estate industry is in a period of correction, thus the profit margin from foreclosures has decreased. Downward adjustments to the economic outlook can be expected to increase the risk of CTBC Asset Management. B. Leasing in China a. Overall condition: The Organization for Economic Co-operation and Development has forecast that the China–U.S. trade war will increase tariffs worldwide and in turn increase global trade costs by approximately 10%. b. Industrial environment: In 2018, China's economic structure was constantly optimized, with a focus not only on rapid growth but also the quality of development. Structural supply-side reform will continue to drive the industry transformation and reverse industry reshuffle. The structural deleveraging proposed on April last year indicated that the next round of deleveraging will focus on the debt problems of local governments and state-owned enterprises, and that the growth of capital construction investment will be constrained further. In the first half of the year, private investment showed signs of recovering, and manufacturing investment activity is expected to remain positive going forward. However, the trade friction between China and the United States has increased the uncertainty of the external environment and put downward pressure on the development of the Chinese economy. c. Financial environment: China's central government deepened its financial supervision and risk prevention efforts in 2018, while also spurring the banking industry to become more conservative in crediting financial leasing companies. In an environment characterized by funds shortages and rising interest rates, companies in the sector face highly selective customers in addition to interest rate transfers. d. Leasing industry: The concentration of the financial leasing industry in Shanghai, Tianjin, and Shenzhen has continued, extending the long-running imbalanced, insufficient supply of industry talent. The capital scale of Chinese-funded leasing companies is growing on the back of strong funding, high platform value, and an ability to attract talent. Their Taiwan-funded peers will continue to experience pressure in recruiting talent and establishing customer bases. e. Flaws remain in the leasing asset registration system and the used equipment market, affecting the rights of leasing assets and exit channels.

(7) CTBC Investments 1) Strengths A. CTBC Holding's subsidiaries are able to tailor their public offerings, private offerings, and discretionary products according to customer needs as well as leverage the group's wide-ranging synergy. B. The competent authorities have successively issued or developed policies that are favorable for the sector, such as a new pension fund platform, individual savings account, real estate investment trust, and local equivalent of Yu'E Bao, all of which are conducive to finding new means through which CTBC Investments and the fund market can continue to grow.

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2) Weaknesses A. Low gross profit margin: The discretionary and target maturity funds with high market growth are low- and medium-margin products, and new regulations on the remuneration of sales organization will be implemented in 2020. Sales channel costs are expected to increase as a result and face further upward pressure going forward. B. Low fund retention rate: After the lockout period, the scale retention rate of funds is low, and the profit margin is compressed. C. Operational risk: Back-end operations still rely heavily on labor; labor costs and operational risks will increase with the number of products.

(8) CTBC Security 1) Strengths A. CTBC Security is the only security company in Taiwan that is under a financial holding company. CTBC Holding has a large enterprise scale, stable and profitable business, and a strong brand image, and can be leveraged to expand CTBC Security's customer base to wealthier clients who can afford higher-end security services. B. The completion of CTBC Holding's CTBC Financial Park stands to benefit the security company's planning and development in the cash transportation and counting businesses. C. In general, risk management and related measures are increasingly popular. Because of growing concern regarding public security and safety, private industry entities, such as property management committees and factory owners, have gradually changed their consumption habits from hiring independent security guards or strategically scheduling male employees to be on duty to instead obtaining security service products and services from professional companies that are able to deliver superior service quality and security. 2) Weaknesses A. CTBC Security is a subsidiary of CTBC Holding. The competent authorities require that more than 50% of a financial holding company's total operating revenue must come from financial business; therefore, the security firm's development is somewhat limited. B. According to Article 13 of the Labor Insurance Act, starting in 2019, the ordinary insurance premium rate for employees is now maintained at 10% and that for employment at 1%; fine-tuning of the rate is expected, with an upper limit of 13%. These developments seriously affect security guard deployment businesses, which rely heavily on their employees. C. Certain security companies still adopt improper strategies of low-cost contracting and management. As a result, unit prices for security services have not significantly improved, though the number of residential and business complexes that employ these services has increased.

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(9) Taiwan Lottery 1) Strengths A. Draw games a. The draw games have a broad customer base. According to a market penetration survey, 69% of consumers aged 18 or older (more than 11 million people) have purchased a lottery ticket in the past. b. Taiwan Lottery has a comprehensive sales network; as of the end of 2018, it had 5,604 stores nationwide. c. Marketing efforts can be aimed at deepening the existing cultural practice of purchasing lottery tickets to celebrate Chinese New Year and larger prizes can be introduced and promoted to drive sales during the festival. d. Donations by large-prize winners can be publicized to strengthen the public welfare benefit of the lottery. B. Scratch cards a. A more diverse range of instant lottery scratch cards will be released in order to attract more consumer groups. According to a market penetration survey, 76.1% of Taiwanese consumers aged 18 and over (more than 12 million people) have purchased scratch cards. b. The company can constantly develop and innovate its product lines in order to attract consumers with more diverse and engaging playing methods and higher win rates. c. Higher-priced products can be launched during festivals to stimulate sales. 2) Weaknesses A. Draw games a. The inability to place online bets hampers sales growth. b. The rise of sports betting poses a threat to the public welfare lottery. c. The low winning rates of the lottery result in some consumers losing interest. d. So-called "jackpot fatigue" causes players to not buy lottery tickets until the top prize rolls over to an amount so large that it becomes a topic of public discussion and news coverage. e. Sales have been affected by economic and social changes, including the government's reform of military personnel, public servant, and public school teacher pensions and its implementation of a new workweek policy. f. Pervasive underground gambling affects sales. B. Scratch cards a. The overall prize payout rate may not exceed 60% of lottery ticket sales; therefore, there is limited flexibility in how tickets are issued and draw prizes are structured. b. In getting a product to market, the product design, printing, shipment, customs clearance, and warehouse entry declarations process requires approximately four to five months; thus, little room exists for making adjustments to products and their rollout schedule in response to market changes. c. Sales have been affected substantially by the economic environment and social changes. d. By law, the run of each scratch card product is limited to six months. When a scratch card product expires, any of its unsold cards must be destroyed in accordance with the relevant regulations, thus requiring extra time and cost expenditure.

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(IV)Human resources

1. CTBC Holding employees (Notes 1 and 2) As of Dec. 31, 2017 Dec. 31, 2018 April 26, 2019 CTBC Holding No. of employees 82 137 142 Average age (years) 40.9 41.4 41.9 Average tenure of employment (years) 3.4 4.1 3.8 Employee Employee Employee Proportion Proportion Proportion count count count Ph.D. 4 4.9% 4 2.9% 5 3.5% Education Graduate school 54 65.8% 84 61.3% 85 59.9% University/college 24 29.3% 47 34.3% 50 35.2% Senior high school or 0 0.0% 2 1.5% 2 1.4% below CTBC Bank No. of employees 11,232 11,536 11,525 Average age (years) 38.1 38.3 38.5 Average tenure of employment (years) 9.5 9.6 9.7 Employee Employee Employee Proportion Proportion Proportion count count count Ph.D. 19 0.2% 17 0.1% 21 0.2%

Education Graduate school 2,523 22.5% 2,576 22.4% 2,569 22.3% University/college 7,950 70.8% 8,160 70.8% 8,141 70.6% Senior high school 691 6.1% 743 6.4% 753 6.5% Below senior high school 49 0.4% 40 0.3% 41 0.4% Taiwan Life No. of employees 3,773 3,496 3,414 Average age (years) 43.4 44.1 44.2 Average tenure of employment (years) 9.4 10.0 10.3 Employee Employee Employee Proportion Proportion Proportion count count count Ph.D. 9 0.2% 9 0.3% 9 0.3%

Education Graduate school 404 10.7% 422 12.0% 416 12.2% University/college 2,370 62.8% 2,193 62.7% 2,142 62.7% Senior high school 932 24.7% 820 23.5% 801 23.5% Below senior high school 58 1.6% 52 1.5% 46 1.3% CTBC Securities No. of employees 456 479 508 Average age (years) 40.0 39.5 39.4 Average tenure of employment (years) 7.8 7.3 7.1

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As of Dec. 31, 2017 Dec. 31, 2018 April 26, 2019 Employee Employee Employee Proportion Proportion Proportion count count count Ph.D. 4 0.9% 4 0.8% 4 0.8%

Education Graduate school 113 24.8% 115 24.0% 113 22.2% University/college 305 66.9% 321 67.1% 347 68.3% Senior high school 34 7.4% 38 7.9% 43 8.5% Below senior high school 0 0.0% 1 0.2% 1 0.2% CTBC Venture Capital No. of employees 28 30 28 Average age (years) 43.3 41.2 42.0 Average tenure of employment (years) 2.9 3.1 3.3 Employee Employee Employee Proportion Proportion Proportion count count count Education Ph.D. 1 3.6% 1 3.3% 1 3.6% Graduate school 23 82.1% 23 76.7% 22 78.6% University/college 4 14.3% 6 20.0% 5 17.8% CTBC Asset Management No. of employees 14 17 18 Average age (years) 50.3 49.6 50.1 Average tenure of employment (years) 1.5 2.9 3.5 Employee Employee Employee Proportion Proportion Proportion count count count Education Ph.D. 0 0.0% 1 5.9% 1 5.6% Graduate school 6 42.9% 7 41.2% 8 44.4% University/college 8 57.1% 9 52.9% 9 50.0% CTBC Securities Investment Trust No. of employees 101 110 120 Average age (years) 40.2 41.2 40.9 Average tenure of employment (years) 3.2 3.7 3.4 Employee Employee Employee Proportion Proportion Proportion count count count Ph.D. 0 0.0% 1 0.9% 1 0.8% Education Graduate school 37 36.6% 43 39.1% 43 35.9% University/college 63 62.4% 65 59.1% 75 62.5% Senior high school or 1 1.0% 1 0.9% 1 0.8% below CTBC Security No. of employees 346 350 349 Average age (years) 40.8 41.6 42.3 Average tenure of employment (years) 7.2 7.5 7.2 Employee Employee Employee Proportion Proportion Proportion count count count Graduate school or higher 7 2.0% 6 1.7% 6 1.7% Education University and college 161 46.5% 181 51.7% 178 51.0% Senior high school 176 50.9% 161 46.0% 163 46.7% Senior high school or 2 0.6% 2 0.6% 2 0.6% below 188 Operational Highlights

As of Dec. 31, 2017 Dec. 31, 2018 April 26, 2019 Taiwan Lottery No. of employees 207 211 209 Average age (years) 38.9 39.9 39.9 Average tenure of employment (years) 7.5 8.4 8.5 Employee Employee Employee Proportion Proportion Proportion count count count Ph.D. 2 1.0% 3 1.4% 3 1.4% Education Graduate school 32 15.5% 35 16.6% 35 16.8% University/college 164 79.2% 164 77.7% 162 77.5% Senior high school 9 4.3% 9 4.3% 9 4.3% Trust 4,553 Trust 4,667 Trust 4,645 Life Life Life 6,278 6,080 6,022 insurance insurance insurance Investment Investment Investment 4,814 4,616 4,598 insurance insurance insurance Securities 2,478 Securities 2,539 Securities 2,535 Equity Equity Equity 121 130 130 securities securities securities No. of employees holding professional licenses Internal Internal Internal 6,069 6,495 6,455 control control control Appointed Appointed Appointed actuary 1 actuary 1 actuary 1 (Note 3) (Note 3) (Note 3) Claim Claim Claim 129 128 128 adjuster adjuster adjuster Insurance Insurance Insurance 176 186 186 assessor assessor assessor Note 1: Employees holding concurrent posts in the CTBC Holding group have been included in the CTBC Bank employee list. Note 2: The employee list does not contain contractors. Note 3: Letter No. Jin-Guan-Bao-Chan-Zi-10602023390

2. Staff training CTBC Holding's staff members are its most valuable asset and a key advantage in its pursuit of excellence and sustainable operations. To foster unique talent, the Company's strategic development strategy includes the formulation of an overall talent development policy, a career development framework, and blueprints for various positions as well as supervisors at all levels. In recent years, the Company has more actively invested in cultivating overseas talent as part of the international component of its strategic development plan. The following is a summary of the various employee training programs provided by CTBC Holding, such as job for training, self-development, and executive development: (1) Job training and self-development courses 1) Job training: To deepen employees' professional knowledge and skills, onboard training is held for new recruits and professional training is provided for employees in various positions. This training includes courses for all positions (e.g., corporate finance relationship manager, individual customer finance adviser, financial planner, and customer service specialist), overseas talent training programs, regulation and compliance courses, and risk capital security education. 2) Personal development and improvement: Personal development classroom courses, online courses, and well-being lectures are held regularly to enhance employees' work capabilities and personal development.

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(2) Executive development and team building 1) CTBC Holing's Talent Development Committee was established to evaluate talent at all levels. These efforts, combined with the overall strategy of the Company, facilitate the execution of its managerial talent development plan. Accordingly, supervisors are selected to participate in overseas executive training courses and engage in training and exchanges with national leaders and elites, helping them cultivate a global perspective and a cross-borders approach to business operations and management. Furthermore, the managerial talent development plan undergoes regular internal review and improvement. 2) The existing cooperation with the Wharton Business School of the University of Pennsylvania continued in 2018. Professors from Wharton visited Taiwan and held customized courses at the Company for mid- and high-level executives, including a Leadership Development Program and an Executive Program, respectively, enhancing the leadership and management capabilities of the heads of each Company subsidiary. The Wharton Master Forum and other events were also jointly organized to provide insight on relevant international trends. 3) Furthermore, the Company arranges various training courses and programs every year to cultivate and retain the talent it requires to succeed. These efforts include management training for new executives, management and development training for supervisors, training for overseas subsidiary supervisors who have returned to Taiwan, and training programs for lower-level personnel, aimed at retaining top talent. In 2018, 2,145 in-person classes were held by CTBC Holding, attended 36,915 times, whereas 942 online courses were held, attended 183,792 times. The total duration of employee training was 625,568 hours, with its funding totaling NT$61.46 million.

(V)Corporate responsibility and ethical conduct

1. CSR implementation As an organization committed to sustainable business development, CTBC Holding has long worked to promote CSR and strengthen its corporate governance, environmental protection endeavors, and social participation. In 2007, CTBC Holding published its first annual CSR report. In another industry first for Taiwan, we received ISO 50001 energy management certification in 2012. The Company stayed at the leading edge of the field in 2016, when it adopted integrated reporting principles, and in 2017, too, when it kept pace with the global industry by responding to the United Nations' Sustainable Development Goals. In addition, the CSR report issued in 2018 conformed to GRI standards, again in line with current international best practices. Over the years, the group's long-term CSR efforts have been widely and warmly recognized by professional organizations at home and abroad. Also in 2018, CTBC Holding remained a constituent stock of the Dow Jones Sustainability Indices' Emerging Markets Index, was selected as a constituent stock of the Morgan Stanley Capital International ESG Leaders Indexes and the FTSE4Good Emerging Index, and received a Leadership A- rating from CDP (formerly the Carbon Disclosure Project). Furthermore, at last year's Taiwan Corporate Sustainability Awards, CTBC Holding Chairman Wen-Long Yen was awarded the Enterprise Sustainability Elite Award—the ceremony's highest honor. All of these demonstrate the tangible results delivered by the Company's implementation of CSR, corporate governance, and sustainable development. Furthermore, at the 2018 Best Taiwan Global Brands survey conducted jointly by the Ministry of Economic Affairs' Industrial Development Bureau and brand consultancy Interbrand, CTBC Holding was for the third consecutive time ranked as the most valuable brand in Taiwan's financial sector. The brand value supremacy of the group and bank are true points of pride.

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(1) Sustainable governance To strengthen its corporate governance and enhance its business performance, the Company introduced an independent director system in 2008. After the re-election of its directors at the end of 2016, independent directors accounted for four of the seven directors. Significantly, this marked the first time in Taiwan's financial industry that more than half of such a board consisted of independent directors. Through the diverse professional backgrounds and independence of these directors, corporate governance was strengthened. To reinforce the Board's management and supervisory functions, five committees—the Audit Committee, Remuneration Committee, Risk Management Committee, Nomination Committee, and Ethics and Integrity Committee—have been established under the Board of Directors to help maximize its effectiveness. At the end of each year, all directors are invited to conduct a self-assessment of the Board's operation and of their individual performance. In 2006, the Company launched a professional management system to ensure adherence to the principle of the separation of the Company's operations and supervision. Accordingly, the President leads the management team and is responsible for business performance whereas the Chairman and the Board of Directors supervise the management team, with no directors concurrently serving in a managerial position. In addition, a Corporate Governance Officer position has been created directly under the Office of Chairman to assist the Board of Directors in implementing sound corporate governance practices throughout CTBC Holding and its subsidiaries as well as facilitating coordination among these subsidiaries. To keep pace with international trends and the expectations of the competent authorities, the Corporate Governance Best Practice Principles were revised in 2018 to stipulate that the term of office of independent directors may not exceed three years. Moving forward, CTBC Holding is committed to further improving its corporate governance, strengthening its information disclosure, and meeting international corporate governance standards. The Company has also established specific management policies and bodies, including a group-wide Sustainability Committee. The committee is chaired by the President of the Company, is supervised by independent directors, and has the presidents of subsidiaries as its members. With a scope including corporate governance, employee care, investment commodities, social participation, and environmental sustainability, it focuses on not only the interests of stakeholders but also the planning and implementation of measures to benefit its governance, the environment, and society. (2) Social initiatives CTBC Holding leads the industry in not only business innovation and management but also charitable campaigns aimed at eradicating social problems in Taiwan. The Company has been recognized as a role model in social care as it has launched numerous groundbreaking social welfare programs, with the group's resources and embedded corporate culture of volunteering directed to where they are most needed. Light Up a Life was the first charity initiative established by a Taiwanese enterprise, and marked the start of CTBC Holding's commitment to public welfare. This decadeslong devotion to social welfare was inspired by a simple desire to give children a better future. As far back as 1985, CTBC Holding founder Jeffrey Koo Sr. felt compelled to make a difference in the lives of disadvantaged children, which spurred him to found Light Up a Life. All the collected donations were given to social welfare organizations working with children from remote villages.

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Light Up a Life has continued for the 34 years since. It is the longest-running charitable public welfare activity among Taiwanese enterprises and is widely considered the most effective platform for the public to help vulnerable children. So far, it has raised nearly NT$2 billion, helping more than 450,000 children to escape poverty and fulfill their dreams. It is hoped that, as adults, everyone helped by the program as a child can also lend a hand to those in need, creating a cycle of compassion and volunteering. Founded in 2004, the CTBC Charity Foundation is dedicated to building a happy tent for children in remote mountainous areas and outlying islands. To provide a safe and hopeful living environment for them, the foundation promotes the Taiwan Dream Project, which provides educational and nutritional services for children in remote communities. The initiative, which has so far helped build 26 Taiwan Dream Project sites, works by marshaling central and local government resources and leveraging the efforts of volunteers and the general public to provide children with a warm and loving second home. A social return on investment evaluation of the first Taiwan Dream Project site, in the Dahu Community of Changhua County's Bitou Township, found that every NT$1 invested generated NT$4.26 in social value. In addition to aiding disadvantaged children, CTBC Holding also helps parents start their own businesses to escape poverty. Inspired by the microfinancing concept of Nobel Peace Prize winner Dr. Muhammad Yunus's Grameen Bank, we introduced the first such initiative in Taiwan in 2011 with the CTBC Poverty Alleviation Program. Combining our expertise in entrepreneurship counseling, lending, social work, and business planning, the program provides microfinancing to help disadvantaged families meet their basic needs and escape poverty. CTBC subsequently introduced the CTBC Caring Shop brand to promote products created through the microloans. Since 2011, the program has assisted 275 families, who have gone on to start successful businesses and escape poverty. In 2018, the CTBC Charity Foundation received the Global Views Monthly Corporate Social Responsibility Award, Taiwan Corporate Sustainability Awards, and National Excellent Enterprise Volunteer Team Award for its long-term efforts to support the disadvantaged. In terms of overseas aid, the CTBC Charity Foundation embraces the philosophy that poverty can be overcome through education. As such, in China in 2013, it launched the Caring for China's Next Generation on Campus program alongside the Caring for China's Next Generation Working Committee and the Social Welfare Foundation for China's Next Generation Fund. Priority has been given to underdeveloped, remote, and ethnic minority areas. A school has been selected as an educational demonstration site in each area, with funds provided to purchase teaching equipment. The project has been a concrete demonstration of cross- strait charitable and public welfare cooperation over the past six years; as of publication, 44 pilot program sites had been set up, and over 53,000 underprivileged students now have access to more learning resources as a result. Learning and living conditions have been greatly improved in general, earning plaudits on both sides of the strait. Back at home, CTBC Holding also actively supports public welfare through sports. It is the first enterprise to invest in all five levels of baseball—from the children's game to little league to the pro competition—as it endeavors to improve Taiwan's overall competitiveness in the sport by providing sponsorship and organizing competitions. In 2018, the Company examined the social return on investment for its sponsorship of the CTBC Brothers baseball club, finding that every NT$1 invested produced NT$17.59 in social value. This was the highest return in the sports field certified by Social Value International. CTBC Holding is also fostering women golf talent and sponsoring golf tournaments to promote the development of the game in Taiwan. The Company combined its sports and public welfare efforts with a special fundraiser in 2018, with golf and

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baseball players donating personal items for sale to raise funds for charity as well as encouraging the public to donate funds of their own. Drug users in Taiwan have become younger in recent years, which has also increased the intrusion of drugs into schools. To address this, the Company has integrated resources from academia, domestic institutions, and professional foreign groups to establish the CTBC Anti-Drug Educational Foundation in 2015. As Taiwan's first corporate-sponsored group specializing in drug education, the Foundation has served as a crucial drug awareness platform for the government and the public, partnering with government agencies and NGOs worldwide including the justice and education ministries in Taiwan, the U.S. Drug Enforcement Administration Educational Foundation, and the China Narcotics Control Foundation. To raise children's awareness of the dangers of drugs in an engaging manner that breaks free of conventional, low-impact methods, CTBC Holding has utilized 3D interactive technology and documentaries as part of countrywide special exhibitions, reaching more than 200,000 people in the process. In 2017, the Company collaborated with the Ministry of Justice's Agency of Corrections to launch a program to improve the facilities and the conditions in which incarcerated mothers raise their children and to provide early childhood courses on drug prevention. In 2018, the Company held international seminars with the Ministry of Justice, inviting experts and scholars from the United States, Germany, Japan, and Taiwan to share their experiences. For its efforts, the CTBC Anti-Drug Educational Foundation received numerous CSR awards at home and abroad in 2018, including the Global Views Monthly Corporate Social Responsibility Award, Asian Corporate Social Responsibility Award, and Taiwan Corporate Sustainability Awards, as well as recognition from the Ministry of Education. As mentioned, CTBC Holding firmly believes that education provides people with opportunities to change their lives. In 2015, the Company made a donation to a college on the brink of closure and transformed it into CTBC Business School. The college, which offers grants and scholarships to disadvantaged students who display outstanding academic performance, has achieved a 100% student enrollment rate in the three years since its establishment. The Ministry of Education has praised the school as a new model of corporate philanthropy. In 2017, the Company established southern Taiwan's first English-language experimental high school, CTBC International Academy, to provide an alternative to the traditional approach to education. Koo Sr. believed there was a direct relationship between a country's living standard and its appreciation of art. Indeed, CTBC Holding has long dedicated a great deal of effort to supporting the arts, particularly in making diverse, world-class art exhibitions easily accessible to the public. It founded the CTBC Foundation for Arts and Culture in 1996, and the CTBC Arts Festival was launched in 2015 with the mission of bringing culture and the arts to every corner of Taiwan. The festival has since organized various events including the CTBC Arts Festival, Master Class Series, and Love & Arts for Dreams Initiatives. It has been a recipient 12 times at the Art and Business Awards and has won the Arts Education Contribution Award from the Ministry of Education. In addition to efforts to improve society through external arms and means, CTBC Holding has also implemented the Good Deeds Leave program—the first of its kind among Taiwan's financial holding companies—to encourage a culture of volunteering within the group. Currently, nearly 2,300 volunteers are providing assistance such as tutoring, financial management, English classes, and anti-drug education. These volunteers have already put in a total of more than 150,000 hours.

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CTBC Holding has always firmly believed that talented people are the key to an enterprise maintaining its competitive advantage. In addition to providing competitive remuneration, industry-leading benefits, education, training, and a fair promotions system, the Company also attaches great importance to human rights, gender equality, and effective labor communication channels. In 2018, it formulated a human rights policy as well as human rights risk assessment and management procedures, emphasizing its commitment to actively support international human rights conventions. The Company also understands the importance of providing a comfortable and friendly working environment. In doing so, it focuses on three aspects in particular: risk-based thinking, health prevention, and a culture of safety. In 2018, it passed ISO 45001 Occupational Safety and Health Management System certification. Going forward, this will power its efforts to work with suppliers and surrounding enterprises to form a safety and sustainability ecosystem. CTBC Holding also strives to provide a happy and equal- opportunity working environment that is a force for good in not only its employees' professional lives but their personal ones, too, making for a better wider society in which enterprises, employees, and the community work together toward a brighter future. "We are family" is more than a slogan—it is the spirit of the whole group's brand, with CTBC Holding caring for its employees and customers in the way family members do each other. This care in turn spreads across the community and country, like ripples in a pond, as it continues to expand its efforts in five categories of charitable endeavors: social welfare, physical education, drug awareness, education, and culture and the arts. CTBC Holding devotes its resources to creating virtuous cycles with the goal of encouraging public participation and contributing to a better world. (3) Environmental sustainability In line with its commitment to sustainable development and a "Green Policy, Green Future", CTBC Holding has built upon the foundations of energy efficiency, carbon reduction, resource management, and green buildings to expand its sustainability further to include green services, green sourcing, and green consumption, with the ultimate goal of protecting the Earth. The concepts of environmental protection and energy conservation are at the core of the design of the Company's headquarters, CTBC Financial Park, which boasts 29,752 square meters of park area, 28,099 square meters of public and green space, and 264,463 square meters of gross floor area. The complex incorporates various environmental protection and energy-saving techniques and is the largest financial institution building in Taiwan to receive a Diamond- grade Green Building label under Taiwan's EEWH building certification system. The building's water facilities, fountains, and sprinkler equipment utilize rainwater reclamation and water-recycling technologies, while solar panels are installed to supply electricity for the financial park's public spaces. CTBC Holding is also working to shrink its carbon footprint, such as by purchasing products that meet strict standards in environmental protection, energy efficiency, water conservation, and green construction. As a result, it has received the Outstanding Contribution to Green Purchasing by a Private Enterprise Award from Taipei City Government's Department of Environmental Protection for 10 consecutive years. CTBC Holding also actively integrates CSR considerations into its own business practices and offerings. The Company launched the first qualified green bond in Taiwan in 2017, which was over-subscribed by investors. In 2018, it served as the financial adviser for the cooperation between an offshore wind power developer, the Copenhagen Infrastructure Fund of Denmark, and local banks, and spared no effort in supporting endeavors in green energy and environmental protection. The Company signed the Equator Principles in January 2017, becoming the 94th financial institution in the world to do so, demonstrating its

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determination to ensure responsible lending and sustainable finance. In the future, credit granting cases will be included in the verification of the Equator Principles and CTBC Holding will work with its customers to fulfill its responsibility to the environment and society. Climate change is a tremendous global challenge, and CTBC Holding has taken concrete actions to realize its commitment to the planet. In 2012, it became one of the first Taiwanese financial institutions to sign on to the CDP. In the same year, it was again one of Taiwan's first financial institutions to be granted ISO 50001 Energy Management certification. In 2015, it received both ISO 14001 Environment Management System and ISO 14064-1 Greenhouse Gas Emissions Reporting certification. In 2017, all 151 of CTBC Bank's branches in Taiwan received ISO 50001 Energy Management certification, ISO 14001 Environment Management certification, and ISO 14064-1 Greenhouse Gas Emissions Reporting certification. The certification scope expanded further in 2018, growing to include 175 branches in Taiwan. That same year, the subsidiaries of CTBC Holding earned ISO 14064-1 Greenhouse Gas Emissions Reporting certification, including all CTBC Bank branches in Taiwan and its Hong Kong branch; all Taiwan Life branches in Taiwan, its Beijing representative office, and its Vietnam representative office; and CTBC Securities, CTBC Investments, CTBC Venture Capital, Taiwan Lottery, CTBC Asset Management, and CTBC Security. The Company pays particular attention to energy efficiency, and these efforts have been honored with an Outstanding Energy Saving Performance Award from the Ministry of Economic Affairs and an R.O.C. Enterprise Environmental Protection Award from Taiwan's Environmental Protection Administration. In addition, it became the first financial institution in Taiwan to obtain renewable energy certification from the Ministry of Economic Affairs. CTBC Holding's brand has always been its most important intangible asset. In 2018, the Company won 205 top domestic and foreign awards recognizing its efforts in business performance, brand image, CSR, and sustainability. Going forward, it will also continue to uphold its "We are family" brand spirit, "protect and build" corporate mission, and "caring, professional, and trustworthy" brand values in order to promote corporate governance and fulfill its corporate social responsibility. The group as a whole will strive to create value for its customers, employees, shareholders, suppliers, and society as it develops its "Taiwan Champion and Asia Leader" brand. CTBC Holding also aspires to be the most reliable financial institution with the strongest governance for its customers and shareholders.

2. Ethical conduct CTBC Holding does its best to fulfill the responsibility that comes with its corporate citizenship. It has formulated a Code of Ethical Conduct, which includes a nine-part framework comprising the avoidance of conflicts of interest, improper personal gain, and unethical conduct; confidentiality obligations; fair competition; protection and appropriate use of Company assets; compliance with laws and regulations; encouraging the reporting of illegal or unethical activities; and disciplinary measures. It functions jointly with related policies such as the Code of Conduct, Corporate Governance Best Practice Principles, and Ethical Corporate Management Best Practice Principles. These rules require all directors, managers, and employees to self-regulate to avoid any improper behavior that may harm the Company's reputation. Personnel who violate any of the above regulations will face disciplinary action according to relevant Company measures.

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(VI)Number of non-supervisory staff, their average annual employee benefit expenses, and the difference with the previous year's expenses Item 2017 2018 Difference No. of non-supervisory staff 14,141 14,487 2.45% Average annual employee benefit expenses of non-supervisory staff (NT$ thousand) 1,609 1,604 -0.31% Note 1: "Non-supervisory staff" refers to employees whose roles do not include executive duties involving the management of other employees or units. Note 2: "Employee benefit expenses" refers to all forms of consideration given in exchange for services provided by employees in accordance with the provisions of Article 19, Employee Benefits, of the International Accounting Standards, including salaries, labor and health insurance, pensions, and other benefits.

(VII)Information technology

1. CTBC Holding We plan and deploy information technology to optimize our investment efficiency by supporting business development, reducing operating costs, and managing operational risks. To strengthen CTBC Holding's information governance, the Board of Directors has approved the Guidelines for the Management of Information Services of CTBC Holding. and the Application System Resource Sharing Specifications of CTBC Holding, with which CTBC Holding and its subsidiaries must comply. In addition, the Board of Directors has established an Information Management Committee to enhance subsidiaries' information governance and service sharing, optimize resource utilization efficiency, and maximize governance-related synergies.

2. CTBC Bank CTBC Bank's key information systems include trading systems that support banking products and services such as deposits, loans, foreign exchange, credit cards, corporate financing, e-commerce, and payment transactions. The Bank's hardware includes IBM mainframes and midrange Unix, small Windows, and VMware virtual servers. The hardware's system configuration is optimized and meets service-level requirements. Maintenance contracts have been signed with the hardware and software suppliers to ensure compliance with business service standards. Major IT improvements in 2018 were as follows: (1) Business support CTBC Bank delivered a more consistent service experience to its customers by establishing a smart digital banking platform driven by AI and Big Data, promoting financial services using emerging technologies, upgrading its online banking services and mobile banking apps, and developing a large-scale customer service platform. The Bank also facilitated stable business growth by relocating its data centers, establishing a cloud service, conducting platform integration to improve system efficiency, and continually promoting information management at its overseas branches and subsidiaries. (2) Information security CTBC Bank continued to enhance its information security governance, including arranging to report annually to the Bank's Board of Directors on the effectiveness of information security management. The Bank has obtained two international standard certifications, namely ISO 27001, for information security management, and BS 10012, for personal information management. It also introduced an international information security

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maturity assessment methodology to further strengthen its information security management. In addition to long maintaining an information security incident analysis mechanism and related contingency solutions, the Bank has in recent years deployed a non-traditional threat detection mechanism that identifies and responds to anomalies in network and user behavior. Moreover, in 2018, CTBC Bank conducted regular information security drills, education, and training to enhance its employees' knowledge and awareness of information security protection. (3) Emergency measures As part of its efforts to ensure business continuity, CTBC Bank regularly practiced disaster recovery measures in order to verify the completeness and feasibility of its backup plans. The following measures will be implemented in 2019: The Bank, in the spirit of continuous improvement, will actively invest in the research and development of innovative digital financial technologies and use emerging technologies to develop more comprehensive and diversified financial services. In addition, it will further improve its information governance, application architecture, and information security management and culture to improve its operational efficiency and the quality of its banking services, with the aim of protecting the interests of its customers and shareholders.

3. Taiwan Life Taiwan Life's key information application systems include its Vlife, Life Support Plus, and client administration life insurance systems; a telemarketing system; a B2B travel insurance system; an image storage system for policy data; and other systems for real estate, investment, customer service, telemarketing, network insurance purchasing, eDDA–ATM electronic printing, and robotic process and office automation. Taiwan Life's hardware includes IBM RS/6000, IBM AS/400, and virtual machines and meets the relevant system configuration and service-level requirements. In addition, maintenance contracts have been signed with its hardware and software suppliers to ensure compliance with business service standards. Major IT improvements in 2018 were as follows: (1) Digital technology and business development In 2018, Taiwan Life made substantial progress in its campaign to digitalize financial services in order to provide a smoother experience for new and existing policyholders. This included launching the eACH instant remittance mechanism, adding the "Dragon e-Claim" application feature to its online insurance claim platform, creating the "Policyholder Home" function to allow insurance customers to make policy inquiries and changes, developing the Mobile Insurance 2.0 app, creating the EdgE digital lab for the development of new sales tools, and utilizing robotic process automation. (2) System integration and optimization Taiwan Life upgraded its IT infrastructure and implemented end-to-end, network, and infrastructure monitoring tools. (3) Technical regulations Taiwan Life renewed its ISO 27001 Information Security Management and BS 10012 Personal Information Management certifications. In addition to continuing its regular efforts to raise awareness of information security, Taiwan Life also introduced monitoring mechanisms and personal information protection management to ensure operational safety and personal information security.

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(4) Information security To foster a secure information environment, Taiwan Life continued to enhance its information systems environment security and established an integrated security information and event management platform, a database log tracking management system, and advanced persistent threat protection for email traffic. It also strengthened its internal intrusion detection, using Deep Discovery Inspector, and its privileged account management. The following improvements will be implemented in 2019: 1) System integration and optimization Taiwan Life will set up a cloud service, service sharing architecture and smart data warehousing, and a business intelligence platform. It will also establish a system resource pool and a single data source, thereby improving system resource utilization and service stability and significantly reducing the rework rate. (2) Insurance finance digitalization Taiwan Life will promote the use of innovative one-stop digital technologies for integrating life insurance products and financial services. It will also improve customer experience and satisfaction by supporting the utilization of deep learning and AI to develop an insurance-claim chatbot as well as voice quality inspection and fingerprint identification systems, integrated into a single image-reading access portal to reduce case processing time and increase efficiency. An additional key area of focus will be establishing a new core insurance system. In the short term, this work will center on integrating and optimizing business processes to enable the signing of new contracts in a single system. In the medium and long term, the emphasis will shift to improving operational efficiency by gradually migrating data from the three core systems (LSP, Vlife, and CAS) and integrating it into the new core system. (3) Information governance Taiwan Life will seek to expand the scope of its ISO 27001 certification and achieve company-wide BS 10012 certification as part of its effort to ensure operational safety and personal information security for its long- term corporate development. (4) Information security Taiwan Life will continue performing its annual information security checks, personal information audits, and information security education as well as deepening its employees' awareness of PC information security. It is also planning to establish and assess a security review system for imported information, a code review tool, a virtual encryption system, and a customized approval system.

4. CTBC Securities CTBC Securities' key information application systems comprise trading and real-time market data access systems such as for securities brokerages; domestic and foreign proprietary securities trading, bonds, and future brokerages; sub-brokerages; futures brokerages; and electronic ordering, including a phone line, mobile app, and web portal. CTBC Securities also maintains office automation systems for its administrative operations. Its hardware includes an IBM AS/400 system as well as midrange Unix, small Windows, and virtual VMware servers. Its key suppliers include Dimerco Express Corp.; SysJust Co., Ltd.; Mitake Information Co., Ltd.; Systex Corp.; Syspower Co., Ltd.; CMoney Financial Information Technology Co., Ltd.; Chunghwa Telecom Co., Ltd.; EasyUse Digital Technology Co., Ltd.; MetaEdge Corp.; Chain Sea Information Integration Co., Ltd.; and IBM Corp.

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Major IT improvements in 2018 were as follows: (1) Business support CTBC Securities developed a trading app, enabled customer API trading functions, and received positive feedback for services including password recovery, account unlocking, money-laundering risk assessment, mobile passbook app, video signatures, and online account opening for established securities investors, thereby increasing investment. It finished the first stage of expanding the fields that are completed to receive information to the stock exchange. It also enabled the automatic loading of pre-collected funds and securities for Taiwan stocks, launched new business functions for stock and futures exchanges, and enabled faster futures order placement using the Speedy system. Furthermore, its system architecture was updated to improve its handling of associated accounts, a centralized straight-through processing system was developed, Common Reporting Standard and Foreign Account Tax Compliance Act adherence was optimized, and loan business was initiated for CTBC Securities' own financing accounts. It optimized its demand deposit system, introduced new data centers and analytical tools, and established a market risk database as well as offshore securities unit bond and stock systems. It also made a new system adjustment for CTBC Bank's long-term personal brokerage and sub-brokerage business orders in addition to the hedging of warrants and foreign futures. (2) Operational efficiency CTBC Securities upgraded its network equipment in the Yongji and Longtan data centers, relocated its Yongji tech center to a new Neihu information technology building, and established an AS/400 and OPEN tapeless backup system. It conducted planning work for electronic trading remote backup data centers, resource sharing among subsidiaries, and the development of robotic process automation. An automatic warrant issuance system was also developed, while bond credit risk control was implemented, the account- opening process was streamlined, accounting functions were optimized, and an automated system capacity- testing process was established. In addition, CTBC Securities moved its database from active–passive mode to active–active mode, adopted a mechanism to separate order placement and account inquiry data and processes to increase its mobile app's efficiency, established an automatic monitoring mechanism for electronic trading, changed its market system supplier from Systex to Syspower, upgraded to four-in-one trading network bandwidth, and revised its office automation system. (3) Information security CTBC Securities passed the review of its ISO/IEC 27001 Information Security Management System certification, upgraded its electronic and derivative transaction firewalls, and initiated web-based network order placement detection and protection against abnormal program changes. It instituted an AS/400 server monitoring and audit management system, a special character filtering mechanism for its mobile apps, AS/400 iWatch automatic monitoring, and enhanced penetration testing. To protect investors' rights and interests and guarantee good business continuity management, CTBC Securities established remote backup data centers for transactions, ensuring uninterrupted information security protection and management through the simultaneous operation of data centers in different locations. CTBC Securities also cooperates with stock and futures exchanges to conduct full-market, full- scale backup operations every six months. It also participates in the random backup drills CTBC Holding organizes to ensure data center backup availability and completeness. The following improvements will be implemented in 2019:

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1) Business support CTBC Securities will progress to the second and third stages of the aforementioned expansion of stock exchange information fields and launch its S-trade securities transaction system. New business functions will be developed for stock and futures exchanges, high-value proprietary trading will be instituted, and new data centers and analytical tools will be introduced. CTBC Securities will also develop a CTBC Holding credit risk database, adjust the structure of its intraday inquiry system, and launch a dealer securities lending business. Additionally, it will develop a financing and lending system for offshore securities units and enable commercial transfer by switching to a more experienced brokerage agent. 2) Operational efficiency CTBC Securities will upgrade the AS/400 securities and futures trading system, establish remote backup disaster recovery data centers for electronic trading, and develop automated checking and monitoring. It will plan its future program change process, develop automated testing processes, and optimize the customer relationship management sub-brokerage system. Cloud assessments will be conducted, and the operation and maintenance efficiency of CTBC Securities' Longtan data centers will be enhanced. The subsidiary will also develop dedicated sub-brokerage or gateway remote backup and, for proprietary bond trading, optimize the bond transaction value review and self-service billing processes. 3) Information security improvement CTBC Securities will develop an AS/400 server monitoring and audit management system, enhance penetration test detection, and practice information security protection and defense effectiveness management. It will upgrade the operating systems of its PCs to Windows 10, enhance its advanced continuous penetration protection and data leakage prevention systems, and introduce assessment and analysis of the automatic monitoring system. In the future, CTBC Securities will also strengthen its personal data security protection and the stability of its trading systems as well as its network and information security protection architecture. In addition, the subsidiary will compare fixed-line network operators, reduce operating costs, spread operational risks, and make timely adjustments to ensure that investors' transactions are secure and efficient and that their rights and interests are protected.

5. CTBC Investments CTBC Investments' key information systems include an asset management (funds accounting) system that facilitates, among other things, fund investment and other discretionary investment decisions, investment risk controls, internal inspections for investment regulation compliance, investment transactions, and net settlement procedures. Another key information system is the fund (share) affairs system, which is mainly used to handle investors' fund purchases, buybacks, and regular fixed-amount transactions and to provide customer service. Major IT improvements in 2018 were as follows: (1) Management To adapt to technological changes and ensure proper management in accordance with the requirements of the competent authority, CTBC Investments revised its information security management policies, its internal control systems, and five of its management guidelines. (2) Compliance and information security 1) CTBC Investments continually enhanced its information security management in 2018. This included

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completing external penetration testing as well as network vulnerability, black-box, and white-box scanning. In addition, it promoted hierarchical information security management and constantly optimized its internet firewall, data leakage prevention, and USB usage control rules. 2) The subsidiary completed its annual personal information audit, risk assessment, and other management work as well as conducted personal and security information management education. (3) Infrastructure 1) CTBC Investments completed backup and remote backup drills, expanded the scope of its remote backup, and adopted call tree-style security tests. 2) Its data center was relocated to Neihu Technology Park in Taipei City's Neihu District in 2018. Availability was subsequently improved further with the addition of a disaster recovery data center in Taoyuan City's Longtan Township. (4) Application systems 1) CTBC Investments completed upgrading not only to a cross-platform, multi-screen website, which adapts to the display device, but also to a new electronic trading system. Moreover, it completed the IPO for its 2024 emerging sovereign bond and preferred stock funds and launched a wide range of discretionary and quasi-discretionary services. 2) It partnered with a new offshore fund agent (Ostrum) and completed the transfer of fund information. 3) It completed the development of new systems for ETF stocks and back-end load funds. 4) Furthermore, it continued to optimize its asset management systems, investment decision-making, fund regulations, and risk control systems. The following improvements will be implemented in 2019: 1) Management CTBC Investments will keep pace with technological development by updating relevant information security and personal information management policies as well as security and internal control systems and related standards. 2) Compliance and information security A. CTBC Investments will clamp down further on money-laundering risks by optimizing its anti-money laundering database and matching systems to ensure compliance with the relevant laws and regulations. B. It will promote personal information management, protect personal information security, and protect the rights and interests of its clients. C. Furthermore, it will build a web application firewall to prevent external attacks at the application level. D. CTBC Investments will strengthen its information security management and perform external penetration testing as well as network vulnerability, black-box, and white-box scanning. It will perform drills using social network anti-phishing programs, guard against targeted advanced persistent threats and DDoS attacks, and monitor its security information and event management system. E. It will also regularly review information system permissions to ensure their effectiveness. F. Finally, it will enhance employees' information security awareness by strengthening its education and publicity efforts on personal information protection and information security. 3) Infrastructure A. CTBC Investments will fully update Windows 7 on its PCs in light of its EOS operation and update its Windows 2008 server operating system. B. It will also push for office tasks and other back-room processes to be automated and go paperless.

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4) Application systems A. CTBC Investments will increase investment and trading by adding tools, including in the form of new bond ETF and Common Reporting Standard systems, and will facilitate business development by strengthening the flexibility of its information systems. B. It will continue to optimize its asset management system, with supporting compliance requirements and risk controls. C. In addition, it will accelerate the holding of IPOs for multiple funds and expand its product line.

6. Taiwan Lottery Taiwan Lottery's key information systems include a system for processing lottery transactions, a lottery operation and management system that supports business analysis, and an administrative system for office automation. Its hardware includes midrange Unix servers, small Windows servers, PCs, and terminals for processing lottery transactions. Taiwan Lottery's key system and maintenance vendors include Chunghwa Telecom; FarEasTone Telecommunications Co., Ltd.; IBM; Cisco Systems, Inc.; Microsoft Corp.; Oracle Corp.; Sysage Technology Co., Ltd.; Wen Wei Technology Co., Ltd.; Neweb Technologies Co., Ltd.; HPI Corp.; Sampo Inc.; and LotRich Information Co., Ltd. In addition to conducting regular software and hardware availability monitoring with its partners, Taiwan Lottery has signed contracts to ensure that its vendors provide comprehensive maintenance and support services. Furthermore, to ensure and strengthen the security and stability of its information systems, Taiwan Lottery has not only applied an incremental backup mechanism to its critical systems but also established a remote backup environment of the same scale for these systems in order to facilitate disaster recovery. It also conducts annual field tests to ensure the feasibility and effectiveness of such measures. Taiwan Lottery's systems maintain high stability, accuracy, and flexibility sufficient to achieve its business objectives. In addition, the migration to a new technology center by Taiwan Lottery's parent, CTBC Bank, was successful and did not interrupt Taiwan Lottery's operations.

(VIII)Labor relations

1. Employee benefits, retirement programs, and their related implementation status, labor agreements, and employee rights protection measures (1) Employee benefits CTBC Holding considers "We are family" more than a slogan. As part of its efforts to have employees feel the Company's brand spirit in a tangible manner, CTBC Holding and its subsidiaries have two core benefit systems in place, namely core benefits and flexible benefits, as well as other measures intended to help employees achieve a healthy work–life balance. 1) Core benefits: In addition to providing labor and health insurance for employees as required by law, the Company addresses other key needs for them by providing, among other benefits, group insurance, marriage and funeral subsidies for family dependents, childbirth allowances, hospitalization subsidies for family dependents, and children's education subsidies; it also organizes various events such as arts and sports activities, year-end banquets, and team dinners, and offers subsidies for departmental trips. Furthermore, the Company gives generous bonuses to employees on three of Taiwan's most important

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holidays, namely Lunar New Year, Dragon Boat Festival, and Mid-Autumn Festival. It also shows it cares by providing employees annual rewards points on their birthday together with a congratulatory card from the Chairman. The Company also offers consolation funds and interest-free loans to employees who encounter a severe adversity. 2) Flexible benefits: Continuing its legacy as a pioneer in Taiwan's banking industry, the Company implemented a flexible benefits system for full-time employees on July 1, 2003. It extends beyond the scope of traditional benefits by taking the form of a points-based system, in which employees receive points every year. By logging on to a digital platform, employees can exchange their points for products and services such as food, clothing, housing, travel, education, and entertainment. This approach means employees can enjoy benefits that are more diverse and that more closely match their wants and needs. 3) Comprehensive group insurance: Comprehensive group insurance covers nine types of insurance: life insurance, accident insurance, outpatient medical care for accidents, field accident insurance, income compensation insurance, hospitalization insurance, hospitalization insurance for spouses and children, hospitalization allowance for parents, and medical insurance for cancer. Of these, the hospitalization allowance for parents has received the greatest accolades from employees. 4) Group annuity insurance: To provide its employees with high-quality investment channels and help them prepare for retirement, the Company has developed a group annuity insurance program, Monthly Savings for Yearly Prosperity, as a tool to grow their pensions. 5) Discounted home loans: CTBC Holding's management has a sincere hope that every employee can own their own home and experience the warmth that this brings. The Company therefore offers a discounted home loan policy for employees, with different loan parameters for different employee ranks. 6) Employee assistance program: The Company recognizes the importance of a healthy mind–body balance. As such, it has maintained a yearslong partnership with the Taiwan Institute of Psychotherapy in order to provide employees with professional consultation and assistance through eight free psychological consultations every year. The Company also provides psychological wellness care through its Mind Rest Monthly internal e-newsletter, which shares ways to relieve workplace and home-life stress along with methods of self-reflection. (2) Retirement system CTBC Holding and its subsidiaries' retirement benefits for Taiwan-based employees comprise the following: 1) Retirement program based on the Labor Standards Act: Every month, the Company allocates pension funds based on employee wages and deposits them in a special pension fund corporate account opened with the Bank of Taiwan. 2) Labor pension regulations: Every month, the Company allocates 6% of employees' salaries and deposits it in their individual Bureau of Labor Insurance pension accounts. For employees who voluntarily contribute additional funds to their pensions, the Company deducts a proportion of their monthly wages, as selected by the employee, and deposits it in their individual Bureau of Labor Insurance account. (3) Labor agreements and employee rights protection measures: CTBC Holding and its subsidiaries provide diverse labor communication channels to coordinate labor relations and facilitate cooperation between employees and employers:

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1) Regular labor–management meeting in accordance with regulations: Labor–management meeting is regularly organized by representatives from both sides. Management representatives are designated by the Company and must be familiar with its business operations and labor affairs. Labor representatives are elected by the employees; when employees of a gender make up more than half of all employees, people of that gender shall constitute at least one-third of the representatives. Where a company has an enterprise union, such as Taiwan Life, the union shall handle the election of employee representatives in accordance with the law. For labor rights protected by the Labor Standards Act, such as overtime and female employees' night-work regulations, CTBC Holding has already developed clear work rules and publicly announced them after the labor–management meetings at which they were approved through resolutions. 2) Regular surveys to solicit employees' opinions: CTBC Holding attaches great importance to the communication and interaction between itself and its employees. As well as holding labor–management meeting to discuss matters involving employee rights and interests, it organizes regular motivational meetings and issues People and Events Monthly, an internal staff-centric newsletter. In addition, the Company has entrusted its HR unit to circulate Employee Satisfaction Surveys and Organizational Climate Surveys as a means of proactively identifying and tracking employees' needs. 3) Strengthened communication mechanisms: CTBC Holding has sought to strengthen employees' sense of Company identity by establishing clear channels of two-way communication, namely a staff mail box and phone line. The Employee Hotline was introduced specifically to let staff share feedback directly and immediately as well as to help them resolve problems immediately upon encountering them. 4) Collective agreements: On Dec. 18, 2017, Taiwan Life completed a labor consultation with its enterprise union and signed a collective agreement. 5) Labor Standards Act violations by CTBC Holding and its subsidiaries identified by labor inspections in 2018 through the publication date: Disciplinary Statutory article Company Disciplinary letter Article contents violated Fine action date violated Letter No. Fu-Lao-Dong- Article 55 of the Failure to calculate and pay CTBC Bank Feb. 20, 2019 NT$300,000 Zi-1080048339 Labor Standards Act employee pensions as required CTBC Letter No. Bei-Shi-Lao- Article 22 (2) of the May 28, 2018 Failure to directly pay wages in full NT$20,000 Securities Dong-Zi-10732265201 Labor Standards Act Letter No. Fu-Shou-Lao- Article 22 (2) of the Taiwan Life Jan. 9, 2018 Failure to directly pay wages in full NT$20,000 Dong-Zi-1070002339 Labor Standards Act

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2. Status of labor disputes Labor disputes and estimated losses in 2018 through the publication date Former CTBC Bank Former CTBC Former CTBC Former CTBC Former CTBC employee Bank employee Bank employee Bank employee Bank employee Confirmation Status of labor Confirmation Request for of existence of dispute Request for Request for of existence of workers' employment overtime pay overtime pay employment compensation relationship and relationship other matters Incurred loss 0 0 0 0 0 amount Current potential 0 0 NT$450,000 NT$10,994,800 NT$4,932,000 payout amount (excluding interest) Response measures Case is closed Case is closed Subject to a court Subject to a court Subject to a court judgment or judgment or judgment or negotiation results negotiation results negotiation results Lawsuit status A former CTBC Bank A former employee A former employee A former employee A former employee employee requested requested that requested that requested that requested that that CTBC Holding pay CTBC Bank CTBC Bank pay CTBC Bank confirm CTBC Bank confirm the wages of extended pay workers' wages for extended the existence of the existence of working hours for compensation. The working hours from an employment an employment 2018; however, the judgment of the first 2012 to 2016. The relationship and relationship. The employee had been instance rejected judgment of the first pay wages, annual first instance of the an employee of CTBC the plaintiff's claim. instance rejected the service bonus, case is ongoing. Bank, not CTBC The plaintiff did not plaintiff's claim. The and deposit the Holding. The judgment file an appeal; thus, former employee appropriate monthly of the first instance the Company won has lodged an pension payments. rejected the plaintiff's the lawsuit. appeal; thus, the case The first instance of claim. The plaintiff did remains open. the case is ongoing. not file an appeal; thus, the Company won the lawsuit.

205 Operational Highlights

Former Former Former Taiwan Former Taiwan Life Former Taiwan CTBC Bank Taiwan Life Life salesperson salesperson Life salesperson employee salesperson Confirmation of existence of Status of labor employment Request for dispute Request for Request for relationship, Request for payment of payment of payment of payment of payment of wages annual leave and pension balance pension wages, and damages deposit of pension Incurred loss 0 0 0 0 Subject to a amount settlement arrived at between both parties Current potential NT$9,561,974 0 0 0 0 payout amount (excluding interest) Response Subject to a court Case is closed Case is closed Case is closed Subject to a measures judgment or settlement arrived negotiation results at between both parties Lawsuit status A former A former A former salesperson requested A former A former employee salesperson on Sept. 15, 2017, that Taiwan salesperson salesperson requested that requested Taiwan Life pay the litigant's basic wage claimed Taiwan Life claimed to not CTBC Bank pay Life to confirm for October 2013 to March had not paid the have taken annual the litigant's the existence of 2016. As the plaintiff did not pension when the leave at the pension balance. an employment appear in court, the litigant was litigant retired and time of resigning The first instance relationship, pay deemed to have dropped the sought that it do and sought that of the case is the litigant's lawsuit. so. The Company it paid in the ongoing. monthly salary On Nov. 8, 2018, the former won the case. form of wages. for the period of salesperson refiled the lawsuit, The litigant also May 1, 2016, to the seeking basic wages for the sought damages date of resuming same period. The litigant was for emotional the litigant's informed by the judge that distress. Taiwan post, and deposit evidence or grounds for the Life reached a the appropriate litigation had not been provided, settlement with monthly pension and the litigant subsequently the litigant and the payments. The dropped the lawsuit. The case case was closed. court found in the has thus been closed, but the Company's favor. plaintiff may file a new lawsuit.

206 Operational Highlights

Former Former Former Taiwan Life Taiwan Life salesperson Taiwan Life Taiwan Life Status of labor salesperson salesperson salesperson dispute Request for payment of Request for payment Request for payment Request partial work hours of partial work hours of partial work hours for payment of wages Incurred loss amount Subject to a settlement 0 0 0 arrived at between both parties Current potential 0 NT$7,139,453 NT$4,373,110 NT$590,000 payout amount (excluding interest) Response measures Subject to a settlement Subject to a court Subject to a court Subject to a court arrived at between both judgment or negotiation judgment or negotiation judgment or negotiation parties results results results Lawsuit status A salesperson requested Sixty-five former Sixty-one former Three former salespeople that Taiwan Life pay salespeople jointly salespeople jointly jointly requested that for partial work hours requested that Taiwan Life requested that Taiwan Life Taiwan Life pay unpaid worked between June pay wages for partial work pay wages for partial work wages. The first instance 6, 2012, and April 20, hours worked during their hours worked during their of the case is ongoing. 2018. A settlement was tenure. The first instance tenure. The first instance reached and the case was of the case is ongoing. of the case is ongoing. concluded.

3. For the employee Code of Conduct and the Procedures for Ethical Management and Guidelines for Conduct, please refer to the Company's website: http://ir.ctbcholding.com/c/ gov_other.php#c5

4. Work environment and personal safety protection: CTBC Holding has established occupational health and safety management procedures to improve its work environment and the personal safety of its employees. Specifically, the Company requires that all its subsidiaries perform the following in accordance with all relevant laws and regulations: 1) Protect their employees' health by providing nursing staff, a clinic, and a breastfeeding room. 2) Arrange for the measurement of workplace CO2 emissions and lighting levels. 3) Arrange orientation and regular follow-up training for occupational health and safety personnel, first-aid practitioners, and fire prevention staff. 4) Arrange for doctors to provide on-site health services and lectures. 5) Arrange a three-hour general on-job safety and health education and training once every three years. 6) Arrange employee general health examinations. 7) Provide occupational accident reports on a monthly basis. 8) Take out accident liability insurance for employees engaged in renovation work, with maximum compensation for each person injured or killed of NT$8 million. The maximum compensation for a single accident is NT$20 million, and the highest compensation amount during an insurance term is NT$100 million. 9) CTBC Bank obtained ISO 45001 Occupational Health and Safety Management Systems certification in May 2018, further demonstrating the value CTBC Holding places on creating a safe and healthy work environment and on realizing this commitment.

207 Operational Highlights

(IX)Material contracts As of April 26, 2019 Start and Contract Party Main content Restrictions end dates Surface rights Taiwan The contract was signed on May CTBC Bank signed this contract to 1. The land agreement Fertilizer Co., 16, 2006, with the surface rights secure the surface rights for 50 years may not be Ltd. extending from June 12, 2006, to June to all the land in Nangang owned by rented or 11, 2056. Taiwan Fertilizer Co., Ltd. The land lent to other comprises lots 45, 45-1, 43, and 43-1 parties for of the Economic and Trade Section of construction Nangang District, Taipei City, with a purposes. total area of 9,284 ping. 2. The surface rights to the land and the right to make improvements to buildings on the land may not be transferred to a third party. Planning and Fei & Cheng The contract extends from June CTBC Bank signed this contract None supervision service Associates 29, 2007, to the completion of to engage the counterparty for contract for the construction of the new the design and supervision of its CTBC Bank's new headquarters; its inspection, new office building headquarters in headquarters acceptance, handover, and takeover; Nangang in such manner as to meet and the completion of warranty the needs of use. formalities and of its use and management manual. Professional CECI The contract extends from Dec. CTBC Bank signed this contract None construction Engineering 1, 2007, to the completion of for assistance in the planning management Consultants, construction, settlement, inspection, and construction of its new consultation Inc., Taiwan and acceptance of the new headquarters in Nangang, including service contract headquarters, and the completion the coordination and integration of for construction of of its warranty term (including relevant building designs, construction CTBC Bank's new the resolution of construction- costs, progress tracking, and other headquarters related disputes within two years; if management and control matters disputes are not resolved, necessary during the construction period. continuation shall be included).

208 Operational Highlights

Start and Contract Party Main content Restrictions end dates Main project Party B: RSEA The contract extends from June CTBC Bank signed this contract None contract for the Engineering 25, 2010, to April 25, 2013; if the for the construction of its new construction of Corp. completion of construction is delayed headquarters in lots 45, 45-1, 43, CTBC Bank's new (Note 1) due to any of the following causes, and 43-1 of the Economic and Trade headquarters overdue liquidated damages shall not Section of Nangang District, Taipei apply: City. Three buildings are located on 1. A force majeure event occurs. the above premises, with heights of 2. CTBC Bank (Party A) requests 30, 20, and 14 stories. that construction be stopped for reasons attributable to Party A. 3. Party A's handling of engineering changes or request for partial inspection/acceptance and takeover of the project affects the construction period. 4. Delays caused by other manufacturers contracted by Party A for relevant projects affects the construction period. 5. Other matters that are not attributable to Party B and are recognized as such by Party A. Property and land Party B: The contract was signed on Sept. 4, CTBC Bank signed a contract None purchase and sale Continental 2012, with the start of construction on Sept. 4, 2012, to schedule the contract for CTBC Holdings Corp. to be declared within six months purchase of the building on lots 99 Bank's Taichung of the construction permit being and 100 of the Huiguo section of office building received. Within 1,360 calendar Xitun District, Taichung City, namely days of the declaration date for the its first through eighth floors and commencement of construction, common areas, with a total area necessary facilities for an occupancy on the first through eighth floors permit shall be completed, and an of 3,461.47 ping in addition to 42 occupancy permit application shall underground parking spaces and be submitted to the competent 40 spaces in multilevel car parking authority. The date of application for systems. the occupancy permit shall be the CTBC Bank signed a supplementary official construction completion date contract on April 27, 2018, for the On April 27, 2018, the actual land of lots 99 and 100 of the Huiguo building and the building originally section of Xitun District, Taichung agreed to were changed due to City; the first through sixth floors; increased requirements and resulting part of the seventh floor (483.55 adjustments to the design plan. ping); and the attached parking CTBC Bank signed a contract on spaces, with a total area from the first Dec. 24, 2018, to settle the total through seventh floors of 3,455.41 construction cost of the building. ping in addition to 11 underground ground parking spaces and 86 spaces in multilevel car parking systems. CTBC Bank signed a supplementary contract on Dec. 24, 2018, to settle the total construction cost of the building.

209 Operational Highlights

Start and Contract Party Main content Restrictions end dates Property and land Party B: The contract was signed on July 23, CTBC Bank signed this contract to None purchase and sale Chong Hong 2015, with Party B to officially start purchase lots 13-1 and 13-7 of the contract for CTBC Construction construction within six months of Ankang section of Neihu District, Bank's Neihu Co., Ltd. obtaining a construction license, Taipei City, for the construction of a administration Party C: valid for 30 months from the building comprising 10 aboveground building Yong Yue commencement of construction, and floors and four underground floors. Development with the building to be completed It is estimated that the total floor Co., Ltd. and delivered to the Bank within area of the building will be 11,622.58 six months of the use license being ping, with 9,054 ping of registered obtained. property and 446 parking spaces projected. Land purchase and Party A:Green Land purchase and sale contract: Ninety-five percent of the ownership None sale contract for the Heaven Signed on Nov. 6, 2015, and ending of lot 18 of subsection 4 of the Xinyi joint construction Investments with the completion of the review section of Xinyi District, Taipei City, of CTBC Bank's Ltd. (BVI) of Party A's investment amount was sold, with a land area of 1962.77 original Xinyi and Shuohe (the purchase/sale price) by the ping. headquarters Development Investment Commission, completion Co., Ltd. of the property rights transfer, and the crediting of all payments to designated accounts. Joint construction contract: Signed on Nov. 6, 2015, with Party A to apply for a dismantling license within one month of the ownership transfer being completed and the approval by the Investment Commission being obtained. A construction license is to be applied for within 12 months of the dismantling license being obtained; the delivery date may be extended for six months depending on work conditions, and an occupancy permit is to be obtained within 55 months of the construction license being obtained. IBM information IBM Taiwan Sept. 1, 2017, to Dec. 31, 2022 CTBC Bank signed this five-year, four- None resources supply Corp. month information resources supply contract. Lottery information LotRich May 31, 2013, to the redemption CTBC Bank signed this contract for None system software, Information date of the final lottery issuance by a lottery information system, related hardware, and Co., Ltd. the Bank in accordance with this equipment, and maintenance services maintenance announcement of the Ministry of for the fourth term of the public services for the Finance after the completion of all welfare lottery. fourth term of settlements, handovers, and other the public welfare follow-up affairs lottery Telecommunications Chunghwa Sept. 30, 2013, to Dec. 31, 2023 CTBC Bank signed this contract for None internet services Telecom Co., the establishment of the circuit and contract for the Ltd., Enterprise bandwidth of the backbone and stub fourth term of Business Group transaction-oriented ADSL network the public welfare for the fourth term of the public lottery welfare lottery as well as the lease and maintenance during the lottery's operation.

210 Operational Highlights

Start and Contract Party Main content Restrictions end dates Electromechanical Chunghwa July 21, 2017, to the completion of Electromechanical engineering None engineering project Telecom Co., the project and the expiration of the project for CTBC Bank's Neihu for CTBC Bank's Ltd., Enterprise warranty period, with no unsettled Technology Park Neihu Technology Business Group issues or disputes Park CTBC Bank signed Jetit Corp. June 23, 2017, to the expiration of the CTBC Bank signed this contract for None this contract for the warranty period, with no unsettled the establishment of the network establishment of the issues system for CTBC Bank's Neihu network system for Technology Park. the Bank's Neihu Technology Park. Housing and land Continental The scheduled housing and land sales 1. A scheduled purchase was made None scheduled sale Development contract was signed on Sept. 4, 2012, for the Xingjian Building on the contract for CTBC Corp. with an application for a use license land at lots 99 and 100 in the Life Taichung office planned within 1,360 calendar days Huiguo section of Taichung's Xitun building (Note 2) of the start date. The use license was District, purchasing floors 9–26 obtained on Dec. 29, 2017. of the building and its common On April 27, 2018, the actual areas, including 8,220.26 ping from building changed from that of the the ninth through 26th floors, 101 originally agreed building plan due to underground parking spaces, and increased requirements and resulting 94 spaces in multilevel parking adjustments to the design plan. systems. The total construction cost was 2. A supplementary contract was supplemented on Dec. 28, 2018. signed on April 27, 2018, to purchase floors 8–28, part of the seventh floor, and common areas of the building, including a scheduled construction area of approximately 8,206.62 ping, 19 underground parking spaces, and 178 spaces in multilevel parking systems. 3. A supplementary agreement was entered into on Dec. 28, 2018. The total construction cost was supplemented according to the agreement, with a total additional amount of NT$89,888,405. 4. The building was inspected and handed over on Dec. 28, 2018. Real estate joint Continental The contract was signed on Nov. 8, 1. Lot 26 of subsection 3 of the None construction Development 2012, with plans to apply for a use Chengzhong section of Taipei's contract for CTBC Corp. license within 1,200 calendar days Zhongzheng District was co-built Life investment in of the construction approval date with Continental Development and construction after the change. The use license was Corp. After the co-construction, of a Taipei hotel obtained on Dec. 12, 2017. 69.65% of the rights value will be building (Note 2) given to the Company and 30.35% to Continental Development Corp. in accordance with the agreement of both parties. 2. A supplementary contract was entered into on Feb. 13, 2017, planning for the building to be a hotel from its fifth basement level through its 14th floor. 3. The building was inspected and handed over on May 30, 2018.

211 Operational Highlights

Start and Contract Party Main content Restrictions end dates Housing and land Continental The contract was signed on Nov. 8, 1. A scheduled purchase was made None scheduled sales Development 2012, with plans to apply for a use for the Xingjian New Construction contract for CTBC Corp. license within 1,200 calendar days Building located on lot 26 in Life investment in of the construction approval date subsection 3 of the Chengzhong and construction of after the change. The use license was section of Taipei's Zhongzheng a hotel building in obtained on Dec. 22, 2017. District. Taipei's Zhongzheng 2. A supplementary contract was District (Note 2) entered into on Feb. 13, 2017. The ownership of the building was applied for on the principle that the entire building was registered as a single entity. The rights scope of the scheduled sales was 3035/10000. The registered area was approximately 1,604.05 ping. 3. The building was inspected and handed over on May 30, 2018. Surface rights Northern Dec. 25, 2012, to Dec. 24, 2062 1. Taiwan Life purchased 50-year None contract for Taiwan Region Branch, surface rights for lots 436-3, 438-0, Life Poai Road site National and 438-1 of the Nanhai section of Property Taipei's Zhongzheng District. Administration, 2. A premium of NT$876 million is Ministry of to be amortized averagely for 50 Finance years. Surface rights for Yuthong The contract was entered into on 1. A new construction project using None new Taiwan Life Construction Jan. 31, 2015, and the use license the surface rights for Poai Road, construction project Co., Ltd. was acquired on Oct. 24, 2017. The located on lots 436-3, 438-0, and on Poai Road building was handed over on Oct. 26, 438-1 of subsection 5 of Nanhai 2018. Section in Taipei's Zhongzheng (The warranty period expires three District. years from that date of delivery.) 2. The supplementary contract was signed on Dec. 19, 2017. The amended use license was obtained before Sept. 22, 2017. It was officially connected to the electrical grid on Oct. 8, 2017, and to the water supply on Oct. 23, 2017. 3. The secondary supplement contract was entered into on Oct. 26, 2018, and the closing day shall be before Nov. 15, 2018. 4. The building was handed over on Oct. 26, 2018. Joint venture Newasia May 21, 2015, to the completion of CTBC Life (90%) and Newasia None contract for CTBC Construction the contract (Sept. 2, 2019) with no (10%) co-established Ho Fa Land Life investment in and matters to be resolved Development Co., Ltd. to participate Ho Fa Land Co., Ltd. Development in the "Ho Fa Industry Park, (Note 2) Corp. Kaohsiung development, bid (sales), and management project" entrusted by Kaohsiung City Government.

212 Operational Highlights

Start and Contract Party Main content Restrictions end dates Surface rights Taiwan Sept. 15, 2015, to Sept. 14, 2060 1. Taiwan Life and the original CTBC None contract for Taiwan Fertilizer Co., Life co-invested in the 45-year Life and the original Ltd. surface rights of lot 15 of the CTBC Life to invest Jingmao section of Taipei's Nangang in the C3 land in District. Taipei (Note 2) 2. From the sixth month of the ninth year to the 10th year during the contract period, an option exists for the 40-year renewal of the surface rights. The premium of NT$15 billion is amortized averagely for 10 years. Joint venture Liming The contract was signed on Oct. CTBC Life (99%) and Liming None contract for CTBC Construction 8, 2015, and terminated before Construction (1%) agreed to co- Life investment in Co., Ltd. the fulfillment of "the selection hold the entity of Wuzi Development Wuzi Development of non-government organizations and to participate in the project Co., Ltd. (Note 2) participating in the expansion, of selecting non-government renovation, and operation of Taichung organizations to participate in the Intercontinental Baseball Stadium" expansion, renovation, and operation (Sept. 23, 2059) or at the time that of Taichung Intercontinental Baseball Taiwan Life transferred all of the Stadium. entity held by Wuzi Development to a third party. CTBC Life project Kaohsiung City Nov. 9, 2015, to Nov. 8, 2065 This contract was signed for 50- None for the construction, Government year surface rights through a build– operation, and operate–transfer (BOT) agreement transfer of with Kaohsiung City Government Kaohsiung Main for the construction of complex Public Library's structures including hotels, shopping Conference, malls, and bookstores. Exhibition and Cultural Creation Hall (Note 2) Taiwan Life BOT Yilan County Jan. 28, 2016, to Jan. 27, 2066; This contract was signed for 50-year None project for the Government according to a May 23, 2018, land development rights through a Qingshui Area document from Yilan County BOT agreement with Yilan County Natural Health and Government, a total of 225 days for Government for a construction Sightseeing and the determination of excluded events project including 250 rooms and a Recreation Park in shall not be included in the original geothermal park. Yilan County five-year construction period. Lease contract Hanshin Asset July 27, 2016, to July 26, 2036 Leased back to Hanshin Asset None for Taiwan Life Management Management. investment in Co., Ltd. Hanshin New Century Building Miscellaneous DACIN Nov. 24, 2016, to the date of Project contract (e.g., slurry walls None engineering in the Construction completion acceptance, expiration and foundation piles) BOT project of Co., Ltd. of the warranty period, and with no the Conference, outstanding matters or disputes to Exhibition and be resolved Cultural Creation Hall of Kaohsiung Main Public Library

213 Operational Highlights

Start and Contract Party Main content Restrictions end dates Entrustment of the MAA Group Jan. 9, 2017, to the acceptance and This contract was signed for the None general consultant of Consulting settlement of the entire engineering project management consultant for project management Engineers part of the project the surface rights of lot 15 of the duties for a Taiwan Jingmao section of Taipei's Nangang Life surface rights District (C3 project). project in Taipei Scheduled lease Mitsui Fudosan Jan. 18, 2019, to the date the This lease agreement was signed with None contract for the Taiwan Co., Ltd. operator officially started operations Mitsui Fudosan Taiwan Co., Ltd. for surface rights in for 20+10 years. the surface rights of lot 15 of the Taipei Jingmao section of Taipei's Nangang District (C3 project). Building design and C.Y. Lee & June 22, 2017, to the date that the This contract was signed for the None supervision service Partners project is handed over to the usage building design and supervision of contract for the unit without outstanding matters to the surface rights project for lot 15 surface rights of a be resolved, the agreement letter of the Jingmao section of Taipei's Taiwan Life project is acquired from Party A, or all Nangang District. in Taipei warranties expire (the earlier date shall prevail) Construction, DACIN June 12, 2017, to the date of Main project contract None operation, and Construction completion acceptance, expiration transfer contract Co., Ltd. of the warranty period, and with no of the Conference, outstanding matters or disputes to Exhibition and be resolved Cultural Creation Hall of Kaohsiung Main Public Library Sales contract Natural Nov. 30, 2018, to Feb. 27, 2019, with Real estate sales contract None for real estate in persons all the payments to be completed and Taichung surnamed Liu the land to be handed over and Chen Sales contract Easy Finder Contract signed on Nov. 9, 2018, and This contract was for the sale and None of real estate on Publishing Ltd. transfer completed on Feb. 1, 2019 purchase of real estate in the Jiuzong factory building land section of Taipei's Neihu District. in Taipei

214 Operational Highlights

Start and end Contract Party Main content Restrictions dates Individual life Central Reinsurance Corp. Oct. 31, 1968, to present Surplus reinsurance None insurance/ Munich Reinsurance Co. Aug. 17, 1984, to present reinsurance Swiss Reinsurance Co., Ltd. Jan. 1, 1969, to present (including variable SCOR Reinsurance Co., Ltd. Aug. 20, 1994, to present universal life RGA Reinsurance Co. Jan. 1, 2001, to present insurance) Hannover Rück SE May 25, 2006, to present General Reinsurance AG Dec. 1, 2010, to present AXA France VIE April 14, 2014, to present CCR RE Jan. 1, 2015, to present Korean Reinsurance Co. Jan. 1, 2015, to present MS First Capital Insurance Co., Ltd. Jan. 1, 2018, to present Partner Reinsurance Co., Ltd. Oct. 26, 2018, to present Group life Central Reinsurance Corp. Oct. 31, 1968, to present Quota share None insurance/ Hannover Rück SE Jan. 1, 2008, to present reinsurance/working reinsurance Trust International Insurance and Jan. 1, 2015, to Nov. 30, 2018 excess of loss Reinsurance Co. B.S.C. reinsurance CCR RE Jan. 1, 2016, to present MS First Capital Insurance Co., Ltd. Jan. 1, 2018, to present Best Meridian Insurance Co. Dec. 1, 2018, to present The Toa Reinsurance Co., Ltd. Jan. 1, 2019, to present Individual/ Central Reinsurance Corp. Oct. 31, 1968, to present Quota share None group personal Hannover Rück SE Jan. 1, 2008, to present reinsurance/working accident insurance Trust International Insurance and Jan. 1, 2015, to Nov. 30, 2018 excess of loss reinsurance Reinsurance Co. B.S.C. reinsurance CCR RE Jan. 1, 2016, to present MS First Capital Insurance Co., Ltd. Jan. 1, 2018, to present Best Meridian Insurance Co. Dec. 1, 2018, to present The Toa Reinsurance Co., Ltd. Jan. 1, 2019, to present Individual/group Central Reinsurance Corp. Oct. 31, 1968, to present Surplus/quota share None health insurance Munich Reinsurance Co. Aug. 17, 1984, to present reinsurance reinsurance RGA Reinsurance Co. Aug. 9, 2004, to present Hannover Rück SE Jan. 1, 2008, to present General Reinsurance AG Dec. 1, 2010, to present Pacific Life Re Ltd. Nov. 1, 2013, to present Trust International Insurance and March 31, 2015, to Nov. 30, 2018 Reinsurance Co. B.S.C. CCR RE June 12, 2015, to present Best Meridian Insurance Co. Dec. 1, 2018, to present Note 1: This project was originally co-contracted to RSEA Engineering Corp. and Evergreen Construction Corp. Ltd. With the signing of the supplementary contract on Dec. 22, 2010, RSEA Engineering Corp. became the sole contractor for the construction. Note 2: CTBC Life and Taiwan Life were merged on Jan. 1, 2016; Taiwan Life is the surviving company. Since the merger, the rights and obligations under the original contract have been generally borne by Taiwan Life.

215 VI Financial Information

(I) Condensed balance sheets and statements of comprehensive income for the past five years

1. Condensed consolidated balance sheet Units: NT$ thousand Financial data of the past five years (Note 1) Year 2014 Item 2015 2016 2017 2018 (Note 3) Cash and cash equivalents, due from the Central Bank 407,939,532 516,280,288 394,032,781 435,276,226 381,228,400 and call loans to banks Financial assets measured at fair value through profit 118,298,731 156,618,285 195,315,251 175,690,858 368,632,520 or loss Available-for-sale financial assets - net 683,051,006 658,449,447 808,810,459 478,234,096 - Financial assets measured at fair value through other - - - - 463,855,794 comprehensive income Investment in debt instrument at amortized cost - - - - 1,627,683,522 Derivative financial assets-hedging - net/ Financial 1,499,486 107,526 416,342 137,010 34,212 instruments-hedging Securities purchased under resell agreements 3,835,902 12,429,243 25,510,984 24,658,803 24,656,572 Receivables - net 189,440,011 167,982,197 130,315,259 153,686,602 197,753,645 Current income tax assets 1,689,188 2,225,770 2,377,851 1,740,877 3,258,128 Assets held for sale - net 6,323,343 - - - 523,182 Loans - net 1,838,176,291 2,080,161,690 2,112,661,940 2,194,551,195 2,364,345,480 Reinsurance contract assets - net 306,946 3,613,292 3,322,732 2,841,708 2,593,345 Held-to-maturity financial assets - net 110,975,819 224,773,310 216,315,007 737,471,741 - Investments under equity method - net 2,073,119 16,320,924 17,885,709 33,735,935 35,353,449 Other financial assets - net 185,574,704 573,190,852 739,955,696 911,595,514 75,939,497 Premises and equipment - net 43,379,476 64,494,739 60,463,447 52,650,171 53,985,880 Investment property - net 6,552,700 23,977,131 47,009,937 56,593,899 57,591,759 Intangible assets - net 16,992,508 23,284,911 23,383,294 23,406,249 24,487,733 Deferred income tax assets 9,526,337 11,033,621 10,347,900 13,909,970 15,656,082 Other assets - net 29,044,965 61,283,528 51,126,665 44,552,690 55,668,346 Total assets 3,654,680,064 4,596,226,754 4,839,251,254 5,340,733,544 5,753,247,546 Deposits from Central Bank and other banks 49,934,428 45,634,274 63,498,683 74,874,783 74,498,692 Due to Central Bank and other banks 59,135,084 27,925,966 15,752,488 15,470,633 14,041,775 Financial liabilities measured at fair value through profit 95,292,577 133,194,426 97,582,396 68,406,471 106,571,323 or loss Derivative financial liabilities-hedgingnet/ Financial 916,322 441,428 303,599 16,865 184,195 instrumentshedging Securities sold under repurchase agreements 65,002,821 58,259,113 49,491,084 74,118,226 70,524,205 Commercial papers payable - net 7,115,881 11,693,753 28,248,099 51,777,524 38,638,067 Payables 81,989,932 69,748,378 78,876,776 87,184,528 96,119,060 Current income tax liabilities 4,467,017 3,635,535 2,435,981 6,230,722 3,713,312 Deposits and remittances 2,410,679,548 2,699,802,159 2,748,419,254 2,944,973,167 3,138,015,328 Bonds payable 110,457,298 109,220,573 99,355,898 112,212,447 98,724,952 Preferred stock liabilities - 2,030,000 - - -

216 Financial Information

Financial data of the past five years (Note 1) Year 2014 Item 2015 2016 2017 2018 (Note 3) Other financial liabilities 199,905,462 204,158,705 199,621,926 189,540,151 193,255,451 Provisions 329,775,602 940,212,902 1,152,859,490 1,370,665,257 1,585,162,090 Deferred tax liabilities 1,784,842 2,196,953 1,506,995 4,198,632 2,383,652 Other liabilities 8,783,852 10,478,343 19,103,166 20,079,967 16,266,963 Before distribution 3,425,240,666 4,318,632,508 4,557,055,835 5,019,749,373 5,438,099,065 Total liabilities After distribution 3,437,599,064 4,333,234,874 4,576,525,656 5,040,820,505 (Note 2) Stockholders' equity-parent company 229,352,760 277,507,141 282,106,787 320,900,639 315,072,464 Before distribution 152,572,815 180,547,806 194,969,896 198,303,196 198,303,196 Capital stock After distribution 164,931,213 194,969,896 194,969,896 198,303,196 (Note 2) Before distribution 23,845,351 36,654,760 36,637,717 50,366,018 50,368,539 Capital surplus After distribution 23,845,351 36,654,760 33,717,244 50,366,018 (Note 2) Before distribution 58,667,306 68,814,732 67,810,916 88,573,648 102,853,949 Retained earnings After distribution 33,950,510 39,790,276 51,261,568 67,502,516 (Note 2) Other equity interests (5,732,712) (7,927,403) (16,728,988) (15,759,469) (36,453,220) Treasury stock - (582,754) (582,754) (582,754) - Non-controlling interests 86,638 87,105 88,632 83,532 76,017 Before distribution 229,439,398 277,594,246 282,195,419 320,984,171 315,148,481 Total equity After distribution 217,081,000 262,991,880 262,725,598 299,913,039 (Note 2) Note 1: Financial data have been audited by the CPA for 2014 to 2018. Note 2: The resolution on 2018 earnings distribution has not yet been adopted at a shareholders' meeting. Note 3: Some of the items in the 2014 consolidated financial statement are reclassified to be in line with this presentation of the consolidated financial statement.

217 Financial Information

2. Condensed consolidated statement of comprehensive income Unit: NT$ thousand Financial data of the past five years (Note 1) Year 2014 Item 2015 2016 2017 2018 (Note 2) Interest income 67,442,151 80,541,643 102,274,095 112,086,276 129,139,824 Less: Interest expenses 20,880,860 21,389,532 18,806,920 20,481,110 26,864,903 Net income of interest 46,561,291 59,152,111 83,467,175 91,605,166 102,274,921 Net non-interest income 154,865,396 156,419,816 236,204,186 258,158,491 212,099,670 Net revenue 201,426,687 215,571,927 319,671,361 349,763,657 314,374,591 Provisions for bad debt expenses, commitments, and (3,644,750) (1,504,991) (5,896,362) (2,519,102) (4,903,326) guarantee liability provisions Net change provisions for insurance liabilities (104,063,750) (117,725,465) (220,215,855) (239,860,214) (205,361,796) Operating expenses (48,556,973) (55,291,150) (59,606,969) (62,658,046) (61,719,970) Net income before tax from continuing operations 45,161,214 41,050,321 33,952,175 44,726,295 42,389,499 Income tax expenses (5,717,634) (5,648,279) (6,019,301) (7,502,115) (6,354,288) Net income from continuing operations 39,443,580 35,402,042 27,932,874 37,224,180 36,035,211 Net income 39,443,580 35,402,042 27,932,874 37,224,180 36,035,211 Other comprehensive income (losses) (net amount 2,739,684 (2,732,044) (8,712,180) 1,052,317 (28,170,860) after tax) Total comprehensive income 42,183,264 32,669,998 19,220,694 38,276,497 7,864,351 Net income attributable to parent company 39,437,007 35,397,576 27,928,977 37,222,217 36,032,425 Net income attributable to non-controlling interest 6,573 4,466 3,897 1,963 2,786 Comprehensive income attributable to parent 42,173,277 32,669,531 19,219,055 38,281,597 7,864,640 company Comprehensive income attributable to non-controlling 9,987 467 1,639 (5,100) (289) interest Earnings per share (Note 3) 2.39 1.95 1.43 1.91 1.85 Note 1: Financial data have been audited by the CPA for 2014 to 2018. Note 2: Some of the items in the 2014 consolidated financial statement are reclassified to be in line with this presentation of the consolidated financial statement. Note 3: The earnings per share is in New Taiwan dollars.

218 Financial Information

3. Condensed individual balance sheet Unit: NT$ thousand Financial data of the past five years (Note 1) Year 2014 Item 2015 2016 2017 2018 (Note 3) Cash and cash equivalents, due from the Central Bank 645,732 1,855,174 755,937 18,680,129 148,138 and call loans to banks Available-for-sale financial assets - net 5,552,093 1,007,484 599,851 1,679,451 - Financial assets measured at fair value through other - - - - 478,440 comprehensive income Securities purchased under resell agreements - 1,163,643 - - - Receivables - net 2,770 70,877 70,688 9 12 Current income tax assets 271,446 139,882 360,133 391,333 379,438 Investments under equity method - net 241,124,120 312,623,735 333,729,060 373,126,916 372,444,351 Other financial assets - net 371,250 371,250 371,250 371,250 - Premises and equipment - net 98,295 94,205 79,652 82,087 78,127 Intangible assets - net - - - 1,632 3,328 Deferred income tax assets - 8 1,301 2,984 5,885 Other assets - net 24,282 42,537 49,085 18,916 26,175 Total assets 248,089,988 317,368,795 336,016,957 394,354,707 373,563,894 Commercial papers payable - net 5,616,217 9,533,888 25,778,927 44,756,966 31,668,251 Payables 773,046 981,156 974,165 1,481,375 1,441,369 Current income tax liabilities - 6,580 35,529 35,529 1,354,931 Bonds payable 12,000,000 27,000,000 27,000,000 27,000,000 23,800,000 Preferred stock liabilities - 2,030,000 - - - Other financial liabilities 2,070 4,406 162 - - Provisions - - - 8,629 20,058 Deferred tax liabilities 1,479 485 - - 9 Other liabilities 344,416 305,139 121,387 171,569 206,812 Before distribution 18,737,228 39,861,654 53,910,170 73,454,068 58,491,430 Total liabilities After distribution 31,095,626 54,464,020 73,379,991 94,525,200 (Note 2) Before distribution 152,572,815 180,547,806 194,969,896 198,303,196 198,303,196 Capital stock After distribution 164,931,213 194,969,896 194,969,896 198,303,196 (Note 2) Before distribution 23,845,351 36,654,760 36,637,717 50,366,018 50,368,539 Capital surplus After distribution 23,845,351 36,654,760 33,717,244 50,366,018 (Note 2) Before distribution 58,667,306 68,814,732 67,810,916 88,573,648 102,853,949 Retained earnings After distribution 33,950,510 39,790,276 51,261,568 67,502,516 (Note 2) Other equity interests (5,732,712) (7,927,403) (16,728,988) (15,759,469) (36,453,220) Treasury stock - (582,754) (582,754) (582,754) - Before distribution 229,352,760 277,507,141 282,106,787 320,900,639 315,072,464 Total equity After distribution 216,994,362 262,904,775 262,636,966 299,829,507 (Note 2) Note 1: Financial data have been audited by the CPA for 2014 to 2018. Note 2: The resolution on 2018 earnings distribution has not yet been adopted at a shareholders' meeting. Note 3: Some of the items in the 2014 consolidated financial statement are reclassified to be in line with this presentation of the consolidated financial statement.

219 Financial Information

4. Condensed individual statement of comprehensive income Unit: NT$ thousand Year Financial data of the past five years (Note 1)

Item 2014 2015 2016 2017 2018 Proportion share of gains from associates or joint 40,042,179 36,530,933 28,958,149 38,938,119 38,868,547 ventures under equity method Other income 226,598 119,772 80,619 55,024 128,295 Operating expenses (839,290) (873,592) (911,117) (1,420,982) (1,399,382) Other expenses and losses (223,251) (390,412) (486,998) (594,243) (548,720) Net income before tax 39,206,236 35,386,701 27,640,653 36,977,918 37,048,740 Income tax benefits (expenses) 230,771 10,875 288,324 244,299 (1,016,315) Net income 39,437,007 35,397,576 27,928,977 37,222,217 36,032,425 Other comprehensive income (losses) (net amount 2,736,270 (2,728,045) (8,709,922) 1,059,380 (28,167,785) after tax) Total comprehensive income 42,173,277 32,669,531 19,219,055 38,281,597 7,864,640 Earnings per share (Note 2) 2.39 1.95 1.43 1.91 1.85 Note 1: Financial data have been audited by the CPA for 2014 to 2018. Note 2: The earnings per share is in New Taiwan dollars.

5. CPA and audit opinions for the past five years Year CPA names Audit opinion 2014 Charles Chen, Leou-Fong Yang Modified unqualified opinion (Note 1) 2015 Jeff Chen, Leou-Fong Yang Modified unqualified opinion (Note 2) 2016 Jeff Chen, Leou-Fong Yang Unqualified opinion (Note 3) 2017 Jeff Chen, Lin Wu Unqualified opinion (Note 3) 2018 Jeff Chen, Lin Wu Unqualified opinion (Note 3) Note 1: The structured notes cases as stated in Note 9 (4) are still under investigation by the judiciary, and the results remain uncertain. Note 2: The structured notes cases as stated in Note 9 (5) are still under investigation by the judiciary, and the results remain uncertain. Note 3: The judicial cases as stated in Note 9 (5) are still under investigation by the judiciary, and the results remain uncertain. The CPA's opinion is not modified in respect of this matter.

(II)Financial analysis for the past five years Year Financial analysis for the past five years Item (Note 1) 2014 2015 2016 2017 2018 Total asset turnover (times) 0.07 0.05 0.07 0.07 0.06 Ratio of loans to deposits of banking subsidiary 73.15 71.08 70.20 67.46 69.73 Operating NPL ratio of banking subsidiary 0.23 0.29 0.33 0.21 0.22 capability Average operating revenue per employee 11,843 8,436 16,068 17,480 15,621 Average profit per employee (after tax) 2,319 1,385 1,404 1,860 1,791 Return on assets ratio (%) 1.30 0.86 0.59 0.73 0.65 Return on equity ratio (%) (Note 3) 18.69 13.97 9.98 12.35 11.33 Profitability Net income ratio (%) 19.58 16.42 8.74 10.64 11.46 Earnings per share (NT$) (Note 4) 2.39 1.95 1.43 1.91 1.85 Ratio of debt to total assets 93.72 93.96 94.17 93.99 94.52 Financial Ratio of liabilities to equity 1,492.87 1,555.74 1,614.86 1,563.86 1,725.57 structure Financial holding company's double leverage ratio 105.29 112.79 118.43 116.39 118.36 (%) Financial holding company's financial ratio in accordance with N/A N/A N/A N/A N/A Article 41 of Financial Holding Company Act 220 Financial Information

Year Financial analysis for the past five years Item (Note 1) 2014 2015 2016 2017 2018 Operating leverage 1 1 1 1 1 Leverage Financial holding company's financial leverage 1.46 1.52 1.55 1.46 1.63 Growth Assets growth rate of assets 50.73 25.76 5.29 10.36 7.72 rate (%) Profit growth rate of profit 109.54 (9.10) (17.29) 31.73 (5.22) Cash flow ratio 24.57 44.80 Note 6 Note 6 7.81 Cash flow Cash flow adequacy ratio 302.89 361.92 242.37 177.39 136.88 (%) Cash flow reinvestment ratio Note 5 1,567.66 Note 6 Note 6 Note 5 Market share by assets 8.75 10.10 10.07 10.17 10.33 Scale of operations Market share by net equity 7.74 8.86 8.40 8.64 8.55 (%) Market share by deposits of banking subsidiary 5.18 5.56 5.44 5.78 5.94 (Note 2) Market share by loans of banking subsidiary 4.88 5.28 5.19 5.31 5.50 CTBC Bank Co., Ltd. 13.70 13.70 15.17 16.18 15.16 Subsidiary's capital adequacy calculated based CTBC Securities Co., Ltd. 573.76 447.22 464.68 420.99 606.68 on the capital adequacy of Taiwan Life Insurance Co., Ltd. - 324.29 281.42 339.79 267.70 each industry (%) CTBC Life Insurance Co., Ltd. 408.57 284.38 - - - CTBC Bank Co., Ltd. 197,018 220,291 240,947 256,184 263,318 CTBC Securities Co., Ltd. 5,746 6,755 6,444 6,520 6,353 CTBC Insurance Brokers Co., Ltd. 2,717 - - - - CTBC Venture Capital Co., Ltd. 4,741 4,914 4,189 3,913 3,612 Eligible capital of each CTBC Asset Management Co., Ltd. 5,558 5,431 5,406 5,470 5,433 subsidiary (NT$ million) CTBC Security Co., Ltd. 47 48 55 57 59 Taiwan Lottery Corp. 1,649 1,526 965 1,077 763 Taiwan Life Insurance Co., Ltd. - 32,808 58,572 82,568 89,049 CTBC Life Insurance Co., Ltd. 23,656 23,676 - - - Capital CTBC Investments Co., Ltd. 391 552 526 500 482 adequacy Group's net eligible capital (NT$ million) 214,115 248,831 253,523 284,977 291,395 CTBC Bank Co., Ltd. 115,050 128,607 137,017 146,502 171,537 CTBC Securities Co., Ltd. 1,502 2,266 2,080 2,323 1,571 CTBC Insurance Brokers Co., Ltd. 1,841 - - - - CTBC Venture Capital Co., Ltd. 2,380 2,459 2,151 2,207 2,136 Statutory capital CTBC Asset Management Co., Ltd. 2,792 2,725 2,712 3,774 3,832 requirement of each subsidiary (NT$ million) CTBC Security Co., Ltd. 51 58 59 59 57 Taiwan Lottery Corp. 1,040 910 574 681 518 Taiwan Life Insurance Co., Ltd. - 20,234 41,626 48,600 66,529 CTBC Life Insurance Co., Ltd. 11,580 16,651 - - - CTBC Investments Co., Ltd. 211 293 287 302 309 Group's statutory capital requirement (NT$ million) 136,944 174,781 187,078 204,920 247,071 Group's capital adequacy ratio(%) 156.35 142.37 135.52 139.07 117.94 A financial holding company must disclose the ratio of aggregate credit extensions, guarantees, or other transactions between all subsidiaries and 1,165,309 1,989,841 2,397,804 2,905,102 3,429,329 any one party, single group of related parties, or single group of related enterprises in accordance with Article 46 of Financial Holding Company Act.

221 Financial Information

Analysis of reasons for variations exceeding 20% of the financial ratios for the past two fiscal years: 1. The decline of the asset growth rate was mainly due to a decrease in the growth of total assets in 2018. 2. The decline of the profit growth rate was mainly due to a decrease of 2018 net income before tax. 3. The decline of the cash flow adequacy ratio is mainly due to an increase of 2017 cash dividends paid out in 2018 compared to 2016 cash dividends.

Note 1: The formula of each financial analysis is following: 1. Operating capability (1) Total assets turnover = net revenue / average total assets (2) Ratio of loans to deposits of banking subsidiary = total loans of banking subsidiary / total deposits (3) NPL ratio of banking subsidiary = total NPL ratio of banking subsidiary / total loans (4) Average operating revenue per employee = net revenue / total number of employees (5) Average profit per employee = net income after tax/ total number of employees 2. Profitability (1) Return on assets ratio= [net income after tax + interest expense × (1-tax rate)] / average total assets (2) Return on equity ratio = net income after tax / average total equity (3) Net income ratio = net income after tax / net revenue (4) Earnings per share = (net income attributable to parent company − preferred stock dividend) / weighted average number of shares issued 3. Financial structure (1) Ratio of debt to total assets = total liabilities / total assets (2) Ratio of liabilities to equity = total liabilities / total equity (3) Financial holding company's double leverage ratio = equity investments in accordance with Article 36, Paragraph 2, and Article 37 of the Financial Holding Company Act / total equity 4. Leverage (1) Operating leverage = (net revenue − variable cost) / net income before tax (2) Financial holding company's financial leverage = (net income before tax + interest expense) / net income before tax 5. Growth rate (1) Assets growth rate = (total assets − total assets of previous year) / total assets of previous year (2) Profit growth rate = (net income before tax− net income before tax of previous year) / net income before tax of previous year 6. Cash flow (1) Cash flow ratio = net cash flow from operating activities / (call loans and overdrafts from other banks + commercial papers payable + financial liabilities measured at fair value through profit or loss + securities sold under repurchase agreements + payables with maturity within one year) (2) Cash flow adequacy ratio = net cash flow from operating activities for the past five years / sum of capital expenditures and cash dividends for the past five years (3) Cash flow reinvestment ratio = net cash flow from operating activities / net cash flow from investing activities 7. Scale of operations (1) Market share by assets = total assets / total assets of all financial holding companies (2) Market share by net equity = net equity / total net equity of all financial holding companies (3) Market share by deposits of banking subsidiary = total deposits / total deposits of all financial institutions (4) Market share by loans of banking subsidiary = total loans / total loans of all financial institutions 8. Capital adequacy (1) Group's net eligible capital = financial holding company's eligible capital +(financial holding company's shareholding ratio × subsidiary's eligible capital) − statutory deductions (2) Group's net statutory capital requirement = financial holding company's statutory capital requirement + financial holding company's shareholding ratio × subsidiary's statutory capital requirement − statutory deductions (3) Group's capital adequacy ratio = group's net eligible capital / group's statutory capital requirement Note 2: (1) Market share by assets and market share by net equity for 2018 are calculated based on the summary data of financial statistics published by the FSC in 2019. (2) Market share by deposits of banking subsidiary and market share by loans of banking subsidiary for 2018 are calculated based on the CTBC individual financial statement for 2018 and the statistics for all financial institutions provided on the website of the FSC in December 2018. Note 3: Return on common equity ratio = (net income after tax – preferred stock dividend) / average total common equity. As of Dec. 31, 2018 and 2017, the Company and its subsidiaries' return on common equity ratio was 12.09% and 12.77%, respectively. Note 4: Earnings per share from 2014 to 2016 are based on the retroactively adjusted number of distributed of earnings or capital surplus transferred to capital. Note 5: The net cash flow from investing activities was inflow for 2014 and 2018; therefore, the cash flow reinvestment ratio is not counted. Note 6: The net cash flow from operating activities was in the negative for 2016 and 2017; therefore, the cash flow ratio and cash flow reinvestment ratio are not counted.

222 Financial Information

(III)Key performance indicators Item 2017 2018 Capital adequacy ratio 139.07% 117.94% CTBC Holding Efficiency ratio (Note 1) 61.22% 59.26% Fee Income ratio (Note 2) 35.10% 32.69% BIS ratio 14.47% 14.12% CTBC Bank (consolidated) NPL ratio (Note 3) 0.41% 0.43% Coverage ratio (Note 4) 306.85% 296.26% BIS ratio 16.18% 15.16% CTBC Bank (standalone) NPL ratio (Note 3) 0.21% 0.22% Coverage ratio (Note 4) 654.39% 625.25% Note 1: Efficiency ratio = operation cost / revenue Note 2: Fee Income ratio = net fee income / revenue Note 3: NPL ratio = NPL amount / total loan amount Note 4: Coverage ratio = loan allowance / NPL amount

223 Financial Information

(IV)Audit Committee Report for the past year's financial report

CTBC Financial Holding Co., Ltd. Audit Committee Report

In accordance with Article 14-4 of Securities and Exchange Act and with Article 219 of the Company Act, I, the undersigned, have duly examined and accepted as correct the financial reports for 2018 along with the business report and earnings distribution plan submitted by the Board of Directors of CTBC Financial Holding Co., Ltd.

CTBC Financial Holding Co., Ltd. Audit Committee Convener

Shih-Chieh Chang Taipei, Taiwan, R.O.C. April 26, 2019

(V) Consolidated financial statements of parent company and subsidiaries audited by accountants in the past year: Please refer to Appendix 2.

(VI) Impact on financial status of financial turnover difficulties of the Company and its affiliated enterprises in the past year through April 26, 2019: None.

224 VII Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

(I)Financial conditions Unit: NT$ thousand 2017 2018 Difference % Cash and cash equivalents 18,680,129 148,138 (18,531,991) (99.21%) Financial assets 2,050,701 478,440 (1,572,261) (76.67%) Receivables - net 9 12 3 28.78% Investments under equity method - net 373,126,916 372,444,351 (682,565) (0.18%) Other assets 496,952 492,953 (3,999) (0.80%) Total assets 394,354,707 373,563,894 (20,790,813) (5.27%) Payables 1,481,375 1,441,369 (40,006) (2.70%) Financial liabilities 27,000,000 23,800,000 (3,200,000) (11.85%) Other liabilities 44,972,693 33,250,061 (11,722,632) (26.07%) Total liabilities 73,454,068 58,491,430 (14,962,638) (20.37%) Capital stock 198,303,196 198,303,196 - - Capital surplus 50,366,018 50,368,539 2,521 0.01% Retained earnings 88,573,648 102,853,949 14,280,301 16.12% Other equity interests (15,759,469) (36,453,220) (20,693,751) 131.31% Treasury stock (582,754) - 582,754 (100.00%) Total equity 320,900,639 315,072,464 (5,828,175) (1.82%) Analysis of reasons for variations exceeding NT$100 million and deviations of over 20%: 1. The decline in cash and cash equivalents was mainly due to the issuing of preferred shares B issued at the end of 2017. 2. The decline in financial assets was mainly due to the application of IFRS 9 starting in 2018. Some financial assets had to be reclassified according to the provisions of the standard. 3. The decline in other liabilities was mainly due to the repayment of commercial papers payable during 2018. 4. The decline in other equity interests was mainly due to an increase of the unrealized losses of financial instruments. 5. The decrease in treasury stock was mainly due to the disposition of treasury stocks.

(II)Financial performance Unit: NT$ thousand 2017 2018 Difference % Proportion share of gains from associates or joint ventures under 38,938,119 38,868,547 (69,572) (0.18%) equity method Other income 55,024 128,295 73,271 133.16% Operating expenses (1,420,982) (1,399,382) 21,600 (1.52%) Other expenses and losses (594,243) (548,720) 45,523 (7.66%) Net income before tax 36,977,918 37,048,740 70,822 0.19% Net income after tax 37,222,217 36,032,425 (1,189,792) (3.20%) Analysis is unnecessary as no variance exceeds NT$100 million and no deviation exceeds 20%.

225 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

(III)Cash flow

Cash liquidity analysis for 2018: Please refer to page 503. Cash liquidity analysis for 2019: Unit: NT$ thousand Annual net Cash surplus Cash balance Remedial measures for cash deficit cash flow from Annual cash (deficit) at beginning of operating outflow period Amount + - Investment plan Financial plan activities 148,138 19,761,257 (19,419,824) 489,571 None None Analysis of cash flow change in 2019: Operating activities: A net cash inflow of NT$19,761,257 thousand is estimated from the operating activities in 2019 Investment and financing activities: A net cash outflow of NT$19,419,824 thousand is estimated from the investment and financing activities in 2019. Remedial measures for estimated cash deficit and liquidity analysis: None.

(IV)Impact of significant capital expenditures on finances in 2018: None.

(V) 2018 reinvestment policy, main reasons for profits or losses, improvement plan, and investment plan for the coming year 1. 2018 reinvestment policy CTBC Holding's reinvestment policy is based on the investments stipulated in Articles 36 and 37 of the Financial Holding Company Act. In accordance with the regulations of the competent authorities, the projected return rate of each investment, cross-selling gains, and strategic value of the subsidiaries of CTBC Holding were evaluated to ensure stable compensation for shareholders.

2. Main reasons for 2018 profits The main profit sources for CTBC Holding in 2018 were its subsidiaries CTBC Bank and Taiwan Life. In 2018, CTBC Bank's pre-tax net profit was NT$35.7 billion, accounting for 84% of CTBC Holding's consolidated pre- tax profit. In 2018, Taiwan Life recorded consolidated pre-tax net profit of NT$7.5 billion, accounting for 18% of CTBC Holding's the consolidated pre-tax profit. Please refer to "V. Operational Highlights, III. Market and business overview" for the main reasons for profits or losses of each CTBC Holding subsidiary and the corrective actions taken.

3. 2019 investment plan In 2019, the Company will regularly evaluate the investment targets of domestic and overseas financial institutions that have complementary businesses and potential synergies with CTBC Holding in order to increase the group's market share and further build it into one of Asia's strongest regional financial institutions.

226 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

(VI)Risk management

1. Risk management framework and policy (1) Risk management framework CTBC Holding adopts an integrated approach to risk management. The framework includes the Company's Board of Directors, General Auditor, Risk Management Committee, Executive Committee, Credit Committee, and Risk Management Department; in addition, each subsidiary has established its own risk units. The related responsibilities are described as follows: 1) The Board of Directors is the highest supervisory unit of the group's risk management activities and is responsible for approving, reviewing, and supervising risk strategies and policies; developing a healthy and independent risk culture; and ensuring the operations of the management framework and the risk control functions. It is also ultimately responsible for overall risk management. 2) The General Auditor is responsible for the planning and execution of all audit operations. It reports directly to the Board of Directors. 3) The Risk Management Committee operates according to the Risk Governance Policy, as approved by the Board of Directors, to set up an independent risk management functions. The Committee ensures that CTBC Holding and its subsidiaries' operating activities, business development strategies, and risk appetite are in line with the Board's policies. It also assists the Board of Directors in providing communication, oversight, and recommendations regarding risk management; establishing an appropriate risk authorization system; and supervising and ensuring that the system is functioning properly. The effective functioning of the Committee is intended to foster a healthy culture of risk management and managerial support among all employees throughout the organization. 4) The Executive Committee is responsible for providing management consulting on major issues, including CTBC Holding's overall risk. The Executive Committee is established to be responsible for reviewing and consulting risk management related policies and various risk limits. 5) The Credit Committee is responsible for supervising, managing, and approving CTBC Holding and its subsidiaries' major credit risk cases. 6) The Risk Management Department is responsible for establishing and implementing various risk management policies for CTBC Holding and reporting related risk management information throughout the group.

227 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

CTBC Holding group risk management structure

CTBC Holding

General Auditor Risk Management Committee

Chairman

Executive Committee

President

Credit Committee

Chief Risk Officer

Risk Management Department

Subsidiary Risk Unit

(2) Risk management policy The goal of CTBC Holding's risk management is to pursue the optimal economic gains while using effective management methods to control risks within the scope approved by the Board of Directors. CTBC Holding establishes risk management policies to cover the key risks faced by CTBC Holding, which include management objectives, risk framework, roles and accountability, and risk management processes. These are implemented to effectively identify, measure, and control the risks faced by CTBC Holding and its subsidiaries such that the risks arising from business activities are managed at an acceptable level.

2. Risk measurement and control methods and quantitative risk exposure information CTBC Holding has established the Risk Governance Policy as its supreme guide for risk management. CTBC Holding and its subsidiaries have risk management policies in place for key risks such as credit, market, asset and liability management, country, insurance, and operational risk. These policies include an authorization and delegation mechanisms, risk limit management, monitoring indicators, and reporting processes, and serve as a basis for daily risk management. Each risk unit regularly prepares and reports on the monitoring indicators and implements early warning and stop-loss mechanisms. The risk management practices of each subsidiary are as follows:

(1) CTBC Bank 1) Credit risk Credit risk is the risk that a borrower, guarantor, debtor, or counterparty is unable to pay its interest, repay its principal, or otherwise perform its contractual obligations due to the deterioration of its own financial position or other reasons, resulting in potential financial losses.

228 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

To meet the various credit-related financial needs of large legal entities, small- and medium-sized enterprises, and even individual consumers, CTBC Bank provides lending (including loans, overdraft, discounts, and guarantees), accounts receivable factoring and financing, credit cards, treasury products, and other credit products and services. To manage credit risk properly, the Bank formulates its core credit risk management policies and related procedures according to government's legal norms and its own practical needs and risk preferences. In terms of credit initiation, CTBC Bank has adopted a credit officer mechanism in order to establish a professional, objective, and hierarchical review process. It has also developed an internal rating system based on the historical data of its own customers as a framework for credit risk measurement, which is applied to credit line application and post-lending monitoring and profitability performance analysis. In addition, considering the concentration risks of its portfolio, CTBC Bank refers to the risk appetite of business operations to establish various credit risk limits for specific industries, targets, and customers as well as credit risk limits for countries and groups. Utilizing these mechanisms together facilitates the effective management of credit risks. 2) Market risk Market risk is the risk of a negative impact on the Bank's overall revenue, capital, value or operating capacity due to changes in the level, volatility, or correlation of market risk factors, such as interest rates (including credit spread), foreign exchange rate, equity prices, and commodities prices. The market liquidity of these types of instrument is also covered. This risk is mainly classified into interest rate risk, exchange rate risk, equity risk, and commodity risk. Market risk management is performed through the following management processes for risk identification, measurement, control, and reporting. A risk-taking unit is tasked with clearly identifying the source of market risk for each type of transaction before the transaction is undertaken, and this is stated in the relevant product program document. The market risk management unit independently performs these identification procedures. The market risk management unit defines appropriate and consistent measurement methodologies to cover key sources of risk based on the business characteristics and sources of risk. The results of risk measurement are closely integrated with routine risk management to serve as a reference for planning, monitoring, and controlling market risk conditions. Market risk limit is a tool for authorizing and controlling CTBC Bank's market risk to ensure that market risk exposure conforms to risk appetite. The procedures for the setting, approval, exceptions, and overstepping of the limits are handled in accordance with the relevant policies of market risk management. The market risk management unit reports relevant risk management information to senior managers on a daily basis. It also regularly reports the overall market risk status of CTBC Bank to the senior management and the Board of Directors, and uses reports as a reference for the development of risk adjustment strategies. 3) Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes legal risk but excludes strategic and reputational risk.

229 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

CTBC Bank applies the standard approach for the accrual of operational risk capital. It implements and continually strengthens its Operational Risk and Control Assessment, Operational Risk Data Collection, and Key Risk Indicators risk management mechanisms for identifying, evaluating, monitoring, and controlling operational risks. 4) Liquidity risk Liquidity risk is the risk that a financial obligation cannot be obtained at a reasonable price within a reasonable period of time, resulting in a bank surplus decrease or a decline in economic value. Based on its asset and liability management policy, CTBC Bank has established a sound liquidity risk management structure and procedures, clearly defined the rights and responsibilities of each related unit, and set the scope and procedures of liquidity risk identification, measurement, monitoring, and reporting as the basis for its liquidity risk management. CTBC Bank controls its risk exposure through various liquidity risk limits. The liquidity risk limit covers the upper limit of unstable borrowing and the maximum cumulative outflow, ensuring that risk exposure conforms to risk appetite. CTBC Bank also uses a liquidity risk heat map to visualize changes in liquidity risk beyond the limits. This systematic monitoring facilities understanding of the changes, causes, and influences of various elements and facilitates the quick identification of liquidity risk. In addition, the fund management unit acts as CTBC Bank's actual liquidity management unit to centralize risk control internally and coordinate any related external operations. The liquidity risk monitoring unit regularly compiles a risk report covering the use of limits and the analysis of flow risk indicators, supplemented by stress test results. It also regularly makes reports at relevant risk meetings. In response to important liquidity risk issues, the extent of the impact is reported to the Bank or its senior financial management for discussion. 5) Banking book interest rate risk The banking book interest rate risk refers to interest rate-sensitive assets and liabilities for non-trading purposes; changes in interest rates will affect earnings or shareholders' equity. CTBC Bank relies on repricing gap reports, interest rate risk sensitivity, stress testing, and the profits and losses of financial instruments (non-trading purposes) to measure interest rate risk and control the interest rate risk exposure of the whole bank through various interest rate risk limits. CTBC Bank internally adjusts deposit allocations by means of a fund transfer pricing system and changes the allocation of bank funds by altering the use of bank funding sources. Interest rate risk is identified, measured, monitored, and reported by an independent interest rate risk management unit to achieve risk balance and to maximize shareholder value.

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6) Risk exposure information A. Required capital a. Required credit risk capital after risk mitigation per standardized method Unit: NT$ thousand As of Dec. 31, 2018 Exposure after risk Exposure type Required capital mitigation Sovereign 837,125,876 1,028,807 Non-central government public sector 107,522,889 1,724,242 Banks (including multilateral development banks) 346,442,046 10,071,626 Enterprises (including securities and insurance companies) 1,089,213,713 82,418,645 Retail 426,805,847 25,991,687 Residential real estate 770,055,653 29,226,795 Equity securities investment 4,351,040 348,083 Other assets 137,967,835 8,396,585 Total 3,719,484,899 159,206,470 b. Required securitization risk capital by transaction type Unit: NT$ thousand As of Dec. 31, 2018 Exposure type Synthetic Traditional Securitization Total Securitization Exposure Required Exposure at default Required Required Exposure Required Assets type at default capital capital capital at default capital Provide the Provide Hold / charge Hold / Subtotal charge charge (5) = (1) charge before Books liquidity the credit Purchase (6) = (2) + Purchase (1) (2) (4) + (3) securitization Banks type facilities enhancement (3) (4) Non- Banking Residential 18,256,778 - - 18,256,778 294,904 - - 18,256,778 294,904 originating book mortgage- bank backed securities Asset-backed 230,062 - - 230,062 13,804 - - 230,062 13,804 lending Collateralized 12,454,356 - - 12,454,356 225,499 - - 12,454,356 225,499 debt obligations Collateralized 1,659,177 - - 1,659,177 26,547 - - 1,659,177 26,547 mortgage obligations Commercial 26,685,333 - - 26,685,333 2,134,827 - - 26,685,333 2,134,827 mortgage- backed securities Other 3,275,719 - - 3,275,719 211,879 - - 3,275,719 211,879 Trading ------book Sub-total 62,561,425 - - 62,561,425 2,907,460 - - 62,561,425 2,907,460

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Exposure type Synthetic Traditional Securitization Total Securitization Exposure Required Exposure at default Required Required Exposure Required Assets type at default capital capital capital at default capital Provide the Provide Hold / charge Hold / Subtotal charge charge (5) = (1) charge before Books liquidity the credit Purchase (6) = (2) + Purchase (1) (2) (4) + (3) securitization Banks type facilities enhancement (3) (4) Originating Banking ------Banks book Trading ------book Sub-total ------Total 62,561,425 - - 62,561,425 2,907,460 - - 62,561,425 2,907,460 c. Required operational risk capital Unit: NT$ thousand As of Dec. 31, 2018 Year Operating gross profit Required capital 2015 84,205,146 2016 87,809,271 2017 90,953,813 Total 262,968,230 12,111,340 d. Required market risk capital Unit: NT$ thousand As of Dec. 31, 2018 Item Required capital Interest rate risk 5,039,242 Foreign exchange risk 6,073,364 Equity securities risk 695,469 Commodity risk 7,421 Options apply simplified approach - Total 11,815,496

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B. Liquidity risk exposure a. Structural analysis of NTD maturity gap Unit: NT$ million As of Dec. 31, 2018 Amount in time bucket (remaining to maturity date) Total 91–180 181 days Over 1 0–10 days 11–30 days 31–90 days days –1 year year Cash inflow of time bucket 2,557,873 248,314 296,793 307,580 255,910 210,780 1,238,496 Cash outflow of time bucket 2,763,035 180,384 221,406 393,227 376,084 560,924 1,031,010 Gap (205,162) 67,930 75,387 (85,647) (120,174) (350,144) 207,486 b. Structural analysis of USD maturity gap (a) Whole bank Unit: US$ thousand As of Dec. 31, 2018 Amount in time bucket (remaining to maturity date) Total 181 days 0–30 days 31–90 days 91–180 days Over 1 year –1 year Cash inflow of time bucket 80,994,096 36,784,299 16,831,419 9,139,587 8,206,772 10,032,019 Cash outflow of time bucket 90,740,142 42,156,848 17,389,195 10,360,006 11,116,285 9,717,808 Gap (9,746,046) (5,372,549) (557,776) (1,220,419) (2,909,513) 314,211

(b) Overseas branches Unit: US$ thousand As of Dec. 31, 2018 Amount in time bucket (remaining to maturity date) Total 181 days 0–30 days 31–90 days 91–180 days Over 1 year –1 year Cash inflow of time bucket 43,234,202 21,069,414 8,593,275 3,675,000 5,477,297 4,419,216 Cash outflow of time bucket 48,283,524 28,958,046 6,669,412 3,792,088 5,994,029 2,869,949 Gap (5,049,322) (7,888,632) 1,923,863 (117,088) (516,732) 1,549,267

(2) Taiwan Life To ensure compliance with laws and promote the integrity of Taiwan Life, the company has risk management policies in place. These include a Risk Governance Policy for overall business risk management and implementation compliance, details of which are as follows: 1) Asset risk Taiwan Life continues to strengthen its various asset risk controls and has established relevant control mechanisms for market, credit, and liquidity risk. It issues risk management reports on a regular basis in order to disclose the risk exposure of the investment allocations and the value changes of each asset, thereby effectively controlling asset risk. 2) Market risk Market risk refers to the risk that asset value may be lost because of changes in market prices during a certain period of time. Taiwan Life has a market risk management policy that involves regularly measuring, monitoring, and reporting VaR, sensitivity analysis, and situational analysis regarding market risk factors.

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3) Credit risk Credit risk refers to the risk that a debtor's credit is downgraded or cannot be paid off, and that the counterparty cannot or refuses to meet its obligations. Taiwan Life has a financial transaction credit risk management policy and a loan credit risk management policy, as part of which credit assessment is conducted before transactions and credit risk evaluated after transactions. A credit risk limit is also in place for monitoring purposes, with regular reviews of whether the credit exposure level is within Taiwan Life's credit risk limit. 4) Liquidity risk Liquidity risk refers to the risk of having insufficient cash or liquid assets to meet expenditure needs. To maintain sufficient liquidity and avoid having insufficient cash or liquid assets to meet expenditure needs, a liquidity assessment is conducted for the specific scenario's conditions to ensure the correctness and instantaneity of liquidity risk management. 5) Assets and liabilities risk Assets and liabilities risk refers to the risk of financial loss caused by inconsistent changes in the value of assets and liabilities. Taiwan Life maintains a risk management policy for the risk of assets and liabilities; the match of asset and liability is routinely reviewed, with its risk limit monitored to ensure alignment with the company's objectives. If risk levels exceed the tolerance or if special circumstances arise, prompt mitigation plans are escalated to senior levels, followed by communication with relevant people in charge to propose improvement plans. 6) Insurance risk The management mechanisms for insurance risks involving product design and pricing, underwriting, reinsurance, catastrophe insurance, insurance claims, and reserves are as follows: A. Product design and pricing risk management Product design and pricing risk refers to the risk resulting from factors such as errors, inconsistencies, or unanticipated changes in the content of product design, the terms contained thereof, or price quotations. To ensure risk control before and after the sale of products, Taiwan Life has established an insurance product design procedure to be followed before sales to ensure compliance with relevant regulations and strengthen the internal controls around insurance products. According to the type and specific details of each product, risk measurement is conducted through profit testing or sensitivity analysis. This approach ensures that the responsibility of Taiwan Life and its signatories fulfill their responsibility to review insurance products. After selling a product, the relevant departments prepare a post-sale inspection report for the biannual insurance product management conference. B. Underwriting risk management Underwriting risk refers to the risk of unintended losses arising from insurance industry activities such as cultivating insurance business, reviewing underwriting business, and related expenses. To control its underwriting risks, Taiwan Life has established an underwriting insurance management system and procedures and has implemented guidelines for insurance operations and underwriting manuals. C. Reinsurance risk management Reinsurance risk refers to the risk arising from reinsurance transactions, such as failure to arrange appropriate reinsurance because of the risk of exceeding limits or the inability of the reinsurer to fulfill its obligation, resulting in the inability to amortize premiums, indemnities, or other expenses.

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Taiwan Life has a reinsurance risk management plan that includes retention risk management, ceded reinsurance risk management, and assumed reinsurance risk management. After risk characteristics have been classified, risk-bearing capacity is evaluated and the retention amount is considered. Reinsurers chosen for cooperation are selected in accordance with established reinsurer selection criteria and decision-making procedures. After reinsurance arrangements have been completed, the reinsurer's credit rating and related information are regularly monitored to avoid the risk of the reinsurer defaulting. D. Catastrophe risk management Catastrophe risk refers to cases in which an accident or loss is sufficient to cause losses in a single or multiple insurance categories, with a total loss that may affect the credit rating or liquidity of Taiwan Life. Taiwan Life measures and manages its catastrophe risk by using catastrophic loss records to estimate the possible amount of losses in cases of recurrence. E. Claims risk management Claims risk refers to the risk that Taiwan Life may bear because of deficiencies or negligence in the claims-handling process. Taiwan Life has established appropriate claims-processing procedures to reduce such risk. F. Reserve-related risk management Reserve-related risk refers to risk resulting when sales' underestimation of liabilities renders the reserve provision insufficient for future obligation risks. Taiwan Life conducts regular reserve adequacy analyses to reduce risk in this area. G. Operational risk Operational risk refers to the risk of direct or indirect damage arising from inappropriate or incorrect internal operations by personnel and systems, or by the occurrence of external events. Taiwan Life has an operational risk management policy and monitors operational risk by promoting three operational control tools: operational risk data collection, risk and control self-assessments, and key risk indicators. H. Risk exposure information Taiwan Life Dec. 31, 2018 Dec. 31, 2017 Note Both are above the legally Capital adequacy ratio Above 250%, below 300% Above 300% required rate of 200%.

(3) CTBC Securities CTBC Securities has established the following risk management mechanisms based on various risk characteristics. 1) Market risk CTBC Securities has implemented market risk management policies that regulate the quantitative models used. In addition to performing the evaluation process on mark-to-market bases, it also adopts such approaches as Greek letters analysis and VaR measurements to assess risk profiles on a daily basis. Our policies specify limit setting, warning triggers, and limit-exceeding management processes at all management levels of the company in order to control the market risk within defined tolerable scope. In addition, to strengthen the management of fat tail risks, stress test is regularly deployed. Scenarios are devised and exercised according to the market fluctuations of each kind of financial products.

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2) Credit risk CTBC Securities has credit risk management policies in place. Our credit rating scheme for measuring credit risk is referred to the ratings of reputable third-party rating companies, e.g. Taiwan Corporate Credit Risk Index (TCRI) ratings of Taiwan Economic Journal. In the management of credit risk, the details of risk are identified and these identifications are revealed before related transactions are conducted. The types and limits of credit risk that could be applied to our customers and counterparties are carefully assessed and clarified, and the relevant exposure concentration and large exposure accounts are carefully monitored to ensure that credit risk could fall within the controllable scope. 3) Operational risk CTBC Securities has operational risk policies formulated based on the operating procedures and key control nodes specified in its internal control system. It also establishes qualitative and quantitative tools to assist in the identification, measurement, and management of operational risks. These operational risk management tools include but are not limited to self-assessment of risk control, key risk indicators, operational risk loss reporting system, and extraordinary loss event inspection. 4) Liquidity risk CTBC Securities has in place asset and liability management policies. The financial unit of our company is responsible for the utilization of funds whereas Risk Management Department sets various liquidity risk indicators as well as target intervals for each indicator. The severity of liquidity risk warning (highest to lowest) is indicated by a light system, supplemented by the setting of the Board level limit, facilitating the comprehensive monitoring of overall liquidity changes. 5) Other business risks A Compliance Department assists in reviewing the legality of each business field and in ensuring policies statutorily complied. Compliance Department also rules related policies and procedures which are enforced to ensure the legality of CTBC Securities' operations. Regarding potential money laundering and associated risks, the Anti-Money Laundering and Terrorist Financing Guidelines, the Money Laundering and Terrorist Financing Risk Management Assessment Policy, and related operational policies and procedures are in place to ensure their effective compliance with anti-money laundering and terrorist financing systems. Regarding customer complaints, a customer service line staffed by specialized employees is available in order to improve the quality of service, to safeguard customer rights, and to reduce consumer disputes. In addition, for emergency circumstances those may negatively affect the company's operations, Emergency Response Criteria for Operational Crisis Management regulates the response mechanisms for various operational crises such as transactional system disruption crises and individual capital violations. Such regulations, including the crisis reporting system, the powers and responsibilities of the members of the crisis management team, the implementation procedures of contingency plans, and the improvement of post-event reviews, have been fully documented into appropriate processes and measures. 6) Risk reporting frequency A. The CTBC Securities Risk Management Department regularly consolidates risk management reports and submits them to senior management for review. B. The department periodically prepares risk integration reports for review by the Board of Directors. The reports cover information about market risk, credit risk, liquidity risk, operational risk, and other business risk.

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7) Risk exposure information Dec. 31, 2018 Dec. 31, 2017 Note Capital adequacy ratio 607% 421% Both are above the legally required rate of 150%. VaR (99%, one day) 9,026 32,269 Unit: NT$ thousand

(4) CTBC Venture Capital The main financial risks of CTBC Venture Capital are investment risks arising from venture capital business operations. It has established an Investment Business and Risk Policy, which must be followed during the course of conducting venture capital investment business and risk management. All investment acquisition and disposal decisions must be approved by the Board of Directors or relevant authorized units or personnel prior to implementation. An investment committee has also been established to review major investment cases in order to collect various opinions for strengthening risk management. Prior to any investment acquisition and disposal, a detailed risk assessment and identification is conducted to form a specific evaluation report as a decision-making reference by the delegated approval authority. In addition to closely monitoring investee companies' business operations, the parameters or indicators listed in investment evaluation reports that may affect investment decisions are tracked and managed in order to effectively monitor changes to the business operation and risks of investment cases, with routine reports made to the Board of Directors or authorized units or personnel. Other risks are less significant and are regularly reviewed and controlled in accordance with the relevant regulations of CTBC Venture Capital, CTBC Holding, and the competent authorities.

(5) CTBC Asset Management In line with its business objectives, CTBC Asset Management's main financial risks arise from equity investment and real estate investment risks. CTBC Asset Management has policies and guidelines in place, such as its Risk Management Policy and Investment Business and Risk Policy to be followed to ensure investment assessment quality, to execute risk management and periodical reviews. It also stipulates a Subsidiary Management Procedure to regulate escalation items and processes to ensure the sound operation of subsidiaries' businesses.

(6) CTBC Investments CTBC Investments' management activities mainly comprise fund management assets and discretionary assets. The placement of its own assets is limited by the Regulations Governing Securities Investment Trust Enterprises and is applicable only for bank deposits, bonds, short-term bills, and fund beneficiary certificates that meet a certain percentage, thereby reducing risk. The main types of risk for CTBC Investments and its methods for managing fund and discretionary assets are as follows: 1) Market risk Market risk refers to financial and investment commodity trading in which funds, special accounts, etc. are subject to changes in external financial market risk factors (such as interest rates and equity), resulting in the risk of potential financial losses. Regarding the funds and the main investment products and tools of special accounts, CTBC Investments has relevant stop-loss control mechanisms in place and regularly performs monitoring operations to enhance the awareness of price fluctuation-related risk.

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2) Credit risk Credit risk refers to the risk arising when a borrower, guarantor, debtor, or transaction counterparty suffers losses due to the deterioration of its financial situation or other factors, resulting in failure to fulfill its contractual obligations. For fund and special account investment targets and counterparties, CTBC Investments has a relevant quota management mechanism. It also regularly performs transaction monitoring and post-investment management operations to effectively control the credit risk of investment targets and counterparties. 3) Liquidity risk Liquidity risk refers to the risk of not realizing/converting assets or obtaining sufficient funds, resulting in failure to fulfill financial obligations (funding liquidity risk) and the risk of not being able to realize/convert specific assets at reasonable prices in a reasonable period of time because of insufficient market depth or market disorders (market liquidity risk). Regarding funds and the main investment products and tools of special accounts, CTBC Investments has in place relevant shareholding concentration, volume limit, and cash flow management mechanisms and regularly conducts transaction monitoring operations. 4) Operational risk Operational risk refers to the risk of losses from deficiencies, inappropriate actions, or other errors in internal work procedures, personnel and systems, or external events. CTBC Investments has a related operational risk policy and has established a notification mechanism for operational risk events in order to implement the risk management of the securities investment trust businesses and their daily activities.

(7) CTBC Security 1) Internal financial management CTBC Security's time and demand deposits are all designated to interact with CTBC Bank and are currently operating without liabilities. Cashiers and accountants perform their duties independently. Checkbooks, seals, passbooks, etc. are kept by two or more individuals in accordance with internal control mechanisms. 2) External security services According to security industry laws and regulations, NT$10 million of insurance should be purchased for security liability on a regular basis. Other risks are less significant and are regularly reviewed and controlled in accordance with relevant regulations of CTBC Security, CTBC Holding, and the competent authorities.

(8) Taiwan Lottery 1) Operational risk Taiwan Lottery has created a sound risk management system and culture by establishing appropriate risk management policies and operational risk management procedures as a basis for implementing operational risk identification, assessment, measurement, monitoring, reporting, information disclosure, and the implementation of prevention and improvement measures. Furthermore, in line with ISO quality management requirements, all process operations require complete process planning and procedural documents to control the risks that may be faced in daily operations within an appropriate range as well as maintain the company's operating performance and protect the rights of its dealers and customers.

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2) Liquidity risk Taiwan Lottery's financial unit devises the company's fund raising and utilization plan based specifically on the estimated funding needs of the business unit in order to maintain the balance of supply and demand as well as fund liquidity. The operating characteristics of Taiwan Lottery do not include the short-term use of idle funds or reliance on short-term bank borrowing to obtain funding sources. Because it is a subsidiary with non- significant liquidity risk, it adopts simplified risk management; there is no limit control, but changes of the current ratio are still regularly reviewed. Furthermore, changes of the current ratio are included in the risk reports submitted to its General Manager, its Board of Directors, and CTBC Holding's Risk Management Department.

3. Impact of major domestic and overseas policies and legal changes on the Company's financial business and countermeasures taken In response to the efforts of the competent authorities to strengthen anti-money laundering and terrorist financing laws and regulations, the group has continually optimized its relevant systems and mechanisms to prevent money laundering and combat terrorist financing, namely through its policy, culture, and personnel. Following government legislation requiring the establishment of whistleblower protection systems, the group established such an internal reporting system in 2018 with reference to international norms and external regulations. As well as appointing independent units responsible for accepting repors, independently investigating cases, and setting whistleblower protection policies, the system is more broadly intended to facilitate the establishment of integrity, sound management, and a transparent corporate culture.

4. Impact of technological and industrial changes on CTBC Holding's financial structure and business, and corresponding measures Fintech has developed rapidly in recent years. After the competent authorities' recent implementation of new regulations on fintech and innovation experimentation, an official regulatory sandbox experiment was launched in 2018. Fintech has become the leading trend in the industry and the driving force behind financial products and services. Amid the rapid changes in the sector, CTBC Holding is continuing to enhance its IT capabilities, expand its digital transformation, develop breakthrough measures, and leverage fintech to offer customers an optimal digital experience. It is also applying technology based on international standards as a framework to enhance information security and personal data protection. To strengthen information security management, core subsidiaries including CTBC Bank, Taiwan Life, and CTBC Securities have established related policies and have either received ISO 27001 Information Security Management System or BS10012 Personal Information Management System certification. To insure the effectiveness of information security and personal data protection, the subsidiaries regularly engage third-party auditors for independent assessments. The group also periodically leads cross-subsidiary meetings of subsidiaries' information security managers in order to track the progress in achieving information security benchmarks, to control various changes in information security risks, and to propose effective responding measures. In the face of significant cyberthreats and attacks, CTBC Holding began evaluating cyber-crime insurance at the end of 2018 to protect against cyber-crime and information security breaches.

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5. Changes to the corporate image of the Company and its subsidiaries and the impact on the Company, and corrective actions taken CTBC Holding and its subsidiaries adhere to a "caring, professional, and trustworthy" brand identity, which they also utilize as a guideline for serving their customers. They follow a "We are family" brand spirit in striving to deepen their relationships with customers. In addition, they adopt "TRUST" as an acronym emphasizing their commitment to grow its brand value through the five major aspects of transparency (corporate governance), responsibility (environmental sustainability), understanding (employee care), satisfying customers (product service), and working together (social participation). CTBC Holding's various business operations are conducted in compliance with legal requirements and the regulations of the competent authorities. Along with developing a high-quality brand image, CTBC Holding will continue prioritizing the needs of customers and improving its service quality with a view to creating a financial landscape of sustainable growth and cementing its status as the most trusted financial institution. The CTBC Holding group continues to practice a business philosophy that prioritizes customers' interests, insisting on creating win–win outcomes and maintaining a deeply rooted, high-quality public image. The Company currently has no public image crisis.

6. Projected benefits, possible risks, and countermeasures of M&A (1) Projected benefits of CTBC Holding M&A 1) Expand its scale of operations and grow its customer base. 2) Increase the size and diversity of its business base through mergers. 3) Improve its operational efficiency through joint marketing. 4) Provide a full range of diversified financial services to enhance its market competitiveness. 5) Expand its international service map to reduce its business concentration risks and improve its overall operational stability. (2) Possible risks and countermeasures for M&A 1) Where information asymmetry is a factor, the Company must bear the asset and liability risks of merged and acquired financial institutions. 2) Prohibitive merger prices: M&A involving strong financial institutions candidates often fail because of excessive market premiums. 3) Difficult integration after M&A: Integration after M&A involves human resources, organizational restructuring, and changes in management systems. CTBC Holding's considerable professional knowledge and experience in M&A enable it to face such risks. In seeking to expand its business through M&A, CTBC Holding places great emphasis on corresponding risk control. Furthermore, the Company conducts prudent pre-assessments and formulates meticulous integration plans, supported by strong plan implementation capabilities and consideration of the most appropriate remedial measures. As a result, risks arising from M&A can be effectively managed, in turn improving the overall benefits of M&A integration.

7. Business concentration risks and countermeasures The CTBC Holding group's primary focuses are banking and life insurance. To avoid risks posed by excessive business concentration, the Company is committed to providing diversified financial services and

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strengthening its risk control. In addition, through active expansion into overseas markets, it is also seeking to further reduce the impact of specific areas of business concentration.

8. Effects, risks, and contingency measures of material transfers or changes in the equity of directors, supervisors, or major shareholders with more than 1% of shares The total shareholding ratio of CTBC Holding's directors (including independent directors) and major shareholders with more than 1% of shares is 28.99%; the equity is evenly distributed and they exhibit resounding trust in the Company's management team. There is currently no consideration being given to the transfer or replacement of any large number of shares.

9. Impact, risks, and countermeasures of changes in management CTBC Holding is governed by a solid operating authority, which is committed to enhancing the management team's cohesion. The shareholdings of the directors are all in compliance with the Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies. No risks have arisen from changes in operating rights. Based on its solid business foundation, the Company pursues growth and the best interests of its shareholders.

10. Material litigation, non-litigation proceedings, or administrative disputes that were settled within the past two years as of April 26, 2019, or that remain on trial and involve the Company, its subsidiaries, and their directors, supervisors, presidents, responsible persons, and major shareholders (holding over 1% of shares) as well as their affiliated companies, the results of which may materially impact stockholders' rights and interests or the prices of the Company's securities

(1) CTBC Holding Litigation Case Target amount Party Status commencement date Overseas reinvestment Personnel were suspected of violating the Financial Holding Company Act and the Securities and by subsidiary CTBC Asset Exchange Act. The case is currently being tried at the Taipei District Court. The case is expected to Management (Note) have no significant impact on the Company's operations or its shareholders' equity. Note: This suit involves the defendants in a personal capacity rather than having been filed against the Company.

(2) CTBC Bank Litigation Case Target amount commencement Party Status date Overseas structured – Employees surnamed Employees surnamed The Supreme Court reversed the original judgment and sent the case back notes linked to Mega Chang, Lin, and Teng Chang, Lin, Teng, and to Taiwan High Court. On Sept. 12, 2018, the Taiwan High Court modified Financial Holdings stocks were indicted on Feb. Koo the first verdict and found Chang, Lin, and Koo guilty, and sentenced them purchased and disposed 15, 2007 to varying terms of imprisonment. Teng was found not guilty. The parties by the Hong Kong An employee surnamed have lodged appeals, which are ongoing. branch (Notes 1 and 2) Koo was indicted on Dec. 24, 2009

241 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

Litigation Case Target amount commencement Party Status date As an assignee of the NT$907,607,204 Indicted on Jan. 22, 2008 Plaintiff: Consumers' This case is currently in preliminary proceedings at the Taipei District right of action for the Additional indictment Foundation Court. recovery of damages on Aug. 13, 2008 Defendants: In the written testimony submitted by the plaintiff on March 27, 2015, the caused to consumers CTBC Bank, the target amount was reduced to NT$66,834,064. by the closure of three National Credit companies limited Card Center, by shares, namely Citibank, First Ya Li Shan Ta, Ya Commercial Chueh International Bank, and three Entertainment, and Chun companies limited Life, the Consumers' by shares, namely Foundation filed a civil Ya Li Shan Ta, Ya suit against CTBC Bank. Chueh International Entertainment, and Chun Life CTBC Bank, as a trustee US$515,776,372.89 Sept. 15, 2008 (LBHI) Creditor declaration: 1. About LBHI: of a specified money (Note 3) Oct. 8, 2008 (LBT) CTBC Bank (1) CTBC Bank has completed creditor's rights declaration procedures trust, had purchased 22 in accordance with the law against the structured notes it held (22 in structured notes issued Bankrupted parties: total). by Lehman Brothers 1. LBHI (U.S.) (2) CTBC Bank has completed the acceleration notice. Treasury Co. B.V. 2. LBT (Netherlands) (3) LBHI has submitted the revised joint restructuring plan and public (LBT) and guaranteed announcement. by Lehman Brothers (4) CTBC Bank voted against the third revision of the restructuring plan as Holdings Inc. (LBHI). proposed by LBHI in November 2011. Because LBHI and (5) The U.S. Bankruptcy Court issued a verdict on Dec. 6, 2011, approving LBT took bankruptcy the third revision of the restructuring plan proposed by LBHI. proceedings in the (6) CTBC Bank received allocations from LBHI in April and October 2012– United States and the 2015; April, June, and October 2016; April, October, and December 2017; Netherlands, respectively, April and October 2018, and April 2019, 17 times in total; at present, CTBC Bank entrusted these account for approximately 28.55% of the recognized amount of lawyers in Taiwan and creditor's rights. overseas to handle 2. About LBT: matters related to the (1) CTBC Bank completed the acceleration notice. declaration of creditor's (2) LBT's bankruptcy trustee held discussions with LBHI regarding rights for the structured creditor's rights among relevant companies. notes in the U.S. and the (3) LBT stated the acceleration notice deadline in its bankruptcy report; Netherlands. the bankruptcy trustee planned to request that the Amsterdam District Court designate the creditor's rights declaration date and creditor's rights recognition date in the second or third quarter of 2012. (4) LBT released its reconciliation plan on Dec. 10, 2012. CTBC Bank agreed on the instructions stated in the reconciliation plan and declared its creditor's rights using the International Clearing System. (5) LBT's bankruptcy trustee proposed a bankruptcy plan on Dec. 10, 2012. In response, CTBC Bank agreed on the voting instructions stated in the bankruptcy plan and declared its creditor's rights within the plan's specific period (ending Jan. 25, 2013). The bankruptcy plan was accepted by a vote of LBT's creditors on March 7, 2013, and approved by a Dutch court on March 22, 2013. (6) As scheduled in the bankruptcy plan, LBT handled the first through 14th allocations of its bankruptcy estates account in May and October 2013; April and October 2014; April and October 2015; April, July, and November 2016; May and October 2017; and January, May, and October 2018; at present, the allocations received by CTBC Bank account for approximately 40.42% of the recognized amount of creditor's rights. (7) LBT issued a partial liquidation notice on Jan. 24, 2019, stating that some Qualified Noteholders may choose to either replace their Eligible Notes they held with alternative notes or accept ultimate distribution and issuance. CTBC Bank had replied to LBT with the amount that the Qualified Noteholder proposed to convert into alternative notes and the related information of such notes before the deadline (March 11, 2019) provided in the partial liquidation procedure.

242 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

Litigation Case Target amount commencement Party Status date Shih Cin Technology - CTBC Bank filed Complainant: In the first instance, the New Taipei District Court found all defendants Co., Ltd., a borrower of the complaint on CTBC Bank guilty. They all lodged appeals. CTBC Bank, submitted July 4, 2008, and the Defendants: People In the second instance, the Taiwan High Court found four defendants an application to CTBC prosecutor filed an surnamed Tseng, guilty and sentenced them to varying terms of imprisonment. In the third Bank for financing by indictment on Oct. 8, Tseng, Huang, and instance, the Supreme Court reversed and remanded the judgment of virtue of US$109.28 2009. Cheng Tseng, Cheng, and Tseng. million of receivables In the retrial of the first instance, the Taiwan High Court found Tseng and from Fujitsu Ltd. and Cheng guilty and sentenced them to varying terms of imprisonment; the a yet-to-be-confirmed other Tseng was found not guilty. The prosecutor appealed. amount of receivables As sentenced by the Supreme Court in October 2016, the Supreme Court from Micro-Star reversed and remanded the judgment of Tseng and Cheng, and affirmed the International Co., Ltd. other Tseng's innocence. The loan was US$80.24 In the retrial of the second instance on Oct. 9, 2018, the Taiwan High Court million. CTBC Bank found Tseng and Cheng guilty and sentenced them to varying terms of subsequently filed a imprisonment. criminal complaint in accordance with the law against relevant personnel of Shih Cin Technology Co., Ltd. for their involvement in bank fraud, document forgery, violation of the Banking Act, etc. Transactions for an - Employees surnamed Employees surnamed Regarding the indictment initiated on Jan. 12, 2017, the Taipei District Court administrative building Chang and Chen, among Chang, Chen, et al. found the defendants guilty on Oct. 11, 2018. They lodged appeals, which and data center (Note 4) other employees, were are ongoing. Regarding the additional indictment, the case is on trial. indicted on Jan. 12, 2017; an additional indictment was brought against Chang on Jan. 4, 2018. Sale of NPLs In this case, personnel were allegedly involved in interested-party transactions that were not disclosed as required. They were thus suspected of violating the Banking Act, the Securities and Exchange Act, etc. The case is currently being investigated by the prosecutor. This case is expected to have no significant impact on the CTBC Bank's operations or its shareholders' equity. Transaction of Chengcing In this case, personnel were allegedly involved in interested-party transactions that were not disclosed as required. They were thus suspected of Lake Building violating the Banking Act, the Securities and Exchange Act, etc. The case is currently being investigated by the prosecutor. This case is expected to have no significant impact on the CTBC Bank's operations or its shareholders' equity. Note 1: This suit involves the defendants in a personal capacity rather than having been filed against the Company. Note 2: In this case, CTBC Holding participated in the confiscation proceedings as a third party, and it had entrusted an agent to present its objections against the confiscation proceedings and voice relevant opinions. In the retrial of the first instance on Sept. 12, 2018, the Taiwan High Court pronounced that the properties of CTBC Holding would not be confiscated or pursued. Note 3: This comprises US$515,667,102.07 of the notional amount of the 22 bonds and US$109,270.82 of accrued bond interest (ISIN No. XS0365192078). Note 4: This suit involves the defendants in a personal capacity rather than having been filed against the Company.

(3) Taiwan Life (formerly CTBC Life, which merged with Taiwan Life on Jan. 1, 2016, with the latter surviving) Litigation Case Target amount Party Status commencement date The case related to suspected violation of the Securities and Exchange Act and the Insurance Act. The Transaction of Gobo case is currently on trial at the Taipei District Court. This case is expected to have no significant impact Group's real estate (Note) on Taiwan Life's operations or its shareholders' equity. Note: This suit involves the defendants in a personal capacity rather than having been filed against the Company.

243 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

(4) CTBC Securities Litigation Case Target amount commencement Party Status date CTBC Securities was a securities CTBC Securities was requested to pay Feb. 25, 2005 Plaintiff: The final underwriter of the convertible bonds NT$522,971,060 jointly with 14 people Securities judgment was issued by Bomy Group in 2002. The from Chou-Chin, including directors, and Futures made in CTBC Securities and Futures Investors supervisors, financial officers, and Investors Securities' favor Protection Center requested that CPAs, as well as the interest accrued Protection on June 19, CTBC Securities assume joint and from the day after the service of the Center 2018. several liabilities on the grounds that pleadings copy to the pay-off day at an Defendant: investors suffered losses from the false annual interest rate of 5%. CTBC financial statements and prospectus of Securities Chou-Chin. (5) CTBC Venture Capital: None. (6) CTBC Asset Management: None. (7) CTBC Investments: None. (8) CTBC Security: None. (9) Taiwan Lottery: None. (10) The Company and subsidiaries' income tax return assessments and relevant administrative remedies filed Assessment year Explanation of approved matters CTBC Financial Holding Co., Ltd. 2013 None CTBC Bank Co., Ltd. 2013 None CTBC Securities Co., Ltd. 2013 None CTBC Insurance Brokers Co., Ltd. 2013 None (dissolved) 2015 CTBC Insurance Brokers Co., Ltd. was liquidated after merging with subsidiary. CTBC Bank Co., Ltd. in November 2015 and the notice of assessment of the income tax for 2015 has been acquired. CTBC Venture Capital Co., Ltd. 2013 None CTBC Asset Management Co., Ltd. 2013 None CTBC Security Co., Ltd. 2013 None Taiwan Lottery Corp. 2013 None Chinatrust Bills Finance Corp. 2008 None (dissolved) Taiwan Life Insurance Co., Ltd. 2015 None CTBC Life Insurance Co., Ltd. 2013 None CTBC Investments Co., Ltd. 2013 None

Year of ex-examination Description of re-examination CTBC Venture Capital Co., Ltd. 2013 Loss on investment CTBC Asset Management Co., Ltd. 2013 Operating income and operating expenses allocation of exempt income and tax Taiwan Life Insurance Co., Ltd. 2015 Interest income of withholding tax

Year of appeal Description of appeal CTBC Financial Holding Co., Ltd. 2010 Loss carryforward 2010– CTBC Venture Capital Co., Ltd. Operating income and operating expenses allocation of exempt income 2011 2010– CTBC Asset Management Co., Ltd. Operating income and operating expenses allocation of exempt income 2012

244 Review and Analysis of Financial Conditions, Financial Performance, and Risk Management

Year of litigation Description of litigation CTBC Financial Holding Co., 2009 Other losses and expenses Ltd. CTBC Insurance Brokers 2009 Interest income and operating expenses allocation of exempt income Co., Ltd. (dissolved) CTBC Venture Capital Co., 2009 Interest income Ltd. CTBC Asset Management 2009 Interest income, operating income, and operating expenses allocation of exempt income Co., Ltd.

11. Other significant risks and responding measures: None.

(VII)Crisis management mechanism CTBC Holding maintains a crisis management team. In the event of an emergency that may negatively affect public confidence in the Company and its subsidiaries, the team will assess the circumstances and take effective countermeasures to neutralize or reduce the damage of the crisis as effectively and quickly as possible. When a potential crisis occurs, the team's executive officer reports it to the team convener, who determines whether it warrants gathering the team members; for particularly serious emergencies, the team's assistant convener may gather team members first before reporting to the team convener. After being notified, team members gather at the designated time and place to discuss the measures to be taken. They are required to complete all preparations as soon as possible within 12 hours.

(VIII)Other significant matters: None.

245 VIII Special Disclosures

(I)Affiliated enterprise information

1. Consolidated financial statement of affiliated enterprises The entities that are required to be included in the consolidated financial statements of CTBC Financial Holding Co., Ltd. for the year ended Dec. 31, 2018, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standard No. 10, "Consolidated Financial Statements", endorsed by the Financial Supervisory Commission of the Republic of China (Appendix 2). Consequently, CTBC Financial Holding Co., Ltd. and its subsidiaries do not prepare a separate set of consolidated financial statements of the affiliated enterprises.

2. Consolidated operation report of affiliated enterprises (1) Affiliate organization chart: Please refer to "III. Corporate Governance Report". (2) Business overview of affiliated enterprises Unit: NT$ thousand As of Dec. 31, 2018 Earnings per Operating Net income Total Operating share Company Paid-in capital Total assets Net equity (loss) income and losses liabilities income (after tax; in (Note 6) (after tax) NT$) CTBC Bank Co., Ltd. 140,685,719 3,170,801,114 2,875,062,241 295,738,873 Note 5 79,329,130 29,680,076 2.11 Taiwan Life Insurance Co., Ltd. 41,791,135 1,756,592,234 1,691,278,228 65,314,006 339,500,668 7,516,334 8,297,625 1.99 CTBC Securities Co., Ltd. 6,027,140 20,921,843 13,379,411 7,542,432 1,427,246 290,925 255,465 0.42 CTBC Venture Capital Co., Ltd. 3,245,169 4,297,341 684,930 3,612,411 297,305 22,581 55,133 0.17 CTBC Asset Management Co., Ltd. 5,358,820 7,662,950 2,230,018 5,432,932 153,410 46,823 104,450 0.19 CTBC Investments Co., Ltd. 425,000 623,124 140,647 482,477 560,625 (22,677) (17,958) (0.42) CTBC Security Co., Ltd. 47,695 113,819 54,854 58,965 235,452 6,907 5,865 1.23 Taiwan Lottery Corp. 500,000 1,037,293 273,990 763,303 1,151,885 165,373 128,438 2.57 US$2,060 thousand Exchange rate on CTBC Capital International Co., reporting date: 23,359 831 22,528 - (314) (314) (0.15) Ltd. (Note 8) 30.733 NT$63,310 thousand US$2,000 thousand CTBC Venture Capital Investment Exchange rate on Management (Shanghai) Co., Ltd. reporting date: 24,500 - 24,500 - 1,583 1,583 N/A (Note 8) 30.733 NT$61,466 thousand US$70,000 thousand Exchange rate on CTBC International Co., reporting date: 1,967,128 213 1,966,915 111 (249) (249) (0.0036) Ltd. (Note 7) 30.733 NT$2,151,310 thousand

246 Special Disclosures

Earnings per Operating Net income Total Operating share Company Paid-in capital Total assets Net equity (loss) income and losses liabilities income (after tax; in (Note 6) (after tax) NT$) RMB 433,802 thousand Exchange rate on CTBC Leasing Co., Ltd. reporting date: 8,951,089 7,485,894 1,465,195 915,312 40,965 29,248 N/A (Note 7) 4.4752 NT$1,941,351 thousand US$6.43028 thousand Exchange rate on CTBC Capital Corp. (Note 1) reporting date: 106,114,631 90,640,191 15,474,440 Note 5 3,783,015 1,181,598 183,755.24 30.733 NT$198 thousand US$771.108 thousand Exchange rate on CTBC Bank Corp. (USA) reporting date: 106,116,570 91,402,180 14,714,390 Note 5 3,768,283 1,175,565 429,279.51 (Notes 1 and 2 ) 30.733 NT$23,698 thousand CA$37,000 thousand Exchange rate on CTBC Bank Corp. (Canada) reporting date: 9,678,232 8,189,293 1,488,939 Note 5 331,984 103,995 37.88 (Note 1) 22.589 NT$835,793 thousand PHP 2,479,687 thousand Exchange rate on CTBC Bank (Philippines) Corp. reporting date: 31,776,690 27,473,177 4,303,513 Note 5 1,364,102 136,337 0.55 (Note 1) 0.5844 NT$1,449,129 thousand IDR 150,000,000 thousand Exchange rate on PT Bank CTBC Indonesia reporting date: 31,417,512 25,537,209 5,880,303 Note 5 1,243,877 199,061 132,707.30 (Note 1) 0.0021108 NT$316,620 thousand JPY 26,000,000 thousand Exchange rate on The Tokyo Star Bank, Ltd. (Note 1) reporting date: 697,982,802 655,394,650 42,588,152 Note 5 13,401,318 2,471,868 3,531.24 0.2783 NT$7,235,800 thousand JPY 500,000 thousand Exchange rate on TSB Servicer, Ltd. (Notes 1 and 3) reporting date: 582,909 14,856 568,053 53,056 173,638 36,699 91,748.54 0.2783 NT$139,150 thousand

247 Special Disclosures

Earnings per Operating Net income Total Operating share Company Paid-in capital Total assets Net equity (loss) income and losses liabilities income (after tax; in (Note 6) (after tax) NT$) JPY 500,000 thousand Exchange rate on Tokyo Star Business Finance, Ltd. reporting date: 3,683,848 480,669 3,203,179 78,967 501,194 47,171 24.36 (Notes 1 and 3) 0.2783 NT$139,150 thousand US$17,363 thousand Exchange rate on CTBC (Mauritius) Holding Co., reporting date: 205,791 0 205,791 0 (11,411) (11,348) (0.65) Ltd. (Note 4) 30.733 NT$533,608 thousand CTBC Securities Investment 50,000 57,490 7,410 50,080 30,000 (935) (464) (0.09) Service Co., Ltd. (Note 4) CTBC Securities Venture Capital 300,000 299,235 497 298,738 0 (1,750) (1,261) (0.04) Co., Ltd. (Note 4) HK$134,526 thousand Exchange rate on CTBC Asia Ltd. (Note 4) reporting date: 215,973 12,403 203,570 21,113 (19,994) (11,327) (0.08) 3.9239 NT$527,867 thousand TLG Insurance Co., Ltd. (Note 9) 2,000,000 4,249,834 2,549,904 1,699,930 1,998,489 67,848 63,983 0.32 TLG Capital Co., Ltd. (Note 9) 771,870 10,148,094 9,182,831 965,263 5,366,269 84,591 119,777 1.55 Note 1: The company's net income and losses are already reflected in CTBC Bank Co., Ltd. Note 2: The company's net income and losses are already reflected in CTBC Capital Corp. Note 3: The company's net income and losses are already reflected in The Tokyo Star Bank, Ltd. Note 4: The company's net income and losses are already reflected in CTBC Securities Co., Ltd. Note 5: The banking industry is subjected to the Regulations Governing the Preparation of Financial Reports by Public Banks; therefore, operating income was not categorized. Note 6: Bank subsidiaries are expressed in terms of net revenue. Note 7: The company's net income and losses are already reflected in CTBC Asset Management Co., Ltd. Note 8: The company's net income and losses are already reflected in CTBC Venture Capital Co., Ltd. Note 9: The company's net income and losses are already reflected in Taiwan Life Insurance Co., Ltd.

248 Special Disclosures

(3) Information on directors, supervisors, and presidents of affiliated enterprises As of Dec. 31, 2018 Shares held (Unit: Company Position Name % thousand shares) CTBC Financial Holding Co., Ltd. Chairman Chao-Chin Tung Vice Chairman Ming-Shieh Li President James Chen Director Wen-Long Yen Director H. Steve Hsieh Director Thomas K.S. Chen CTBC Bank Co., Ltd. 14,068,572 100.00% Director Paul T.C. Liang Director Chun-Te Chiang Director Yen-Pao Chen Director Su-Kuo Huang Independent Director Chung-Yu Wang Independent Director Wen-Chih Lee Independent Director Jie-Haun Lee CTBC Financial Holding Co., Ltd. Chairman Su-Kuo Huang Vice Chairman Shu-Po Hsu President Tony Chuang Director Kuen-Bao Ling Taiwan Life Insurance Co., Ltd. Director Chin-Miao Lin 4,179,113 100.00% Director Paul T.C. Liang Independent Director Sin-Hui Yen Independent Director Shih-Chieh Chang Independent Director Ching-Chieh Lin Independent Director Chih-Cheng Wang CTBC Financial Holding Co., Ltd. Chairman Tzu-Yuan Lu President Vincent Lin Director Su-Kuo Huang CTBC Securities Co., Ltd. Director Chao-Lung Tsai 602,714 100.00% Director Yen-Pao Chen Independent Director Ching-Shan Han Independent Director Chih-Cheng Wang Independent Director Jie-Haun Lee

249 Special Disclosures

Shares held (Unit: Company Position Name % thousand shares) CTBC Financial Holding Co., Ltd. Chairman Chih-Kang Wang Vice Chairman (*1) Chin-Fu Chen President Boshan Hsu Director Wen-Hung Lee CTBC Venture Capital Co., Ltd. 324,517 100.00% Director Chao-Lung Tsai Director Rong-Fang Chen Director Chun-Ko Chen Director Chang-Hsing Cho Supervisor Sting Yang CTBC Financial Holding Co., Ltd. Chairman Chuen-Tai Wu Vice Chairman Chih-Yi Huang President Jaulin Chen CTBC Asset Management Co., Ltd. 535,882 100.00% Director Ming-Sing Shieh Director Roger Kao Director Chao-Lung Tsai Supervisor Ya-Ling Chiu CTBC Financial Holding Co., Ltd. Chairman Thomas K.S. Chen President Eric Chang CTBC Investments Co., Ltd. Director Ming-Sing Shieh 42,500 100.00% Director Chun-Ko Chen Director Ju-Huei Yang Supervisor Sting Yang CTBC Financial Holding Co., Ltd. Chairman (*2) Tung-San Feng President Kun-Huang Lin CTBC Security Co., Ltd. 4,770 100.00% Director CC Hong Director Roger Kao Supervisor (*3) Min-Ching Hsu

250 Special Disclosures

Shares held (Unit: Company Position Name % thousand shares) CTBC Financial Holding Co., Ltd. Chairman H. Steve Hsieh Vice Chairman Chuen-Tai Wu President Eric Tsai Director Wen-Hsiang Lin Director Jing-Chao Jang Taiwan Lottery Corp. 50,000 100.00% Director Hui-Chu Lin Director Roger Kao Director Chih-Yi Huang Director Chin-Jung Chen Supervisor Ya-Ling Chiu Supervisor Sting Yang CTBC Venture Capital Co., Ltd. Director Ming-Sing Shieh CTBC Capital International Co., Ltd. 2,060 100.00% Director Rong-Fang Chen Director Wen-Hung Lee CTBC Capital International Co., Ltd. President Boshan Hsu CTBC Venture Capital Investment Liquidation Committee Member Ming-Sing Shieh N/A 100.00% Management (Shanghai) Co., Ltd. (*4) Liquidation Committee Member Wen-Hung Lee Liquidation Committee Member Sting Yang CTBC Asset Management Co., Ltd. President (*5) Morris Wu CTBC International Co., Ltd. Director Thomas K.S. Chen 70,000 100.00% Director Rong-Fang Chen Director Shu-Jen Chen CTBC International Co., Ltd. Chairman Thomas K.S. Chen President (*6) Morris Wu CTBC Leasing Co., Ltd. N/A 100.00% Director Rong-Fang Chen Director Shu-Jen Chen Supervisor Ya-Ling Chiu CTBC Bank Co., Ltd. Chairman Ming-Shieh Li CTBC Capital Corp. Director/President Noor Menai 6 100.00% Director Jack T. K. Cheng Independent Director Joseph H. Tseng

251 Special Disclosures

Shares held (Unit: Company Position Name % thousand shares) CTBC Capital Corp. Chairman Ming-Shieh Li Director/President Noor Menai Director Chih-Chung Liu Common shares: 3 CTBC Bank Corp. (USA) Director Jack T. K. Cheng 100.00% Preferred shares: 100 Director Terrence J. Grasmick Independent Director William Walbrecher Independent Director Joseph H. Tseng Independent Director Lisa Colacurcio CTBC Bank Co., Ltd. Chairman Chih-Chung Liu Director/President Chia-Lin Shih Director Noor Menai CTBC Bank Corp. (Canada) 2,746 100.00% Independent Director Anthony Barke Independent Director (*7) William Neilson Independent Director Leigh L.C. Pan Independent Director Yin-Lun Wu CTBC Bank Co., Ltd. Chairman Wen-Hung Lee Vice Chairman William B. Go Director/President (*8) Peter Wei CTBC Bank (Philippines) Corp. Director Chih-Chung Huang 246,496 99.60% Director Yeun-Ginn Chen Independent Director Edwin B. Villanueva Independent Director Ng Meng Tam Independent Director Alexander A. Patricio CTBC Bank Co., Ltd. President Commissioner Wen-Hung Lee President (*9) Frank Huang PT Bank CTBC Indonesia 1 99.00% Commissioner Yeun-Ginn Chen Independent Commissioner Imbang Jaya Mangkuto Independent Commissioner Zairyanto Poedjiaty CTBC Bank Co., Ltd. Chairman (*10) Vacancy Director/CEO Seiji Sato Director James Chen The Tokyo Star Bank, Ltd. 700 100.00% Director Jack T. K. Cheng Director Nick Huang Director Shinji Sakai Director (*11) Masamichi Yokoi

252 Special Disclosures

Shares held (Unit: Company Position Name % thousand shares) The Tokyo Star Bank, Ltd. Chairman/CEO Kazuhiro Nakamura Director Takayuki Fukuda Director Toshiyuki Sakurai TSB Servicer, Ltd. 0.4 100.00% Director Sadanori Kutsuna Director Morio Hashiya Auditor Chika Kobayashi Auditor Ken Jinguji The Tokyo Star Bank, Ltd. Chairman/CEO Kotaro Saruwatari Director Osamu Kanamori Director Junichi Muramatsu Tokyo Star Business Finance, Ltd. Director Kazuhisa Ozaki 1,936 100.00% Director Jiro Narukawa Director Morio Hashiya Auditor Chika Kobayashi Auditor Ken Jinguji CTBC Securities Co., Ltd. CTBC (Mauritius) Holding Co., Ltd. 17,363 100.00% Director Tzu-Yuan Lu CTBC Securities Co., Ltd. Chairman Wen-Hung Lee CTBC Securities Investment President Darren Chen 5,000 100.00% Service Co., Ltd. Director Wen-Cheng Wu Director Chao-Lung Tsai Supervisor (*12) Min-Ching Hsu CTBC Securities Co., Ltd. Chairman Ming-Sing Shieh CTBC Securities Venture Capital President Mori Chen 30,000 100.00% Co., Ltd. Director Yen-Pao Chen Director Wen-Cheng Wu Supervisor Sung-Ming Yang CTBC (Mauritius) Holding Co., Ltd. Director/Representative Allen Cheng President Allen Cheng CTBC Asia Ltd. Director Chun-Hsien Yen 134,526 100.00% Director Ming-Shan Lin Director Ying-Chi Yiu Director Shi-Chung Chou

253 Special Disclosures

Shares held (Unit: Company Position Name % thousand shares) Taiwan Life Insurance Co., Ltd. Chairman Chin-Miao Lin President Mike Yu Director Kuen-Bao Ling TLG Insurance Co., Ltd. Director Shu-Po Hsu 200,000 100.00% Director Ning-Hai Jin Independent Director Sin-Hui Yen Independent Director Shih-Chieh Chang Independent Director Ching-Chieh Lin Taiwan Life Insurance Co., Ltd. Chairman Paul T.C. Liang President Roy Kuo TLG Capital Co., Ltd. Director Tim T. Chiu 77,187 100.00% Director Mo-Na Chien Director Rong-Fang Chen Supervisor Min-Ching Hsu Note 1: Mr. Chin-Fu Chen resigned as Director and Vice Chairman of CTBC Venture Capital on Feb. 20, 2019. Note 2: Mr. Tung-San Feng resigned as Director and Chairman of CTBC Security on Jan. 1, 2019. CTBC Holding appointed Mr. Cho-Chiun Wang as the Director of CTBC Security on Nov. 23, 2018, effective on Jan. 1, 2019. Mr. Cho-Chiun Wang was elected by a Board meeting of CTBC Security as Chairman on Jan. 2, 2019, effective on Jan. 2, 2019. Note 3: CTBC Holding appointed Ms. Ann Lee to replace Ms. Min-Ching Hsu as the Supervisor of CTBC Security on March 21, 2019. Note 4: CTBC Venture Capital Investment Management (Shanghai) Co., Ltd. went out of business by Board resolution on Dec. 26, 2017, with liquidation procedures implemented from April 30, 2018, by shareholders' meeting resolution. Note 5: On Feb. 22, 2019, the Board of Directors of CTBC International Co., Ltd. passed a human resources resolution relating to President Darren Chin, which became effective on April 1, 2019. Note 6: On Feb. 22, 2019, the Board of Directors of CTBC Leasing Co., Ltd. passed a human resources resolution relating to President Darren Chin, which became effective on April 1, 2019. Note 7: CTBC Holding nominated Mr. Clive Schindler to be an independent director of CTBC Bank Corp. (Canada) on April 26, 2019. CTBC Bank appointed Mr. Clive Schindler as an independent director of CTBC Bank Corp. (Canada) on April 26, 2019, effective on the date of the shareholders' meeting of CTBC Bank Corp. (Canada). Note 8: On Jan. 25, 2019, the Board of Directors of CTBC Bank passed a resolution relating to subsidiary CTBC Bank (Philippines) Corp.'s presidency, allowing James Y.G. Chen to temporarily assume the role of president. It was also proposed that the resolution become effective on March 18, 2019, after being verified and approved by the Board of Directors of the subsidiary as well as consented to by the local regulatory authorities. Note 9: As approved by CTBC Bank on Feb. 27, 2019, Iwan Satawidinata was appointed president of subsidiary PT Bank CTBC Indonesia. The appointment will come into effect upon review by the subsidiary's Board of Directors and the local competent authority. Note 10: The Chairman of The Tokyo Star Bank, Ltd. passed away on Dec. 10, 2018, leaving the position vacant. CTBC Holding nominated Mr. Tsing-Yuan Hwang to be the new term director of The Tokyo Star Bank, Ltd. on April 26, 2019. CTBC Bank appointed Mr. Tsing-Yuan Hwang as the new term director of The Tokyo Star Bank, Ltd. on April 26, 2019, effective on the date of the shareholders' meeting of The Tokyo Star Bank, Ltd. Mr. Tsing-Yuan Hwang was elected as Chairman at a board meeting of The Tokyo Star Bank, Ltd. Note 11: CTBC Holding nominated Mr. Masami Tada to be new term director of The Tokyo Star Bank, Ltd. on April 26, 2019. CTBC Bank appointed Mr. Masami Tada as the new term director of The Tokyo Star Bank, Ltd. on April 26, 2019, effective on the date of the shareholders' meeting of The Tokyo Star Bank, Ltd. Note 12: CTBC Holding nominated Ms. Lun Kuo to replace Ms. Min-Ching Hsu as CTBC Securities Investment Service Co., Ltd. supervisor on March 21, 2019. CTBC Securities Co., Ltd. appointed Ms. Lun Kuo as CTBC Securities Investment Service Co., Ltd. supervisor on March 29, 2019, effective the same day.

254 Special Disclosures

(4) Profiles of affiliated enterprises Unit: NT$ thousand As of Dec. 31, 2018 Date of Company Address Paid-in capital Main business scope establishment CTBC Bank Co., Ltd. March 14, 1966 No. 166, 168, 170, 186, and 188, Jingmao 2nd Rd., 140,685,719 Commercial banking and financing Taipei business Taiwan Life Insurance Dec, 1, 1947 8F., No. 188, Jingmao 2nd Rd., Taipei 41,791,135 Insurance business Co., Ltd. CTBC Securities Co., Ltd. July 5, 1989 3F., No. 168, Jingmao 2nd Rd., Taipei 6,027,140 Securities and futures business CTBC Venture Capital March 11, 2003 21F., No. 168, Jingmao 2nd Rd., Taipei 3,245,169 Venture capital investment Co., Ltd. center CTBC Asset Management May 20, 2003 19F., No. 168, Jingmao 2nd Rd., Taipei 5,358,820 Asset management business Co., Ltd. CTBC Investments Co., March 3, 1998 12F., No. 188, Jingmao 2nd Rd., Taipei 425,000 Investment and trust business Ltd. CTBC Security Co., Ltd. Feb. 15, 1995 5F., No. 188, Jingmao 2nd Rd., Taipei 47,695 Protection, fire and life safety services Taiwan Lottery Corp. July 10, 2006 15F., No. 188, Jingmao 2nd Rd., Taipei 500,000 Operate the public welfare lottery for the issuing sale, promotion, drawing, payment of prize and management. CTBC Capital April 30, 2012 Room 511, 5F., Tower 1, Silvercord Centre, US$2,060 thousand Holding company International Co., Ltd. No. 30, Canton Rd., Tsim Sha Tsui, Hong Kong Exchange rate on reporting date: 30.733 NT$63,310 thousand CTBC Venture Capital Nov. 22, 2012 12F., No. 1386, Wenguang Building, Hongqiao US$2,000 thousand Venture capital management and Investment Management Rd., Changning Dist., Shanghai Exchange rate on reporting date: consulting (Shanghai) Co., Ltd. 30.733 NT$61,466 thousand CTBC International Co., April 24, 2012 Room 511, 5F., Tower 1, US$70,000 thousand Holding company Ltd. Silvercord Centre, Exchange rate on reporting date: No. 30, Canton Rd., 30.733 Tsim Sha Tsui, Hong Kong NT$2,151,310 thousand CTBC Leasing Co., Ltd. July 3, 2012 12F., No. 1386, Wenguang Building, Hongqiao RMB 433,802 thousand Financial leasing Rd., Changning Dist., Shanghai Exchange rate on reporting date: 4.4752 NT$1,941,351 thousand CTBC Capital Corp. Feb. 27, 1989 801 S. Figueroa St., Suite 2300, Los Angeles, CA US$6.43028 thousand Investment business 90017, USA Exchange rate on reporting date: 30.733 NT$198 thousand CTBC Bank Corp. (USA) Feb. 27, 1995 801 S. Figueroa St., Suite 2300(22 to 23 Floors), US$771.108 thousand Commercial banking and financing Los Angeles, CA 90017, USA Exchange rate on reporting date: business 30.733 NT$23,698 thousand CTBC Bank Corp. Nov. 12, 1998 1518 West Broadway, Vancouver, B.C., Canada, CA$37,000 thousand Commercial banking and financing (Canada) V6J1W8 Exchange rate on business reporting date: 22.589 NT$835,793 thousand CTBC Bank (Philippines) Sept. 7, 1995 16–19F., Fort Legend Towers 31st St. Corner PHP 2,479,687 thousand Commercial banking and financing Corp. 3rd Av. Bonifacio Global City, Taguig City 1634, Exchange rate on business Philippines reporting date: 0.5844 NT$1,449,129 thousand PT Bank CTBC Indonesia Oct. 15, 1996 Tamara Center, 15th-17th Fl., Jl Jenderal IDR 150,000,000 thousand Commercial banking and financing Sudirman Kav. 24, Jakarta, 12920, Indonesia Exchange rate on reporting date: business 0.0021108 NT$316,620 thousand

255 Special Disclosures

Date of Company Address Paid-in capital Main business scope establishment The Tokyo Star Bank, Ltd. June 11, 2001 2-3-5 Akasaka, Minato-Ku, Tokyo, 107-8480, JPY 26,000,000 thousand Commercial banking and financing Japan Exchange rate on reporting date: business 0.2783 NT$7,235,800 thousand TSB Servicer, Ltd. Jan. 17, 1997 2-2-17 Akasaka, Minato-Ku, Tokyo, 107-0052, JPY 500,000 thousand Debt management business Japan Exchange rate on reporting date: 0.2783 NT$139,150 thousand Tokyo Star Business Sept. 10, 2010 2-7-1 Nishi-Shinjyuku, Shinjyuku-Ku, Tokyo, 163- JPY 500,000 thousand Finance, Ltd. 0710, Japan Exchange rate on reporting date: Financing and assurance business 0.2783 NT$139,150 thousand CTBC (Mauritius) Dec. 19, 2002 3rd Floor, Raffles Tower,19 Cybercity, Ebene, US$17,363 thousand Holding company Holding Co., Ltd. Republic of Mauritius Exchange rate on reporting date: 30.733 NT$533,608 thousand CTBC Securities May 21, 2015 14F., No. 188, Jingmao 2nd Rd., Taipei 50,000 Securities investment consultant Investment Service Co., company Ltd. CTBC Securities Venture Oct. 19, 2018 14F., No. 188, Jingmao 2nd Rd., Taipei 300,000 Venture capital investment Capital Co., Ltd. CTBC Asia Ltd. April 4, 2003 Suite 2809, 28F., Two International Finance HK$134,526 thousand Securities company Centre, No. 8, Finance St., Central, Hong Kong Exchange rate on reporting date: 3.9239 NT$527,867 thousand TLG Insurance Co., Ltd. May 8, 2006 18F.-1, No. 17, Xuchang St., Taipei 2,000,000 Property insurance business TLG Capital Co., Ltd. Aug. 1, 2003 17F., No. 17, Xuchang St., Taipei 771,870 Installment, leasing, and account receivable factoring

3. Affiliation report: CTBC Holding is not an affiliate of any company as defined in the Company Act; therefore, it is not required to compile an affiliation report.

(II) Private placement of securities by CTBC Holding in the past year through April 26, 2019: None.

(III) Company shares held or disposed of by subsidiaries in the past year through April 26, 2019: None.

(IV) Other supplementary information: Please refer to the CTBC Holding website (http://ir.ctbcholding.com/c/gov_practice.php) for information regarding the Company's Code of Ethical Conduct.

256 IX Matters Affecting Shareholder Equity or Securities Prices From 2018 Through the End of April 2019

Please refer to "IV. Capital Overview, 6. Mergers and acquisitions with other financial institutions".

257 Audit Committee Resolutions Issued in Appendix 1 Accordance With Article 14-5 of the Securities and Exchange Act

Matter listed in Resolution passed by Article 14-5 of at least two-thirds Term and meeting Motion content and status the Securities of Board but not yet and Exchange approved by Audit Act Committee Jan. 31, 2018; 6th term, 1. A report was introduced on the Company's 2018 V - 22nd meeting operating budget, operating expenses budget, and capital of the Board of expenditure budget. Directors 2. Amendments were proposed to the Audit Office's V - Hierarchical Responsibilities Table for 2018. 3. Amendments were proposed to the Regulatory V - Compliance System and Policy of CTBC Holding to strengthen compliance by the Company's staff and subsidiaries. 4. It was proposed that CTBC Bank renegotiate the cost of V - its outsourcing security service for automation equipment, with an estimated three-year cost not exceeding NT$940 million. 5. The Company's 2018 operating plan was submitted. V - 6. Revisions were proposed to the Company's Regulations V - for Assistance in Litigation Arising from the Performance of Public Duties, in accordance with the opinion of the competent authority, in order to maintain the Company's stable operation and ensure the continuous performance of various duties. 7. It was proposed that a Legal Consulting Policy be V - formulated for the Company and its employees to follow. Audit Committee resolutions (Jan. 30, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). March 21, 2018; 6th 1. It was proposed that KPMG Taiwan be appointed as the V - term, 24th meeting of CPA firm of the Company's 2018 financial statements and the Board of Directors tax report. 2. The 2017 Internal Control System Statement was V - reported. 3. Amendments were proposed to the Operating V - Procedures for the Acquisition or Disposal of Assets. 4. To comprehensively safeguard the interests of the Bank V - and give proper consideration to the views of the competent authorities, amendments were proposed to the Regulations for Assistance in Litigation Arising from the Performance of Public Duties. 5. A proposal was introduced concerning the review of V - matters related to the advance payment of bail funds by the Company for employees, as prescribed by the FSC. Audit Committee resolutions (March 20, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). March 21, 2018; 6th 1. The consolidated financial statements prepared by the V - term, 25th meeting of Company for 2017 and the audit report issued by the CPA the Board of Directors were presented. Audit Committee resolutions (March 20, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

258 Audit Committee Resolutions Issued in Accordance With Article 14-5 of the Securities and Exchange Act

Matter listed in Resolution passed by Article 14-5 of at least two-thirds Term and meeting Motion content and status the Securities of Board but not yet and Exchange approved by Audit Act Committee April 16, 2018; 6th 1. It was proposed that CTBC Bank participate in the V - term, 26th meeting of bidding for a 10% equity investment after the cash the Board of Directors injection of a domestic third-party payment company and sign the bidding file for the project with the company. Audit Committee resolutions (April 16, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). April 27, 2018; 6th 1. The Company's 2017 earnings distribution proposal has V - term, 27th meeting of been formulated. the Board of Directors 2. The draft of the Company's Tax Governance Policy was V - proposed. 3. Amendments were introduced for provisions regarding V - the scope of stakeholders and the principal of management and control of the credit business under the Policy for Determining Credit and Non-Credit Transactions between CTBC Holding and Stakeholders and Regulations for the Administration of Non-Credit Transactions between CTBC Holding and Stakeholders. 4. The Company's 2017 annual business report has been V - prepared in accordance with Article 228 of the Company Act and Article 66 of the Business Entity Accounting Act. 5. It was proposed that CTBC Bank replace the computer V - terminals used by Taiwan Lottery ticket sales staff for the fourth term of the public welfare lottery, which the Bank is administering, with an estimated upper limit of approximately NT$509 million (including tax) for the purchase and installation of the new machines. 6. In accordance with the provisions of the newly added V - Article 34-2 of the Implementation Rules of Internal Audit and Internal Control System of Financial Holding Companies and Banking Industries, it was proposed that Procedures for Handling the Reporting of Illegal and Unethical or Dishonest Behavior be formulated. 7. Amendments were proposed to some articles of the V - Articles of Incorporation. 8. To strengthen the functioning of the Board of Directors as V - well as compliance with relevant regulations and practical operating requirements, amendments were proposed to the Guidelines for Proposals by the Board of Directors and Functional Committees. Audit Committee resolutions (April 26, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

259 Audit Committee resolutions in accordance with Article 14-5 of the Securities and Exchange Act:

Matter listed in Resolution passed by Article 14-5 of at least two-thirds Term and meeting Motion content and status the Securities of Board but not yet and Exchange approved by Audit Act Committee June 21, 2018; 6th term, 1. In line with Note 2, Point (3) of letter No. FSC Bank V - 29th meeting of the Control 10600291460, dated Feb. 21, 2018, and with Board of Directors reference to the Financial Holdings Anti-Money Laundering and Countering Terrorism Financing Information Sharing Practice adopted by the Supervisory Committee of the Bankers Association on May 31, 2018, amendments were proposed to the Company's Anti-Money Laundering and Terrorist Financing Policy (Plan). 2. Amendments were proposed to the Compliance V - Operation and Management Policy of CTBC Holding Concerning the Foreign Account Tax Compliance Act to strengthen compliance by the Company and all group members. 3. The Company's KYC policy was revised based on the V - results of its annual review and the amendments to the Company's Quasi-Stakeholders of Non-Common and Non-Credit Transactions. 4. The 2018 lottery business stress-test results of Taiwan V - Lottery and CTBC Holding's capital adequacy ratio planning and assessment report were submitted. 5. To fill the funding gap of CTBC International Leasing Co., V - Ltd. and comply with the leverage ratio provisions for banks in China that provide credit as well as with external debt limit regulatory indicators, it was proposed that a capital increase of US$30 million be applied for from CTBC Asset Management Co., Ltd. Audit Committee resolutions (June 20, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

260 Audit Committee Resolutions Issued in Accordance With Article 14-5 of the Securities and Exchange Act

Matter listed in Resolution passed by Article 14-5 of at least two-thirds Term and meeting Motion content and status the Securities of Board but not yet and Exchange approved by Audit Act Committee July 27, 2018; 6th term, 1. The original site of The Tokyo Star Bank, in Japan's V - 30th meeting of the Suginami Center, could no longer be used due to the Board of Directors aging building in which it was located. A relocation and integration plan involving property leasing was proposed. The related expenses were approximately JPY 1.7 billion (NT$466 million), of which the relocation costs accounted for approximately JPY 1.24 billion and the costs associated with signing a two-year lease agreement and related operations accounted for JPY 460 million. 2. The price quote for the Core System Upgrade of V - Overseas CTBC Bank Branches was resubmitted this year because of the failure of core system vendors to submit tenders to the Bank in 2017. A request was submitted to reduce capital expenditure by NT$12.743 million (4.29%) to NT$284 million. It was estimated that the total budget would be increased by NT$86.483 million (13.56%) over five years to NT$724 million. 3. To improve and strengthen the functions of Taiwan Life's V - core IT system, it was proposed that a new core system be introduced, with a request made for the procurement of the necessary hardware, software licenses, services, and labor services to enhance the future development of the company's overall insurance business. A total budget of NT$3.298 billion (including tax) was proposed for the project. 4. To provide for CTBC Securities' business needs, it was V - proposed that its investment for the establishment of CTBC Venture Capital Co., Ltd. be diverted. 5. To enhance the efficiency of CTBC Holding's management V - of its subsidiaries, an amendment was proposed to the Regulations for Management of Subsidiaries in order to adjust CTBC Holding's authority to approve subsidiaries' strategic investment reports. 6. In consideration of its business needs, an amendment V - was proposed to the Company's Standards for Division of Powers and Responsibilities of the Board of Directors, Chairman, and General Manager. Audit Committee resolutions (July 26, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

261 Audit Committee resolutions in accordance with Article 14-5 of the Securities and Exchange Act:

Matter listed in Resolution passed by Article 14-5 of at least two-thirds Term and meeting Motion content and status the Securities of Board but not yet and Exchange approved by Audit Act Committee Aug. 29, 2018; 6th term, 1. To effectively integrate office space in Taichung and V - 31st meeting of the harness business synergies, it was proposed that it be Board of Directors arranged for the relevant units to move to the new site at 1–6F., No. 88, Sec. 1, Huizhong Rd., Taichung City, with a total budget of approximately NT$313 million (including tax). 2. To provide for business needs, an amendment was V - proposed to the Management Regulations for the Acquisition of Projects by CTBC Holding. 3. Regarding the Company's intent to relaunch the cash V - acquisition of the outstanding minority stake of subsidiary CTBC Securities Co., Ltd., a list of proposed independent experts was submitted to the Committee. Audit Committee resolutions (Aug. 28, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). Aug. 29, 2018; 6th term, 1. The consolidated financial statements prepared by the V - 32nd meeting of the Company for the second quarter of 2018 and the audit Board of Directors report to be issued by the accountant were submitted. Audit Committee resolutions (Aug. 28, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). Sept. 27, 2018; 6th term, 1. To improve the business decision-making efficiency of the V - 33rd meeting of the subsidiary as well as reduce administrative expenses and Board of Directors management costs, it was proposed that CTBC Holding acquire a minority stake of 0.08% of it in cash. In this case, a financial consultant was hired to assist in the valuation and a third-party independent expert was appointed to issue an opinion on the rationality of the pricing. Audit Committee resolutions (Sept. 26, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

262 Audit Committee Resolutions Issued in Accordance With Article 14-5 of the Securities and Exchange Act

Matter listed in Resolution passed by Article 14-5 of at least two-thirds Term and meeting Motion content and status the Securities of Board but not yet and Exchange approved by Audit Act Committee Oct. 31, 2018; 6th term, 1. The remuneration to the accountant for the certification V - 34th meeting of the services provided for the Company's 2018 financial Board of Directors statements, tax return, etc. 2. It was proposed that the Company apply for the issuance V - of unsecured subordinated common corporate bonds of a value not exceeding NT$10 billion. 3. To facilitate compliance with the U.S. Foreign Account V - Tax Compliance Act (FATCA), it was proposed that the Company's FATCA Responsible Officer, namely the Regulatory Compliance Supervisor of the Company's head office, handle matters relating to periodic declarations. 4. It was proposed that the rebate rate of LINE Pay card V - products be adjusted from Jan. 1, 2019, and that a contractual business condition be added for the provision of LINE Pay platform operating expenses, with an estimated total investment cost over eight years (2019– 2026) of NT$1.944 billion. 5. It was proposed that the use and cost of video signature V - technology be shared with CTBC Securities, with an estimated cost of NT$799,992, and that an agreement for shared use be signed. Audit Committee resolutions (Oct. 29, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). Nov. 12, 2018; 6th term, It was proposed that CTBC Bank participate in the V - 35th meeting of the development of internet-only banking as well as become a Board of Directors co-founder of internet-only banking. Audit Committee resolutions (Nov. 12, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s). Nov. 23, 2018; 6th term, 1. Amendment to the group's accounting policy. V - 36th meeting of the 2. Amendment to the Company's accounting system. V - Board of Directors 3. A proposal was introduced to appoint CTBC Bank as the V - lead underwriter for the Company's public underwriting of unsecured subordinated common corporate bonds within a NT$10 billion limit. 4. The results of the review and evaluation on the V - effectiveness of the internal control system of the Company and its subsidiaries for 2018 were submitted. Audit Committee resolutions (Nov. 22, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

263 Audit Committee resolutions in accordance with Article 14-5 of the Securities and Exchange Act:

Matter listed in Resolution passed by Article 14-5 of at least two-thirds Term and meeting Motion content and status the Securities of Board but not yet and Exchange approved by Audit Act Committee Dec. 21, 2018; 6th term, 1. A proposal was introduced for Taiwan Life to issue V - 37th meeting of the common shares through a private placement for a capital Board of Directors increase of NT$24,999,600,000. 2. To replenish Taiwan Life's capital, strengthen its financial V - structure, and provide for its future operating needs, it was proposed that the common shares issued through this private placement by Taiwan Life be fully subscribed for, with the cash injection not exceeding NT$24,999,600,000, a provisional subscription price of NT$30 per share, and a provisional subscription of 833,320,000 shares. 3. It was proposed that the Company issue registered V - preferred shares C as a cash injection in 2018. 4. The 2019 Audit Key Working Plan was submitted. V - 5. Regarding CTBC Bank's participation in the development V - of internet-only banking, it was proposed that the Bank accept the invitation of LINE Financial Taiwan Ltd. to participate in the establishment of a joint venture, LINE Bank, with capital of NT$10 billion and a 5% equity stake (for an investment amount of NT$500 million) and a director position held by CTBC Bank. It was also proposed that the Bank sign a related joint venture agreement to regulate the implementation of future investment plans. 6. To replace CTBC Bank outdated office environment and V - accommodate the space requirements of its integrated logistics–administrative unit, it was proposed that the Bank move the relevant units to a new site at No. 33, Lane 22, Ankang Rd., Neihu Dist., Taipei City. The total budget for the renovation of the case was approximately NT$604 million (including tax). 7. In response to the end of service for its existing V - software and hardware and the development of office automation, The Tokyo Star Bank planned to purchase new notebook computers and adopt the Microsoft Office 365 cloud solution. The total budget for this proposal was approximately JPY 1.332 billion (NT$363 million), including initial expenses and five-year operating expenses. 8. To complement the sale of electronic lottery tickets, V - it was proposed that a five-year consumable printing contract (2019–2023) be signed with Yuen Foong Paper Co., Ltd. It was estimated that the total cost would be NT$564,885,000 (including tax) and that the expense budget would be allocated year by year. Audit Committee resolutions (Dec. 20, 2018): All attending Audit Committee members agreed to adopt the resolution(s). Handling of Audit Committee proposals by the Company (Board of Directors): All attending directors agreed to adopt the resolution(s).

264 Representation Letter

The entities that are required to be included in the consolidated financial statements of CTBC Financial Holding Co., Ltd. for the year ended December 31, 2018 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 “Consolidated Financial Statements”, endorsed by the Financial Supervisory Commission of the Republic of China. In addition, the information required to be disclosed in the consolidated financial statements of the affiliates is fully included in the consolidated financial statements. Consequently, CTBC Financial Holding Co., Ltd. and subsidiaries do not prepare a separate set of consolidated financial statments of the affiliated enterprises.

Company name: CTBC Financial Holding Co., Ltd. Chairman: Wen-Long Yen Date: March 21, 2019

265 266 267 268 269 270 7 - - 93 100 % 83,532 20,079,967 320,984,171 Amount 5,019,749,373 5,340,733,544 December 31, 2017 December 5 - - 95 100 % 76,017 184,195 - 16,865 - 315,148,481 106,571,323 2 68,406,471 1 5,438,099,065 December 31, 2018 December 4) 3,713,312 - 6,230,722 - greements(Note 4, 6(w) and 7)greements(Note 4, 6(w) 70,524,205 1 74,118,226 1 UITY $ 5,753,247,546 and banks(Note 6(u))and banks(Note $ 74,498,692 1 74,874,783 1 4, 6(ac) and (ap)) 193,255,451 3 189,540,151 4 te 6(z) and 7) 3,138,015,328 55 2,944,973,167 55 e) and (af)) 1,585,162,090 28 1,370,665,257 26 e 4 and 6(ag)) 2,383,652 - 4,198,632 - nd (g), and (aa)) 98,724,952 2 112,212,447 2 d-net(Note 6(x)) 38,638,067 1 51,777,524 1 and banks(Note 6(v))and banks(Note 14,041,775 - 15,470,633 - bilities(Note bilities(Note s(Note 6(ad))s(Note 16,266,963 and 7) 96,119,060 2 87,184,528 2 4 and 6(ah)) - - (582,754) - IES AND EQ surplus(Note 6(ag))surplus(Note 50,368,539 1 50,366,018 1 ed earnings: Total equity Total Total liabilities 6(c)) net(Note 4 and 6(g)) LIABILITIES AND EQUITY Amount Deposits from the central bank 6(ah)) stock(Note Common 194,969,896 3 194,969,896 4 Preferred stock(Note 6(ah))Preferred stock(Note reserveLegal 3,333,300 - 3,333,300 - 24,189,775 - 20,467,553 - Due to the central bank 4 and Financial liabilities measured at fair value through profit or loss(Note Financial instruments-hedging/ Derivative financial liabilities-hedging- Commercial papers issue Securities sold under repurchase a Special reserve 6(ai)) earnings(Note Undistributed 48,945,112 1 37,417,514 1 29,719,062 1 30,688,581 1 Payables(Note 6(y) Payables(Note Current income tax lia Non-controlling interests Deposits and remittances(No Bonds payable(Note 6(c) a 4, 6(ab), (a Provisions(Note Other financial liabilities(Note Other financial liabilities(Note Deferred tax liabilities(Not Total other liabilitie Liabilities: Stockholders’ equity - parent company: TOTAL LIABILIT 21000 31100 stock: Capital 31101 31103 31500 Capital 32000 Retain 32001 21500 22000 22300 22600 39500 22500 32003 32011 32500 6(ag)) interest(Note equity Other 32600 Treasury stock(Note (36,453,220) (1) (15,759,469) - 23000 23200 23500 24000 24600 25500 29300 29500 % 100 December 31, 2018 and 2017 Consolidated Balance Sheets Amount 5,340,733,544 December 31, 2017 December (Expressed in Thousands of New Taiwan Dollars) % 100 34,212 - 137,010 - CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES 368,632,520 6 175,690,858 3 463,855,794 8 - - 1,627,683,522 28 - - December 31, 2018 December (English Translation of Consolidated Financial Statements Originally Issued in Chinese) 7 and 8) 252,880,081 4 281,195,765 5 (w), and 8)(w), - - 737,471,741 14 and 6(h)) 24,656,572 1 24,658,803 1 te 4, 6(e) and (w) and 8)te 4, 6(e) and (w) - - 478,234,096 9 s to banks(Note 6(b), t(Note 4 and 6(o))t(Note 35,353,449 1 33,735,935 1 greements(Note 4 greements(Note -net(Note 4, 6(n) and -net(Note 4, 6(l), (p) and (ap), 8) 75,939,497 1 911,595,514 17 le, net(Note 4 and 6(j))le, net(Note 523,182 - - - (l) and (av), 7 8) 197,753,645 4 153,686,602 3 ote 4 and 6(a)) $ 128,348,319 2 154,080,461 3 te 4 and 6(q)) 57,591,759 1 56,593,899 1 (Note 4 and 6(ag)) 15,656,082 - 13,909,970 - ts(Note 4)ts(Note 3,258,128 - 1,740,877 - (w), and 8) (w), (Note 4, 6(d) and (w), and 8) (Note 4, 6(d) and (w), and (w), 7 and 8) and (w), 4 and 6(g)) ASSETS Amount Cash and cash equivalents(N Due from the central bank and call loan Investments in debt instruments measured at amortised cost(Note 4, 6(f) and Investments in debt instruments measured at amortised cost(Note Financial assets measured at fair value through other comprehensive income Financial assets measured at fair value through profit or loss(Note 4, 6(c) Financial assets measured at fair value through profit or loss(Note Available-for-sale financial assets-net(No Financial instruments-hedging/ Derivative financial assets-hedging-net(Note Securities purchased under resell a Receivables-net(Note 4, 6(i), Receivables-net(Note Current income tax asse Assets classified as held for sa Loans-net(Note 4, 6(k), 6(l) and (av), 7)Loans-net(Note 2,364,345,480 41 2,194,551,195 41 Reinsurance contract assets-net(Note 4 and 6(m)) assets-net(Note contract Reinsurance assets financial Held-to-maturity 2,593,345 - 2,841,708 - Investment under equity method-ne Other financial assets-net(Note Investment property-net(No Premises and equipment-net(Note 4 and 6(r)) equipment-net(Note and Premises 53,985,880 1 52,650,171 1 Deferred income tax assets tax income Deferred Intangible assets-net(Note 4 and 6(s)) assets-net(Note Intangible 24,487,733 1 23,406,249 - Other assets-net(Note 4, 6(t) and 8) assets-net(Note Other 55,668,346 1 44,552,690 1 ASSETSTOTAL $ 5,753,247,546 11000 See accompanying notes to financial statements. 11500 12000 12100 12200 12150 12300 13000 13200 12500 13300 13500 14500 13700 15000 15500 18000 19000 18500 19300 19500 271 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share)

2018 2017 Change Amount % Amount % % 41000 Interest income(Note 6(al) and 7) $ 129,139,824 41 112,086,276 32 15 51000 Less: Interest expenses(Note 6(al) and 7) (26,864,903) (9) (20,481,110) (6) 31 Net income of interest (Note 6(al)) 102,274,921 32 91,605,166 26 12 Net non-interest income (loss) 49800 Service fee and commissions income(Note 6(am) and 7) 20,374,965 7 20,465,038 6 - 49810 Net insurance income(Note 6 (an)) 174,125,002 55 216,433,869 62 (20) 49820 (Losses) Gains on financial assets measured at fair value through profit or loss(Note 6(ao)) (24,416,843) (8) 38,812,149 11 (163) 49825 Gains on investment properties 704,377 - 607,844 - 16 49830 Realized gain on available-for-sale financial assets(Note 6(ah)) - - 10,322,634 3 (100) 49840 Realized gain on held-to-maturity financial assets - - 16,658 - (100) 49835 Realized gain on financial assets measured at other comprehensive income 10,352,736 3 - - - 49850 Gains on derecognition of financial assets measured at amortized cost 1,510,558 1 - - - 49870 Foreign exchange gains (losses) 17,848,987 6 (34,954,751) (10) 151 49880 Provision for impairment loss on assets (505,664) - (184,346) - (174) 49890 Proportionate share of gains from associates or joint ventures under equity method(Note 6(o)) 1,609,834 1 1,632,737 1 1 49898 Gains on reclassification under the overlay approach(Note 6(c)) 13,929,922 4 - - - 49900 Net other non-interest incomes (734,204) - 7,706,659 2 (110) 58099 Public-welfare lottery payment (2,700,000) (1) (2,700,000) (1) - Net revenue 314,374,591 100 349,763,657 100 (10) 58100 Provisions for bad debt expenses, commitment and guarantee liability provision(Note 6(l)) (4,903,326) (2) (2,519,102) (1) 95 58300 Net change in provisions for insurance liabilities(Note 6(aq)) (205,361,796) (65) (239,860,214) (69) (14) Operating expenses: 58501 Employee benefits expenses(Note 6(ar)) (34,555,092) (11) (35,636,835) (10) (3) 58503 Depreciation and amortization expense(Note 6(as)) (3,816,621) (1) (3,587,728) (1) 6 58599 Other general and administrative expenses(Note 6(au)) (23,348,257) (8) (23,433,483) (7) - Total operating expenses (61,719,970) (20) (62,658,046) (18) (1) Net income before tax from continuing operations 42,389,499 13 44,726,295 12 (5) 61003 Income tax expenses (Note 6(ag)) (6,354,288) (2) (7,502,115) (2) (15) Net Income 36,035,211 11 37,224,180 10 (3) 69500 Other comprehensive income: 69560 Items that will not be reclassified subsequently to profit or loss 69561 Remeasurement gains related to defined benefit plans 351,840 - 117,180 - 200 69565 Changes in designated as financial liabilities measured at fair value through profit or loss attributable to credit risk 1,112,346 - (1,105,808) - 201 69567 Unrealized losses from investments in equity instruments measured at fair value through other comprehensive income (4,122,379) (1) - - - 69563 Proportionate share of other comprehensive income (losses) from associates or joint ventures under the equity method -items 1,903 - (3,304) - 158 that will not be reclassified to profit or loss 69569 Income tax related to items that will not be reclassified to profit or loss 368,250 - (24,289) - 1,616 Subtotal (2,288,040) (1) (1,016,221) - (125) 69570 Items that are or may be reclassified subsequently to profit or loss 69571 Exchange differences of overseas subsidiaries’ financial reports translation 1,983,726 1 (4,756,977) (1) 142 69572 Unrealized gains on available-for-sale financial assets - - 7,239,817 2 (100) 69583 Unrealized losses from investments in debt instruments measured at fair value through other comprehensive income (18,173,503) (6) - - - 69575 Proportionate share of other comprehensive (losses) income from associate or joint ventures under the equity method -items that (241,687) - 147,534 - (264) are or may be reclassified to profit or loss 69590 Other comprehensive losses on reclassification under the overlay approach (13,929,922) (4) - - - 69579 Income tax related to items that are or may be reclassified to profit or loss 4,478,566 2 (561,836) - 897 Subtotal (25,882,820) (7) 2,068,538 1 (1,351) 69500 Other comprehensive (losses) income (28,170,860) (8) 1,052,317 1 (2,777) Total comprehensive income $ 7,864,351 3 38,276,497 11 (79) Net income attributable to: Parent company $ 36,032,425 11 37,222,217 10 (3) Non-controlling interest 2,786 - 1,963 - 42 $ 36,035,211 11 37,224,180 10 Comprehensive income attributable to: Parent company $ 7,864,640 3 38,281,597 11 (79) Non-controlling interest (289) - (5,100) - 94 $ 7,864,351 3 38,276,497 11 Earnings per share (unit: NT Dollars)(Note 6(ak)) $ 1.85 1.91

See accompanying notes to financial statements. 272 2 585,581 1,052,317 6,789,996 7,864,351 38,276,497 (28,170,860) 327,774,167 315,148,481 Total equity (905) (289) (7,063) (5,100) (3,075) 82,627 76,017 - - Non- interests controlling 2 585,581 1,059,380 6,790,901 7,864,640 38,281,597 (28,167,785) 327,691,540 315,072,464 Company Stockholders' equity - parent ,754) 320,900,639 83,532 320,984,171 ------582,754 (582,754) Treasury stock - - - - 1,552,859 1,552,859 (12,416,338) (12,416,338) (10,863,479) overlay approach Reserve of - - - (310,604) 1,112,346 1,112,346 (1,105,808) (1,105,808) (1,422,950) or loss financial liabilities fair value Change in credit risk measured at measured designated as through profit attributable to ------6,388,993 6,388,993 5,608,490 assets losses on Unrealized sale financial available-for- Other equity interest ) - - - - (646,184) (646,184) (19,056,015) (19,056,015) (18,434,666) income losses on fair value Unrealized measured at measured through other comprehensive financial assets (804) - - 1,884,362 1,884,362 (4,313,666) (4,313,666) (8,728,833) (6,844,471) reports overseas financial translation Exchange subsidiaries differences of 89,861 - - 276,540 307,860 37,312,078 37,694,054 36,340,285 48,945,112 Stockholder's Equity - parent company Stockholder's earnings Undistributed 2 Thousands of New Taiwan Dollars ------(969,519) 969,519 ------8,801,584 (8,801,584) ------30,688,581 29,719,062 Special reserve Retained earnings ------(Expressed in For the years ended December 31, 2018 and 2017 20,467,553 24,189,775 Legal reserve Consolidated Statements of Changes in Stockholder’s Equity 2,827 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES ------50,366,018 50,368,539 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) (English Translation of Consolidated Financial Statements Capital surplus ------3,333,300 3,333,300 k Preferred stock Capital Stoc - - -- 2,792,898 - - - (2,792,898) - 3,722,222 - - (3,722,222) ------1)---(18)-(18) ----- (18)------(1,267,533) - 1,267,533 ------stock Common 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,417,514 (8,728,029) - (5,608,490) (1,422,950) - (582 $ 194,969,896 - 36,637,717 17,674,655 21,886,995 28,249,266 (4,414,363) - (11,997,483) (317,142) - (582,754) 282,106,787 88,632 282,195,419 f tments 194,969,896 e share - - - - - (14,383) ------(14,383) - (14,383) ter adjus stock - - - - - (21,056,749) ------(21,056,749) - (21,056,749) stock - - - - - (16,549,348) ------(16,549,348) - (16,549,348) iated - - - - rve - - - - mber 31, 2018mber $ 194,969,896 et Incomeet Incomeet ------37,222,217 - - - - 36,032,425 ------37,222,217 - 1,963 37,224,180 - 36,032,425 2,786 36,035,211 through other comprehensive income subsidiaries acquired or disposed Special reserve appropr Cash dividends - common of preferenc dividends Cash Reversal of special rese of special Reversal Total comprehensive income (losses) appropriated Legal reserve Total comprehensive income (losses) - appropriated Legal reserve - Cash dividends - common Other comprehensive income (losses)Other comprehensive income (losses) - - N N Balance at January 1, 2017 Appropriation and distribution of retained earnings: Balance at December 31, 2017 Effects of retrospective application new standardsBalance at January 1, 2018 af Appropriation and distribution of retained earnings: - Balance at Dece See accompanying notes to financial statements. Cash from capital surplus stock preferred of Issuance Others - - 3,333,300 - 16,648,774 - (2,920,473) ------19,982,074 (2,920,473) - - 19,982,074 (2,920,473) OthersDisposal of treasury stock - - - (306) - - 2,159 ------1,853 - 1,853 Difference between consideration and carrying amount of shares o shares consideration and carrying amount of between Difference Changes in ownership interests subsidiariesChanges in non-controlling interests instruments designated at fair value in equity of Disposal investments ------(6,216) (6,216) (105) (105) 273 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

2018 2017 Cash Flows from Operating Activities: Net Income Before Tax $ 42,389,499 44,726,295 Adjustments: Income and expenses items with no effect on cash flow: Depreciation expense 2,817,537 2,785,320 Amortization expense 1,335,575 1,184,438 Impairment losses on expected credit loss/ Provisions for bad debt expenses, commitments and 4,903,326 2,519,102 guarantee reserve Net losses (gains) on financial assets or liabilities measured at fair value through profit or loss 30,492,065 (12,786,132) Interest expense 26,864,903 20,481,110 Interest income (129,139,824) (112,086,276) Dividend income (6,553,246) (4,308,810) Net change in insurance liabilities 205,361,796 239,860,214 Net change in other provisions 63,570 (671,285) Proportionate share of gains from associates or joint ventures under the equity method (1,609,834) (1,632,737) Gains reclassified by applying overlay approach (13,929,922) - Losses on disposal and retirement of premises and equipment 38,572 50,888 (Gains) losses on disposal of investment properties (27,981) 51,659 Losses on disposal and retirement of intangible assets 6,501 4,999 Gains on disposal of stock investments under cost method - (62,339) Impairment losses on financial assets 502,978 169,335 Impairment losses on non-financial assets 2,686 15,011 Losses on disposal of foreclosed properties 2,979 2,461 Unrealized foreign exchange losses (gains) on insurance liabilities 8,159,088 (20,944,433) Other adjustments 843,580 (675,909) Subtotal of income and expense items with no effect on cash flows 130,134,349 113,956,616 Changes in Operating Assets and Liabilities: Net Changes in operating assets: Decrease in due from the central bank and call loans to banks 10,889,278 3,027,731 (Increase) decrease in financial assets measured at fair value through profit or loss (84,576,244) 34,341,347 Increase in financial assets measured at fair value through other comprehensive income (24,464,498) - Increase in investments in debt instruments measured at amortised cost (156,453,951) - Decrease in available-for-sale financial assets - 337,103,081 Decrease in hedging financial assets 102,798 279,332 Increase in receivables (41,466,603) (20,278,906) Increase in loans (174,239,406) (82,942,594) (Increase) decrease in reinsurance contract assets (216,806) 233,618 Increase in held-to-maturity financial assets - (521,165,548) Increase in other financial assets (16,141,302) (171,465,018) Net changes in operating assets: (486,566,734) (420,866,957) Net Changes in Operating Liabilities: (Decrease) increase in deposits from the central bank and other banks (376,091) 11,376,100 Increase (decrease) in financial liabilities measured at fair value through profit or loss 34,325,024 (35,087,691) Increase (decrease) in hedging financial liabilities 167,330 (286,734) Increase in payables 5,435,351 7,450,769 Increase in deposits and remittances 193,042,161 196,553,913 Decrease in employee benefits reserve (132,420) (178,148) Increase (decrease) in liability reserve 1,542,920 (632,020) Increase (decrease) in other financial liabilities 2,884,709 (8,656,966) Net Changes in Operating Liabilities 236,888,984 170,539,223 Net Changes in Operating Assets and Liabilities (249,677,750) (250,327,734) Sum of Adjustments (119,543,401) (136,371,118)

See accompanying notes to financial statements. 274 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Consolidated Statements Of Cash Flows For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

For the years ended December 31 2018 2017 Cash Used in Operating Activities $ (77,153,902) (91,644,823) Interest received 125,953,220 109,022,046 Dividends received 8,924,335 5,743,363 Interest paid (23,322,646) (19,632,260) Income taxes paid (8,934,397) (5,380,524) Net Cash Flows Provided by (Used in) Operating Activities 25,466,610 (1,892,198) Cash Flows from Investing Activities: Purchase of financial assets at cost - (1,341,724) Disposal of financial assets at cost - 204,359 Return of capital from financial assets carried at cost - 254,686 Purchase of financial assets under equity method (1,999,394) (15,478,437) Purchase of premises and equipment (2,878,029) (2,779,511) Disposal of premises and equipment 22,107 47,311 Purchase of intangible assets (2,553,949) (1,143,222) Disposal of intangible assets 115,274 - Proceed from disposal of foreclosed collateral 3,834 37,606 Purchase of investment properties (2,048,579) (2,006,803) Proceeds from disposal of investment properties 194,379 191,294 Decrease (increase) in securities purchased under resell agreements 24,312,285 (24,312,285) (Increase) decrease in other assets (12,464,393) 3,742,492 Net Cash Flows Provided by (Used in) Investing Activities 2,703,535 (42,584,234) Cash Flows from Financing Activities: Decrease in due to the central bank and banks (1,428,858) (281,855) (Decrease) increase in commercial papers payable (13,139,457) 23,529,425 Repayments of bonds (3,200,000) - Issuance of financial debentures - 16,000,000 Repayments of financial debentures (10,331,360) (2,981,460) (Decrease) increase in securities sold under repurchase agreement (3,594,021) 24,627,142 Increase in financial liabilities designated at fair value through profit or loss 6,914,925 5,372,640 Increase in payables 85,418 4,555 (Decrease) increase in other liabilities (3,813,004) 977,833 Cash dividends paid (21,071,132) (19,469,821) Proceeds from issuance of preferred stock - 19,982,074 Disposal of treasury stock 585,581 - Acquisition of ownership interests in subsidiaries (6,234) - Other financing activities (411) - Net Cash Flows (Used in) Provided by Financing Activities (48,998,553) 67,760,533 Effect of Exchange Rate Changes on Cash and Cash Equivalents 1,988,479 (4,177,391) (Decrease) increase in Cash and Cash Equivalents (18,839,929) 19,106,710 Cash and Cash Equivalents at the Beginning of the Period 379,305,243 360,203,705 Cash and Cash Equivalents at the End of the Period $ 360,465,314 379,310,415 Composition of Cash and Cash Equivalents: Cash and cash equivalents recognized in balance sheet $ 128,348,319 154,080,461 Due from the central bank and call loans to bank which meet IAS 7 definition of cash and cash equivalents 207,460,423 224,883,436 Securities purchased under resell agreements which meet IAS 7 definition of cash and cash equivalents 24,656,572 346,518 Cash and Cash Equivalents at the End of the Period $ 360,465,314 379,310,415

See accompanying notes to financial statements. 275 (English Translation of Consolidated Financial Statements Originally Issued in Chinese) CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

(1) History and Organization

CTBC FINANCIAL HOLDING CO., LTD. (the “Company”) was established on May 17, 2002, through a stock conversion (conversion ratio: one to one) with CTBC Bank Co., Ltd. On the same date, following the approval from the Securities & Futures Bureau (the “ SFB” ) under the Financial Supervisory Commission (the “FSC”), Executive Yuan, the shares of the Company started to be traded publicly, while shares of CTBC Bank Co., Ltd. were delisted.

The Company conducts business in the following areas:

(a) The Company has been approved to invest in the following businesses:

(i) Banking;

(ii) Bills financing;

(iii) Credit cards;

(iv) Trusts;

(v) Insurance;

(vi) Securities;

(vii) Futures;

(viii) Venture capital;

(ix) Investments in overseas financial institutions as approved by the FSC;

(x) Other related financing as approved by the FSC; and

(xi) Other financial related business investments in accordance with the law.

(b) Management of invested businesses stipulated in item (A).

(d) Other related businesses as approved by the FSC.

(2) Approval Date and Procedures of the Consolidated Financial Statements:

The consolidated financial reports were approved by the board of directors on March 21, 2019 .

(Continued) 276 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(3) New Standards, Amendments and Interpretations adopted:

(a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.

The Company and subsidiaries are required to conform to the following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018. In addition, based on the announcement issued by the FSC on December 12, 2017, the Company and subsidiaries can, and therefore, elected to early adopt the amendments to IFRS 9 “ Prepayment features with negative compensation” . The related new standards, amendments and interpretations are as follows:

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

Except for the following items, the Company and subsidiaries believe that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of significant changes are as follows:

(i) IFRS 9 “Financial Instruments”

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

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

(Continued) 277 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

1) Classification of financial assets and financial liabilities

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

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

2) Impairment of financial assets

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

3) Hedge accounting

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

4) Transition

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

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

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

(Continued) 278 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

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

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

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

Amortized cost (Note4) 78,126,740

Derivative financial assets Measured at fair value through 137,010 Measured at fair value through 137,010 hedgingnet profit or loss profit or loss

Receivablesnet Amortized cost 153,686,602 Amortized cost 153,622,720

Loansnet Amortized cost 2,194,551,195 Amortized cost 2,194,465,753

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

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

Amortized cost (Note4) 719,423,917

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

(Continued) 279 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

Amortized cost (Note4) 674,183,666

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

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

Other financial assetsnet Amortized cost 59,886,975 Amortized cost 59,895,817

Other assetsRefundable Amortized cost 11,784,248 Amortized cost 11,783,702 deposits

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

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

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

(Continued) 280 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

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

(Continued) 281 Note ) ) ) ) ) ) ) (Continued) 350 798 469 267 880 166 705 871 871 684 325 187 , , , , , , , , , , , , d derivatives 75 ( 530 423 954 157 572 572 121 344 433 906 , , , , , ( ( ( ( ts on January 1, 3 3 7 - - - ( ( 12 2018.1.1 Other equity interest impacts ) ) ) 166 757 757 868 141 880 027623 200 007 273 640 , , , , , , , , , , , 81 121 872 872 245 327 882 337 ( ( ( - - - impacts 2018.1.1 Retained earnings 469 404 323 196 , , , , 753 685 734 173 , , , , 317 461 471 251 , , 1 2 IFRS9 2018.1.1 Carrying amount ) ) ) ) ) ) 930 195 125 757 731 761 871 628 926947 242 12 290 84 194 , , , , , , , , , , , 284 342 627 872 572 445 344 315 243 , , , , , ( ( ( ( 3 4 8 ------( ( 13 Remeasurements ) ) ) ) ) ) ) 242 620 9 702 726 289 12 611 639 266 024 702 611 674 329 765 961 , , , , , , , , , , , , , , 312 208 043 000 699 864 656 208 552 555 344 699 571 , , , , , , , , , , , , ( 81 29 39 39 ( ( ( 103 155 113 142 ( ( ( Reclassifications following table reconciles the carrying amounts of financial asse 868 -868 420 - -096 - - - 676 - - 157 280 - 280 244 , , , , , , , , 827 827 988 234 245 180 180 242 , , , , , , , , - 916 - - - - 146 - -7 -81 - - 103 79 175 478 398 589 589 243 , , , 1 1 IAS39 2017.12.31 Carrying amount $2 $ 175 n Notes to the Consolidated Financial Statements CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES instruments was $312,242 under IAS39, accounted financial liabilities measured at fair value through profit or loss. debt and equity instruments equity instruments debt instruments 2018. Financial assets under IAS 39 have transferred to IFRS 9, the 9, 39 have transferred to IFRS Financial assets under IAS Note 1 : The number of retained earnings impacts are pre-tax amounts. Note 2 : of reclassifying the hybrid instruments was included. As December 31, 2017, fair value embedde The impact sale under IAS39) markets under IAS39) markets sale under IAS39) cost under IAS39) sale under IAS39) active markets and equity instruments measured at cost are included) sale under IAS39) January 1, 2018 From measured at fair value through other comprehensive income (available-for- From amortized cost (held-to-maturity and debt investment without active From amortized cost (debt investment without active markets under IAS39) To measured at fair value through profit or loss (IFRS9) To measured From measured at fair value through other comprehensive income (available-for- To amortized cost (IFRS9) To amortized at fair value through profit or loss (IFRS9) To measured To measured at fair value through other comprehensive income (IFRS9) To measured From measured at fair value through other comprehensive income (available-for- From amortized cost (debt investment without active markets and measured at Total changes of fair value through profit or loss From amortized cost (measured at under IAS39) Total changes of fair value through other comprehensive income Total changes of amortized cost Total balance of financial assets, reclassification and remeasurement o From measured at fair value through other comprehensive income (available-for- From amortized cost (held-to-maturity financial assets, debt investments without Additions Additions Additions Additions Deduction Deductions Measured at fair value through profit or loss From measured at fair value through profit or loss (IAS39) Measured at fair value through other comprehensive income Amortized cost

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

For financial assets that have been reclassified to amortized cost category, the following table shows the fair value as of December 31, 2018 and the fair value gain or loss that would have been recognized if these financial assets had not been reclassified as part of the transition to IFRS 9.

For the year ended December 31, 2018 From available-for-sale to amortized cost Fair value as of December 31, 2018 $ 70,313,353 Fair value gain/loss that would have been recognized during the (4,439,915) year ended if the financial assets had not been reclassified

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

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

(Continued) 283 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

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

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

(Continued) 284 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

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

(b) The impact of IFRS endorsed by FSC but not yet effective

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018:

Effective date New, Revised or Amended Standards and Interpretations per IASB IFRS 16 “Leases” January 1, 2019 IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019 Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” January 1, 2019 Amendments to IAS 28 “Long-term interests in associates and joint ventures” January 1, 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019

IFRS 16 “Leases”

IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

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

(Continued) 285 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

So far, the Company and subsidiary estimated the application of the new standard on January 1, 2019 resulting in right-of-use asset, investment property – right-of-use asset and lease liability increasing 16,491 million, 15,218 million and 15,176 million, respectively . The amount of the difference between right-of-use asset and lease liability is due to reclassifying prepaid rent to right- of-use asset with IFRS16.

As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (IASB), but have yet to be endorsed by the FSC:

Effective date New, Revised or Amended Standards and Interpretations per IASB Amendments to IFRS 3 “Definition of a Business” January 1, 2020 Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between Effective date to an Investor and Its Associate or Joint Venture” be determined by IASB IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020

Those which may be relevant to the Company are set out below:

Issuance / Release Standards or Dates Interpretations Content of amendment September 11, 2014 Amendments to IFRS 10 and The main consequence of the amendments is IAS 28 “Sale or Contribution that a full gain or loss is recognized when a of Assets Between an Investor transaction involves a business (whether it is and Its Associate or Joint housed in a subsidiary or not). A partial gain Venture” or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.

(Continued) 286 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Issuance / Release Standards or Dates Interpretations Content of amendment May 18, 2017 IFRS 17 “Insurance Contracts ” The new standard of accounting for insurance contracts contain recognition, measurement, presentation and disclosure of insurance contracts issued, and the main amendments are as follows: O Recognition: the beginning of the coverage period of the group of contracts, the date when the first payment from a policyholder in the group becomes due and when the group becomes onerous shall recognize a group of insurance contracts it issues from the earliest. O Measurement: on initial recognition, an entity shall measure a group of insurance contracts at the total of the fulfilment cash flows and the contractual service margin. For subsequent measurement, the entity shall estimate the cash flows, discount rates and the adjustment for non-financial risk. O Presentation and disclosure: the presentation of insurance revenue is based on the provision of service pattern and investment components excluded from insurance revenue and insurance service fee. October 22, 2018 Amendments to IFRS 3 The IASB has issued narrow-scope “Definition of a Business” amendments to IFRS 3 to improve the definition of a business. The amendments will help companies determine whether an acquisition made is of a business or a group of assets. The amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others. In addition to amending the wording of the definition, the IASB has provided supplementary guidance.

(Continued) 287 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Issuance / Release Standards or Dates Interpretations Content of amendment October 31, 2018 Amendments to IAS 1 and IAS The amendments clarify the definition of 8 “Definition of Material” material and how it should be applied by including in the definition guidance that until now has featured elsewhere in IFRS Standards. In addition, the explanations accompanying the definition have been improved. Finally, the amendments ensure that the definition of material is consistent across all IFRS Standards.

The impact of applying new standards on the financial position and financial performance of the Company and subsidiaries is under evaluation. Once the evaluation is completed, the Company and subsidiaries will disclose the effect on the financial reports.

(4) Summary of Significant Accounting Policies:

This report was originally prepared in Chinese language. When conflicts or ambiguities arise in interpretations between the two versions, the Chinese version shall prevail.

(a) Assertion of compliance

The consolidated financial reports were prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firms, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Insurance Companies, International Financial Reporting Standards (IFRSs), and International Auditing Standards (IASs), interpretations and pronouncements as accepted by the FSC (“IFRSs as accepted by the FSC”)

(b) Basis of preparation

The consolidated financial reports have been prepared on a historical cost basis except for the following material items in the statement of financial position:

(i) Financial instruments measured at fair value through profit or loss (including derivative financial instruments);

(ii) Financial instruments measured at fair value through other comprehensive income (applicable from January 1, 2018)

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

(iv) Hedging financial instruments measured at fair value;

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

(Continued) 288 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(vi) Defined benefit assets, which are recognized as the net amount of pension plan assets plus unrecognized prior service cost and unrecognized actuarial losses, minus unrecognized actuarial gains and present value of defined benefits obligation.

(vii) Reinsurance assets, insurance liabilities and reserve for financial insurance contracts, which are recognized in compliance with the Regulations Governing the Provision of Reserves by Insurance Companies.

(i) Basis of compilation for consolidated financial reports

The consolidated financial reports encompass the Company itself and controlled entities. All significant intra-group transactions are eliminated.

(ii) The control of an entity by the Company and subsidiaries may be indicated if the following criteria are met simultaneously.

1) The Company and subsidiaries have powers to obtain the majority of the benefits of the entity’s activities through voting rights or other rights;

2) By having a right to the majority of the entity's benefits, the Company and subsidiaries are exposed to the entity's business risks;

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

(iii) Subsidiaries and special purpose entities are included in the consolidated financial reports:

Name of Shareholding Investor December December Company Name of Subsidiary Primary Business 31, 2018 31, 2017 Description The Company CTBC Bank Co., Ltd. (“CTBC Bank”) Commercial banking and 100.00% 100.00 % financing business " CTBC Securities Co., Ltd. (“CTBC Securities”) Securities and futures 100.00% 99.92 % (Note 5) business " CTBC Venture Capital Co., Ltd. (“CTBC Venture Venture capital business100.00 % 100.00 % Capital”) " CTBC Asset Management Co., Ltd. (“CTBC Asset Asset management 100.00% 100.00 % Management”) business " Taiwan Lottery Co., Ltd. (“Taiwan Lottery”) Dealerships of public 100.00% 100.00 % welfare lottery products " Taiwan Life Insurance Co., Ltd. (“Taiwan Life”) Insurance business100.00 % 100.00 % " CTBC Investments Co., Ltd. (“CTBC Investments”) Investment and 100.00% 100.00 % trust business CTBC Bank CTBC Bank (Philippines) Corp. Commercial banking and 99.60% 99.60 % financing business " PT. Bank CTBC Indonesia Commercial banking and 99.00% 99.00 % financing business " CTBC Bank Corp. (Canada) Commercial banking and 100.00% 100.00 % financing business " The Tokyo Star Bank, Ltd. Commercial banking and 100.00% 100.00 % financing business

(Continued) 289 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of Shareholding Investor December December Company Name of Subsidiary Primary Business 31, 2018 31, 2017 Description CTBC Bank CTBC Capital Corp. Investment business100.00 % 100.00 % (Note 2) The Tokyo Star Bank, Ltd. Tokyo Star Business Finance, Ltd. Financing and assurance 100.00% 100.00 % business " TSB Servicer, Ltd. Debt management 100.00% 100.00 % business " Pecuniary Trust Contract Mortgage management / -%% - (Note 1) Asset-backed security that is secured by mortgage /NPL Collection " Credit Linked Notes A security with an -%% - (Note 1) embedded credit default swap " SPE Consolidation Asset-back Securities Consumer loan -%% - (Note 1) management CTBC Capital Corp. CTBC Bank Corp. (USA) Commercial banking and 100.00% 100.00 % financing business CTBC Asset Management CTBC International Co., Limited Holding company100.00 % 100.00 % CTBC International Co., CTBC Leasing Co., Ltd. (“CTBC Leasing (China)”) Financial leasing100.00 % 100.00 % Limited CTBC Venture Capital CTBC Capital International Co., Limited Holding company100.00 % 100.00 % CTBC Capital International CTBC Venture Capital Investment Management Venture capital 100.00% 100.00 % (Note 3) Co., Limited (Shanghai) Co., Ltd. (“CTBC Venture Capital management and (Shanghai)”) consulting CTBC Securities CTBC (Mauritius) Holding Co., Ltd. Investment business100.00 % 100.00 % " CTBC Securities Investment Service Co., Ltd. Securities investment 100.00% 100.00 % consultant business " CTBC Securities Venture Capital Co., Ltd. Venture capital business100.00 % - % (Note 4) CTBC (Mauritius) Holding CTBC Asia Limited Securities business100.00 % 100.00 % Co., Ltd. Taiwan Life TLG Capital Co., Ltd. Installment, leasing and 100.00% 100.00 % account receivable factoring business, etc. " TLG Insurance Co., Ltd. (TLG Insurance) Property insurance 100.00% 100.00 % business

(iv) Below are investees excluded in the consolidated financial reports while the Company has de facto control or over 50% holdings.

Shareholding Name of Name of December December Investor Company Subsidiary Primary Business 31, 2018 31, 2017 Description The Company CTBC Security Co., Ltd. Protection, fire and life 100.00% 100.00 % The total assets and safety services operating revenue of this investee company are insignificant. Taiwan Life Insurance Hofa Land Development Co., Premises development 90.00% 90.00 % Has no de facto control Co., Ltd. Ltd. and transaction over the entity. " Wu Tzu Development Co., Athleticsand recreational 99.00% 99.00 % Ltd. sports stadium

(Continued) 290 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 1: The reason the listed entities are included in the consolidated financial reports is because the subsidiary CTBC Bank and its subsidiaries have leverage over these entities through direct or indirect investment, voting rights of these entities, and rights to either benefit from the majority of subsidiary CTBC Bank and its subsidiaries’ profits or sustain the risks. As of December 31, 2018, the subsidiary CTBC Bank and its subsidiaries have not, either under the terms of any contractual or non-contractual arrangements, provided financial or other support to its special purpose entities.

Note 2: CTBC Capital Corp. remitted US$173,000 thousand in capital surplus and US$57,000 thousand in retained earnings on December 19, 2017.

Note 3: The Company is under liquidation.

Note 4: The subsidiary CTBC Securities founded CTBC Securities Venture Capital Co., Ltd. by investing $300 million as capital amount on October 19, 2018.

Note 5: The Company acquired 495 thousand shares equity stocks of its subsidiary CTBC Securities, and its consideration was about $6,234 as the percentage of ownership was 100%.

(d) Foreign currency

(i) A foreign currency transaction that is denominated or requires settlement in a foreign currency, shall be recorded on initial recognition in the functional currency by applying to the foreign currency spot exchange rate between the functional currency and the foreign currency on the date of the transaction.

(ii) On each balance sheet date, foreign currency monetary items shall be translated using the closing rate. Non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate on the date of the transaction; and non- monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates on the date when the fair value was determined.

(iii) Foreign currency differences arising on the settlement of a foreign currency transaction are recognized in current profit or loss. Foreign currency differences arising on the retranslation of monetary items, except for differences arising on the retranslation of monetary items designated as the hedging instruments in a hedge of the net investments in foreign operation or in a qualifying cash flow hedge are recognized directly in other comprehensive income, others are recognized in profit or loss when it incurred.

(iv) When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange difference of that gain or loss shall be recognized in other comprehensive income. Otherwise, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange difference of that gain or loss shall be recognized in profit or loss.

(v) Functional currency and presentation currency

The functional currency of the Company and subsidiaries is the currency of the primary economic environment in which they operate. The consolidated financial reports are presented in New Taiwan dollars, the functional currency of the Company.

(Continued) 291 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(e) Cash and cash equivalents

The statements of cash flows are compiled based upon cash and cash equivalents. Cash comprises cash on hand, savings accounts, checking accounts, and unrestricted time deposits or negotiable certificates of deposit which may be terminated anytime without impairing the principal. Cash equivalents consist of short term and highly liquid investments that are readily convertible to known amounts of cash and will mature within a short period so that interest rate fluctuations have little effect on their values. Cash equivalents include short term bills with maturities within three months from the investment date.

Cash and cash equivalents comprise time deposits that are used by the Company and subsidiaries in the management of its short-term cash commitments and are not for investment or other purposes. Additionally, the aforementioned deposits are readily convertible to fixed amount of cash and are subject to an insignificant risk of changes in their fair value.

(f) Financial instruments

Financial assets held by the Company and subsidiaries are recorded on the trading date, the fair value is recorded at the time of initial recognition. Except for financial instruments classified as fair value through profit or loss (FVTPL), other financial instruments are initially recognized at acquiring or issuing cost plus transaction costs. However, if the handling fee arising from the sale and purchase does not reach the principle of materiality, it will be charged to current expenses. Upon disposition, the cost of sale of equity securities is determined by the moving-average method, and the cost of sale of debt securities is determined by the first-in, first-out (FIFO) method.

(i) Financial assets (applicable from January 1, 2018)

Financial assets are classified into the following categories: fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI) and measured at amortized cost.

1) Financial assets measured at fair value through profit or loss

Financial assets measured at fair value through profit or loss, if one of the following conditions is met:

a) Financial assets held for trading.

i) Its main purpose is to sell or repurchase in the near future.

ii) When it was originally recognized, it was part of the identifiable financial commodity investment of a group of merged management with evidence shows the mode of operation in which this combination is actually a short- term profit in the near term.

b) Financial assets that are not measured at amortised cost or fair value through other comprehensive income.

c) In addition to being designated as a hedged item by hedge accounting, financial assets designated as at fair value through profit or loss at initial recognition.

(Continued) 292 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

d) The entire hybrid contract which has a host that is an asset within the scope of IFRS 9. e) Derivative financial instrument. At each balance sheet date, the fair value is remeasured, and the resulting gain or loss from such remeasurement is recognized in current profit or loss. 2) Financial assets measured at fair value through other comprehensive income a) Financial assets measured at fair value through other comprehensive income, if both of the following conditions are met and financial assets were not designated as financial assets measured at fair value through profit or loss: i) The financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 1. Principal is the fair value of the financial asset at initial recognition. Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin. 2. However, in some cases, the time value of money element may be modified (i.e. imperfect). In such cases, the Company and subsidiaries must assess the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. The fair value of debt instruments measured at fair value through other comprehensive income shall be remeasured at each balance sheet date. The resulting gain or loss from such remeasurement is recognized directly in other comprehensive income. Interest on a debt instrument shall be recorded under the accrual basis, with the relevant premium/discount amortized by using the effective-interest-rate method. Credit losses on the financial instrument shall be recognized as well. If, in a subsequent period, the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. The balance of impaired adjustment amount in other comprehensive income after the reversal shall not be negative. A gain or loss on financial assets is recognized directly in other comprehensive income, except for foreign exchange gains or losses arising from monetary financial assets, until the financial assets are derecognized, at which time the cumulative gain or loss previously recognized in other comprehensive income is charged to profit or loss.

(Continued) 293 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

b) At initial recognition, an irrevocable election is made to present changes in the fair value of an equity instrument that is not held for trading in other comprehensive income. When the equity instrument is derecognized, the amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, the cumulative gain or loss may be transferred within equity or into retained earnings directly. Dividends are recognized in profit or loss unless the dividend represents the recovery of part of the investment costs clearly.

3) Financial assets at amortized cost

Financial assets measured at amortized cost include cash and cash equivalents, debt instruments measured at amortized cost, securities under repurchase/resell agreements, loans and receivables, deposits pledged and other financial assets that are not measured at fair value, etc.

Financial assets measured at amortized cost are initially recognized at whose fair value plus transaction costs. After initial recognition, the amortized cost minus impairment loss are determined by using the effective-interest-rate method. The interest income and impairment loss are recognized in profit or loss. Until the financial assets are derecognized, at which time the cumulative gain or loss is charged to profit or loss.

a) Debt instruments at amortized cost

The debt instrument investments held by the Company and subsidiaries shall be measured at amortized cost if both of the following conditions conditions are met:

i) The financial assets is held within a business model whose objective is achieved by collecting contractual cash flows.

ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Company and subsidiaries, whose business model is to hold assets in order to collect contractual cash flows, may sell financial assets when there is an increase in the assets’ credit risk. Sales made for other reasons may be consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows if those sales are infrequent (even if significant in value) or insignificant in value both individually and in aggregate (even if frequent). For debt instruments measured at amortized cost, the effective-interest-rate method shall be used to calculate amortized cost and interest revenue. Credit-impaired loss shall be recognized for assets measured at amortized cost. If, in a subsequent period, the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. The carrying amount after the reversal shall not exceed the recoverable amount.

(Continued) 294 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

b) Securities under repurchase/resell agreements

Securities sold/purchased with a commitment to repurchase/resell at a predetermined price are treated as financing transactions. The difference between the cost and the repurchase/resell price is treated as interest expenses/revenue and recognized over the term of the agreement. On the selling/purchasing date, these agreements are recognized as securities sold under repurchase agreements or securities purchased under resell agreements.

c) Loans and receivables

At initial recognition, loans and receivables include incremental direct transaction costs. The subsequent measurement recognizes interest revenues through the effective-interest-rate method on accrual basis, under which the loans and receivables are carried at amortized cost less impairment losses. Loans are reclassified as a non-accrual account if either of the following conditions is met, and interest collected while accruing of interest has been suspended is included in earnings only to the extent of cash actually received.

- Collection of payment of principal or interest accrued is considered highly unlikely; or

- Payment of principal or interest accrued is over 3 or 6 months past due; or

- Payment of principal, interest accrued and other suspense account of credit card is over 90 days past due.

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

Loans and receivables are assessed on each reporting day and the credit risk of loans and receivables have been significantly increased since the initial recognition. Comparing the risk of breach of contract on the reporting date and the original date of recognition, and considering the credit risk from the original recognition , the significant increase of reasonable and verifiable information as a basis for the estimation of default risk and expected loss rate. In accordance with the expected credit losses and with reference to the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans” and relevant regulations issued by the FSC. The provision will be determined based on the higher of the amount calculated in accordance with regulatory requirements.

Nonaccrual accounts deemed uncollectible are written off upon approval of the board of directors. The recovery of written-off loans and accounts receivable is accounted for under the reversal of the allowance for credit losses.

(Continued) 295 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Off-balance-sheet loan commitments and financial guarantee contracts should be evaluated for the possibility of bad debts and the provisions of guarantee or financial commitments should be recognized.

4) Financial asset impairment

The Company and subsidiaries should consider the past events, the current situation and the forecast of future economic conditions, to identify whether the credit risk of financial instruments have been significantly increased since the initial recognition; After the credit risk has increased significantly, the impairment loss should be measured as the expected credit loss during the existence; if there is no significant increase in credit risk after recognition, the impairment loss should be measured against the 12-month expected credit loss. For the judgment and forward-looking adjustment method after the recognition of whether the credit risk has increased significantly, please refer to Note 6(av).

5) Derecognition of financial assets

The Company and subsidiaries shall derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire or when the Company and subsidiaries transfer substantially all the risks and rewards of ownership of the financial assets.

Securities lending agreement or repurchase transactions, where bonds or stocks are taken as collateral, shall not be derecognized, because the Company and subsidiaries have retained substantially all the risks and rewards of ownership. The transaction of asset- backed securitization is applying to such situation when the Company and subsidiaries still retained partial risks.

6) Reclassification of financial assets

The Company and subsidiaries reclassify all affected financial assets in accordance with regulations only when changing the business model of managing financial assets.

7) Overlay approach

The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and subsidiaries may elect designated financial assets for the overlay approach. A financial asset is eligible for designation for the overlay approach if, and only if it is measured at fair value through profit or loss applying IFRS 9 but would not have been measured at fair value through profit or loss in its entirety applying IAS 39, and it is held in respect of an activity that is connected with IFRS17. The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries have to designate explicitly eligible financial assets for the overlay approach when and only when they elect to apply the overlay approach. The financial assets should only be designated only when it first applies IFRS 9. Subsequently, they may designate an eligible financial asset for the overlay approach when, and only when that asset is initially recognized or when that asset newly meets the criterion having previously not met.

(Continued) 296 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

(Continued) 297 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Securities under repurchase/resell agreements Securities sold/purchased with a commitment to repurchase/resell at a predetermined price are treated as financing transactions. The difference between the cost and the repurchase/resell price is treated as interest expenses/revenue and recognized over the term of the agreement. On the selling/purchasing date, these agreements are recognized as securities sold under repurchase agreements or securities purchased under resell agreements. 4) Loans and receivables At initial recognition, loans and receivables include incremental direct transaction costs, and the subsequent measurement recognizes interest revenues through the effective- interest-rate method on accrual basis, under which the loans and receivables are carried at amortized cost less impairment losses. Loans are reclassified as a non-accrual account if either of the following conditions is met, and interest collected while accruing of interest has been suspended is included in earnings only to the extent of cash actually received. a) Collection of payment of principal or interest accrued is considered highly unlikely; or b) Payment of principal or interest accrued is over 3 or 6 months past due; or c) Payment of principal, interest accrued and other suspense account of credit card is over 90 days past due. As the purpose of holding those creditor’s rights has changed, these loans held for sale are accounted for under “other financial assets” and will be valued using the lower-of- cost-or-market method in the future. With regards to loans and receivables, the objective evidence shall be identified first to reveal any impairment existing for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If no objective evidence of impairment exists for an individually assessed financial asset, it shall be included in a set of financial assets with similar credit risk characteristics and collectively assessed for impairment. Assets that are individually assessed for impairment are not required to be collectively assessed because impairment is or continues to be recognized. Non-accrual account deemed uncollectible are written off upon approval of the board of directors; reinsurance recovery receivables and due from reinsurers and ceding companies are reclassified as non-performing loans when they are past due over 9 months. The recovery of written-off loans and accounts receivable is accounted for under the reversal of the allowance for credit losses. Reserves for guarantees are appropriately provided based on an estimate of probable losses inherent in the ending balances of guarantees, acceptances receivable, and commercial paper.

(Continued) 298 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

The amortized cost and interest income of held-to-maturity financial assets are determined by using the effective-interest-rate method. If there is an objective evidence that a held-to-maturity financial asset is impaired, the carrying amount of the asset is reduced, and impairment loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized; the previously recognized impairment loss is reversed through profit or loss. The carrying amount after the reversal shall not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized.

6) Financial assets carried at cost

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

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

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

7) Debt investments without active markets

The amortized cost and interest income of debt investments without an active market are determined by using the effective-interest rate method. When there is objective evidence that an impairment loss on financial assets has been incurred, impairment loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. The carrying amount after the reversal shall not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized.

(Continued) 299 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

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

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

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

9) Financial asset impairment

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

(Continued) 300 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The aforesaid objective evidence includes:

a) Significant financial difficulty of the issuer or obligor;

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

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

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

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

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

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

10) Derecognition of financial assets

(Continued) 301 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Financial liabilities The financial liability held by the Company and subsidiaries includes a financial liability measured at fair value through profit or loss (including the instruments designated as at fair value through profit or loss), amortized cost of a financial liability and hedge derivatives. 1) Financial liabilities measured at fair value through profit or loss a) Financial liability measured at fair value through profit or loss, if one of the following conditions is met: i) A financial liability is held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. A derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument, is classified as instrument held for trading as well. Financial liabilities held for trading include obligations to deliver financial assets borrowed by a short seller. ii) Financial liability designated as measured at fair value through profit or loss at the time of initial recognition, except that designated as a hedged item in accordance with the hedge accounting. Financial liabilities falling under this category are measured at fair value in the balance sheet at the balance sheet date. Moreover, the changes in fair value are recognized as current profit or loss. While for financial liabilities designated at fair value through profit or loss, its fair value changed in the liability’s credit risk should be recognized under other comprehensive income, except for avoiding accounting mismatch or in the circumstances of loan commitments and financial guarantee contract to provide a loan that should be accounted as current profit or loss. Under certain circumstances, the Company and subsidiaries may not recognize profit or loss of a financial asset or financial liability at initial recognition, if a fair value is not derived from a quoted market price in an active market and is based on the evaluation method with data retrieved from unobservable market. In the above scenario, the recognition of the difference between fair value at initial recognition and transaction price is deferred. After initial recognition, the entity shall recognize the aforesaid deferred difference as a gain or loss only to the extent that it arises from a change in a factor that market participants would take into account when pricing the asset or liability. 2) Amortized cost of a financial liability Financial liabilities are classified at amortized cost of a financial liability, except for financial liabilities measured at fair value through profit or loss, hedged derivatives financial liability, financial bonds payable, financial guarantee contracts, commitments to provide a loan at a below-market interest rate and financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies.

(Continued) 302 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Derecognition of a financial liability The Company and subsidiaries shall remove a financial liability from its statement of financial position when, and only when, it is extinguished. 4) Offsetting financial assets and financial liabilities Financial assets and financial liabilities will be offset and recognized in the net amount on the balance sheet only when the Company and subsidiaries have statutory rights to offset and intend to net settle or realize assets and to pay off liabilities at the same time. 5) The Company and subsidiaries shall not reclassify any financial liability. (iv) Derivatives and Hedging Accounting Derivatives instruments are initially recognized at fair value on contract date and are subsequently measured at fair value. Fair value includes quoted price in an active market, occurring market transaction prices or model valuation techniques. All derivatives instruments are recognized as assets with positive fair value and as liability with negative fair value. The Company and subsidiaries should accounts for an embedded derivative separately from the host contract when the host contract is not itself carried at fair value through profit or loss, the terms of the embedded derivative would meet the definition that the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, and the entire hybrid contract is not designated as at fair value through profit or loss. In addition, the embedded derivative is recognized as financial liability as measured at fair value through profit or loss. When a fair value hedge, cash flow hedge, and hedge of a net investment in a foreign operation are in conformity with all the conditions for the application of hedge accounting, the affected profit or loss is recognized by offsetting the changes in the fair value of hedging instruments and hedged items. The related accounting treatments are as follows: 1) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedging instruments against the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment are recognized through profit or loss in the current period. 2) Cash flow hedge Where a derivative financial instrument is designated as a hedge of the variability in cash flow of a recognized asset or liability or a highly probable forecast transaction, the effective portion of any gain or loss on remeasurement of the derivative financial instrument to fair value is recognized directly under other comprehensive income. When the hedged transaction actually affects the profit or loss, the gain or loss previously recognized under other comprehensive income shall be recognized through current profit or loss. Any gain or loss from the change in fair value relating to an ineffective portion of the hedge transaction is recognized immediately through profit or loss in the current period.

(Continued) 303 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Hedge of a net investment in a foreign operation

The effective portion of any gain or loss on a hedging instrument relating to a hedge against foreign currency fluctuation in a foreign operation is recognized directly in other comprehensive income until the disposal of the foreign operation, at which time the cumulative gain or loss recognized directly under other comprehensive income is recognized in profit or loss in the current period.

(v) Financial guarantee contracts

The Company and subsidiaries recognize financial guarantee liabilities initially at their fair value at the date of providing guarantee. The Company and subsidiaries receive commission income with non-arm's length transaction at contract date; this is, the income could represent the fair value of financial guarantee contract. The advanced service fee is recognized as deferred item and amortized by straight-line method over the life of the financial guarantee.

Financial guarantee contracts shall be subsequently measured by the Company and subsidiaries at the higher of:

1) The amount determined in accordance with “ Provisions”; and

2) The amount initially recognized less, when appropriate, cumulative amortization recognized from deferred revenues.

(g) Investment properties

Investment property could be recognized by the Company’s insurance subsidiary only to earn rentals or for capital appreciation or both.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use by the Company’s insurance subsidiary. If these portions could be sold separately, the Company’ s insurance subsidiary accounts for the portions separately. The portion that is held for use is treated following “Property and Equipment”, and another portion that is held to earn rentals or for capital appreciation or both is regarded as investment property. If the portions could not be sold separately, and if an insignificant portion is held for use, then the whole property is regarded as investment property.

Investment property shall be recognized as an asset when, and only when it is probable that the future economic benefits that are associated with the investment property will flow to the Company’ s insurance subsidiary, and the cost of the investment property can be measured reliably. Subsequent expenditure is capitalized as cost only when it is probable that the future economic benefits that are associated with the investment property will flow to the Company’s insurance subsidiary, and the cost of the investment property can be measured reliably. Regular repair costs are recognized as expenses in the period they are incurred.

If the recognition criteria are met, the Company’ s insurance subsidiary recognizes the cost of replacement in the carrying amount of the replaced investment property at the time the cost is incurred. The carrying amount of the part that is replaced is derecognized.

(Continued) 304 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

After initial recognition, real estate property is subsequently measured by using cost model, and amortized by the depreciable amount. Its depreciation method, useful life and residual value can be referred to the regulation of properties and equipment.

When the use of a property changes such that it is reclassified as property and equipment, the book value at the date of reclassification become its cost for subsequent accounting.

(h) Non-financial asset impairment

At each balance sheet date, the recoverable amount of an asset is estimated and compared with the carrying amount whenever there is an indication that the non-financial asset may be impaired. An impairment loss is recognized when the recoverable amount, higher of fair market value or value in use, is less than the carrying amount. For assets other than goodwill, reversal of impairment loss is recognized when the recoverable amount of the asset has increased from its prior-period estimation. The carrying amount after the reversal shall not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods.

(i) Assets held for sale

For an asset or disposal group to be classified as held for sale, it needs to be disposed of through sale rather than through continuing use to recover its carrying amount. Assets or disposal groups that meet the criteria to be classified as such must be subject only to terms that are usual and customary and be available for immediate sale, which is highly probable, within one year of such classification. After being classified as held for sale, it is measured at the lower of carrying amount and fair value less costs to sell.

Amortization or depreciation on investment property, intangible assets, premises and equipment ceases once they are classified as held for sale.

(j) Investments in associates

Investments in associates in which the Company is able to exercise significant influence and subsidiaries the Company has control over are accounted for under the equity method and initially recognized at cost. Goodwill, with a deduction of accumulated impairment loss, relating to an associate is included in the carrying amount of the investment. The equity method discontinues from the date when it ceases to have significant influence, and the book value is taken as the new cost of the investment.

The Company has significant influence if holding, directly or indirectly, 20% or more of the voting right of the investee. However, an exception will apply if the Company can specify that it has no significant influence over an investee.

(Continued) 305 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

After the date of acquisition, the Company and subsidiaries’ share of the profit or loss of the associates is recognized in profit or loss. Distributions received from an associate reduce the carrying amount of the investment. Adjustments to the carrying amount of the investment may also be necessary for changes in the Company or its subsidiaries’ proportionate interest in the associates arising from changes in the associates’ other comprehensive income. If the Company or its subsidiaries’ share of losses of an associate equals or exceeds their interest in the associate (including non-guarantee long-term receivables), the Company or its subsidiaries discontinues recognizing its share of further losses. Additional losses and liabilities are recognized, only to the extent that the Company or its subsidiaries has incurred legal or constructive obligations or made payments on behalf of the associate.

Changes in ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the parent’ s ownership interest and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received shall be recognized directly in equity.

(k) Interest in joint ventures

The joint agreements include joint operations and joint ventures, and have the following characteristics:

(i) The parties are bound by a contractual arrangement;

(ii) The contractual arrangement gives two or more of those parties joint control of the arrangement.

The Company or its subsidiaries distinguish between joint operations and joint ventures by considering the structure and legal form of the arrangement, the contractual terms agreed to by the parties to the arrangement and, when relevant, other facts and circumstances. In joint operations, the company or its subsidiaries accounts for its share of the joint assets, liabilities, revenues and expenses in accordance with the contractual arrangement. In joint ventures, the company or its subsidiaries account for its investment using the equity method.

(l) Cash surrender value of life insurance

The Company’s sub-subsidiary CTBC Bank Corp. (USA) purchased single premium life insurance under which the executive officers and directors are the insured, while CTBC Bank Corp. (USA) is the owner and beneficiary thereof. The cash surrender value indicates the amount that would be received if the life insurance is terminated prior to the maturity date, and is accounted for under other assets.

(Continued) 306 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(m) Reinsurance assets

In cases of reinsurance contracts that transfer significant insurance risk, unless the Company’ s insurance subsidiary can independently measure the deposit component, the insurance component and deposit component should be unbundled. That is, the consideration received or paid, after deducting the amount belonging to the insurance component, is recognized as a financial liability or asset, rather than as revenue or expense. That financial liability or asset is recognized or measured at fair value, which is based on the discount value of future cash flows.

The Company’s insurance subsidiary periodically assesses the impairment of the reinsurance reserve assets, claims recoverable from reinsurers, and amount due from reinsurers and ceding companies. If a cedant’s reinsurance asset is impaired, the cedant shall reduce its carrying amount accordingly and recognize the impairment loss in profit or loss. A reinsurance asset is impaired if, and only if, there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the cedant may not receive all amounts due to it under the terms of the contract, and that event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer.

(n) Premises and equipment

The Company and subsidiaries’ premises and equipment are recognized after deducting any accumulated depreciation and accumulated impairment losses from historical cost. The historical cost includes any costs directly attributable to acquiring the assets.

Subsequent expenditure of premises and equipment shall be recognized as an asset or be included in the carrying amount of assets, when, and only when it is probable that the future economic benefits that are associated with premises and equipment will flow to the Company and subsidiaries, and the cost of premises and equipment can be measured reliably. The carrying amount of those parts that are replaced is derecognized. A major improvement or repair expense that can extend the benefits over afterward period is regarded as capital expenditure; while frequent maintenance or repairs are charged to current expenses.

If the Company and subsidiaries have obligations to dismantle, remove and restore the property and equipment, the obligation for which the Company and subsidiaries incurs either when the item is acquired or as a consequence of having used the item during a particular period shall be recognized as the cost of the premises and equipment as well as liability.

Depreciation is computed using the straight-line method; the useful lives are calculated based on the normal economic lives. Each part of an item of premises and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The residual value and the useful life of an asset shall be reviewed or adequately adjusted at least at each fiscal year-end. Useful lives of major premises and equipment are as follows:

Buildings and premises 2 ~ 56 years

Transportation equipment 1 ~ 12 years

Miscellaneous equipment 2 ~ 20 years

(Continued) 307 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The gain or loss arising from the disposition of an item of premises and equipment shall be recognized in current profit or loss and determined as the difference between the disposal proceeds and the carrying amount of an item.

A property is reclassified to investment property at its carrying amount when the use of the property changes from owner-occupied to investment property.

(o) Intangible assets

(i) Computer software system

Computer software system expenses, which are recorded on the basis of the actual cost of acquisition, are amortized using a straight-line method over a period of 3 to 15 years. Its amortization method, useful life and residual value are referred to the regulation of properties and equipment. The Company and subsidiaries use cost model to proceed subsequently measurement.

(ii) Goodwill

The Company and subsidiaries account a business combination by applying the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities assumed by the acquirer and the equity interests issued by the acquirer. In addition, other expense directly contributed to the acquisition is included. The acquirer shall measure the identifiable assets acquired from business combination and the liabilities or contingent liabilities assumed at their acquisition-date fair values without considering non-controlling interest. The acquirer shall recognize goodwill as of the acquisition date measured as the excess of the consideration transferred over the fair value of net identifiable assets held according to holding proportion. Adversely, the difference may result in directly recognizing a gain on a purchase.

Goodwill relating to cash-generating units is tested for impairment periodically each year. An impairment loss is recognized when the recoverable amount is less than the carrying amount. Impairment losses cannot be reversed once an impairment loss has been recognized.

(iii) The acquisition value of insurance policies

The Company’ s insurance subsidiary should broadly accept the acquisition value of an insurance policy. In accordance to IFRS 4, the acquisition value of general assumption insurance policies is the difference between the liability, which is determined by the insurer based on the evaluation of accounting policies for the issued insurance policies, and the fair value of both the acquired contractual rights and commitment to insurance obligations. When amortizing, the amortizable amount would be the value of acquired insurance policies at the date when general assumption incurs. Over the effective period of the insurance contracts, an amortization expense should be accounted based on the profit or loss of the acquired insurance policies. And the amortization expense should be recognized at current profit or loss.

(Continued) 308 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(p) Lease

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise a lease is classified as an operating lease.

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

As lessors, the Company and subsidiaries shall derecognize assets held under a finance lease at contract date and recognize them as lease payment receivable at an amount equal to the present value of lease payments. The difference between gross amount and present value of lease payment receivables is recognized as unrealized interest income and transferred to interest income of current period on an accrual basis. Lease revenue is calculated based on the interest rate implicit in the lease or the incremental borrowing rate of interest on the remaining balance of lease payment receivables and recognized in current profit or loss over the lease term.

As lessees, the Company and subsidiaries shall capitalize finance leases at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Interest expense is recognized by amortizing finance leased liability when each rental is paid. Lease expense is calculated based on the interest rate implicit in the lease or the incremental borrowing rate of interest on the opening balance of finance leases liabilities of each period and recognized in current profit or loss over the lease term. The property and equipment acquired under a finance lease contract is measured at cost model.

(q) Segregated account insurance product assets

When the Company’s insurance subsidiary sells a segregated account insurance product, premiums paid by policyholders are deposited in a specifically designated account book, after deducting variable expenses incurred by the insurer per the agreement, in ways that are agreed or required by policyholders. The account book asset values are calculated according to the market valuation of the valuation date, while net asset value is calculated in accordance with regulations and IFRSs.

The assets and liabilities in the account book, whether or not they result from an insurance contract or an insurance contract that has the nature of a financial product, are recognized under “segregated account insurance assets” and “segregated account insurance liabilities”, respectively.

The revenue and expense in the account book refer to the accumulation of variable revenues and expenses that meet the definition of an insurance contract under IFRS No. 4, and they are recognized under “ segregated account insurance revenue” and “ segregated account insurance expense” , respectively. That is, for a segregated account insurance product that is classified as an insurance contract, the premiums received are recognized as premium income, after deducting preliminary expenses and other expenses such as account management services fees, while the difference between the original cost and the disposal/ subsequent valuation is recognized as profit and loss.

For a segregated account insurance product that is classified as an investment contract, the received or paid consideration should be treated as financial assets and liabilities, rather than as an income or expense. And the difference between the original cost and the disposal/ subsequent valuation of the financial asset is not recognized as profit and loss, but rather recognized under the account “segregated account insurance value reserve.”

(Continued) 309 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(r) Foreclosed properties

Foreclosed properties received are stated at acquired cost, and the difference between it and the nominal value of the original claim is reflected as a credit loss. On the Balance sheet date, if the foreclosed properties received are still unsold, they shall be evaluated at the lower of carrying amount and net fair market value. If there is sufficient evidence indicating that the net fair market value is lower than the carrying amount of foreclosed properties, the difference after reassessment is accounted for under impairment loss on assets. Gain or loss on disposal of foreclosed properties is recognized in current profit or loss as well.

(s) Provisions

The Company and subsidiaries recognize liability reserve only if all of the following conditions are met:

(i) An entity has a present obligation, legal or constructive, as a result of a past event;

(ii) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

(iii) A reliable estimate can be made of the amount of the obligation.

The Company and subsidiaries shall not recognize liability reserve for future operating losses.

Where there are a number of similar obligations the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognized.

The amount of a provision is measured subsequently as the present value of the expenditures expected to be required to settle the obligation. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Any deficiency is recognized in current profit and loss.

In line with each corresponding authority’s regulations, the Company’s insurance subsidiaries make reserves for unearned premiums, claims, liabilities, contingencies, underinsurance, liability adequacy, and insurance contracts with embedded derivatives. Except for catastrophe and equalization reserves provided by the Company’ s life insurance subsidiaries; whereas special catastrophe reserve, special risk-volatility reserve and partial provision over pool elevation on non- compulsory Automobile and Motorcycle Liability Insurance regulated by the authorities of R.O.C are recognized under equity. Other provisions are recognized as expenses in the period they arise.

(Continued) 310 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

In accordance with Article 32 of the Regulations, if there is a revaluation increment when appraising the investment property at fair value, the increment shall be recognized as a special reserve under liability after offsetting the adverse effects of other accounting items resulting from the first-time adoption of IFRSs. In addition, in accordance with Jin-Guan-Pao-Chai No. 10102515281 dated November 30, 2012, life insurance businesses shall determine the amount of policy reserve that needs to be strengthened in accordance with the fair value standards for effective contract stipulated in Jin-Guan-Pao-Chai No.10102515285 dated November 27, 2012, and transfer the aforementioned special reserve to the “policy reserves – insurance contract liability fair value” on January 1, 2013. If there is a remaining surplus subsequent to the transfer, the Company may reverse 80% of the surplus in the first year or reverse it on a straight-line basis over the following consecutive five years and recognize the reversal as special earnings reserve. However, the annual reversal and the provision for the special earnings reserve are limited to $10 billion.

The liability adequacy test of the Company’s insurance subsidiary is based on product type group (or the overall company contracts) and is to compare on each Balance sheet date the net book value of the insurance liability (after deduction of the deferred acquisition costs and relevant intangible assets) to the estimate of the present value of the future cash flow of the insurance contracts. If the net book value is lower than the estimate, then the difference shall be recognized as current loss. The test also follows “ Code of Conduct of Actuarial Practice for IFRS 4 Contract Classification and Liability Adequacy Test” pronounced by the Actuarial Institute of the Republic of China.

(t) Foreign exchange rate fluctuation reserves

On March 1, 2012, the Company’ s insurance subsidiary transferred to be the opening balance of foreign exchange rate fluctuation reserves part of catastrophic special reserves and risk variation special reserves; the provision and charge off of foreign exchange rate fluctuation reserves follow the Guidelines on Foreign Exchange Rate Fluctuation Reserves in Life Insurance Companies. The opening balance of foreign exchange rate fluctuation reserves will then be set aside as special reserve within 3 years of 2012. The amount set aside in the first year shall not be less than one third of the opening balance after tax, and the amount set aside in the first 2 years shall not be less than two thirds of the opening balance after tax. Also, the amount saved on the cost of hedging shall be transferred to special reserve each year. If the earning of a particular year is not enough for the transfer, it shall be done in later years when there are enough earnings. The special reserve mentioned herein will then be used to increase capital or make up for losses. According to article 9 of the Guidelines on Life Insurance Foreign Exchange Rate Fluctuation Reserves, a life insurance company should after the shareholders’ meeting provide for special reserve equal to 10% of after tax profit.

(u) Treasury stock

The Company has repurchased the issued stocks and booked them as treasury stock at the cost of buyback. The difference should be recognized as Capital surplus- treasury stock transaction if the price of treasury stock disposal is greater than the book value. On the other hand, if the price of treasury stock disposal is less than book value, the difference should be offset against the capital surplus that incurs due to the transaction of equivalent treasury stock. If the balance is insufficient to absorb the loss, retained earnings should be debited. The book value of treasury stock is computed based on the weighted average method and should be calculated separately depending on the repurchase reason.

(Continued) 311 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

When treasury stock is cancelled, Capital surplus- paid in capital and Capital stock should be debited. The difference should be offset against the capital surplus that incurs due to the transaction of similar treasury stock, if the book value is greater than the aggregate amount of par value and capital premium. If the balance is insufficient to absorb the loss, retained earnings should be debited. On the contrary, if the book value is less than the aggregate amount of par value and capital premium, capital surplus resulting from the transaction of similar treasury stock should be credited.

(v) Revenue recognition

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

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

(iii) Life insurance business

1) Insurance income and contract acquisition cost

In terms of the insurance contracts and the investment linked contracts with a discretionary participation feature, the first and the subsequent period premiums are recognized as revenue when the insurance process is completed and the total payment is received. The contract acquisition costs such as commission expenses are recognized as current expenses when the insurance contracts become effective.

The premiums on insurance contracts that are not investment linked insurance and classified as financial products without a discretionary participation feature are recognized as “reserves for insurance contract of the nature of financial products.” The acquisition costs are used to write off “reserves for insurance contract of the nature of financial products” when the insurance contracts become effective.

Insurance products with a non-segregated account classified as financial products without a discretionary participation feature are all recognized as “liabilities on insurance product—segregated account” after deducting the expenses, such as the front end load and investment administrative service charge.

2) The recognized service income for the life insurance subsidiary’ s insurance products with a segregated account is classified as financial products without a discretionary participation feature.

The service fees on insurance products of segregated accounts classified as financial products without a discretionary participation feature include contract management fees, investment management fees, surrender charges, and others. The service fees are recognized as income when received. When the service fees (e.g., preliminary cost) are attached with the obligation to provide future services, though, their recognition is deferred under “deferred service fee and commission income”, and they are amortized using the straight line method at a constant proportion over the period during which the service is provided. The amortized amount is recognized under “ service fee and commission income”.

(Continued) 312 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The paid acquisition costs of the investment management service for an insurance policy include commission expense and other incremental costs directly related to issuing a new contract. Those costs’ recognition is deferred under “deferred cost of acquirement”, and they are amortized using the straight line method at a constant proportion over the period during which the service is provided. The amortized amount is recognized under “other non-interest net profit and loss”.

(iv) Property insurance

Premium income includes various insurance income generated from insurance contracts derived from insurance and reinsurance business. Premium income includes the entire insurance premium generated from direct underwritten and revised premiums issued within the accounting period, including premium received and temporarily held by solicitors and insurance agents. Started from January 1, 2015, for automobile insurance business, the insurance subsidiary should collect automobile insurance fees and sign and issue insurance policy or certification before the insurance agreement become effective. Income should be recognized once the underwriting process is done. Reinsurance premium assumed is recognized based on the billing schedule, and unbilled reinsurance premium assumed should be assessed and recognized based on a reasonable and systematic method at each balance sheet date. Corresponding expenses, including commissions, agency charges, and service fee charges, are recognized as incurred.

(w) Employee benefit

(i) Short-term employee benefit: The Company and subsidiaries expects to settle all short-term non-discounted benefits in twelve months after the end of annual financial reporting date in which the services are rendered by employees, and recognize as current expenses.

(ii) Post-employment benefit: The Company and subsidiaries’ pension plan comprises defined contribution plan and defined benefit plan.

1) A defined contribution plan is a post-employment benefit plan under which a company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that is due more than 12 months after the end of the period in which the employees render the service are discounted to their present value.

2) A defined benefit plan is a post-employment benefit plan under which benefit is paid to an employee on the basis of their ages, service periods and compensated salaries at the date of retirement. The Company and subsidiaries recognize actuarial gains and losses which are incurred by the change of actual experience and actuarial assumption in other comprehensive income, and recognize pension asset or liability in balance sheet in which asset or liability is the amount of actuarial present value of defined benefit obligation deducting fair value of plan assets. The calculation of defined benefit obligation is performed annually by an actuary using the projected unit credit method. The actuarial present value of defined benefit obligation is calculated by discounting future cash flow

(Continued) 313 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

at the yield rate on AA credit rated bonds that have maturity dates approximating the terms of the obligation and that are denominated in the same currency in which the benefits are expected to be paid. In accordance with the article 30 of the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, when the interest incurred from retiree deposits with favorable rates exceed the interest generated from market rate, it should be considered as the actuarial amount according to defined benefit plan regulated on IAS 19 “ Employee Benefits” since the employee’ s retirement date. Otherwise, the parameter of actuarial assumption of competent authority should be followed (if have). The interim amount of define benefit plan is determined based on the pension cost rate, which is the actuarial rate at the end of last fiscal year, and the amount, which is from the beginning of the year to the end of current period. In addition, an adjustment would be made if significant market fluctuation, significant decrease, pay-off or other significant one-time event occurs after the end of period.

3) The defined contribution plan of overseas unit is in accordance with respective authorities’ regulation.

(iii) Termination benefits: Termination benefits are incurred when the Company and subsidiaries terminate employment prior to qualifying for retirement, or the employees accepted voluntary redundancy to get termination benefits in return. Termination benefits are recognized as a liability when the Company and subsidiaries are committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to provide termination benefits or make an offer of termination benefits to encourage voluntary redundancy. Termination benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(x) Share-based payment transactions

The accounting treatments of share-based payment are as follows.

(i) Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, and the corresponding increase in owners’ equity is recognized. The vesting period is estimated based on the ultimate vesting conditions that must be satisfied. The vesting conditions include service conditions and performance conditions, including market conditions. In valuing equity-settled payments, no account is taken of any vesting conditions other than market conditions.

(ii) For cash-settled share-based payment transactions, a liability equal to the portion of the goods or services received is recognized at its current fair value determined at each balance sheet date and at the date of settlement, with any changes in the fair value recognized in profit or loss of the period.

(iii) Fair value of the share options at the grant date is measured with the use of an option pricing model based on management’s best estimate of the exercise price, expected term, underlying share price, expected volatility, expected dividend yield, risk-free interest rate, and any other inputs to the model.

(Continued) 314 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(y) Compensations of employees and directors The Company and subsidiaries employees’ and directors’ (including independent directors) compensations are recognized as personnel expense. Any difference lies between the actual allocation amount and previously recognized in the financial report is considered as change in accounting estimates which is then recognized as profit or loss in next year. (z) Income taxes Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years. Income tax expense is measured by interim reporting period net income before tax multiplied by best estimate effective annual tax rate. And the best estimate effective annual tax rate is determined by the management. Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities may be offset against each other if the following criteria are met by the Company and subsidiaries: (i) The entity has the legal right to settle tax assets and liabilities on a net basis; and (ii) The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: 1) Levied by the same taxing authority; or 2) Levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched. A deferred tax asset should be recognized for the carry-forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and adjusted based on the probability that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. When the Company files a consolidated corporate income tax return with its domestic subsidiaries pursuant to the regulations on consolidated taxation, it shall determine the income tax liability of each individual member of the group. During the period of consolidation, the members of the group calculate and adjust deferred tax assets (liabilities) and current income tax payable (tax refund receivable) accordingly based on a reasonable, consistent and systematic method, and such adjustments are reflected in income tax recognition as other receivables (payables), which are eliminated in preparing the consolidated financial reports.

(Continued) 315 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(aa) Contingent liability

A contingent liability is defined as a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company and subsidiaries; or a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. The Company and subsidiaries shall not recognize a contingent liability; instead, contingent liability shall be appropriately disclosed.

(ab) Insurance contract

An insurance contract is a “ contract under which the insurance subsidiary accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder”. Insurance risk refers to the risk transferred from the policyholder to the insurer that is not financial risk. Financial risk refers to the risk resulting from possible changes in one or more of the following in the future: specified interest rate, financial instrument price, commodity price, foreign exchange rate, price index, tariff index, credit rating, credit index or other variables. Non-financial variables are subject to contributing factors from the counterparty in a contract.

The insurance subsidiary defines significant insurance risk as an event which might lead to additional significant payment. But cases that lack commercial essences are excluded. When an insurance policy was originally judged to meet the definition of an insurance contract, it remains an insurance contract until its rights and obligations end or mature, even if the risk has been significantly reduced in the policy period. Contracts that do not transfer significant insurance risk are classified as insurance contracts with the nature of a financial product. When the significant risk of an insurance contract with the nature of a financial product is transferred to the Company’ s insurance subsidiary, the Company’s insurance subsidiary will re classify it as an insurance contract. Insurance contracts and insurance contracts with financial instrument features can be further classified as insurance with or without a discretionary participation feature. Except for guaranteed benefits, a discretionary participation feature is a contractual right to receive. The right also has the features below:

(i) It is likely to be a significant portion of the total contractual benefits;

(ii) In accordance with the contract, the additional payments and timing of distribution are at the discretion of the issuer; and

(iii) In accordance with the contract, the additional payments are contractually based on:

1) The performance of a specified pool of contracts or a specified type of contract;

2) Return on investment of a specific asset portfolio held by the insurance subsidiary, or

3) The profit or loss of the insurance subsidiary, fund or other entity.

(Continued) 316 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

An embedded derivative is accounted for separately from the host contract when its economic characteristics and risks are not closely related to the host contract, and the contract is measured at fair value through profit or loss. If the embedded derivative conforms to the definition of an insurance contract and the entire contract is not measured at fair value through profit or loss, the Company’s insurance subsidiary does not need to recognize it separately. (ac) Operating segments An operating segment is a component of the Company and subsidiaries that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Company and subsidiaries). The segment’ s operating results are reviewed regularly by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance for which discrete financial information is available. The prime responsibility of the Company is the management of its subsidiaries, whose operational performance and resource allocation are executed under board approval of the parent company. The components periodically report actual financial results to the Group’ s Management Board, and thereby leading to its role as the chief operating decision maker. (5) Primary Sources of Significant Accounting Judgments, Estimates and Assumptions Uncertainty:

When preparing for the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, the Regulations Governing the Preparation of Financial Reports by Public Banks, the Regulations Governing the Preparation of Financial Reports by Securities Firms, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Insurance Companies, International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), as accepted by Financial Supervisory Commission, the management needs to make judgments, estimates and assumptions that affect the adoption of accounting policies, reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from these estimates.

The management should continuously evaluates the estimates and assumptions. Changes in accounting estimates are recognized at the occurrence and the impacted future periods.

Please refer to the following for accounting policies and management judgments which have significant impacts on the consolidated financial statements.

(a) Impairment loss on loans and receivables

When the Company and subsidiaries decide whether to recognize impairment loss, they mainly assess if there are any observable evidence indicating possible impairment. The evidence may include observable information indicating unfavorable changes in debtor payment status, or sovereign or local economic situation related to debt payment in arrears. When analyzing expected cash flow, the estimates by the management are based on past losses experience on assets of similar credit risk characteristics. The Company and subsidiaries periodically review methods and assumptions behind the amount and schedule of expected cash flow, to reduce the difference between expected and actual loss. Please refer to Note 6 (l) for impairment loss on loans.

(Continued) 317 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(b) Assessment of goodwill impairment

Assessment of goodwill impairment depends on subjective judgment by the Company and its subsidiaries, including identifying cash-generating units, allocating goodwill to related cash generating units, and deciding recoverable amount of related cash generating units. The management of the Company and subsidiaries shall estimate the expected future cash flow from cash generating units and decide proper discount rate for calculating present value. If the actual cash flow is less than expected, significant impairment losses may incur.

The Company and subsidiaries hold certain financial instruments without active markets,including financial instruments lacking active market quotes and financial instruments that turned out to be inactive due to market conditions (e.g., low market liquidity). When a market is inactive, there are usually only a few or no observable market data available to measure the fair value of financial instruments. Determination of the existence of an active market for a financial instrument requires management’ s judgment. If the market for an investment held by the Company and subsidiaries are not active, the fair value of the instrument is determined using valuation techniques.

The Company and subsidiaries use quotes from independent third parties or prices derived from internally developed models to determine the fair value of those financial instruments. When the fair value may be publicly obtained from independent sources, it shall be adopted first. Overall, the Company and subsidiaries would decide a source or a technique as a fair value determination method that can reflect the price achieved between market participants through regular trading as of the reporting date. Valuation techniques include adoption of recent arm’ s-length transactions, reference to other instruments with a substantially identical basis, application of discounted cash flow analysis, etc., which may also include a number of assumptions related to each variable (such as credit risk and interest rate). Adoption of different valuation techniques or assumptions may lead to significant discrepancies in fair value determination results.

Please refer to note 6(av) for the estimated fair value of the above financial instruments.

(d) Insurance contract classification and significant insurance risk transfer test

The insurance subsidiary should identify whether it takes insurance risk and other risk component for the written policies and judge whether the risk components can be separated and calculated independently. The judgment will affect insurance contract classification. The insurance subsidiary should also make a significant judgment on whether the written policies transfer risk, whether the risk transfer has commercial essence, and whether the transferred risk has significance, and should conduct significant insurance risk transfer test, the result of which will affect insurance contract classification.

Identification and separation of insurance contract components, and insurance contract classification, will affect the insurance subsidiary’s income recognition, liability measurement, and financial reports presentation.

(Continued) 318 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(e) Insurance liability and reserve for financial insurance contracts

The insurance subsidiary should follow Regulations For Provision of Reserves By Insurance Companies.

Provision of life insurance reserves adopts costs lock-in assumption, which means it uses the reserve provision interest rate at the time policies are written, rather current market interest rate.

Unearned premiums reserve is calculated based on the insured hazard, and the provision approach is determined by actuaries based on different insurance characteristics.

Claim reserve is estimated using loss triangle. Main assumptions of final claim costs calculation are loss development factor and expected claim ratio. The loss development factor and expected claim ratio of different insurance are based on the insurance subsidiary’ s historical claim experience, and adjust for rate, claim management, and company policy.

The liability adequacy reserve calculation follows “ Code of Conduct of Actuarial Practice for International of Financial Accounting Standards No.4 - Contract Classification and Liability Adequacy Test” pronounced by the Actuarial Institute of the Republic of China. The estimate of the present value of the future cash flow of the insurance contracts in the insurance subsidiary’s liability adequacy reserve assessment is based on the insurance subsidiary’ s reasonable estimate of future insurance payment, premium income, and related expenses. Please refer to Note 6(af).

The professional judgment used in the above assessment will affect net changes in insurance liability, net changes in reserve for financial insurance contracts, and the recognized amount of insurance liability and insurance contract reserve for financial insurance contracts in the consolidated financial reports.

(f) Reinsurance reserve assets

Reinsurance reserve assets include unearned premiums provision, claim reserve, insurance reserve, premium deficiency reserve, and liability adequacy reserve. The calculation follows Regulations For Provision of Reserves By Insurance Companies, and Regulations For Insurance Companies’ Life Insurance Business With Insurance Term of More Than one year and Reinsurance Business For Which Insurance Reserve May Be Recognized in Balance Sheet. Please refer to Note 6(af). The calculation of such assets are based on the actuaries’ assumptions and estimates which cover the evaluation on insurance features, historical claims recovered, loss development factors, expected loss ratio and future cash flows. The professional judgments used in the evaluation would result in net changes of related insurance liabilities and reinsurance reserve assets recognized in the consolidated financial reports.

(Continued) 319 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(6) Summary of Major Accounts:

(a) Cash and cash equivalents

December 31, December 31, 2018 2017 Cash on hand $ 31,717,320 28,219,047 Petty cash and revolving fund 24,364 24,063 Checks for clearance 4,168,156 4,034,062 Cash in transit 5,128,157 7,660,131 Due from other banks 86,853,522 113,757,373 Cash equivalents 456,800 385,785 Total $ 128,348,319 154,080,461

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

December 31, December 31, 2018 2017 Required reserve—Account A $ 40,668,559 32,983,852 Required reserve—Account B 50,779,809 47,876,260 Due from Central Bank 115,515,402 110,874,646 Call loans to banks 45,898,349 89,461,007 Banks overdrafts 17,962 - Total $ 252,880,081 281,195,765

The reserves for deposits are calculated at prescribed rates, using the average monthly balances of various deposit accounts, and are appropriated and deposited in the reserve account of the Central Bank of the Republic of China (Taiwan). Deposits in “Required reserveAccount A” are interest free and can be withdrawn at any time; deposits in “ Required reserve Account B” are interest bearing and cannot be withdrawn except for the monthly adjustment to the required reserve permitted by relevant regulations.

Parts of the above due from Central Bank and call loans to banks are restricted, and please refer to Note 8 for further details.

(Continued) 320 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, December 31, 2018 2017 Designated as financial assets measured at fair value through profit or loss Government bonds $ - 14,835,334 Corporate bonds - 2,958,933 Linked deposits - 100,000 Other securities and bonds 1,113,200 1,125,825 Valuation adjustment of financial assets 17,084 (62,227) Subtotal 1,130,284 18,957,865 Mandatorily measured at fair value through profit or loss Commercial papers 101,208,363 Negotiable certificate of deposits 4,000,301 Other securities and bonds 22,189,696 Government bonds 1,244,511 Corporate bonds 8,353,566 Convertible bonds 965,133 Financial debentures 39,260,849 Asset-backed securities 913,647 Listed and OTC securities 66,594,705 Beneficiary certificates 96,630,872 Linked deposits 100,000 Derivative financial assets 42,517,681 Valuation adjustment of financial assets (16,477,088) Subtotal 367,502,236

(Continued) 321 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, December 31, 2018 2017 Financial assets held for trading Commercial papers $ 71,070,961 Negotiable certificate of deposits 3,000,000 Government bonds 2,194,336 Corporate bonds 4,547,296 Financial debentures 1,937,292 Convertible bonds 2,379,668 Other securities and bonds 211,947 Listed and OTC securities 22,632,090 Asset-backed securities 12,003,226 Fund investments and beneficiary certificates 1,226,740 Derivative financial assets 33,743,557 Valuation adjustment of financial assets 1,785,880 Subtotal 156,732,993 Total $ 368,632,520 175,690,858

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

From January 1, 2018, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries adopted IFRS 9 and elected to apply the overlay approach under the IFRS 4 “Insurance Contracts” to recognize the profit and loss for the designated financial assets. As of December 31, 2018, among the financial assets relating to the investing activities under insurance contracts, the amounts of financial assets at fair value through profit or loss designated applying the overlay approach were $166,532,688.

For the year ended December 31, 2018, the reclassification amounts between profit or loss and other comprehensive income for the aforementioned designated financial assets under the overlay approach were as follows:

For the year ended December 31, 2018 The amounts reported in loss for the designated financial assets as applying IFRS 9 $ (3,554,917) Less:The amounts that would have been reported in profit for the designated 10,375,005 financial assets as applying IAS 39 Losses of the reclassification to other comprehensive income under the overlay $ (13,929,922) approach

(Continued) 322 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Due to the adjustment of the overlay approach, the losses on financial assets measured at fair value through profit or loss of the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries has decreased from $35,958,429 to $22,028,507 for the year ended December 31, 2018.

The Company’s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries did not designate financial products that are previously unqualified for the overlay approach but then qualified during the year ended December 31, 2018, or cancel the designated application.

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

December 31, December 31, 2018 2017 Derivative financial liabilities $ 68,641,142 34,309,143 Financial liabilities designated at fair value through profit or 37,930,181 34,090,353 loss Borrowed listed and OTC securities - 6,975 Total $ 106,571,323 68,406,471

The aforementioned financial liabilities designated at fair value through profit or losses were issued by the Company’s subsidiary CTBC Bank Co., Ltd., with the related terms and conditions disclosed in Note 6(aa). The amounts of fair value and its changes which are attributable to changes in market conditions that give rise to credit risk were as follows:

December 31, December 31, 2018 2017 Financial debentures at fair value $ 37,930,181 34,090,353 Cumulative changes in fair value that is attributable to changes 310,604 1,422,950 in the credit risk The difference between book value and the amount payable 6,386,805 2,234,663 upon maturity as specified in the contract

The Company’ s subsidiary CTBC Bank Co., Ltd. assesses changes in fair value that is not attributable to changes in market conditions that give rise to swing of market risk to evaluate changes in fair value due to shift of credit risk. For the years ended December 31, 2018 and 2017, there is no transfer of cumulative gain or loss within equity.

(Continued) 323 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The fair value of the callable financial liabilities issued by the Company’s subsidiary CTBC Bank Co., Ltd., evaluated based on the internal evaluation method, with evaluation variables retrieved from parameters unobservable in the market. In consideration of the discrepancy between evaluated price and transaction price, CTBC Bank Co., Ltd. has recognized reserve for day one profits. The changes in reserve for day one profits were as follows:

For the years ended December 31 2018 2017 January 1 $ 3,545,835 3,522,038 Current increase 1,256,405 1,160,587 Current decrease (3,476,155) (872,678) Foreign exchange gains (losses) 104,831 (264,112) December 31 $ 1,430,916 3,545,835

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

December 31, 2018 Debt instruments measured at fair value through other comprehensive income Negotiable certificate of deposits $ 16,014,499 Treasury bills 954,637 Government bonds 103,107,792 Corporate bonds 83,260,007 Financial debentures 149,186,964 Asset-backed securities 31,581,823 Other securities and bonds 1,518,273 Valuation adjustment of financial assets (4,902,849) Subtotal 380,721,146 Equity investments measured at fair value through other comprehensive income Listed and OTC securities 82,471,951 Unlisted and non-OTC securities 8,237,387 Beneficiary certificates 548,664 Valuation adjustment of financial assets (8,123,354) Subtotal 83,134,648 Total $ 463,855,794

(Continued) 324 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

During the year ended December 31, 2018, the dividends of the Company and subsidiaries related to amounts derecognized during the reporting period and held by the end of the reporting period were as follows:

For the year ended December 31, 2018 Amounts derecognized during the reporting period $ 124,695 Amounts held by the end of the reporting period 4,336,424 Total $ 4,461,119

For the year ended December 31, 2018, the Company and subsidiaries disposed shares designated as measured at fair value through other comprehensive income due to the consideration of investment strategy, dual purpose of receiving dividends and selling financial assets, or due to the capital reduction conducted by the investees.

During the year ended December 31, 2018, the gains or losses on disposal of the Company and subsidiaries related to equity investments at fair value through other comprehensive income were as follows. The gains or losses on disposal will transfer from other equity interest to retained earnings.

The fair value Loss on at the date of disposal(before derecognition tax) For the year For the year ended December ended December 31, 2018 31, 2018 Stocks $ 4,734,075 (1,401,053)

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

Lifetime ECL (Not Lifetime purchased ECL or (Purchased originated or originated The provision Lifetime Lifetime credit- credit- of impairment ECL ECL impaired impaired in accordance 12-month (collectively (individually financial financial with IFRS 9 ECL assessed) assessed) assets) assets) (Total) Beginning balance $ 196,697 - 83,087 - - 279,784 Changes in financial instruments that have been identified at the beginning of the period: Transfer to Lifetime ECL (3,498) - 3,498 - - - Transfer to 12-month ECL 22,197 - (22,197) - - - The financial assets that have been derecognized (83,456) - (60,890) - - (144,346) New financial assets originated or purchased 72,328 - - - - 72,328 Foreign exchange and other movement (32,929) - 104,591 - - 71,662 Ending balance $ 171,339 - 108,089 - - 279,428

(Continued) 325 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Please refer to Notes 6(w) and 8 for information with regard to the resell conditions for, or restrictions on, financial assets measured at fair value through other comprehensive income shown above.

(e) Available-for-sale financial assetsnet

December 31, 2017 Commercial papers $ 1,679,510 Negotiable certificate of deposits 11,439,890 Treasury bills 2,427,358 Government bonds 112,324,701 Corporate bonds 80,204,023 Financial debentures 97,067,878 Fund investments and beneficiary certificates 70,639,817 Listed and OTC securities 73,626,226 Asset-backed securities 27,726,893 Other securities and bonds 3,233,749 Valuation adjustment of financial assets (2,135,949) Total $ 478,234,096

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

(f) Investment in debt instruments at amortized cost

December 31, 2018 Negotiable certificate of deposits $ 381,989,358 Treasury bills 9,700,256 Government bonds 287,786,174 Corporate bonds 432,770,329 Financial debentures 464,563,767 Asset-backed securities 25,063,194 Others 27,067,585 Less: Loss allowance (1,257,141) Total $1,627,683,522

(Continued) 326 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company and subsidiaries derecognized investments in debt instruments measured at amortized cost for the purpose of fund management, mandatory redemption of issuer, sales for credit risk management and infrequent sales or unsignificant value both individually and in aggregate for the year ended December 31, 2018, the information of derecognition of carrying amounts and disposal gains (losses) were as follows:

The carrying amount at the date of Accumulated derecognition gains of disposal For the year For the year ended ended December December 31, 2018 31, 2018 Government bonds $ 1,841,570 30,064 Corporate bonds 27,583,138 947,978 Financial debentures 17,307,165 532,516 Asset-backed securities 315,742 - Total $ 47,047,615 1,510,558

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

Lifetime ECL (Not Lifetime purchased ECL The or (Purchased provision originated or originated of Lifetime Lifetime credit- credit- impairment ECL ECL impaired impaired in 12-month (collectively (individually financial financial accordance ECL assessed) assessed) assets) assets) with IFRS 9 Beginning balance $ 371,566 - 379,179 - - 750,745 Changes in financial instruments that have been identified at the beginning of the period: Transfer to Lifetime ECL(credit risk have been significantly increased) (2,886) - 2,886 - - - The financial assets that have been derecognized (26,137) - (1,002) - - (27,139) New financial assets originated or purchased 120,856 - - - - 120,856 Foreign exchange and other movement (19,006) - 431,685 - - 412,679 Ending balance $ 444,393 - 812,748 - - 1,257,141

Please refer to Notes 6(w) and 8 for information with regard to the repurchase conditions for, or restrictions on, Investments in debt instruments measured at amortized cost shown above.

(Continued) 327 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(g) Financial instrumentshedging

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

December 31, December 31, 2018 2017 Fair value hedge: Interest rate swaps $ - 27,455 Non-delivery forwards 980 10,736 Hedge of a net investment in a foreign operation: Currency swaps 33,232 98,819 Total $ 34,212 137,010

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

December 31, December 31, 2018 2017 Fair value hedge: Non-delivery forwards $ 15,426 - Hedge of a net investment in a foreign operation: Currency swaps 168,769 16,865 Total $ 184,195 16,865

(i) For the year ended December 31, 2018, the hedging derivative financial instruments of the Company’s subsidiary CTBC Bank Co., Ltd. have no ineffective portion of hedging.

(ii) Fair value hedge

In order to minimize the risk from future market interest rate fluctuation, the Company’ s subsidiary CTBC Bank Co., Ltd. entered into interest rate swap transactions, where the interest rate payable on fixed interest rate debts issued has been swapped with a floating interest rate to reduce interest rate risk. The Company’s subsidiary CTBC Bank Co., Ltd. further entered into non delivery forwards; these contracts are principally to hedge against the foreign exchange fluctuation of capital of the international banking department.

(Continued) 328 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Designated hedging instruments Financial instruments Fair value designated as hedging December December Hedged items instruments 31, 2018 31, 2017 Financial debentures in NTD Interest rate swaps $ - 27,455 Capital of international banking department Non-delivery forwards (14,446) 10,736 in USD

For the year ended December 31, 2017, the Company's subsidiary CTBC Bank Co., Ltd. and its subsidiarie’ s recognize net gain from the hedging derivative financial instruments was $20,808, and net loss from the hedged items was $136,757.

The information of the Company’s subsidiary CTBC Bank Co., Ltd. designated as the hedged items on December 31, 2018 were as follows:

The change The cumulative amount of in the fair adjustment The separate line value of the included in the carrying items of the ineffective The carrying amount of the amount of the hedged hedged portion of Provision of hedged items item at fair value hedge items included in hedging cash flow Assets Liabilities Assets Liabilities the balance sheet items hedge December 31, 2018 Fair value hedge: Currency swaps 1,072,345 - 3,310 - Cash and cash -- equivalents

(iii) Hedge of a net investment in a foreign operation

In order to minimize the risk from overseas equity-method investments, the Company’ s subsidiary CTBC Bank Co., Ltd. entered into currency swaps to hedge against foreign exchange fluctuation.

Designated hedging instruments Financial instruments Fair value designated as December December Hedged items hedging instruments 31, 2018 31, 2017 CTBC Bank Co., Ltd.-Ho Chi Minh City Branch Currency swaps $ 2,450 4,585 CTBC Capital Corp. 9,312 13,100 CTBC Bank Corp. (Canada) 3,039 (4,508) The Tokyo Star Bank, Ltd. (150,338) 68,777

(Continued) 329 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) The amounts applicable to the hedge accounting that affects the statement of comprehensive income statement for the year ended December 31, 2018 were as follows:

Provision of hedge reclassified to profit or loss The separate line Recognized in items of the hedged The hedged The hedged Recognized in profit or loss of items included in the items no longer items have The separate other the ineffective statements of expected to affected profit line items comprehensive portion of comprehensive occur and or loss and affected by income hedging income transfer transferred reclassification December 31, 2018 Hedge of net investment Currency swaps Hedge of a net $ (740,474) - - - - - investment in a foreign operations

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

Maturity date Up to 1 3 months to Over 5 month 1-3 months 1 year 1-5 years years December 31, 2018 Fair value hedge Non-delivery forwards Notional Amount - - USD 35,000 - - Range of FX(TWD/USD) 30.509~30.700 Hedge of net investment Exchange transaction Notional Amount USD 204,500 - - - - Range of FX(TWD/USD) 30.80~30.84 Notional Amount CAD 10,000 - - - - Range of FX(TWD/CAD) 22.922 Notional Amount JPY 52,970,726 - - - - Range of FX(TWD/JPY) 0.2740~0.2768

(h) Securities purchased under resell agreements

December 31, December 31, 2018 2017 Securities purchased under resell agreements $ 24,656,572 24,658,803 Face value of securities $ 24,024,624 23,655,900

(Continued) 330 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Receivablesnet

December 31, December 31, 2018 2017 Notes receivable $ 285,756 301,887 Accounts receivable 91,114,293 78,850,538 Accounts receivable factoring 21,578,332 16,750,776 Interest receivable 22,825,434 19,795,087 Acceptances receivable 12,150,952 9,863,773 Accrued income 343,298 207,409 Securities margin loan receivable 2,416,476 3,510,405 Securities receivable 7,031,197 1,212,642 Financial leasing receivable 10,774,511 10,221,784 Interbank clearing receivable 2,206,146 2,042,802 Premium receivable 17,769,081 4,366,818 Separate account of investment products receivable 816,267 1,006,977 Installment accounts receivable 5,286,896 4,697,316 Other receivables 6,171,612 3,921,718 Subtotal 200,770,251 156,749,932 Less: Allowance for credit losses (3,016,606) (3,063,330) Total $ 197,753,645 153,686,602

The accounts receivable shown above included the receivables from credit card holders who were involved in debt repayment negotiation with the Company’s subsidiary CTBC Bank Co., Ltd.

Please refer to Note 8 for information with regard to the restrictions on other receivables shown above.

Please refer to Note 6(l) for changes in allowance for credit losses of receivables listed above.

Please refer to Note 6(av) for credit risk and the market risk information on December 31, 2018.

Receivables of the Company and subsidiaries should be included in impairment assessment. Please refer to the following table for the amounts of receivables and the respective allowance for credit losses, excluding that of credit card receivables, which are accounted for under liability reserve. Total receivables do not encompass investments in security-related and other receivables whose impairment assessments are consistent with corresponding assets.

(Continued) 331 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

(j) Assets classified as held for salenet

The board of directors of subsidiary Taiwan Life Insurance Co., Ltd. resolved to sell the investment property, at lot No.20, Wenshang Section., Situn District., Taichung City, in the fourth-quarter for 2018. The Company signed the contract in November 2018, and its ownership has been transferred in January 2019. Please refer to Note 13 (a)(vi) for the subsequent sale of Assets classified as held for sale. As the property in accordance with the terms of Available-for-sale financial assets, it transferred from Investment property to Assets classified as held for sale. The book value of the property is $523,182 in December 31, 2018.

(k) Loansnet

December 31, December 31, 2018 2017 Corporate loans $ 552,570,803 521,578,372 Micro business loans 10,897,083 10,374,280 Mortgage loans 642,147,515 571,135,554 Automobile loans 8,273,766 10,031,129 Consumer loans 115,548,807 109,068,536 Life insurance loans 19,841,658 18,977,259 Automatic premium loans 3,351,963 3,114,879 Subtotal of NTD loans 1,352,631,595 1,244,280,009 Foreign currency loans 1,033,629,689 970,591,124 Non-accrual loans 9,656,370 8,674,909 Subtotal 2,395,917,654 2,223,546,042 Less: Allowance for credit losses (30,400,448) (27,666,864) Less: Adjustment of discount and premium (1,188,957) (1,358,950) Fair value adjustment resulting from acquisition 17,231 30,967 Total $2,364,345,480 2,194,551,195

(Continued) 332 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The loans shown above included the loans to cash card holders and fiduciary loans to clients who were involved in debt repayment negotiation with the Company’s subsidiary CTBC Bank Co., Ltd.

Please refer to Note 6(av) for the industry information.

Non-performing loans of the Company’s subsidiary CTBC Bank Co., Ltd. and its subsidiaries were as follows:

December 31, December 31, 2018 2017 Non-performing loans $ 10,123,335 8,872,330

The Company’s subsidiary CTBC Bank Co., Ltd. and subsidiaries have suspended interests on non- performing loans. The amounts of suspended interests were as follows:

For the years ended December 31 2018 2017 Suspended interest on non-performing loans $ 78,602 58,899

For the years ended December 31, 2018 and 2017, there were no loans written off without recourse.

Please refer to Note 6(l) for changes in allowance for credit losses of loans listed above.

Please refer to Note 6(av) for credit risk and market risk information on December 31, 2018.

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

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

(Continued) 333 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(l) Allowance for credit losses

The changes in allowance for credit losses, attributed to loans, receivables, other financial assets, and financing guarantee etc., were as follows:

(i) Receivables

Transfer to lifetime ECL (13,784) 7,679 6,741 (636) - - - Transfer to the credit-impaired financial assets (46,300) (172,369) (7,537) 226,206 - - - -

Transfer to 12-month ECL 31,954 (23,038) (4) (8,912) - - - - The financial assets that have been derecognized (86,266) (3,382) (1,807) (247,339) - (338,794) - (338,794) New financial assets originated or purchased 322,646 16,935 3,185 149,887 2 492,655 - 492,655 Additional provision of impairment in accordance with regulations for each industry (Note) ------188,554 188,554

Write-offs - - (258) (1,158,315) - (1,158,573) (3,478) (1,162,051) Recoveries of amounts previously written off - - - 881,874 - 881,874 - 881,874

Foreign exchange and other movement (148,435) 66,635 (3,041) (88,003) (1) (172,845) - (172,845)

Ending balance $ 896,132 93,910 10,674 1,638,837 12 2,639,565 377,041 3,016,606

Note: Additional provision of impairment were in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrual Loans “ and” Jin Kuan Yin Kong Zi No. 10660004381-Strenthening supervision mechanism of capital companies”.

(Continued) 334 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Loans

For the year ended December 31, 2018 Lifetime ECL Lifetime (Not ECL Additional purchased or (Purchased provision of originated or originated impairment in Lifetime Lifetime credit- credit- The provision accordance with ECL ECL impaired impaired of impairment regulations 12-month (collectively (individually financial financial in accordance for each industry ECL assessed) assessed) assets) assets) with IFRS 9 (Note) Total Beginning balance $ 5,380,835 608,624 117,910 7,609,768 36,347 13,753,484 13,998,821 27,752,305 Changes in financial instruments that have been identified at the beginning of the period: Transfer to lifetime ECL (57,162) 73,397 12 (14,694) (1,553) - - - Transfer to the credit-impaired financial assets (140,732) (177,782) (100,864) 419,297 81 - - - Transfer to 12-month ECL 232,130 (166,961) (7,529) (57,640) - - - - The financial assets that have been derecognized (1,585,125) (159,399) (5,287) (767,336) (5,768) (2,522,915) - (2,522,915) New financial assets originated or purchased 2,126,368 175,677 10,647 1,700,431 22,161 4,035,284 - 4,035,284 Additional provision of impairment in accordance with regulations for each industry (Note) ------2,259,616 2,259,616 Write-offs (31,008) (11,927) (4,596) (3,589,371) - (3,636,902) - (3,636,902) Recoveries of amounts previously written off 6,582 - - 1,375,117 - 1,381,699 - 1,381,699 Foreign exchange and other movement (395,917) 364,479 576 1,158,435 3,788 1,131,361 - 1,131,361 Ending balance $ 5,535,971 706,108 10,869 7,834,007 55,056 14,142,011 16,258,437 30,400,448 Note: Additional provisions of impairment were in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrual Loans” and “ Guidelines for Handling Assessment of Assets, Loans Overdue, Receivables on Demand and Bad Debts by Insurance Enterprises”.

(iii) Short term advances, non-accrual loans and others

For the year ended December 31, 2018 Additional provision Lifetime of impairment in ECL Lifetime accordance with (Not ECL “Guidelines for purchased or (Purchased Handling Assessment originated or originated of Assets, Loans Lifetime Lifetime credit- credit- The provision Overdue, Receivables ECL ECL impaired impaired of impairment on Demand and Bad 12-month (collectively (individually financial financial in accordance Debts by Insurance ECL assessed) assessed) assets) assets) with IFRS 9 Enterprises” Total Beginning balance $ 36,893 8,420 - 206,694 - 252,007 68,258 320,265 Changes in financial instruments that have been identified at the beginning of the period: Transfer to lifetime ECL - 16 - (16) - - - - Transfer to the credit-impaired financial assets - (12) - 12 - - - - Transfer to 12-month ECL 1,233 (2) - (1,231) - - - - The financial assets that have been derecognized (13,691) (24) - (76,618) - (90,333) - (90,333) New financial assets originated or purchased 5,822 7 - 51,554 - 57,383 - 57,383 Additional provision of impairment in accordance with “Guidelines for Handling Assessment of Assets, Loans Overdue, Receivables on Demand and Bad Debts by Insurance Enterprises” ------(23,275) (23,275) Write-offs - (28,433) - (91,579) - (120,012) - (120,012) Foreign exchange and other movement (5,457) 28,156 - 132,110 - 154,809 - 154,809 Ending balance $ 24,800 8,128 - 220,926 - 253,854 44,983 298,837

(Continued) 335 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Financing commitment and guarantee reserve

For the year ended December 31, 2018 Additional provision of impairment in accordance with “Regulations Lifetime Governing the ECL Lifetime Procedures for (Not ECL Banking purchased or (Purchased Institutions to originated or originated Evaluate Assets Lifetime Lifetime credit- credit- The provision and Deal with ECL ECL impaired impaired of impairment Nonperforming/ 12-month (collectively (individually financial financial in accordance Non-accrual ECL assessed) assessed) assets) assets) with IFRS 9 Loans” Total Beginning balance $ 364,317 9,052 12 167,192 1,951 542,524 524,571 1,067,095 Changes in financial instruments that have been identified at the beginning of the period:

Transfer to lifetime ECL (2,644) 4,491 - (1,847) - - - - Transfer to the credit-impaired financial assets (2,732) (516) - 3,248 - - - -

Transfer to 12-month ECL 5,642 (4,778) - (864) - - - - The financial assets that have been derecognized (77,924) (1,906) (12) (843) - (80,685) - (80,685) New financial assets originated or purchased 97,284 2,625 - 52,619 - 152,528 - 152,528 Additional provision of impairment in accordance with “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non- accrual Loans” ------15,748 15,748

Write-offs - - - (2,973) - (2,973) - (2,973) Recoveries of amounts previously written off - - - 1,806 - 1,806 - 1,806

Foreign exchange and other movement (13,740) 1,515 - (1,892) (1,815) (15,932) - (15,932)

Ending balance $ 370,203 10,483 - 216,446 136 597,268 540,319 1,137,587

For the year ended December 31, 2017 Receivables Loans Inherent risk of Default risk of Inherent risk of Default risk of overall claims specific claims Total overall claims specific claims Total Other (Note) Total Beginning balance $ 1,565,409 1,828,360 3,393,769 20,104,158 9,243,592 29,347,750 505,850 33,247,369 Current (revesal) provision (220,824) 284,687 63,863 566,826 1,212,916 1,779,742 794,857 2,638,462 Current write off - (1,212,962) (1,212,962) (788) (4,223,373) (4,224,161) (145,031) (5,582,154) Recovery of bad debts - 918,074 918,074 - 1,342,678 1,342,678 2,215 2,262,967 Non-accrual loans - 3,176 3,176 - - - (3,176) - transferred from non- loan financial assets Exchange rate effects (100,752) (1,838) (102,590) (421,312) (157,833) (579,145) 16,118 (665,617) Ending balance $ 1,243,833 1,819,497 3,063,330 20,248,884 7,417,980 27,666,864 1,170,833 31,901,027

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

(Continued) 336 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(m) Reinsurance assetsnet

December 31, December 31, 2018 2017 Claims recoverable from reinsurers $ 722,006 549,217 Due from reinsurers and ceding companies 578,989 534,840 Less: Allowance for credit losses (17,761) (17,621) Subtotal 1,283,234 1,066,436 Reinsurance reserve assets : Ceded unearned premium reserve 921,525 1,167,240 Ceded claim reserve 357,310 608,032 Ceded premium deficiency reserve 31,276 - Subtotal 1,310,111 1,775,272 Total $ 2,593,345 2,841,708

As of December 31, 2018 and 2017, non-performing loans of due from reinsures and ceding companies were $17,961 and $17,683 respectively, and the bad debts allowance were $17,761 and $17,621, respectively.

(n) Held-to-maturity financial assetsnet

December 31, 2017 Negotiable certificates of deposits $ 493,095,078 Treasury bills 3,663,716 Government bonds 180,366,824 Corporate bonds 28,497,036 Financial debentures 31,368,172 Asset-backed securities 480,915 Total $ 737,471,741

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

(Continued) 337 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(o) Investment under equity methodnet

December 31, 2018 % Book value Investment in associates: Grand Bills Finance Corporation 21.15 $ 1,975,668 (original investment at 1,010,880 thousand) AZ-Star Co., Ltd. 40.00 20,511 (original investment at JPY 12,000 thousand) AZ-Star no. 1 Investment Limited Partnership 43.98 105,543 (original investment at JPY 2,333,068 thousand) AZ-Star no. 3 Investment Limited Partnership 30.86 153,204 (original investment at JPY 550,500 thousand) LH Financial Group Public Company Limited 35.62 16,520,616 (original investment at THB 16,598,915 thousand) CTBC Security Co., Ltd. 100.00 58,706 (original investment at 58,839 thousand) Hofa Land Development Co., Ltd. 90.00 11,788,779 (original investment at 11,237,393 thousand) Wu Tzu Development Co., Ltd. 99.00 2,006,213 (original investment at 2,101,144 thousand) Top Taiwan IX Venture Capital Co., Ltd. 25.00 204,924 (original investment at 200,000 thousand) Star Shining Energy Co., Ltd. 30.00 911,554 (original investment at 900,000 thousand) Giga Green Energy Co., Ltd. 30.00 326,959 (original investment at 327,000 thousand) Investment in joint ventures: Xiamen Jinmeixin Consumer Finance Co., Ltd. 34.00 761,208 (original investment at CNY170,000 thousand) King Dragon Life Investment Co., Ltd. 50.00 519,564 (original investment at 1,646,486 thousand) Total $ 35,353,449

(Continued) 338 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

For the years ended December 31, 2018 and 2017, the amount of profit and loss from associates and joint ventures recognized under equity-method investments were as follows:

For the years ended December 31 2018 2017 Investment in associates $ 1,743,081 1,676,157 Investment in joint ventures (133,247) (43,420) Total $ 1,609,834 1,632,737

(Continued) 339 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Investment in associates

1) Information of significant associates:

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

Main operating location/Regist Nature of ered Percentage of ownership Relationship with Country of the December 31, December Name of Associates the Company Company 2018 31, 2017 LH Financial Group Public Company Investment under Thailand35.62 % 35.62 % Limited equity method

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

December 31, December 31, 2018 2017 LH Financial Group Public Company Limited $ 9,646,112 11,667,151

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

December 31, December 31, 2018 2017 Total assets $ 233,390,597 213,296,979 Total liabilities (195,706,681) (178,019,203) Net assets $ 37,683,916 35,277,776

For the years ended December 31 2018 2017 Net revenue $ 4,005,195 3,439,659 Net income from continuing operations 2,900,562 2,373,559 Other comprehensive income (538,569) 178,912 Comprehensive income $ 2,361,993 2,552,471

December 31, December 31, 2018 2017 Proportionate share of net assets of associates $ 13,421,880 12,564,885 Add: Premium on the investment under equity method 3,098,736 3,098,736 Book value of associates $ 16,520,616 15,663,621

(Continued) 340 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Information of insignificant associates:

As of December 31, 2018 and 2017, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. acquired 90% equity stake of Hofa Land Development Co., Ltd. without any management involvement by posting directors, supervisors, managers or other ways in accordance with Article 146-5 of the Insurance Act. Hofa Land Development Co., Ltd. is set up for participating in the program of “ Kaohsiung City Hofa industrial park development, sell (bid) and management” . However, the final approval of practical operations, such as development plans, expenditures and the bid price of the land, were made by Kaohsiung City Government. As a result, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. has no de facto control, but with significant influence, hence, Hofa Land Development Co., Ltd. is excluded in the consolidated entities.

As of December 31, 2018 and 2017, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. acquired 99% equity stake of Wu Tzu Development Co., Ltd. Wu Tzu Development Co., Ltd. was set up for the purpose of participating in “the Development and Operating Program of Taichung Intercontinental Baseball Stadium” , and was authorized by Taichung City Government to operate the Taichung Intercontinental Baseball Stadium, build multiple functional sport center, parking lots, and other items raised by Wu Tzu Development Co., Ltd. The aforesaid items should be reviewed and approved by Taichung City Government before operating. Furthermore, without any management involvement by posting directors, supervisors, managers or other ways in accordance with Article 146-5 of the Insurance Act, as a result, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. has no de facto control but with significant influence, hence, Wu Tzu Development Co., Ltd. is excluded in the consolidated entities.

The following is the collected prorated financial information of the associates that are individually insignificant to the Company and subsidiaries. The financial information is derived from the consolidated financial report:

For the years ended December 31 2018 2017 Net income from continuing operations $ 704,301 1,266,890 Other comprehensive (losses) income (9,478) 21,022 Comprehensive income $ 694,823 1,287,912

(ii) Investment in joint venture

The joint venture for Xiamen Jinmeixin Consumer Finance Co., Ltd. was jointly invested by the Company's subsidiary CTBC Bank Co., Ltd. , GOME Holdings Group Co., Ltd. and Xiamen Jin Yuan Financial Holding Co., Ltd. on October 10, 2018. The Investment was joint ventures accounted for using equity method. The Bank had 34% ownership of the joint venture and with the investment amounted to RMB170,000 thousand.

(Continued) 341 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The joint agreement between the Company’s subsidiary Taiwan Life Insurance Co., Ltd. and King Dragon Life Insurance Co., Ltd. is a joint venture, hence accounted for under equity method. As of December 31, 2018, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. hold 50% voting rights over King Dragon Life Insurance Co., Ltd., and its capital amounted to CNY700,000 thousand.

The aforementioned financial information for investments in individually insignificant joint venture accounted for using equity method are shown below. The amount of these financial informations included in the consolidated financial statement :

For the years ended December 31 2018 2017 Net losses from continuing operations $ (133,247) (43,420) Other comprehensive losses (45,101) (16,691) Comprehensive losses $ (178,348) (60,111)

The financial information for investments in joint venture accounted for using equity method of Taiwan Life Insurance Co., Ltd. is individually insignificant. The financial information has reflected the adjustments of the difference of the accounting policy when the consolidated Company adopted equity method. Moreover, due to the carrying amount of liabilities generating from the contracts within the scope of IFRS 4 are considered significant compared to the total liabilities, the Company is temporarily exempt from applying IFRS 9.

The fair value as of the end of financial reporting date and changes of the fair value during the period of King Dragon Life Insurance Co., Ltd.’s financial assets were as follows:

For the year The Fair Value on ended December December 31, 2018 31, 2018 Financial assets with the characteristic of solely $ 3,375,415 27,877 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of payments 1,531,943 (35,712) of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value

(Continued) 342 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

December 31, 2018 Sub- Investment investment High risk grade grade grade Financial assets with the characteristic of solely $ 3,216,299 - 134,562 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of 406,146 - 1,125,796 payments of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value

Note: If the financial assets are measured at amortized cost, the carrying amount is measured before adjusting for any loss allowance.

The fair value of the financial assets above which do not belong to low credit risk, and the carrying amount under IAS 39 as of the end of reporting date were as follows:

December 31, 2018 The Carrying Amount under IAS 39 (Note) Fair Value Financial assets with the characteristic of solely $ 134,562 134,562 payments of principal and interest, but excluding any financial assets meeting the definition of holding for trading purpose under IFRS9 or those were managing and evaluating on the basis of fair value Financial assets without the characteristic of payments 1,125,796 1,125,796 of principal and interest, or meeting the definition of holding for trading purpose under IFRS 9 or those were managing and evaluating on the basis of fair value

Note: If the financial assets are measured at amortized cost, the carrying amount is measured before adjusting for any credit loss allowance.

(Continued) 343 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(p) Other financial assetsnet

December 31, December 31, 2018 2017 Short-term advances $ 1,914,653 1,497,797 Less: allowance for credit lossesshort-term advances (49,128) (42,260) Deposits pledged 593,423 665,525 Investment in debt instruments without active markets—net - 841,910,122 Investment in equity instruments measured at cost—net - 9,798,417 Non-accrual loans transferred from non-loan financial assets 257,014 272,681 Less: Allowance for credit losses—non-accrual loans transferred (205,060) (232,088) from non-loan financial assets Separate insurance products 72,962,418 56,484,072 Customer margin deposit 382,350 295,220 Others 83,827 946,028 Total $ 75,939,497 911,595,514

Please refer to Note 6(l) for information with regard to the changes of allowance for short term advances and allowance for credit losses— non-accrual loans transferred from non-loan financial assets shown above.

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

Please refer to Note 8 for information with regard to the restrictions on the other financial assets shown above.

(q) Investment propertynet

December 31, 2018 Accumulated Accumulated Asset Cost depreciation impairment Book value Land $ 41,224,972 - 245,972 40,979,000 Buildings 15,871,198 1,278,845 100,013 14,492,340 Construction in progress 2,034,736 - - 2,034,736 Prepayment for land 85,683 - - 85,683 Total $ 59,216,589 1,278,845 345,985 57,591,759 Fair value $ 61,761,660

(Continued) 344 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

Changes in the cost were as follows:

December 31, January 1, 2018 Current increase Current decrease Others 2018 Land $ 41,749,056 1,641,365 2,165,449 - 41,224,972 Buildings 12,418,981 3,667,066 214,849 - 15,871,198 Construction in progress 3,706,741 1,713,460 3,385,465 - 2,034,736 Prepayment for land 60,422 568,351 543,090 - 85,683 Total $ 57,935,200 7,590,242 6,308,853 - 59,216,589

December 31, January 1, 2017 Current increase Current decrease Others 2017 Land $ 34,503,385 7,713,428 467,757 - 41,749,056 Buildings 11,308,769 1,535,318 425,106 - 12,418,981 Construction in progress 1,994,975 1,716,106 4,340 - 3,706,741 Prepayment for land 57,082 1,921,428 1,918,088 - 60,422 Total $ 47,864,211 12,886,280 2,815,291 - 57,935,200

Changes in accumulated depreciation were as follows:

December 31, January 1, 2018 Current increase Current decrease Others 2018 Buildings $ 996,938 352,828 70,921 - 1,278,845

December 31, January 1, 2017 Current increase Current decrease Others 2017 Buildings $ 656,233 539,987 199,282 - 996,938

Changes in accumulated impairment losses were as follows:

December 31, January 1, 2018 Current increase Current decrease Others 2018 Land $ 244,099 2,304 431 - 245,972 Buildings 100,264 - 251 - 100,013 Total $ 344,363 2,304 682 - 345,985

December 31, January 1, 2017 Current increase Current decrease Others 2017 Land $ 149,316 100,442 5,659 - 244,099 Buildings 48,725 54,934 3,395 - 100,264 Total $ 198,041 155,376 9,054 - 344,363

(Continued) 345 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The fair value of investment property is based on a valuation by an independent appraiser who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. The value of investment properties is estimated through application of market value method.

The rental income and direct operating expenses arising from investment properties under operating leases of the Company and subsidiaries were as follows:

For the years ended December 31 2018 2017 Rental income from investment property $ 1,226,498 1,222,611 Direct operating expense arising from investment property that $ 597,252 536,992 generated rental income during the period Direct operating expense arising from investment property that did not $ 13,709 15,457 generate rental income during the period The Company and subsidiaries have no pledged investment properties.

(r) Premises and equipmentnet

Accumulated Accumulated December 31, 2018 Cost depreciation impairment Net Land $ 17,710,416 - 41,383 17,669,033 Buildings 32,598,196 6,924,050 23,610 25,650,536 Transportation equipment 91,304 66,580 - 24,724 Miscellaneous equipment 10,162,857 5,375,911 - 4,786,946 Construction in progress 76,320 - - 76,320 Prepayment for equipment 192,598 - - 192,598 Prepayment for land and buildings 4,928,334 - - 4,928,334 Leased premises 1,172,611 515,222 - 657,389 Total $ 66,932,636 12,881,763 64,993 53,985,880

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

(Continued) 346 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Changes in the cost were as follows:

Others (exchange December 31, January 1, 2018 Current increase Current decrease difference) 2018 Land $ 17,442,101 357,418 117,413 28,310 17,710,416 Buildings 30,569,006 2,364,533 397,186 61,843 32,598,196 Transportation equipment 97,497 8,762 13,462 (1,493) 91,304 Miscellaneous equipment 8,747,368 1,835,393 455,181 35,277 10,162,857 Construction in progress 1,023,229 1,086,434 2,036,044 2,701 76,320 Prepayment for equipment 94,615 298,763 200,780 - 192,598 Prepayment for land and 4,644,205 285,934 1,805 - 4,928,334 buildings Leased premises 1,270,176 76 136,589 38,948 1,172,611 Total $ 63,888,197 6,237,313 3,358,460 165,586 66,932,636

Others (exchange December 31, January 1, 2017 Current increase Current decrease difference) 2017 Land $ 23,389,333 1,288,123 7,206,987 (28,368) 17,442,101 Buildings 31,572,068 1,178,135 2,040,632 (140,565) 30,569,006 Transportation equipment 105,371 12,375 14,577 (5,672) 97,497 Miscellaneous equipment 8,361,742 1,119,327 610,233 (123,468) 8,747,368 Construction in progress 565,088 876,854 417,460 (1,253) 1,023,229 Prepayment for equipment 48,079 232,603 186,067 - 94,615 Prepayment for land and 5,691,414 359,993 1,407,202 - 4,644,205 buildings Leased premises 1,144,393 291,954 133,578 (32,593) 1,270,176 Total $ 70,877,488 5,359,364 12,016,736 (331,919) 63,888,197

Changes in accumulated depreciation were as follows:

Others (exchange December 31, January 1, 2018 Current increase Current decrease difference) 2018 Buildings $ 6,049,733 1,166,468 337,277 45,126 6,924,050 Transportation equipment 66,141 10,238 9,091 (708) 66,580 Miscellaneous equipment 4,588,429 1,201,428 440,036 26,090 5,375,911 Leased premises 468,750 163,732 132,889 15,629 515,222 Total $ 11,173,053 2,541,866 919,293 86,137 12,881,763

Others (exchange December 31, January 1, 2017 Current increase Current decrease difference) 2017 Buildings $ 5,590,551 1,243,571 716,229 (68,160) 6,049,733 Transportation equipment 62,215 15,960 9,318 (2,716) 66,141 Miscellaneous equipment 4,149,244 1,103,744 570,349 (94,210) 4,588,429 Leased premises 419,272 184,859 125,617 (9,764) 468,750 Total $ 10,221,282 2,548,134 1,421,513 (174,850) 11,173,053

(Continued) 347 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Changes in accumulated impairment were as follows:

Others (exchange December 31, January 1, 2018 Current increase Current decrease difference) 2018 Land $ 41,383 - - - 41,383 Buildings 23,590 20 - - 23,610 Total $ 64,973 20 - - 64,993

Others (exchange December 31, January 1, 2017 Current increase Current decrease difference) 2017 Land $ 123,577 - 82,194 - 41,383 Buildings 69,182 11 45,603 - 23,590 Total $ 192,759 11 127,797 - 64,973

(s) Intangible assetsnet

December 31, December 31, 2018 2017 Goodwill $ 18,015,340 18,015,340 Computer software 5,770,393 4,687,750 The acquisition value of insurance policies 637,011 652,983 Others 64,989 50,176 Total $ 24,487,733 23,406,249

Goodwill of the Company and subsidiaries was acquired from business combination.

The acquisition value of insurance policies is the difference between the fair value of both the acquired contractual rights and commitment to insurance obligations, and the liability, which is determined by the insurer based on the evaluation of accounting policies for the issued insurance policies under general assumption.

Changes in intangible assets were as follows:

Others (exchange December 31, January 1, 2018 Current increase Current decrease difference) 2018 Goodwill $ 18,015,340 - - - 18,015,340 Computer software 4,687,750 3,344,975 2,366,280 103,948 5,770,393 The acquisition value of 652,983 - 15,972 - 637,011 insurance policies Others 50,176 16,000 1,187 - 64,989 Total $ 23,406,249 3,360,975 2,383,439 103,948 24,487,733

Others (exchange December 31, January 1, 2017 Current increase Current decrease difference) 2017 Goodwill $ 18,015,340 - - - 18,015,340 Computer software 4,666,623 1,772,856 1,650,378 (101,351) 4,687,750 The acquisition value of 665,266 - 12,283 - 652,983 insurance policies Others 36,065 16,000 1,889 - 50,176 Total $ 23,383,294 1,788,856 1,664,550 (101,351) 23,406,249

(Continued) 348 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(t) Other assetsnet

December 31, December 31, 2018 2017 Prepayments $ 10,419,292 8,003,653 Deferred charges 31,347 31,024 Foreclosed properties receivednet 178,267 144,736 Temporary payments 1,495,742 64,448 Refundable depositsnet 19,879,844 11,784,248 Long-term prepaid rent 16,621,516 17,024,229 Cash surrender value of life insurance 1,801,928 1,728,728 Clients’ position-debit 1,728,843 2,008,972 Rental assets 1,435,458 1,535,956 Others 2,076,109 2,226,696 Total $ 55,668,346 44,552,690

In order to fulfill social responsibility of the Company’s subsidiary CTBC Bank Co., Ltd., improve the image of the Company’s subsidiary CTBC Bank Co., Ltd. and receive a long term benefit from advertisements, the Company’ s subsidiary CTBC Bank Co., Ltd. sponsor a professional baseball team by signing a sponsorship and cooperative advertisement contract with Hua Yi Entertaining Co. Ltd. on December 5, 2013, amounting to $400,000 and accounted under prepaid expenses. The duration of the name of the baseball team will last for 10 years, starting from the date the Company’s subsidiary CTBC Bank Co., Ltd. appointed the team name. As of December 31, 2018, the account balance was $200,000.

In May 2006, the Company’s subsidiary CTBC Bank Co., Ltd. acquired the superficies of lots 43, 43-1, 45 and 45-1 of Jingmao Section, Nankang, Taipei, from Taiwan Fertilizer Co., Ltd. for 50 years through a public tender. The acquisition cost amounted to $3,364,140 (including business tax and other related expenses of the superficies). The rental is determined annually at the rate of 8% of the government assessed present value and accounted under long-term prepaid rent. Please refer to Note 8 for information on performance guarantee deposits.

On August 12, 2015, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. acquired the superficies of lot 15 of Jingmao Section, Nankang, Taipei, from Taipei Fertilizer Co., Ltd. for 45 years. The total royalty is about $15 billion (from the sixth month of the ninth year to the tenth year, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. can decide whether to extend the using period for more 40 years, and the royalty of extension is $15 billion, with 15 years to pay off averagely. The creation of superficies was completed on December 10, 2015 and accounted under long-term prepaid rent. Please refer to Note 8 for information on guarantee deposits.

(Continued) 349 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(u) Deposits from Central Bank and other banks

December 31, December 31, 2018 2017 Deposits from Central Bank $ 210,705 216,674 Deposits from other banks 27,508,521 22,151,951 Deposits from post offices 493,473 1,147,904 Overdraft on banks 7,220,370 1,137,347 Call loans from banks 39,065,623 50,220,907 Total $ 74,498,692 74,874,783

(v) Due to Central Bank and other banks

December 31, December 31, 2018 2017 Financing from Central Bank $ 1,323,294 1,608,414 Financing from other banks 5,629,774 6,633,105 Long-term borrowings 7,088,707 7,229,114 Total $ 14,041,775 15,470,633

Financing from Central Bank:

(i) CTBC Bank Co., Ltd.

December 31, December 31, 2018 2017 Borrowings (USD) $ 12,903 25,806 Interest rate 2.52% 1.45% 6M LIBOR 6M LIBOR Maturity date July 26, 2019 July 26, 2019 Interest Payment Interest is Interest is payable semi- payable semi- annually and annually and at the maturity at the maturity date date

(Continued) 350 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) The Tokyo Star Bank, Ltd.

December 31, December 31, 2018 2017 Borrowings (JPY) $ 3,330,000 3,164,000 Interest rate 2.53%~2.88% 1.46%~1.66% Maturity date December 4, December 4, 2019 2018 Interest Payment Interest is Interest is payable payable at the maturity at the maturity date date

Financing from other banks:

(i) CTBC Bank Corp. (USA)

December 31, December 31, 2018 2017 Inter bank borrowings (USD) $ 55,000 65,000 Interest rate 2.57%~2.96% 0.96%~2.96% Maturity date December 31, December 31, 2020 2020

(ii) PT. Bank CTBC Indonesia

December 31, December 31, 2018 2017 Inter bank borrowings (IDR) $ 975,236,538 352,315,972 Interest rate 3.34%~8.71% 1.77%~6.55% Maturity date July 30, 2020 March 28, 2018

(iii) CTBC Securities Co., Ltd.

December 31, December 31, 2018 2017 Inter bank borrowings (NTD) $ 162,885 427,643 Interest rate 3.35%~3.40% 0.90%~2.20% Maturity date January 24, January 22, 2019 2018

(Continued) 351 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) TLG Capital Co., Ltd.

December 31, December 31, 2018 2017 Inter bank borrowings (NTD) $ 1,140,000 3,020,000 Interest rate 1.05%~1.22% 1.07%~1.31% Maturity date April 16, 2019 November 16, 2018

(v) CTBC Venture Capital Co., Ltd.

December 31, December 31, 2018 2017 Inter bank borrowings (NTD) $ 640,000 450,000 Interest rate 1.25% 1.25% Maturity date February 18, January 15, 2019 2018

(vi) CTBC Asset Management Co., Ltd.

December 31, December 31, 2018 2017 Inter bank borrowings (NTD) $ - 20,000 Interest rate 1.21% Maturity date January 4, 2018

Long-term borrowings:

(i) CTBC Leasing (China)

December 31, December 31, 2018 2017 Borrowings (CNY) $ 751,928 809,607 Borrowings (USD) 121,250 117,750 Interest rate LIBOR+1.5%~ LIBOR+1.5%~ 6.41% 5.52% Maturity date December 17, November 20, 2021 2020 Interest Payment Interest is Interest is payable payable monthly, monthly, quarterly and at quarterly and at the maturity the maturity date. date.

(Continued) 352 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) CTBC Asset Management Co., Ltd.

December 31, December 2018 31, 2017 Borrowings (NTD) $ 1,400,000 - Interest rate 1.15%~2.10% Maturity date January 7, 2022 Interest Payment Interest is payable monthly and at the maturity date.

(w) Securities sold under repurchase agreements

December 31, 2018 Selling price Designated Designated Assets Par value (Note) repurchase amount repurchase date Financial assets measured at $ 13,868,936 13,740,884 13,755,270 Prior to January 29, fair value through profit or 2019 loss Financial assets measured at 31,239,489 29,953,261 30,054,917 Prior to March 19, fair value through other 2019 comprehensive income Debt instruments at amortized 27,374,133 26,830,060 26,917,294 Prior to February 25, cost 2019 Total $ 72,482,558 70,524,205 70,727,481

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

Note: Recognized under securities sold under repurchase agreements.

(Continued) 353 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(x) Commercial paper payablenet

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

December 31, December 31, Issuer 2018 2017 Commercial paper payable $ 38,676,000 51,826,000 Less: discount on commercial paper payable (37,933) (48,476) Total $ 38,638,067 51,777,524 Rate range 0.47%~1.10% 0.40%~1.21% Duration July 9, 2018~ April 12, 2017~ June 21, 2019 June 25, 2018

The commercial paper payable aforementioned is guaranteed by financial institution and acceptance institution. Please refer to Note 8 for information with regard to the restrictions on collateral notes.

(y) Payables

December 31, December 31, 2018 2017 Accounts payable $ 9,385,982 8,446,820 Accounts payable factoring 5,158,097 3,508,696 Accrued expenses 21,484,778 21,584,394 Interest payable 10,446,110 7,505,710 Acceptances payable 11,198,063 9,699,440 Collection payable 4,047,738 3,921,168 Other tax payable 3,120,050 2,751,742 Dividends and bonuses payable 254,121 190,278 Checks for clearance 3,782,978 3,988,688 Miscellaneous lottery accounts payable 6,588,088 8,668,370 Commission payable 1,776,444 2,406,282 Claims payable 4,065,477 3,611,567 Due to reinsurers and ceding companies 1,417,872 1,033,619 Securities payable 5,062,633 2,195,178 Separate account of investment products payables 650,744 2,956,551 Other payables 7,679,885 4,716,025 Total $ 96,119,060 87,184,528

(Continued) 354 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(z) Deposits and remittances

December 31, December 31, 2018 2017 NTD deposits Checking accounts $ 10,578,262 9,484,584 Demand deposits Demand deposits 190,332,650 169,993,792 Demand savings deposits 733,530,119 677,104,314 Public treasury deposits 9,226,288 10,073,470 Subtotal of demand deposits 933,089,057 857,171,576 Time deposits Time deposits 206,537,969 196,621,072 Time savings deposits 443,003,524 431,511,895 Negotiable certificates of deposit 1,215,600 1,266,500 Public treasury deposits 30,547,750 26,050,000 Others 14,248,500 10,312,500 Subtotal of time deposits 695,553,343 665,761,967 Subtotal of NTD deposits 1,639,220,662 1,532,418,127 Foreign currency deposits 1,493,048,851 1,409,817,277 Stored value cards 167 167 Remittances under custody 83,521 111,378 Remittances outstanding 5,662,127 2,626,218 Total $3,138,015,328 2,944,973,167

(Continued) 355 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(aa) Bonds Payable

December 31, December 31, Bonds 2018 2017 2008-1 $ 2,000,000 2,000,000 2009-1 800,000 800,000 2009-2 150,000 150,000 2011-1 4,000,000 12,900,000 2012-1 12,000,000 12,000,000 2014-1 20,000,000 20,000,000 2014-2 15,000,000 15,000,000 2015-1(financial debentures) (Note 3) 7,898,381 7,670,936 2015-1(unsecured ordinary corporate bonds) 11,800,000 15,000,000 2015-2 12,000,000 12,000,000 2015-3 5,000,000 5,000,000 2016-1 (Note3) 23,971,740 23,281,440 2017-1(financial debentures) (Note3) 5,531,940 5,372,640 2017-1 (subordinated corporate debentures) 15,000,000 15,000,000 2017-2 1,000,000 1,000,000 2018-1 (Note 3) 6,914,925 - No.16 Callable Unsecured Bond - 291,390 No.17 Callable Unsecured Bond - 1,086,090 Adjustment for fair value increase of hedged transactions - 28,322 Unamortized discount (25,048) (43,355) Less: financial liability designated at fair value through profit or (44,316,986) (36,325,016) loss (Note 3) Total $ 98,724,952 112,212,447

(Continued) 356 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Terms of transactions Bond issued Bonds Issue date Maturity date Interest rate Type 2008-1 04/10/2008 04/10/2023 3.49% Unsecured subordinated financial debentures 2009-1 06/08/2009 N/A 4.0%, if redemption right is not exercised 10 years after Unsecured subordinated the issue date, the interest rate will increase by corporate bonds 2.20%, not lower than 5.0%. 2009-2 11/25/2009 N/A 4.0%, if redemption right is not exercised 10 years after the issue date, the interest rate will increase by 2.20%, not lower than 5.0%. 2011-1 09/27/2011 09/27/2021 A=1.80%, B=1.95%. From the 4th year after the issue Unsecured subordinated date, the interest rate will be the prime rate plus financial debentures 0.55% (Note 1) 2012-1 02/20/2012 02/20/2022 A=1.66%, B=1.80%. Unsecured subordinated corporate bonds 2014-1 06/18/2014 N/A A=3.70%, B=4.00%. Perpetual non accumulated subordinated financial debentures 2014-2 06/26/2014 06/26/2029 A=2.00%, B=The prime rate plus 0.45%. (Note 2) Unsecured subordinated financial debentures 2015-1(financial debentures) 01/27/2015 01/27/2045 0% (Note 3) Unsecured financial debentures 2015-1 08/03/2015 08/03/2022 A=1.15%, B=1.35%, C=1.65% Unsecured ordinary (unsecured ordinary corporate corporate bonds bonds) 2015-2 06/10/2015 N/A 3.60% Perpetual non accumulated subordinated financial debentures 2015-3 06/18/2015 06/18/2025 A=1.83%, B=2.00%, C=2.05% Unsecured subordinated financial debentures 2016-1 11/29/2016 11/29/2044 0% (Note 3) Unsecured financial debentures 2017-1 (financial debentures) 03/29/2017 03/29/2047 0% (Note 3) 2017-1 06/21/2017 N/A 3.45%, if redemption right is not exercised 10 years after Unsecured subordinated (subordinated corporate bonds) the issue date, the interest rate will increase by 1.00% corporate bonds 2017-2 05/19/2017 05/19/2020 0.83% Unsecured financial debentures 2018-1 03/29/2018 03/29/2048 0% (Note 3) No.16 Callable Unsecured Bond 03/13/2013 03/13/2023 3.28% an interest is payable semi annually Unsecured subordinated financial debentures No.17 Callable Unsecured Bond 06/06/2013 06/06/2023 3.46% an interest is payable semi annually

Note 1: The original prime rate is based on page code 6165 of Reuters, the fixed interest rate of 90- day CP/BA at 11:00 am on the interest reset date. With the consensus reached among creditors through forward rate agreement, the prime rate will be changed to the 3-month Taipei Interbank Offered Rate (TAIBOR) from January 1, 2015.

Note 2: The prime rate is based on page code 6165 of Reuters, the fixed interest rate of 90-day CP/BA at 11:00 am on the interest reset date. If no quotation is available on page code 6165 of Reuters, no page is displayed, or no prime rate is retrievable from Reuters, the Bank would change the resource of the rate. The Bank would set the prime rate as Secondary Market Fixing Rate of 90-day TAIBIR 02 from the “TAIBIR Section” in the webpage of Taiwan Depository and Clearing Corporation.

(Continued) 357 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 3: Financial debentures of 2015-1, 2016-1, 2017-1 and 2018-1 are recognized as financial liabilities designated at fair value through profit or loss. For more information, please refer to Note 6(c).

Please refer to Note 6(g) for the information on the hedging of bonds shown above.

(ab) Provisions

December 31, December 31, 2018 2017 Settlement compensation provision $ 242,512 240,175 Employee benefits provision 4,062,656 4,546,916 Guarantee provision 857,258 870,320 Insurance provision 1,571,499,621 1,358,085,089 Reserve for insurance policies with financial instrument features 3,329 3,193 FX rate fluctuation provision 2,273,640 730,720 Financing commitment provision 280,329 - Other provision 266,963 210,872 Fair value adjustment 5,675,782 5,977,972 Total $1,585,162,090 1,370,665,257

Please refer to Note 6(af) for more information on provisions, reserve for insurance policies with financial instrument features and FX rate fluctuation provision.

(ac) Other financial liabilities

December 31, December 31, 2018 2017 Futures trader’s equity $ 381,621 294,923 Lease payable 652,316 785,608 Structured commodity principal 99,921,394 101,319,263 Guarantee deposits received-securities lending transaction 19,337,702 30,656,153 Separate insurance products 72,962,418 56,484,072 Others - 132 Total $ 193,255,451 189,540,151

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

(Continued) 358 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ad) Other liabilities

December 31, December 31, 2018 2017 Amount received in advance $ 1,638,113 3,613,835 Custody payable 212,842 559,212 Deferred income 1,760,027 1,082,314 Guarantee deposits 7,973,632 8,543,432 Temporary receipt 2,782,777 3,935,604 Credits recognized when accepting orders to trade 1,701,385 2,003,988 Others 198,187 341,582 Total $ 16,266,963 20,079,967

(ae) Employee benefits

(i) Defined contribution plan

The Company and subsidiaries’ defined contribution plan follows the Labor Pension Act of the R.O.C. and makes monthly cash contributions to the employees’individual pension accounts at the Bureau of Labor Insurance at the rate of 6% of the employees’ monthly salary. Under this plan, the Company and subsidiaries have no legal or constructive obligation to make other payments after the Company and subsidiaries make the fixed amount of contribution to the Bureau of Labor Insurance.

For the year ended December 31, 2018 and 2017, the pension expenses under defined contribution plan of the Company and subsidiaries amounted to $806,981 and $819,483, respectively, and were contributed to the Bureau of Labor Insurance or labor agencies designated by local authorities in the case of overseas units.

(ii) Employee benefits provision

Employee benefits provision reserve recognized by the Company and subsidiaries in the consolidated balance sheet were as follows:

December 31, December 31, 2018 2017 Defined benefits plan $ 3,266,474 3,790,345 Retiree deposits with favorable rates and other post- 423,560 394,818 employment benefits Total $ 3,690,034 4,185,163

(Continued) 359 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

1) Defined benefits plan

December 31, December 31, 2018 2017 Present value of defined benefits obligation $ 9,116,781 9,635,256 Fair value of plan assets (5,858,978) (5,853,270) Net defined benefit liability $ 3,257,803 3,781,986

The Company and subsidiaries’ defined benefits plan contributes to designated depository account with Bank of Taiwan. Payments of pension benefits to employees who are covered by the Labor Standards Act are calculated based on the employee’ s average monthly salary for the last 6 months prior to approved retirement and base point (b.p.) entitlement based on years of service.

(a) Composition of plan assets

The Company and subsidiaries’ labor pension fund contributed in compliance with Labor Standard Act is managed by Bureau of Labor Funds, Ministry of Labor. According to Regulations for Revenues, Expenditures Safeguard and Utilization of the Labor Retirement Fund, with regard to the utilization of the Fund, its minimum earnings in the annual distributions on the final financial statement shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. Please refer to the website of Bureau of Labor Funds, Ministry of Labor for information on labor pension fund assets utilization including earnings rate and fund asset allocation.

(b) Movements in present value of the defined benefits obligation

For the years ended December 31, 2018 and 2017, the movements in present value of defined benefits obligation for the Company and subsidiaries were as follows:

For the years ended December 31 2018 2017 Defined benefits obligation at January 1 $ 9,635,256 9,963,617 Current service costs and interest 177,677 248,287 Remeasurements of net defined benefit liability Actuarial gains arising from changes in financial 2,547 227,120 assumption Actuarial losses arising from experience (140,923) (326,809) adjustments Benefits paid by the plan (557,776) (476,959) Defined benefits obligation at December 31 $ 9,116,781 9,635,256

(Continued) 360 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017, the movements in fair value of the defined benefit plan assets for the Company and subsidiaries were as follows:

For the years ended December 31 2018 2017 Fair value of plan assets at January 1 $ 5,853,270 5,822,224 Interest income 43,912 72,804 Remeasurements of net defined benefit liability Return on plan assets (exclude current interest) 172,958 50,820 Contribution plans made 346,614 384,381 Benefits paid by the plan (557,776) (476,959) Fair value of plan assets at December 31 $ 5,858,978 5,853,270

(d) Expense recognized in profit or loss

For the years ended December 31, 2018 and 2017, the defails of the expense recognized in profit or loss for the Company and subsidiaries were as follows:

For the years ended December 31 2018 2017 Current service costs $ 106,704 124,615 Net interest of net defined benefit liability 28,379 51,742 Total $ 135,083 176,357

(e) Net remeasurement of defined benefit liability recognized in other comprehensive income

For the years ended December 31, 2018 and 2017, the net remeasurements of defined benefit liability recognized in other comprehensive income for the Company and subsidiaries were as follows:

For the years ended December 31 2018 2017 Cumulative amount at January 1 $ (1,235,208) (1,385,780) Recognized during the period 311,983 150,572 Cumulative amount at December 31 $ (923,225) (1,235,208)

(Continued) 361 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(f) Primary actuarial assumptions

The following are the primary actuarial assumptions adopted by the Company and subsidiaries at the reporting date:

December 31, December 31, 2018 2017 Discount rate 0.75%~1.00% 0.75%~1.00% Increasing rate of future compensation levels 1.50%~3.00% 1.50%~3.00%

The Company and subsidiaries expected $110,851 in contributions to be paid to defined benefit plans within a year after report date of 2018.

Weighted average duration based on defined benefits plan was 5 to 6 years.

(g) Sensitivity analysis

When adopted primary actuarial assumption changes, the effects of present value of the benefits obligation as of December 31, 2018 and 2017 were as follows:

Present value of the benefits obligation effects Increase 0.25% Decrease 0.25% December 31, 2018 Discount rate $ (85,870) 90,408

December 31, 2017 Discount rate (112,311) 115,167

The sensitivity analysis above analyzing the effects of changes in single assumptions is based on other assumptions remain unchanged. In practice, changes in many assumptions may link together. Sensitivity analysis and net pension liability of balance sheet were calculated under the same approach.

The methodology for sensitivity analysis and assumptions adopted are the same as the previous period.

(Continued) 362 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Retiree deposits with favorable rates and other post-employment benefits

The reconciliations between present value of the Company’s subsidiary CTBC Bank Co., Ltd.’s defined benefits obligation and fair value of defined benefits plan assets were as follows:

December 31, December 31, 2018 2017 Present value of defined benefits obligation $ 423,560 397,046 Fair value of plan assets - - Net defined benefit liability $ 423,560 397,046

The Company’s subsidiary CTBC Bank Co., Ltd. 's obligation to grant retirees, including current employees retiring in the future, fixed-amount deposits with favorable rates is according to “Regulations for subsidizing the Retiree Benefits” enacted by the Company’ s subsidiary CTBC Bank Co., Ltd.

(a) Movements in present value of the defined benefits obligation

For the years ended December 31, 2018 and 2017, the movements in present value of defined benefits obligation for the Company’s subsidiary CTBC Bank Co., Ltd. were as follows:

For the years ended December 31 2018 2017 Defined benefits obligation at January 1 $ 397,046 241,363 Current service costs and interest 18,337 17,855 Past service costs 21,684 173,595 Remeasurements of net defined benefit liability Actuarial (losses) gains arising from changes in (3,204) 2,411 demographic assumptions Actuarial gains (losses) arising from changes in 5,113 (23,561) financial assumptions Actuarial gains arising from experience 4,939 3,367 adjustments Benefits paid by the plan (20,355) (17,984) Defined benefits obligation at December 31 $ 423,560 397,046

(Continued) 363 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(b) Expense recognized in profit or loss

For the years ended December 31, 2018 and 2017, the details of the expense recognized in profit or loss by the Company’s subsidiary CTBC Bank Co., Ltd. were as follows:

For the years ended December 31 2018 2017 Past service costs $ 21,684 173,595 Current service costs 8,177 8,079 Net interest of net defined benefit liability 10,160 9,776 Total $ 40,021 191,450

For the years ended December 31, 2018 and 2017, the net remeasurements of defined benefit liability recognized in other comprehensive income for the Company’s subsidiary CTBC Bank Co., Ltd. were as follows:

For the years ended December 31 2018 2017 Cumulative amount at January 1 $ (13,618) (33,629) Recognized during the period (9,076) 20,011 Cumulative amount at December 31 $ (22,694) (13,618)

(d) Primary actuarial assumptions

The following are the primary actuarial assumptions adopted by the Company’ s subsidiary CTBC Bank Co., Ltd. at the reporting date:

December 31, 2018 December 31, 2017 Favorable rates Other post- Favorable rates Other post- for employee employment for employee employment deposits benefits deposits benefits Discount rate 4.00% 1.375%~1.5% 4.00% 1.625% Expected rate of return on 2.00% 1.375%~1.5% 2.00% 1.625% deposited fund Yearly rate of decrease on 2.00% 33%~69% 1.85% 33%~72% account balance/utilization rate on subsidy for health examination and social networking Probability of future changes in 50.00% - 50.00% - favorable rates deposits scheme

(Continued) 364 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(e) Sensitivity analysis

When adopted primary actuarial assumption changes, the effects of present value of the benefits obligation as of December 31, 2018 and 2017 were as follows:

Present value of the benefits obligation effects Favorable rates for employee deposits Increase 0.25% Decrease 0.25% December 31, 2018 Discount rate $ (4,855) 5,082 Yearly rate of decrease on account balance (5,158) 5,387

December 31, 2017 Discount rate (4,614) 4,831 Yearly rate of decrease on account balance (4,894) 5,112

Present value of the benefits obligation effects Other post-employment benefits Increase 0.25% Decrease 0.25% December 31, 2018 Discount rate $ (8,699) 9,228

December 31, 2017 Discount rate (7,020) 7,375

The methodology for sensitivity analysis and assumptions adopted are the same as the previous period.

(Continued) 365 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Defined benefits plan of overseas branches and subsidiaries

Defined benefits plan of the Company's subsidiary CTBC Bank Co., Ltd.'s overseas branches and subsidiaries recognized in consolidated balance sheets was as follows:

December 31, December 31, 2018 2017 Defined benefits plan $ 372,622 361,753

For the years ended December 31, 2018 and 2017, expenses recognized by overseas branches and subsidiaries in profit and loss amounted to $143,050 and $128,871, respectively.

For the years ended December 31, 2018 and 2017, acturial profit (loss) recognized in other comprehensive income by overseas branches and subsidiaries in profit and loss amounted to $48,933 and $(53,403), respectively.

(af) Insurance liabilities, income, and expense

(i) Insurance liabilities

Reserve for insurance contracts and financial instruments with discretionary participation feature:

The details of the reserve for insurance contracts and financial instruments with discretionary participation feature and its adjustment and the balances of the related accounts of the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. and sub-subsidiary TLG Insurance were as follows:

December 31, December 31, 2018 2017 Reserve for unearned premiums $ 4,191,621 3,850,187 Claim reserve 1,763,731 1,967,659 Insurance reserve 1,557,690,802 1,342,333,683 Special reserve 973,352 1,166,909 Premium deficiency reserve 6,880,115 8,766,651 Total $1,571,499,621 1,358,085,089

(Continued) 366 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Life Insurance Business:

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

December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 356,567 - 356,567 Individual injury 649,669 - 649,669 Individual health 1,705,055 - 1,705,055 Annuity insurance 1 - 1 Group insurance 257,661 - 257,661 Investment linked Insurance 23,532 - 23,532 Total 2,992,485 - 2,992,485 Less: reserve for unearned premiums Individual life 198,367 - 198,367 Individual injury 63,417 - 63,417 Individual health 334,425 - 334,425 Group insurance 31,076 - 31,076 Investment linked Insurance 1,350 - 1,350 Total 628,635 - 628,635 Net value $ 2,363,850 - 2,363,850

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

(Continued) 367 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The changes and adjustments of the aforesaid reserve for unearned premiums were as follows:

For the year ended December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 2,555,691 1 2,555,692 Current provision 1,518,102 - 1,518,102 Reversal of provision (1,081,323) (1) (1,081,324) Foreign exchange gains 15 - 15 Ending balance 2,992,485 - 2,992,485

Less: reserve for unearned premiums Beginning balance—net 823,998 - 823,998 Current decrease (195,800) - (195,800) Foreign exchange gains 437 - 437 Ending balance—net 628,635 - 628,635 Ending balance $ 2,363,850 - 2,363,850

For the year ended December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 3,077,730 222 3,077,952 Current provision 2,555,756 1 2,555,757 Reversal of provision (3,077,731) (222) (3,077,953) Foreign exchange losses (64) - (64) Ending balance 2,555,691 1 2,555,692

Less: reserve for unearned premiums Beginning balance—net 1,163,172 - 1,163,172 Current decrease (338,271) - (338,271) Foreign exchange losses (903) - (903) Ending balance—net 823,998 - 823,998 Ending balance $ 1,731,693 1 1,731,694

(Continued) 368 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) The details of claim reserve were as follows:

December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life -reported but not paid $ 126,005 - 126,005 -not reported and not paid 549 - 549 Individual injury -reported but not paid 26,721 - 26,721 -not reported and not paid 123,334 - 123,334 Individual health -reported but not paid 333,188 - 333,188 -not reported and not paid 147,846 - 147,846 Annuity insurance -reported but not paid 60 4,705 4,765 -not reported and not paid - - - Group insurance -reported but not paid 44,336 - 44,336 -not reported and not paid 31,835 - 31,835 Investment linked Insurance -reported but not paid 12,776 - 12,776 -not reported and not paid - - - Total 846,650 4,705 851,355 Less: reserve for claim reserve Individual life 18,738 - 18,738 Individual injury 3,258 - 3,258 Individual health 42,794 - 42,794 Group insurance 3,162 - 3,162 Investment linked Insurance 2,338 - 2,338 Total 70,290 - 70,290 Net value $ 776,360 4,705 781,065

(Continued) 369 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

(Continued) 370 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

For the year ended December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 805,124 409 805,533 Current provision 845,834 4,704 850,538 Reversal of provision (805,125) (420) (805,545) Foreign exchange gains 817 12 829 Ending balance 846,650 4,705 851,355 Less: reserve for claim reserve Beginning balancenet 81,739 - 81,739 Current decrease (11,440) - (11,440) Foreign exchange losses (9) - (9) Ending balance—net 70,290 - 70,290 Ending balance $ 776,360 4,705 781,065

For the year ended December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 670,163 2,487 672,650 Current provision 806,318 501 806,819 Reversal of provision (670,163) (2,487) (672,650) Foreign exchange losses (1,194) (92) (1,286) Ending balance 805,124 409 805,533 Less: reserve for claim reserve Beginning balancenet 92,073 - 92,073 Current decrease (10,316) - (10,316) Foreign exchange losses (18) - (18) Ending balance—net 81,739 - 81,739 Ending balance $ 723,385 409 723,794

(Continued) 371 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Details of insurance reserves were as follows:

December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 1,435,467,974 3,692,489 1,439,160,463 Individual health 86,473,207 - 86,473,207 Annuity insurance 4,361,369 26,884,957 31,246,326 Group insurance 214,391 188,412 402,803 Investment linked insurance 211,065 - 211,065 Incremental reserve 35,834 - 35,834 Transfer from operating loss reserve 43,665 - 43,665 Recovery of special catastrophe 7,252 - 7,252 reserve Other 110,187 - 110,187 Total $ 1,526,924,944 30,765,858 1,557,690,802

December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 1,228,472,759 2,939,312 1,231,412,071 Individual health 77,034,167 - 77,034,167 Annuity insurance 5,880,382 27,643,678 33,524,060 Group insurance 160,394 - 160,394 Investment linked insurance 116,240 - 116,240 Incremental reserve 35,834 - 35,834 Transfer from operating loss reserve 43,665 - 43,665 Recovery of special catastrophe 7,252 - 7,252 reserve Total $ 1,311,750,693 30,582,990 1,342,333,683

As the Company’s subsidiaries Taiwan Life Insurance Co., Ltd. measured the insurance reserves on a discounted basis, the recognized amounts of cumulative interest over-time effects were as below:

For the years ended December 31 2018 2017 Cumulative interest over-time effects of insurance reserves $ 53,388,636 46,633,279

(Continued) 372 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The changes and adjustments of the aforesaid insurance reserves were as follows:

For the year ended December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 1,311,750,693 30,582,990 1,342,333,683 Current provision 290,319,081 3,926,386 294,245,467 Reversal of provision (83,266,093) (3,848,243) (87,114,336) Foreign exchange gains 8,011,076 104,725 8,115,801 Others 110,187 - 110,187 Ending balance $ 1,526,924,944 30,765,858 1,557,690,802

For the year ended December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 1,092,241,295 30,389,653 1,122,630,948 Current provision 285,232,882 4,552,552 289,785,434 Reversal of provision (45,429,708) (3,948,962) (49,378,670) Foreign exchange losses (20,293,776) (410,253) (20,704,029) Ending balance $ 1,311,750,693 30,582,990 1,342,333,683

4) Special reserve liabilities:

December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Reserve for policyholder dividend $ 506,610 - 506,610 Reserve for bonus risk 245,543 - 245,543 Revaluation appreciation on real estate 57,891 - 57,891 Total $ 810,044 - 810,044

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

(Continued) 373 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

For the year ended December 31, 2018 Reserve for Revaluation policyholder Reserve appreciation on dividend for bonus risk real estate Total Beginning balance $ 732,434 217,412 57,891 1,007,737 Impacts under IFRS9 (51,210) 371 - (50,839) Current provision 908,037 27,760 - 935,797 Reversal of provision (1,062,509) - - (1,062,509) Foreign exchange gains (17,983) - - (17,983) Loss from disposal of equity (2,159) - - (2,159) instruments measured at fair value through other comprehensive income for policyholder dividend Ending balance $ 506,610 245,543 57,891 810,044

For the year ended December 31, 2017 Reserve for Revaluation policyholder Reserve appreciation on dividend for bonus risk real estate Total Beginning balance $ 319,938 667,485 57,891 1,045,314 Current provision 1,609,455 - - 1,609,455 Reversal of provision (1,196,959) (450,073) - (1,647,032) Ending balance $ 732,434 217,412 57,891 1,007,737

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

December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Individual life $ 6,736,381 - 6,736,381 Individual health 107,812 - 107,812 Annuity insurance 67 - 67 Total $ 6,844,260 - 6,844,260

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

(Continued) 374 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

For the year ended December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 8,744,854 - 8,744,854 Current provision (1,555,525) - (1,555,525) Reversal of provision (405,474) - (405,474) Foreign exchange gains 60,405 - 60,405 Ending balance $ 6,844,260 - 6,844,260

For the year ended December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Beginning balance $ 9,294,763 - 9,294,763 Current provision 2,645,350 - 2,645,350 Reversal of provision (2,956,218) - (2,956,218) Foreign exchange losses (239,041) - (239,041) Ending balance $ 8,744,854 - 8,744,854

6) The details of liability adequacy reserve of the Company's subsidiary Taiwan Life Insurance Co., Ltd. were as follows:

Insurance contracts and financial instruments December 31, December 31, with discretionary participation feature 2018 2017 Unearned premium reserve $ 2,992,943 2,555,692 Claim reserve 851,355 805,533 Insurance reserve 1,557,759,171 1,342,333,683 Premium deficiency reserve 6,775,821 8,744,854 Total 1,568,379,290 1,354,439,762 Less: intangible asset (637,011) (652,983) Book value of related insurance liabilities $1,567,742,279 1,353,786,779 Current estimate of future cash flows under insurance $1,277,399,481 1,108,382,898 liabilities Liability adequacy reserve balance $- -

(Continued) 375 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The liability adequacy test method of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. was as follows:

December 31, 2018 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant (1) Insurance contract information: As of December 31, 2018, the Assumptions insurance contracts and financial instruments with a discretionary participation feature were tested. (2) Discount rate: For the asset allocation in the latest quarterly report as of valuation date, the rate of investment return under the best-case scenario in the latest certified actuarial report provided to the regulator for the year 2017 is adopted. The assumed rate beyond 30 years remains unchanged.

December 31, 2017 Test Method Gross Premium Valuation (GPV) Group All insurance contracts Significant (1) Insurance contract information: As of December 31, 2017, the Assumptions insurance contracts and financial instruments with a discretionary participation feature were tested. (2) Discount rate: For the asset allocation in the latest quarterly report as of valuation date, the rate of investment return under the best-case scenario in the latest certified actuarial report provided to the regulator for the year 2016 is adopted. The assumed rate beyond 30 years remains unchanged.

7) Reserve for insurance policies with financial instrument features

The financial instruments, belonging to the Company’s subsidiary Taiwan Life Insurance Co., Ltd. are segregated account insurance product and are classified as financial instruments without discretionary participation feature. As of December 31, 2018 and 2017 the details of reserves for insurance contract of the nature of financial products and their adjustments are as follows:

December 31, December 31, 2018 2017 Annuities $ 3,329 3,193

(Continued) 376 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the years ended December 31 2018 2017 Beginning balance $ 3,193 2,763 Net provision for statutory reserve for the period 6,729 3,728 Insurance claims payment for the period (6,614) (3,286) Exchange number 21 (12) Ending balance $ 3,329 3,193

8) Foreign exchange rate fluctuation reserves

a) Hedging strategy and risk exposure:

When adjusting the foreign exchange rate hedge ratio, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. takes into consideration the dynamics of the international financial market and its own ability to take risks, so that the fluctuation in foreign exchange profit and loss can be reduced, and choose traditional hedge instrument as its major hedge tools, and properly allocation depending on the corresponded hedge cost ratio of each maturity. As of December 31, 2018 and 2017, major risk exposure on foreign exchange are all from US dollar assets, amounted to USD17,500,000 thousand and USD15,969,205 thousand, respectively, without hedge positions, and risk exposure of it are amounted to USD6,565,914 thousand and USD6,406,935 thousand, respectively.

b) As of December 31, 2018 and 2017, foreign exchange rate fluctuation reserves of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. amounted to $2,273,640 and $730,720, respectively.

Changes in foreign exchange rate fluctuation reserves:

For the years ended December 31 2018 2017 Beginning balance $ 730,720 1,362,740 Current provision Mandatory provision 971,721 700,011 Extra provision 2,074,013 548,087 Subtotal 3,045,734 1,248,098 Current recovery (1,502,814) (1,880,118) Ending balance $ 2,273,640 730,720

(Continued) 377 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

c) The effects of foreign exchange rate fluctuation reserves on the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. were as follows:

Items Not applicable Applicable Effect December 31, 2018 Foreign exchange rate $ - 2,273,640 (2,273,640) fluctuation reserves Stockholders’ equity 66,256,969 65,312,772 944,197 December 31, 2017 Foreign exchange rate - 730,720 (730,720) fluctuation reserves Stockholders’ equity 81,619,411 81,909,550 (290,139)

For the year ended December 31, 2018 For the year ended December 31, 2017 Not Not Items applicable Applicable Effect applicable Applicable Effect Profit (loss) after tax $ 9,530,725 8,296,389 1,234,336 9,617,532 10,142,109 (524,577) Earnings per share 2.28 1.99 0.29 3.01 3.17 (0.16)

9) Special reserve

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

December 31, December 31, 2018 2017 Recovery of special reserve for catastrophe $ 2,963,625 2,742,425 Special reserves for significant incidents and catastrophe 1,564,762 1,642,022 Foreign exchange rate fluctuation reserves 2,359,283 1,338,783 Recovery of revaluation appreciation reserves on real 231,566 231,566 estate Provision on profit testing of insurance products 69,564 134,400 Deduction of other shareholders’ equity - 2,749,377 Employees training transfer program 73,672 24,670 $ 7,262,472 8,863,243

According to Tai-Tsai-Bao-Zi No.0910074195, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. shall follow the “ Regulations Governing Insurance Enterprises for Setting Aside Various Reserves” since 2002 to set aside a special reserve by the net of tax amounts of recovery of special reserve for catastrophe after the approval of shareholder meeting next year.

The Company’ s subsidiary Taiwan Life Insurance Co., Ltd. have recognized special reserves for significant incidents and catastrophe in accordance with the “ Regulations Governing Insurance Enterprises for Setting Aside Various Reserves” . The provision should be made at after-tax amount at the end of each year, and should be placed in special reserve under “Equity.” Special reserve under “Equity” can be offset or recovered by the aforementioned offset or recoverable amount at the after-tax amount.

(Continued) 378 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

In addition, in accordance with the mechanism of the reserve for fluctuation of foreign exchange, under legal proceedings, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. should contribute a special reserve by 10% of its after tax income earnings.

According to FSC Jin-Guan-Bao-Shou-Zi No. 10302125060, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. has recognized additional special reserve amounting to $69,564 in accordance with the results of the insurance product profit testing on December 31, 2018.

According to FSC Jin-Guan-Bao-Tsai-Zi No. 10502066461, in order to response the trend of the development of FinTech, the Company’s subsidiary Taiwan Life Insurance Co., Ltd. should recognize special reserve amounting to $73,672 to assist insurance employees to transform and protect their rights on December 31, 2018.

According to FSC Jin-Guan-Bao-Tsai-Zi No. 10102508861, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. recognizes the same amount of special reserve from current income and undistributed earnings from previous period as the deduction of other equity incurred in the current year; the Company recognizes the same amount of nondistributable special reserve from undistributed earnings from previous period as the deduction of other shareholder equity accumulated from previous period. Once the deduction items of other equity reverse in the future, the reversed amount could be deemed as distributable earnings.

Property insurance business:

a) Unearned premium reserve and ceded unearned premium reserve

i) As of December 31, 2018 and 2017, the reserve for unearned premiums of the Company’s sub-subsidiary TLG insurance Co., Ltd. were as follows:

December 31, 2018 Ceded unearned Unearned premium reserve premium reserve Reinsurance Reinsurance cede Retained Direct business assumed business business business Fire insurance $ 239,393 12,263 130,200 121,456 Marine insurance 12,308 413 11,456 1,265 Miscellaneous casualty 61,752 9,915 43,369 28,298 insurance Personal accident and 119,600 1,161 38,835 81,926 health insurance Voluntary auto insurance 542,185 1 - 542,186 Compulsory auto TPL 115,049 85,096 69,030 131,115 insurance Total $ 1,090,287 108,849 292,890 906,246

(Continued) 379 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

For the year ended December 31, 2018 For the year ended December 31, 2017 Unearned Unearned Unearned premium Unearned premium premium reserve reserve cede premium reserve reserve cede Beginning balance $ 1,294,495 343,242 1,266,291 325,490 Current provision 1,199,136 292,890 1,294,495 343,242 Current recovery (1,294,495) (343,242) (1,266,291) (325,490) Ending balance $ 1,199,136 292,890 1,294,495 343,242

b) Claim reserve and ceded claim reserve

i) Liabilities for claims categorized by reported to be paid, reported but unpaid, and not reported.

December 31, 2018 Notes payable Claims (claims) payable Claim reserve Reported but Reported to be paid unpaid Not reported Total Fire insurance $ 48 - 42,262 4,133 46,395 Marine insurance - - 21,897 2,607 24,504 Miscellaneous casualty 433 - 102,431 36,535 138,966 insurance Personal accident and 663 - 11,205 47,644 58,849 health insurance Voluntary auto insurance 1,392 - 282,570 75,907 358,477 Compulsory auto TPL 505 - 65,264 219,921 285,185 insurance Total $ 3,041 - 525,629 386,747 912,376

(Continued) 380 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

December 31, 2018 Reported but unpaid Not reported Total Fire insurance $ 24,470 1,277 25,747 Marine insurance 17,588 951 18,539 Miscellaneous casualty 61,371 13,542 74,913 insurance Personal accident and health 5,674 15,145 20,819 insurance Voluntary auto insurance 6,577 35,469 42,046 Compulsory auto TPL insurance 23,502 81,546 105,048 Less: Accumulated impairment (92) - (92) Total $ 139,090 147,930 287,020 December 31, 2017 Reported but unpaid Not reported Total Fire insurance $ 20,734 6,941 27,675 Marine insurance 2,533 (474) 2,059 Miscellaneous casualty 70,641 71,912 142,553 insurance Personal accident and health 12,513 32,567 45,080 insurance Voluntary auto insurance 20,306 172,057 192,363 Compulsory auto TPL insurance 25,252 91,411 116,663 Less: Accumulated impairment (100) - (100) Total $ 151,879 374,414 526,293

(Continued) 381 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

iii) The movements in claim reserve and claim reserve (ceded) were as follows:

For the year ended December 31, 2018 For the year ended December 31, 2017 Ceded claim Ceded claim Claim reserve reserve Claim reserve reserve Beginning balance $ 1,162,126 526,293 982,303 415,004 Current provision 912,376 287,112 1,162,126 526,393 Current recovery (1,162,126) (526,393) (982,303) (415,579) Reversal of Impairment loss - 8 - 475 Ending balance $ 912,376 287,020 1,162,126 526,293

c) Special reserve

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

December 31, December 31, 2018 2017 Special reserve of compulsory auto liability insurance $ 61,502 55,739 Special reserve of non-compulsory auto liability 101,806 103,433 insurance $ 163,308 159,172

ii) The movements in special reserve were as follows:

1. Special reservecompulsory auto liability insurance

For the years ended December 31 2018 2017 Beginning balance $ 55,739 44,266 Current provision 5,763 11,473 Ending balance $ 61,502 55,739

2. Special reservenon-compulsory auto liability insurance

For the year ended December 31, 2018 Liability Special reserve Dangerous Dangerous Catastrophe change Total Catastrophe change Total Beginning balance $ 42,306 61,127 103,433 72,116 257,133 329,249 Current provision - - - 15,325 46,799 62,124 Current recovery (1,627) - (1,627) - (24,690) (24,690) Ending balance $ 40,679 61,127 101,806 87,441 279,242 366,683

(Continued) 382 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the year ended December 31, 2017 Liability Special reserve Dangerous Dangerous Catastrophe change Total Catastrophe change Total Beginning balance $ 42,306 61,127 103,433 58,082 207,469 265,551 Current provision - - - 14,034 56,870 70,904 Current recovery - - - - (7,206) (7,206) Ending balance $ 42,306 61,127 103,433 72,116 257,133 329,249

The amount of special reserve liabilities the Company’s sub-subsidiary TLG Insurance Co., Ltd. recognized as of December 31, 2012 was in accordance with Jin Kuan Bao CAI Zi No. 10102515061 “ Notice to Reserve Enforcement of Insurance Companies for Natural Disaster Insurance (Commercial Earthquake Insurance and Typhoon and Flood Insurance)”, ”Disclosure of the special reserve for resident earthquake insurance” , and “ Disclosure of the special reserve for nuclear insurance”. Since the aforesaid amount was not achieved to the level as requested by the regulator, the special reserve should be accounted for under liabilities and the special catastrophe reserve and risk volatility reserve should be reclassified into natural disaster insurance category since January 1, 2013.

The effects on income, liabilities, equity and earnings per share of the Company’ s sub-subsidiary TLG Insurance Co., Ltd. under the circumstance of not adopting the aforesaid regulations were as follows:

December 31, 2018 Amount Amount without the with the adoption adoption of reserve of reserve Effect Special reserve $ 63,130 163,308 (100,178) Stockholders’ equity 1,784,476 1,704,334 80,142

December 31, 2017 Amount Amount without the with the adoption adoption of reserve of reserve Effect Special reserve $ 57,366 159,172 (101,806) Stockholders’ equity 1,908,582 1,824,083 84,499

For the year ended December 31, 2018 For the year ended December 31, 2017 Amount Amount Amount Amount without the with the without the with the adoption of adoption of adoption of adoption of reserve reserve Effect reserve reserve Effect Net Income $ 67,085 68,387 (1,302) 38,880 40,230 (1,350)

Earnings per share after tax 0.31 0.32 (0.01) 0.19 0.20 (0.01)

(Continued) 383 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

d) Premium deficiency reserve and ceded premium deficiency reserve:

i) Details of premium deficiency reserve and premium deficiency reserve (ceded) of the Company’ s sub-subsidiary TLG Insurance Co., Ltd. were as follows:

December 31, 2018 December 31, 2017 Ceded Ceded Premium premium Premium premium deficiency deficiency deficiency deficiency reserve reserve reserve reserve Voluntary auto insurance 31,749 31,749 19,915 - Miscellaneous casualty insurance 4,106 (473) 1,370 - Marine insurance - - 512 - $ 35,855 31,276 21,797 -

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

For the years ended December 31 2018 2017 Premium Ceded premium Premium Ceded premium deficiency deficiency deficiency deficiency reserve reserve reserve reserve Beginning balance $ 21,797 - 46,425 27,383 Current provision 35,855 31,276 21,797 - Current recovery (21,797) - (46,425) (27,383) Ending balance $ 35,855 31,276 21,797 -

(ii) Insurance revenue and expense

1) Retained earned premium:

Life insurance business:

For the year ended December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 260,912,777 2,043,186 262,955,963 Reinsurance premium - - - Insurance income 260,912,777 2,043,186 262,955,963 Reinsurance expense 2,010,860 - 2,010,860 Net changes in unearned 632,578 - 632,578 premium reserve 2,643,438 - 2,643,438 Retained earned premium $ 258,269,339 2,043,186 260,312,525

(Continued) 384 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the year ended December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Direct written premium $ 264,009,631 5,048,084 269,057,715 Reinsurance premium - - - Insurance income 264,009,631 5,048,084 269,057,715 Reinsurance expense 2,390,579 - 2,390,579 Net change in unearned (183,704) (221) (183,925) premium reserves 2,206,875 (221) 2,206,654 Retained earned premium $ 261,802,756 5,048,305 266,851,061

Property insurance business:

For the year ended December 31, 2018 Claims The net change Earned retain (Contain claim Reinsurance Claim Retain claims of unearned claims expense) claim recovered payment claims reserve payment Item (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)-(5) Non-compulsory insurance $ 1,899,132 54,842 515,414 1,438,560 (37,833) 1,476,393 Compulsory insurance 275,473 144,218 115,565 304,126 (7,174) 311,300 Total $ 2,174,605 199,060 630,979 1,742,686 (45,007) 1,787,693

For the year ended December 31, 2017 Claims The net change Earned retain (Contain claim Reinsurance Claim Retain claims of unearned claims expense) claim recovered payment claims reserve payment Item (1) (2) (3) (4)=(1)+(2)-(3) (5) (6)=(4)-(5) Non-compulsory insurance $ 2,026,133 41,493 545,949 1,521,677 9,185 1,512,492 Compulsory insurance 304,693 148,877 128,173 325,397 1,267 324,130 Total $ 2,330,826 190,370 674,122 1,847,074 10,452 1,836,622 2) Retained claims payment:

Life insurance business:

For the year ended December 31, 2018 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 84,323,611 3,687,496 88,011,107 Reinsurance claims payment 16 - 16 Insurance claims payment 84,323,627 3,687,496 88,011,123 Less: recovery of reinsurance 985,373 - 985,373 claims payment Retained claims payment $ 83,338,254 3,687,496 87,025,750

(Continued) 385 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the year ended December 31, 2017 Financial instruments with discretionary Insurance participation contracts feature Total Claims payment $ 47,999,224 3,944,435 51,943,659 Reinsurance claims payment 24 - 24 Insurance claims payment 47,999,248 3,944,435 51,943,683 Less: recovery of reinsurance 1,247,764 - 1,247,764 claims payment Retained claims payment $ 46,751,484 3,944,435 50,695,919

Property insurance business:

For the year ended December 31, 2018 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 940,463 14,845 171,198 784,110 Compulsory insurance 188,067 156,547 110,890 233,724 Total $ 1,128,530 171,392 282,088 1,017,834

For the year ended December 31, 2017 Claims (Contain claim Reinsurance Claim Retain claims expense) claim recovered payment Item (1) (2) (3) (4)=(1)+(2)-(3) Non-compulsory insurance $ 875,545 8,194 215,548 668,191 Compulsory insurance 231,935 118,632 133,517 217,050 Total $ 1,107,480 126,826 349,065 885,241

(Continued) 386 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ag) Income tax

According to the amendments to the “Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, the corporate income tax rate increased from 17% to 20%.

(i) Income tax expenses

For the years ended December 31, 2018 and 2017, the Company and subsidiaries’ income tax expenses and related accounts were as follows:

For the years ended December 31 2018 2017 Current income tax expenses $ (6,285,764) (9,175,265) Deferred income tax (expenses) benefits (1,207,275) 1,673,150 Effects of change in tax rate 1,138,751 - Income tax expenses $ (6,354,288) (7,502,115)

For the years ended December 31, 2018 and 2017, the Company and subsidiaries’income tax (expenses) benefits recognized under other comprehensive income were as follows:

For the years ended December 31 2018 2017 Items that will not be reclassified subsequently to profit or loss: Remeasurement gains related to defined benefit plans $ (65,585) (25,258) Proportionate share of other comprehensive income from 179 969 associates or joint ventures under the equity method Unrealized losses from equity investments measured at fair 306,017 - value through other comprehensive income Effects of change in tax rate 127,639 - Total $ 368,250 (24,289) Items that are or may be reclassified subsequently to profit or loss: Exchange differences of overseas subsidiaries’ financial reports $ (318,257) 436,177 translation Unrealized valuation gains on available-for-sale financial assets - (968,222) Losses on valuation of debt instrument measured at fair value 3,399,385 - through other comprehensive income Other comprehensive income on reclassification under the 1,529,090 - overlay approach Proportionate share of other comprehensive income from its 39,676 (29,791) subsidiaries, associates or joint ventures under the equity method Effects of change in tax rate (171,328) - Total $ 4,478,566 (561,836)

(Continued) 387 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017, the adjustments of the Company and subsidiaries for the income tax expenses and pre-tax income were as follows:

For the years ended December 31 2018 2017 Net income before income tax $ 42,389,499 44,726,295 Straight income tax (17,601,513) (16,486,753) Effects of foreign and domestic tax rate spread 164,313 (297,768) Changes in income tax rate 1,138,751 - Tax-exempt income 10,432,471 9,888,984 Adjustments of prior year’s income tax (286,078) 251,224 Undistributed earnings additional tax (1,348,824) - Income basic tax (193) (49,584) Others 1,146,785 (808,218) Total $ (6,354,288) (7,502,115)

(ii) Deferred tax assets and liabilities

1) For the years ended December 31, 2018 and 2017, the movements of deferred tax assets and liabilities were as follows:

For the year ended December 31, 2018 Recognized in Recognized in other Beginning profit and comprehensive Ending Balance loss income Others Balance Proportionate share of other $ 98,699 (344,488) - 34,905 (210,884) comprehensive income from associates or joint ventures under the equity method Unrealized losses (gains) on foreign 4,037,085 (991,530) - 1,007,444 4,052,999 exchange and derivative financial instruments Allowance for credit losses 2,487,666 337,583 - 396,256 3,221,505 Guarantee provision 111,875 (77) - 5,850 117,648 Losses on impairment assets 216,056 104,630 - (272,848) 47,838 Employee benefits liabilities 484,206 (21,759) - 197,302 659,749 Settlement compensation provision 15,523 (415) - 2,738 17,846 Exchange differences of overseas 1,684,993 - (318,257) (261,119) 1,105,617 subsidiaries’ financial reports translation Defined benefit plan actuarial losses 219,983 - (65,585) (53,531) 100,867 (gains) Unrealized (gains) losses on financial (1,659,128) (8,793) 5,234,492 (410,509) 3,156,062 assets measured at fair value through other comprehensive income (Put) Call warrant transactions (8,216) 16,277 - (1,450) 6,611 Acquisition value of insurance (99,098) 1,939 - (17,488) (114,647) policies Losses carryforward and others 1,329,205 (300,642) - 82,656 1,111,219 Deferred income tax assets $ 8,918,849 (1,207,275) 4,850,650 710,206 13,272,430 (liabilities) - net (Continued) 388 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the year ended December 31, 2018 Recognized in Recognized in other Beginning profit and comprehensive Ending Balance loss income Others Balance Informatin disclosed in balance sheet: Deferred income tax assets $ 13,117,481 15,656,082 Deferred income tax liabilities (4,198,632) (2,383,652) Total $ 8,918,849 13,272,430 For the year ended December 31, 2017 Recognized in Recognized in other Beginning profit and comprehensive Ending Balance loss income Others (Note) Balance Proportionate share of other $ (40,846) 149,909 - (10,364) 98,699 comprehensive income from associates or joint ventures under the equity method Unrealized losses on foreign exchange 1,167,224 2,915,809 - 1,873 4,084,906 and derivative financial instruments Allowance for credit losses 2,889,500 (425,136) - (72,839) 2,391,525 Guarantee provision - 81,806 - - 81,806 (Gains) losses on reversal of (694,279) 22,446 - 887,889 216,056 impairment assets Employee benefits liabilities 478,365 (651) - 6,492 484,206 Settlement compensation provision 159,614 (144,091) - - 15,523 Exchange differences of overseas 777,834 - 436,177 11,146 1,225,157 subsidiaries’ financial reports translation Defined benefit plan actuarial losses 261,927 - (25,258) (16,686) 219,983 (gains) Unrealized losses (gains) on available- 664,831 (32,750) (968,222) 7,727 (328,414) for-sale financial assets Call (put) warrant transactions 6,492 (14,708) - - (8,216) Aquisition value of insurance policies (100,456) 1,358 - - (99,098) Losses carryforward and others 3,270,699 (880,842) - (1,060,652) 1,329,205 Deferred income tax assets $ 8,840,905 1,673,150 (557,303) (245,414) 9,711,338 (liabilities) - net Informatin disclosed in balance sheet: Deferred income tax assets $ 10,347,900 13,909,970 Deferred income tax liabilities (1,506,995) (4,198,632) Total $ 8,840,905 9,711,338

(Continued) 389 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Unrecognized deferred income tax asstes

As of December 31, 2018 and 2017, the unrecognized deferred income tax assets of the Company and subsidiaries are as below:

December 31, December 31, 2018 2017 Tax effect of deductible temporary differences $ 160,247 129,333 The carryforward of unused tax losses 14,287 22,799 Total $ 174,534 152,132

The R.O.C. Income Tax Act allows net losses, as assessed by the tax authorities, to offset taxable income over a period of ten years for local tax reporting purposes. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company and subsidiary can utilize the benefits therefrom.

As of December 31, 2018, the unused tax losses of unrecognized deferred income tax assets and the latest year of deduction for the Company and subsidiaries were as follows:

Year of loss Undeductible loss Latest year of deduction 2009 $ 64,165 2019 2010 7,267 2020 Total $ 71,432

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

Latest year of assessment The Company Until 2013 CTBC Bank Co., Ltd. Until 2013 CTBC Securities Co., Ltd. Until 2013 CTBC Insurance Brokers Co., Ltd. (dissolved) Until 2013 and 2015(Note) CTBC Venture Capital Co., Ltd. Until 2013 CTBC Asset Management Co., Ltd. Until 2013 CTBC Security Co., Ltd. Until 2013 Taiwan Lottery Co., Ltd. Until 2013 Chinatrust Bills Finance Corp. (dissolved) Until 2008 Taiwan Life Insurance Co., Ltd. Until 2015 CTBC Life Insurance Co., Ltd. (dissolved) Until 2013 CTBC Investments Co., Ltd. Until 2013

(Continued) 390 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note: CTBC Insurance Brokers Co., Ltd. was liquidated after merged with the subsidiaries CTBC Bank Co., Ltd. in November, 2015 and the notice of assessment of the income tax for the year of 2015 has been acquired.

Year of Re-exam Description of Re-examination CTBC Venture Capital Co., 2013 Loss on investment Ltd. CTBC Asset Management 2013 Operating income and operating expenses allocation of exempt Co., Ltd. income and tax Taiwan Life Insurance Co., 2015 Interest income Ltd.

Year of Appeal Description of Appeal The Company 2010 Losses carryforward CTBC Venture Capital Co., 2010 Operating income and operating expenses allocation of exempt Ltd. income " 2011 " CTBC Asset Management 2010 Operating income and operating expenses allocation of exempt Co., Ltd. income " 2011 " " 2012 "

Year of Litigation Description of Litigation The Company 2009 Other losses and other expenses CTBC Insurance Brokers 2009 Interest income and operating expenses allocation of exempt income Co., Ltd. (dissolved) CTBC Venture Capital Co., 2009 Interest income Ltd. CTBC Asset Management 2009 Interest income, operating income and operating expenses allocation Co., Ltd. of exempt income

(ah) Capital stock, capital surplus, treasury stock, and other equity interest

(i) Capital stock

As of December 31, 2018, the Company’s authorized capital was $230,000,000 representing 23,000,000 thousand shares with par value at NT$10 per share. The paid-in capital includes common stock amount to $194,969,896 and preferred stock $3,333,300, with 19,496,990 thousand shares and 333,330 thousand shares issued, respectively.

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

(Continued) 391 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

1) Dividends:The dividend yield is set at 3.75% per annum (equal to the sum of 7-year IRS 1.0825%+2.6675%) on the issue price. The IRS rate will be reset every 7 years and the pricing date for reset is two business days prior to the IRS reset date. The IRS rate is the arithmetic mean of 7-year IRS rates appearing on Reuters pages ” PYTWDFIX” and “COSMOS3” at 11:00 a.m. (Taipei time) on the relevant pricing date for reset. If such rate cannot be obtained, the Company will determine the rate based on reasonable market price with good faith. The dividends will be distributed annually in arrears.

2) Earnings distribution: The fiscal year-end earnings of the Company shall be applied to the following uses in order: payments of taxes, adjustments per financial and accounting principle, making-up of deficit, legal reserve, special reserve by law or reversal, and the remaining shall be paid to holders of preferred shares B as the current year’s dividends.

3) Dividend distribution: The Company has discretion over the dividend distribution of preferred shares B. The Company may decide not to distribute dividends of preferred shares B in the following circumstances: (a) there are no earnings in a fiscal year, (b) the earnings are insufficient to distribute dividends of preferred shares B, (c) the distribution of dividends of preferred shares B will cause the capital adequacy ratio to be lower than the regulatory requirements, and (d) other considerations. The cancellation of dividend payment should not constitute an event of default.

4) The preferred shares B are noncumulative, and the preferred shareholders do not have the right to claim any of the unpaid or omitted dividends in the future.

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

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

7) Voting right and election right: Preferred shareholders do not have voting rights or suffrage. However, they have voting rights with respect to agendas related to the rights and obligations of preferred shares B in shareholders' meetings.

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

9) Due date: The preferred shares B is perpetual but may be redeemed in whole or in part at issue price anytime after seven years of issuance at the option of the Company. Unredeemed preferred shares shall continue to have the rights and obligations of issuance terms prescribed in this Article.

(Continued) 392 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Capital surplus

The components and sources of capital surplus were as follows:

December 31, December 31, 2018 2017 Additional paid-in capitalcommon stock $ 32,242,318 32,239,491 Additional paid-in capitalpreferred stock 16,648,468 16,648,774 Share based payment transactions 1,499,326 1,499,326 Others (21,573) (21,573) Total $ 50,368,539 50,366,018

In compliance with the Company Act, capital surplus can only be used to offset a deficit when surplus reserve is not sufficient to offset losses or be distributed by issuing new shares or by cash pursuant to a resolution to be adopted by a shareholders’ meeting as required in Article 241, Paragraph 1 of the Company Act. Furthermore, according to Article 72 1, Paragraph 1 of the Regulations Governing the offering and Issuance of Securities by Securities Issuers, the amount of capital surplus to be used to increase capital shall not exceed 10% of total paid in capital. The capital surplus arising from a capital increase can be capitalized only in the following fiscal year after being registered by the Company with the competent authority for approval.

The share based payment transactions are treasury stock and cash capital increase transferred to employees. The Company is reserving ten percent of new shares for subscription by employees of the Company and subsidiaries follows Article 267, Paragraph 1 of the Company Act.

(iii) Treasury stock

As of December 31, 2018, in accordance with Financial Holding Company Act and Article 12 of Business Mergers And Acquisitions Act, the Company has buyback 27,168 thousand shares at NT$21.45 per share from the shareholders who are dissent to the stock swap for the acquisition of Taiwan Life Insurance Co., Ltd. on August 2015, the aforementioned treasury stocks have been sold.

(Continued) 393 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Other equity interest

Changes in the Company’s other equity interest were as follows:

Changes in Unrealized gains financial (losses) on liabilities Other Exchange financial assets designated at comprehensive differences of measured at fair Unrealized fair value income on overseas value through gains (losses) through profit reclassification subsidiaries' other on available- or loss under the financial reports comprehensive for-sale attributable to overlay translation income financial assets credit risk approach Total Balance at January 1, 2018 $ (8,728,029) - (5,608,490) (1,422,950) - (15,759,469) Effects of retrospective (804) (646,184) 5,608,490 - 1,552,859 6,514,361 application of new standards Balance at January 1, 2018 after (8,728,833) (646,184) - (1,422,950) 1,552,859 (9,245,108) adjustments Exchange differences of 2,624,836 - - - - 2,624,836 overseas subsidiaries’ financial reports translation Losses on designated as (740,474) - - - - (740,474) hedging instruments in a hedge of the net investments in overseas subsidiaries Proportionate share of other - (199,637) - - - (199,637) comprehensive loss from associates under the equity method Unrealized losses from financial - (12,964,761) - - - (12,964,761) assets measured at fair value through other comprehensive income Accumulated losses on - (5,891,617) - - - (5,891,617) disposals of investments in debt instruments measured at fair value through other comprehensive income reclassified to profit or loss Disposals of investments in - 1,267,533 - - - 1,267,533 equity instruments measured at fair value through other comprehensive income Valuation adjustment of other - - - - (12,416,338) (12,416,338) comprehensive income on reclassification under the overlay approach Change in designated as - - - 1,112,346 - 1,112,346 financial liabilities measured at fair value through profit or loss attributable to credit risk December 31, 2018 $ (6,844,471) (18,434,666) - (310,604) (10,863,479) (36,453,220)

(Continued) 394 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Changes in financial Exchange liabilities differences of designated at Unrealized overseas fair value (losses) gains on subsidiaries’ through profit or available-for-sale financial reports loss attributable financial assets translation to credit risk Total January 1, 2017 $ (11,997,483) (4,414,363) (317,142) (16,728,988) Available-for-sale financial assetsnet Valuation adjustment 16,593,885 - - 16,593,885 Realized amount (10,322,634) - - (10,322,634) Foreign currency translation difference Exchange difference - (5,496,257) - (5,496,257) Gains on effective hedging instrument - 1,182,591 - 1,182,591 Proportionate share of other comprehensive income from associates under equity method Recognized amount 117,742 - - 117,742 Changes in designated as financial liabilities measured at fair value through profit or loss attributable to credit risk Recognized amount - - (1,105,808) (1,105,808) December 31, 2017 $ (5,608,490) (8,728,029) (1,422,950) (15,759,469)

(ai) Earnings distribution and dividend policy

Annual earnings, if any, are used to pay taxes, make adjustments in accordance with financial accounting standards, offset deficits, appropriate legal reserve, and provision for or reversal of special reserve. Then, preferred stock dividends are distributed prior to the distribution of the remaining earnings. The remaining earnings, if any, will be the undistributed earnings of the year, plus the beginning undistributed earnings, it will be the accumulated distributable earnings, and Board of Directors will draft the proposal for earnings distribution and have it passed by the resolution of shareholders’ meeting before distribution or modification.

The Company, aiming to a continued growth and increase profitability as well as to be in line with the provisions of laws, adopts a residual dividend policy.

According to operational planning of the Company, shareholders dividend and bonus will be distributed according to the following manners:

(i) In principle, the distribution of annual shareholders dividend and bonus shall not be lower than 20% of the distributable earnings of the current year; the distributable earnings of the current year referred to in this subparagraph is the aforementioned undistributed earnings of the year stated in Article 29-1, paragraph 1of the corporate charter after deducting the balance of adjustments per accounting principle and reversals of special reserves by law in the current year, excluding distributable but not yet distributed Preferred Shares dividends for the current year;

(Continued) 395 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Shareholders dividend and bonus may be distributed in cash and/or by stock, provided the cash dividend shall not be less than 10% of the total dividends;

For the above mentioned dividend distribution policy, Board of Directors may propose to a Shareholders’ Meeting for resolution to an appropriate adjustment of the ratio in cash dividend distribution according to the business operation of the Company, funds demand in reinvestments and acquisition, and major amendment of laws, provided it shall not be less than 1% of the total dividends. The Company may retain the earnings if the cash dividend is less than NT$0.1(dollars) per share.

A resolution on 2017 earnings distribution of the Company was approved by the general shareholder meeting on June 15, 2018 and the distribution of cash dividend for common stock and preffered stock were $21,056,749 and $14,383.

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

Relevant information about employee bonuses approved by the board of directors on behalf of shareholders’ meeting is available on Market Observation Post System or other sites.

(aj) Share-based payment

For the years ended December 31, 2018 and 2017, the Company and subsidiaries had set out the measurement principles and specific requirements for the share based payment transactions which were as follows:

Management stock appreciation rights plan for the years 2014 2015 2016 2017 Grant date 2015.02.06 2016.02.04 2017.01.25 2018.02.08 Grant number 285,222 273,119 231,283 241,881 Exercise period 2017.12.31 2018.12.31 2019.12.31 2020.12.31 Exercise price at grant date 20.35 14.92 17.82 21.39

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

(Continued) 396 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

For the year ended December 31, 2018 Management stock appreciation rights plan for the years 2015 2016 2017 Weighted Weighted Weighted average average average exercise exercise exercise Number price Number price Number price Outstanding at the beginning 313,790 11.94 241,180 16.11 241,881 20.32 of the period Granted during the period 24,963 11.94 12,527 16.11 12,695 20.32 Forfeited during the period 13,637 11.94 3,772 16.11 3,188 20.32 Exercised during the period 325,116 11.94 4,545 16.11 2,045 20.32 Expired during the period - 11.94 - 16.11 - 20.32 Outstanding at the end of the - 11.94 245,390 16.11 249,343 20.32 period Exercisable at the end of the - 11.94 - 16.11 - 20.32 period

For the year ended December 31, 2017 Management stock appreciation rights plan for the years 2014 2015 2016 Weighted Weighted Weighted average average average exercise exercise exercise Number price Number price Number price Outstanding at the beginning 346,900 15.32 302,173 12.57 231,283 16.96 of the period Granted during the period 30,738 15.32 15,278 12.57 11,717 16.96 Forfeited during the period 21,195 15.32 2,030 12.57 1,089 16.96 Exercised during the period 356,443 15.32 1,631 12.57 731 16.96 Expired during the period - 15.32 - 12.57 - 16.96 Outstanding at the end of the - 15.32 313,790 12.57 241,180 16.96 period Exercisable at the end of the - 15.32 - 12.57 - 16.96 period

For the year ended December 31, 2018, the weighted-average stock prices executed under SARs for 2015, 2016, and 2017 were NT$20.69,$20.48 and $21.67 (in dollars), respectively.

As of December 31, 2018, the weighted-average remaining durations of outstanding shares under SARs for 2016 and 2017 were 1.00 and 2.00 years, respectively.

On January 25, 2019, the Company’ s board of directors has passed Management Stock Appreciation Rights Plan for the Year 2018. 308,951 units of share based payment have been granted, with the execution price of $20.24 (in dollars). On the execution date of December 31, 2021, the plan is intended to be settled through cash payments. The Company and subsidiaries recognized current service costs based on the proportion of vested period in 2018.

(Continued) 397 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ak) EPS

For the years ended December 31 2018 2017 Net income attributable to parent company $ 36,032,425 37,222,217 Dividends on preferred stock (14,383) - Net income attributable to common stockholders $ 36,018,042 37,222,217 Weighted average outstanding shares of common stock (in thousands) 19,488,302 19,469,822 Basic EPS (in dollars) $ 1.85 1.91

Retroactive adjustments are applied to the Company’s basic EPS for the year ended December 31, 2017.

Since the Company deals with share-based payment transactions via cash settlement, no impact is expected to be on its weighted-average outstanding shares, nor does the diluted EPS need to be calculated.

(al) Net interest income

For the years ended December 31 2018 2017 Interest income Loan interest $ 59,572,302 53,823,748 Revolving credit interest 2,864,182 2,605,871 Securities interest 59,082,691 49,545,317 Due from Central Bank 417,738 398,476 Due from banks and call loans to banks 3,413,693 2,538,813 Hedging derivatives 75,175 97,660 Insurance policies loans 1,223,599 1,157,534 Others 2,490,444 1,918,857 Subtotal 129,139,824 112,086,276 Interest expense Deposit 20,864,207 15,246,857 Due to other banks 945,882 788,729 Borrowings and other financing 3,744,145 3,436,836 Hedging derivatives 45,128 58,610 Others 1,265,541 950,078 Subtotal 26,864,903 20,481,110 $ 102,274,921 91,605,166

The above table does not include income from financial assets or liabilities measured at fair value.

(Continued) 398 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(am) Service fee and commission income

For the years ended December 31 2018 2017 Commission income Credit card business $ 4,477,803 5,129,315 Wealth management business 5,640,198 5,989,205 Corporate business 5,395,951 5,627,293 Banking business 4,905,731 4,790,848 Insurance business 5,743,626 5,157,145 Securities business 625,573 505,265 Lottery business 4,585,963 4,897,697 Others 534,208 359,998 Total commission income 31,909,053 32,456,766 Service fee Credit card business 562,839 437,121 Wealth management business 184,470 162,241 Corporate business 276,623 245,786 Banking business 2,045,879 2,026,012 Insurance business 7,985,499 8,611,221 Securities business 75,934 80,141 Lottery business 353,181 383,975 Others 49,663 45,231 Total service fee 11,534,088 11,991,728 Service fee and commission income $ 20,374,965 20,465,038

(Continued) 399 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(an) Net insurance income

For the years ended December 31 2018 2017 Insurance income Insurance income $ 265,130,568 271,388,541 Reinsurance premium income 199,060 190,370 Recovery of reinsurance claims payment 1,267,461 1,596,829 Separate account insurance product income 21,189,867 16,523,882 Total insurance income 287,786,956 289,699,622 Insurance expense Reinsurance expense 2,641,839 3,064,701 Underwriting expense 14,037 10,740 Claims payment 44,446,747 27,096,924 Reinsurance claims payment 171,408 126,850 Life insurance bonus payment 583,175 593,814 Surrender value 44,109,715 25,360,400 Guaranty fund expense 505,166 488,442 Separate account insurance product expense 21,189,867 16,523,882 Total insurance expense 113,661,954 73,265,753 Total net insurance income $ 174,125,002 216,433,869

(Continued) 400 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ao) Gains and losses on financial assets and liabilities measured at fair value through profit or loss

For the years ended December 31 2018 2017 Disposal gains (losses) Commercial paper $ 1,588 4,869 Treasury bills 626 1,612 Government bonds (517,793) (450,487) Corporate bonds 31,677 148,167 Financial debentures 216,803 90,142 Convertible bonds 3,573 103,459 Asset-backed securities (108,222) (221,567) Listed and OTC securities 4,866,151 1,648,251 Beneficiary certificates 2,781,015 (45,478) Derivative financial instruments (4,638,764) 24,189,668 Margin purchase and short sale of securities (845) (12,435) Other securities and bonds 31,888 12,860 Fair value hedge adjustment 3,024 - Subtotal 2,670,721 25,469,061 Valuation gains (losses) Commercial paper 21,879 (241) Government bonds 25,766 531,630 Corporate bonds (194,832) (17,861) Financial debentures 2,593,248 (1,518,241) Convertible bonds (368,951) 89,007 Asset-backed securities (378,340) (55,468) Listed and OTC securities (14,277,142) 1,414,367 Beneficiary certificates (2,687,754) 286,588 Other securities and bonds (727,081) (9,104) Derivative financial instruments (14,468,242) 12,086,756 Fair value hedge adjustment (30,616) (21,301) Subtotal (30,492,065) 12,786,132 Dividend income 2,092,127 487,044 Interest income 3,120,734 1,547,960 Interest expense (1,808,360) (1,478,048) Total $ (24,416,843) 38,812,149

(Continued) 401 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

December 31, December 31, 2018 2017 Insurance product assets of segregated account: Cash in bank $ 780,931 1,516,446 Securities 71,236,063 52,558,787 Receivables 945,350 2,408,839 Others 74 - Total $ 72,962,418 56,484,072 Insurance product liabilities of segregated account: Insurance product reserveinsurance contract of segregated account $ 54,815,047 39,821,358 Insurance product reserveinvestment contract of segregated 17,288,903 15,742,156 account Payables 858,468 920,558 Total $ 72,962,418 56,484,072

For the years ended December 31 2018 2017 Insurance product revenues of segregated account: Premium income $ 24,902,127 15,017,077 (Losses) gains on financial assets or liabilities measured at fair value (2,017,629) 1,567,031 through profit or loss Foreign exchange losses (2,384,522) (509,602) Interest income 689,891 449,376 Total $ 21,189,867 16,523,882 Insurance product expenses of segregated account: Net changes in segregated account reserveinsurance contract $ 16,904,791 12,056,725 Surrender value 3,146,828 3,576,970 Insurance claims payment 100,191 70,995 Management fee expense 1,038,057 819,192 Total $ 21,189,867 16,523,882

For the years ended December 31, 2018 and 2017, sales bonuses or discount of investment-oriented insurance products from counterparties amounted to $748,789 and $214,312, respectively.

(Continued) 402 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(aq) Net changes in insurance liability reserve

For the years ended December 31 2018 2017 Provision for liability reserve $ 207,131,131 240,406,764 Provision for claim reserve 45,964 213,494 Reversal of premium deficiency reserve (1,978,217) (308,113) Reversal of special claim reserve (122,576) (26,103) Provision for (reversal of) unearned premium reserve 587,571 (173,474) Provision for reserve of insurance policies with financial instrument 115 442 features Fair value adjustment (302,192) (252,796) Total $ 205,361,796 239,860,214

(ar) Employee benefits expenses

For the years ended December 31 2018 2017 Salary expenses $ 28,660,340 27,841,537 Insurance expenses 2,003,007 1,935,138 Cash-settled share-based payment 1,415,729 2,917,392 Retirement expenses Defined contribution plan 806,981 819,483 Defined benefits plan 318,073 496,678 Other personnel expenses 1,350,962 1,626,607 Total $ 34,555,092 35,636,835

As of December 31, 2018 and 2017, numbers of the Company and subsidiaries’ employees were 20,125 and 20,009, respectively.

(as) Depreciation and amortization expenses

For the years ended December 31 2018 2017 Housing $ 1,111,315 1,120,138 General equipment 587,699 542,480 Transportation equipment 22,137 32,862 Information equipment 759,895 707,810 Subtotal of depreciation expenses 2,481,046 2,403,290 Amortization of information software 1,331,844 1,180,049 Bond issuance expenses and others 3,731 4,389 Subtotal of amortization expenses 1,335,575 1,184,438 Total $ 3,816,621 3,587,728

(Continued) 403 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(at) Compensations of employees and the remunerations to directors

In accordance with the Company’ s article of incorporation, annual earnings, if any, should be appropriated 0.05% and 0.7% (not higher than) as compensations of employees and remunerations to board of directors. However, if there is any cumulative loss, the Company should offset cumulative losses in priority. Compensations of employees and the remunerations to directors which are recognized as current period operating expenses based on the Company’ s net income before tax excluding the amount of the compensations of employees and remunerations to directors, according to accounting period multiplied by the estimate of remuneration distribution set by the Company’s article of incorporation.

The estimated compensation of employees were $18,580 and $18,834 and the remunerations to directors were $261,300 and $263,679 for the years ended December 31, 2018 and 2017, respectively.

The actual compensations of employees of 2017 and 2016 amounted to $18,630 and $13,926, with $(204) and $(113) different from the amount recognized in the annual financial report. The actual compensations of the directors’ of 2017 and 2016 amounted to $260,823 and $194,959, with $(2,856) and $(1,592) different from the amount recognized in the annual financial report. The difference is regarded as a change of accounting estimates and will be adjusted in profit or loss in the fiscal year of 2018 and 2017. Relevant information is available on Market Observation Post System.

(au) Other general and administrative expenses

For the years ended December 31 2018 2017 Site usage and general equipment expenses $ 5,324,133 5,379,535 Information equipment expenses 2,330,520 2,065,098 General administration expenses 5,147,121 6,007,516 Marketing and promotion expenses 3,310,111 3,339,706 Other expenses 3,904,940 3,424,678 Business tax 3,331,432 3,216,950 Total $ 23,348,257 23,433,483

(av) Financial instruments

(i) Methods and assumptions used by the Company and subsidiaries for fair value evaluation of financial instruments were as follows:

1) Fair value of short term financial instruments is estimated by their book value on the Balance sheet date. Since these instruments have short maturities, the book value is adopted as a reasonable basis in estimating the fair value. The method is applied to cash and cash equivalents, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, reinsurance assets, other financial assets, deposits from Central Bank and other banks, due to Central Bank and other banks, securities sold under repurchase agreements, commercial paper payables, payables, remittances, and other financial liabilities.

(Continued) 404 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) If there is a quoted price in an active market for the financial asset, including financial instruments measured at fair value through profit or loss, financial assets measured at fair value through other comprehensive income, financial assets measured at amortized cost, hedging financial instruments, available-for-sale financial assets (applicable before January 1, 2018), and held to maturity financial assets (applicable before January 1, 2018), the quoted price is regarded as its fair value. If there is no quoted price in an active market for the financial asset, its fair value is estimated on the basis of the result of a valuation technique that refers to quoted prices provided by financial institutions. The discounted cash flow technique is used to estimate the fair value of a debt instrument where an active market does not exist. The estimates, hypotheses and discount rates for valuation refer to quoted prices, from financial institutions, of financial instruments having substantially the same terms and characteristics, including the credit quality of debtors, the remaining term over which the contractual interest rate is fixed, the remaining term to repayment of the principal, and the currency in which the payments are to be made. Fair value of debt investments without an active market (applicable before January 1, 2018) accounted for under other financial assets is determined by the quoted estimated fair value from the counterparties, and recorded in accordance with the “ Regulations Governing the Preparation of Financial Reports by Financial Holding Companies” at amortized cost. Fair value for an equity investment is determined based on either the price calculated using a valuation technique or its book value.

3) Loans and deposits are both classified as interest bearing financial assets; therefore, the book value of financial assets is equivalent to their fair value. The net book value of the non-accrual loan, after deducting provision for credit loss, is adopted as the fair value.

4) Fair value of long term liabilities is estimated by the present value of expected future cash flows. The discount rate is based on rates of similar loans available elsewhere; that is, loans with similar maturity date and terms (close to the maturity date).

5) Derivatives usually adopt mark to model prices. The Discounted Cash Flow model is adopted for non-option derivatives, and the Black Scholes Model is adopted for option derivatives.

6) The exchange price is used for financial instruments traded on an exchange. Over-the- counter (OTC) positions use independent price/ parameter quotes by reliable brokers or data vendors, such as Reuters, Bloomberg, etc. In general, the closing price, settlement price, mid-price at a fixed cut-off time, and the average price of several independent brokers could be used as market data for valuation purposes.

7) The Company and subsidiaries would calculate credit valuation adjustment (CVA) by assessing probability of default (PD) and loss given default (LGD) of the counterparty before multiplying exposure at default (EAD) of the counterparty. On the contrary, debit valuation adjustment (DVA) is computed by applying probability of default of the Company and subsidiaries and considering loss given default of the Company and subsidiaries before being multiplied by exposure at default of the Company and subsidiaries.

(Continued) 405 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company and subsidiaries adopt IFRS9 (applicable from January 1, 2018) IAS39 (applicable before January 1, 2018) or take any observable data into account to evaluate the probability of impairment and loss rate of allowance for doubtful accounts as the estimates of PD and LGD. In addition, mark to market assessment of a derivative instrument from Over the Counter (OTC) is applied as EAD. For those accounts have showed significant increase in credit risk, would be the CVA assessment individually by taking into account of the changes of exposures, conditions of collaterals and the recovery probabilities.

8) Except the following listed items, the book value is considered to be a reasonable basis of estimated fair value if the Company and subsidiaries do not measure a financial instrument at fair value.

December 31, 2018 Financial Assets Book value Fair value Investment in debt instruments at amortized cost $1,627,683,522 1,591,692,774

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

(ii) Fair value hierarchy information on financial instruments and the statements of changes in fair value of Level 3

1) The definition of fair value hierarchy

a) Level 1

Fair value measurement for a financial instrument classified in Level 1 is determined as the quoted price for an identical financial instrument in an active market. The definition of active market has all of the following conditions: (1) the products traded in the market are homogeneous, (2) willing parties are available anytime in the market, and (3) price information is available for the public.

(Continued) 406 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

b) Level 2

Fair value measurement for a financial instrument classified in Level 2 is determined as the observable price other than quoted price in an active market, including an observable input obtained in an active market, either directly (i.e., as prices) or indirectly (i.e., derived from prices). The examples of observable price are as follows:

i) The quoted price for an identical financial instrument in an active market means the fair value from the market transaction prices for an identical financial instrument. An identical financial instrument should be determined by its characteristics and terms of transaction. The fair value of a financial instrument has to be adjusted according to the observable market price of the identical financial instrument. The reasons for adjustments include time lag of the occurring market transaction prices for an identical financial instrument (the quoted prices do not represent fair value at the measurement date), the difference in transaction terms for financial instruments, transaction prices involving related parties, and the correlation between the observable transaction prices of identical financial instruments and the market prices of held financial instruments.

ii) The quoted market price of the same or identical financial instruments in an inactive market.

iii) The fair value is estimated on the basis of the results of a valuation technique, and the market inputs used (i.e., interest rate, yield curve, and fluctuation rate) are based on obtainable data from the market (an observable input means an input can be derived from market data and can reflect the expectation of market participants when the inputs were used in evaluating the prices of financial instruments).

(iv) A majority of inputs are derived from observable market data, or the input correlation can be tested based on observable market data.

c) Level 3

Input for a fair value measurement for a financial instrument classified in Level 3 is not based on obtainable data from the market (an unobservable input, such as volatility for a share option derived from the share’s historical prices, as it does not generally represent current market expectations about future volatility).

(Continued) 407 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Fair value hierarchy information on financial instruments

December 31, 2018 Asset and Liability Items Total Level 1 Level 2 Level 3 Instruments measured at fair value Instruments measured at fair value on a recurring basis Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value through profit or loss Investment in equity instruments $ 55,819,151 53,580,094 667,623 1,571,434 Investment in debt instruments 174,335,742 6,996,713 143,759,889 23,579,140 Others 94,829,662 74,593,077 - 20,236,585 Designated as financial assets measured at fair value through profit or loss Investment in debt instruments 1,130,284 - - 1,130,284 Financial assets measured at fair value through other comprehensive income Investment in equity instruments 83,134,648 73,149,178 1,452,930 8,532,540 Investment in debt instruments 380,721,146 155,101,207 225,238,466 381,473 Liabilities: Designated as financial liabilities measured at 37,930,181 - - 37,930,181 fair value through profit or loss Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through $ 42,517,681 377,145 41,773,804 366,732 profit or loss Financial assetshedging 34,212 - 34,212 - Liabilities: Financial liabilities measured at fair value 68,641,142 217,815 68,007,364 415,963 through profit or loss Financial liabilitieshedging 184,195 - 184,195 - Instruments not measured at fair value Investment in debt instruments at amortized cost 1,591,692,774 905,376,933 659,537,224 26,778,617 Investment property 61,761,660 - - 61,761,660

(Continued) 408 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Asset and Liability Items Total Level 1 Level 2 Level 3 Instruments measured at fair value Instruments measured at fair value on a recurring basis Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Financial assets held for trading Investment in stocks $ 24,396,128 24,191,279 204,849 - Investment in debt instruments 97,357,022 8,208,044 89,148,978 - Others 1,236,286 1,236,286 - - Designated as financial assets measured at fair value through profit or loss Investment in debt instruments 17,705,947 14,741,412 2,964,497 38 Others 1,251,918 - - 1,251,918 Available-for-sale financial assetsnet Investment in stocks 71,631,325 70,381,812 1,249,513 - Investment in debt instruments 335,322,437 142,059,274 187,915,493 5,347,670 Others 71,280,334 60,532,268 778,011 9,970,055 Liabilities: Financial liabilities measured at fair value 6,975 6,975 - - through profit or loss Designated as financial liabilities measured at 34,090,353 - - 34,090,353 fair value through profit or loss Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through $ 33,743,557 188,009 33,216,475 339,073 profit or loss Derivative financial assetshedging 137,010 - 137,010 - Liabilities: Financial liabilities measured at fair value 34,309,143 600,197 33,312,348 396,598 through profit or loss Derivative financial liabilitieshedging 16,865 - 16,865 - Instruments not measured at fair value Held-to-maturity financial assets 748,438,632 613,612,422 134,826,210 - Other financial assetsInvestment in debt instruments 869,048,176 552,889,418 211,958,489 104,200,269 without active markets Investment property 60,699,572 - - 60,699,572

3) For the years ended December 31, 2018 and 2017, the Company and subsidiaries have transferred financial assets measured at fair value through other comprehensive income amount to $5,241,888 and available-for-sale financial asset amount to $17,012,508 from Level 1 to Level 2, based on the lack of active quote markers for debt securities. Furthermore, as of December 31, 2018, the Company and subsidiaries have also transferred financial assets measured at fair value through profit or loss and financial assets measured at fair value through other comprehensive income amounted to $129,315 and $567,971, respectively, from Level 2 to Level 1, based on the high frequency of the transaction and the availability of observable of input parameters.

(Continued) 409 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

4) Statements of changes in financial assets which were classified to Level 3 based on fair value measurement

For the year ended December 31, 2018 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to assets and out of Transfer in to liabilities and out Beginning current net comprehensive Purchase or Level 3 and out Level 3 of financial Sale, disposal, other levels and of Level 3 of Items balance income income issue of other levels liabilities or settlement out of Level 3 financial assets Ending balance Financial assets measured at fair value through profit or loss Mandatorily measured at $ 44,149,201 (213,473) 2,059,322 18,365,652 - - 2,317,029 16,270,574 19,208 45,753,891 fair value through profit or loss Designated as financial 1,276,517 (3,545) (73,113) - - - 69,575 - - 1,130,284 assets measured at fair value through profit or loss Financial assets measured 8,140,230 - 234,549 857,273 - - 311,061 6,978 - 8,914,013 at fair value through other comprehensive income

Total $ 53,565,948 (217,018) 2,220,758 19,222,925 - - 2,697,665 16,277,552 19,208 55,798,188

For the year ended December 31, 2017 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to assets and out of Transfer in to liabilities and out Beginning current net comprehensive Purchase or Level 3 and out Level 3 of financial Sale, disposal, other levels and of Level 3 of Items balance income income issue of other levels liabilities or settlement out of Level 3 financial assets Ending balance Financial assets at fair value through profit or loss Financial assets held for $ 6,358,224 (3,391,248) - 386,657 - 58,216 3,072,667 109 - 339,073 trading Designated as financial 1,376,507 (8,666) (49,660) - - - 66,225 - - 1,251,956 assets measured at fair value through profit or loss Available-for-sale financial 11,703,963 (32,252) (417,826) 119,922,555 - - 293,509 115,565,206 - 15,317,725 assetsnet

Total $ 19,438,694 (3,432,166) (467,486) 120,309,212 - 58,216 3,432,401 115,565,315 - 16,908,754

The policy for when to recognize the transfers in or out of Level 3 is according to the actual date of the event or change in circumstances. In the current year, the transfer of financial assets from Level 3 to Level 2 was due to a switch of valuation approach.

Unrealized gains associated with assets as of December 31, 2018 and 2017 which were recognized in current net income shown in the above table were $683,183 and $938,147, respectively.

5) Statements of changes in financial liabilities which were classified to Level 3 based on fair value measurement

For the year ended December 31, 2018 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to liabilities and out Transfer in to assets and out of Beginning current net comprehensive Purchase or Level 3 and out of Level 3 of Sale, disposal, other levels and Level 3 of financial Items balance income income issue of other levels financial assets or settlement out of Level 3 liabilities Ending balance Financial liabilities at fair value through profit or loss Financial liabilities held $ 396,598 254,864 - 6,910 - 19,208 76,763 184,854 - 415,963 for trading Designated as financial 34,090,353 (1,962,751) (1,112,346) 6,914,925 - - - - - 37,930,181 liabilities measured at fair value through profit or loss

Total $ 34,486,951 (1,707,887) (1,112,346) 6,921,835 - 19,208 76,763 184,854 - 38,346,144

(Continued) 410 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the year ended December 31, 2017 Current increase Current decrease The amount Transfer in to Transfer in to The amount recognized in Level 3 of financial Level 3 of financial recognized in other Transfer in to liabilities and out Transfer in to assets and out of Beginning current net comprehensive Purchase or Level 3 and out of Level 3 of Sale, disposal, other levels and Level 3 of financial Items balance income income issue of other levels financial assets or settlement out of Level 3 liabilities Ending balance Financial liabilities at fair value through profit or loss Financial liabilities held $ 6,913,541 (3,790,401) - 368,765 - 58,216 3,083,785 69,738 - 396,598 for trading Designated as financial 28,178,587 (566,682) 1,105,808 5,372,640 - - - - - 34,090,353 liabilities measured at fair value through profit or loss Total $ 35,092,128 (4,357,083) 1,105,808 5,741,405 - 58,216 3,083,785 69,738 - 34,486,951

The policy for when to recognize the transfers in or out of Level 3 is according to the actual date of the event or change in circumstances. In the current year, the transfer of financial liabilities from Level 3 to Level 2 was due to a switch of valuation approach.

Unrealized gains (losses) associated with liabilities as of December 31, 2018 and 2017 which were recognized current net income shown in the above table were $2,475,007 and $(1,970,974), respectively.

6) Sensitivity analysis of Level 3 fair value if reasonably possible alternative assumptions used

Valuation techniques used by the Company’s subsidiary CTBC Bank Co., Ltd. for fair value measurements of financial instruments are appropriate. However, the use of different valuation models or inputs could lead to different outcomes of fair value measurements. The following statement analyses Level 3 sensitivities for those unobservable inputs in valuation models that have a material impact on the valuation of Level 3 financial instrument. The Company’ s subsidiary CTBC Bank Co., Ltd. major Level 3 financial instruments include:

a) Back-to-back derivative transactions: the movements of fair value between financial assets and liabilities can be fully offset for back-to-back trades, so there is no material impact on the income statement.

b) Financial Debentures issued by the Company’s subsidiary CTBC Bank Co., Ltd.: the sensitivity analysis based on the assumption of one basis point change in the Company’ s subsidiary CTBC Bank Co., Ltd. credit spread would have the following effects on the statement of other comprehensive income.

Impacts on other comprehensive income as credit spread changes Favorable Unfavorable changes changes December 31, 2018 Liabilities Financial liabilities measured at fair value through profit or loss Designated as financial liabilities measured at fair $ 69,561 (69,319) value through profit or loss

(Continued) 411 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

7) Quantitative information about the significant unobservable inputs used in the fair value measurement (Level 3)

Quantitative information about the significant unobservable inputs was as follows:

December 31, 2018 Key The relation Valuation unobservable between inputs Fair value techniques inputs Range of inputs and fair value Recurring fair value measurements Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Mandatorily measured at fair value $ 45,387,159 Net asset valuation Net asset Not applicable/ The higher net through profit or loss method/Internal value/interest 0%~100% assets, the higher evaluation model rate fair value/Interest rate is negatively related to fair value Designated as financial assets measured 1,130,284 Discounted cash Default rate 2.02%~3.08% The higher default at fair value through profit or loss flow model rate, the lower fair value Financial assets measured at fair value through other comprehensive income Investment in equity instruments 8,532,540 Net asset valuation Net asset value/ Not applicable/ The higher net method/ market risk 0%~100% assets/market Discounted cash premium/ Z/ risk premium/ the dividend model/ dividend value of Z/ the Discounted cash distribution rate dividend flow model/ distribution rate, Market model the higher fair value Investment in debt instruments 381,473 Discounted cash Interest rate 0.70% The higher interest flow model rate, the lower fair value Liabilities: Designated as financial liabilities measured 37,930,181 Interest rate option Credit spread 0.53%~1.22% The higher credit at fair value through profit or loss pricing model spread, the lower fair value Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value $ 366,732 Interest rate option Interest rate 77%~99% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the lower fair value Liabilities: Financial liabilities measured at fair value 415,963 Interest rate option Interest rate 77%~99% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the higher fair value

(Continued) 412 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Key The relation Valuation unobservable between inputs Fair value techniques inputs Range of inputs and fair value Recurring fair value measurements Non-derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value through profit or loss Financial assets held for trading Designated as financial assets measured $ 1,251,956 Discounted cash Default rate 8.72%~18.92% The higher default at fair value through profit or loss flow model rate, the lower fair value Available-for-sale financial assetsnet Investment in debt instruments 5,347,670 Discounted cash Interest rate 0.76% The higher interest flow model rate, the lower fair value Others 9,970,055 Net asset valuation Net asset value Not applicable The higher net method asset valuation, the higher fair value Liabilities: Designated as financial liabilities measured 34,090,353 Interest rate option Credit spread 1.10%~1.40% The higher credit at fair value through profit or loss pricing model spread, the lower fair value Derivative financial instruments assets and liabilities Assets: Financial assets measured at fair value $ 339,073 Interest rate option Interest rate 59%~96% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the lower fair value Liabilities: Financial liabilities measured at fair value 396,598 Interest rate option Interest rate 59%~96% The higher through profit or loss pricing model correlation correlation coefficient coefficient, the higher fair value

8) The valuation process used for fair value measurements categorized within Level 3

Market risk management unit of the Company and subsidiaries is in charge of independently testifying the fair value through applying independent data sources so that the information can be close to the current market status, making sure that the data sources are independent, reliable, consistent with other information and representable as an exercisable price. Additionally, periodically calibrating the pricing model, conducting retrospective testing, renewing inputs and information required for pricing model, and making any other necessary fair value adjustment are used to verify the reasonableness of valuation.

(iii) For the years ended December 31, 2018 and 2017, unrealized (losses) gains due to the estimated change of fair value recognized by the Company and subsidiaries were $(13,757,384) and $10,581,874, respectively.

(Continued) 413 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Financial risk information The risk management objectives of the Company and subsidiaries are to minimize the potential financial losses through appropriate strategies, policies and procedures. The overall risk management frameworks, which are transparent, systematic, professional and well-established, are rooted in their corporate governance to improve both business performance and shareholder’s equity. The organization structure of risk management includes Board of Directors, General Auditor, Risk Management Committee, Executive Committee, Credit Committee and Risk Management Department. The Company’ s subsidiaries also have their own risk management units. The scope of their authorities is illustrated as follows: Board of directors, who is in charge of risk strategy approval, risk policies, risk management frameworks, and creating a culture of risk management, serves as the primary guidance for all risks and undertakes ultimate responsibility of overall risk management. General Auditor is responsible for planning and carrying out all kind of audit business and is directly accountable to the Board. The internal auditing unit under the General Auditor must regularly review and assess the integrity and the actual implementation on various kinds of risk management mechanism, and provide timely suggestion for improvement so that the risk management mechanism can be effectively implemented. By communications, reporting, and advising the Board, Risk Management Committee assists the Board in risk governance. Risk Management committee also builds appropriate risk authorization and monitors and ensures risk authorization system operate properly. We expect the senior managers to support the Company’s risk culture, through decision-making processes and leader’ s supportive behavior, which could eventually influence all employees and organization. Executive Committee is accountable for overall risk control and holds executive meetings. In those meetings, risk management policies and risk limits are reviewed. Credit Committee is in charge of supervising, approving and reviewing significant credit risk incidents of the Company and subsidiaries. Risk Management Department is in charge of establishing and implementing appropriate risk mechanisms, and providing integrated risk report of the Company. 1) Credit Risk Management a) Description of credit risk Credit risk is the risk of financial loss if a client, guarantor, debtor or counterparty fails to meet its contractual obligations due to financial problems or other factors. Credit risk arises from both on-balance-sheet items and off-balance-sheet items, including but not limited to lending risk, issuer’ s credit risk, counterparty credit risk and credit risk of the underlying assets/ investments. On/off-balance-sheet items of the Company and subsidiaries primarily include loans, securities investment approved by regulators, and derivatives financial transaction, etc.

(Continued) 414 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

b) Management procedures of credit risk i) Risk Identification: By prudent credit review process, the Company and subsidiaries assess sources and degrees of default risks from lenders, issuers, counterparties, and issues. By considering both internal operations and external environment, the Company and subsidiaries lay out risk factors to serve as the foundation for risk measurement. ii) Risk Measurement: In order to appropriately evaluate and monitor obligor’ s credit risk, the internal rating system or external rating is applied in accordance with their respective characteristics/ complexity of business, which improves the management and analysis of the credit approval, facility management and performance evaluation. Please refer to (1) C, measurement of credit risk for detailed explanation. iii) Risk Monitoring: The Company and subsidiaries develop proper and necessary guidelines in accordance with their respective characteristics of credit portfolio, such as: 1. Before undertaking the business, comprehensive credit process are developed, such as credit extension and annual review procedure, loan review mechanism, guideline for early-warning and watch- list accounts, guideline for collateral appraisement and management, procedure for non-performing loan management, guideline for limit management of on/off-balance-sheet credit assets and so on. 2. After undertaking business, management information systems are used to monitor the credit risk portfolio and risk concentration situation. 3. To ensure the effectiveness and appropriateness of credit risk monitoring mechanism of subsidiaries, the Company has established credit risk assurance review mechanism to assess, scrutinize or physically observe the completeness/independence of the subsidiaries’ credit risk organization structure, the effectiveness/improving status of the subsidiaries’ credit risk management, the portfolio risk of credit risk assets and management process of credit risk. These conducts would help the Company identify the current status of the subsidiaries’ credit risk management, potential risk and the necessary monitoring mechanism that needs to be carried out. Consequently, a growth of the subsidiaries’ long-term operation can be supported.

(Continued) 415 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

iv) Risk Reporting:

Risk management units of the Company and subsidiaries periodically prepare credit risk portfolio/management reports which are regularly submitted to senior managements or the board. The reports disclose credit risk profiles from various dimensions, such as credit exposure, portfolio mix (by product, industry sector, counterparty, rating, etc.) portfolio concentration, credit quality, credit line with major loss, stress testing and so on.

c) Measurement of credit risk

i) Internal Rating System:

The Company’ s subsidiary CTBC Bank Co., Ltd. develops internal rating systems based on its own internal historical data. The major risk components including Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) are used to measure the expected loss (EL) and unexpected loss (UL). 1. Probability of default (PD)

Regarding the institutional banking business, various scorecard models are developed for Jumbo Enterprise, Middle Enterprise, Small Enterprise, Real Estate Developer, and Personal etc. based on obligor’s characteristics, including exposure types, industrial characteristics, revenue scales, and the correspondent with banks. A master scale is also developed to segment the obligor’ s default risk; each segment of the master scale is associated with a predefined one-year forward-looking probability of default. As for retail banking business, the risk segmentation with predefined one-year forward-looking probability of default is also established, which is developed according to obligor’ s risk characteristics, credit score, and delinquency status, etc. 2. Loss given default (LGD)

Regarding the institutional banking business, the parameters of LGD, such as Collateral Recovery Rate, is calculated based on the product characteristics, collateral types, and guarantee forms, etc. The parameters are used to estimate the LGD for each facility. As for retail banking business, the LGD parameter is developed according to the product characteristics, such as loan-to-value, exposure, collateral type, etc.

(Continued) 416 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3. Exposure at default (EAD)

Exposure at default is calculated by current outstanding plus potential extra outstanding at default. The credit conversion factor for potential extra outstanding at default is calculated by taking the facility commitment, usage ratio, loan outstanding and headroom into consideration. For off-balance exposure, Non-cash conversion factor is used to estimate the portion of off-balance-sheet exposure converted into on-balance-sheet if default.

ii) Stress Test:

Stress testing helps to aware the plausible change of subsidiaries risk component resulting from stress event, assess the amount of capital needed to absorb losses or plan remedial actions to mitigate the impact of exceptional loss when such incident occurs.

d) Mitigation of credit risk

i) Collateral Management:

In assessing the credit extension, the business prospect, and future cash flow of an obligor are the main factors for determining the repayment capability. However, for the creditor’s sake, the obligor or a third party could be asked to deliver pledge of real estate, chattel, or securities as collateral which could be disposed for recovering the creditor’s right if the obligor defaults. In order to maintain the good standing value of collateral, the Company’ s subsidiaries with loan business have established guidelines regarding collateral management, which is as follows. By taking the volatility of market value and the characteristic of collateral into account, the Company’s subsidiaries with loan business set the type of collateral that can be pledged and consider the historical recovery situation to draw up the highest loan to value. To verify the fairness of the value of the collateral, the value is identified not only through valuation reports issued by professional appraisers but also market price and the actual registered price. With the periodic revaluation, the adequacy of the guarantee capability of an object which is highly fluctuation can be timely monitored.

ii) External guarantee:

In order to enhance the credit for weak small and medium business borrowers and the risk mitigation for the unsecured exposure of small and medium business borrower, external guarantee provided by R.O.C SMEG fund approved by government is one of the eligible guarantees.

(Continued) 417 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

iii) Pre-settlement risk mitigation:

The Company and subsidiaries might take mitigation actions such as call for additional collateral (or margin), signing a netting agreement or signing an early determination agreement so as to reduce the credit loss.

e) Maximum exposure to credit risk

Without taking collateral or other credit enhancement mitigation effect into account, the maximum exposure to credit risk of on-consolidated-balance-sheet financial assets is equal to their carrying values.

Please refer to Note 6 (av)(iv)(2) F. for off-balance-sheet financial instruments’ maximum exposure to credit risks maturity analysis.

f) Concentrations of credit risk

Significant concentrations of credit risk occur when there are significant exposures to an individual counterparty of a transaction or a number of related counterparties engage in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be affected by changes in economic or other conditions. The Company and subsidiaries have a strategy to manage the concentration of credit risk in terms of a single client or counterparty to a transaction or clients located in nearby regions or specific industries. The following table illustrates the diversification of financial assets among industry sectors, geographical regions.

i) By Industry

December 31, 2018 Financial Individual Clients Service Public Sector High Tech Real Estate Manufacturing Institution Others Total On balance sheet Receivables—Credit card $ 84,265,074 ------84,265,074 Receivables—Factoring - 1,550,197 - 13,011,962 14,939 3,420,149 3,581,085 - 21,578,332 Loans -Consumer loans 765,970,088 ------765,970,088 -Corporate loans 74,205,932 77,866,083 146,710,776 62,838,847 87,796,719 93,940,733 8,959,204 252,509 552,570,803 -Micro-business loans 3,487,108 3,756,829 - 912,564 800,361 1,756,353 101,309 82,559 10,897,083 -Life insurance loans 19,841,658 ------19,841,658 -Premium advance loans 3,351,963 ------3,351,963 -Foreign currency loans 269,149,360 262,698,521 19,054,930 49,654,585 141,352,072 178,006,402 104,480,432 9,233,387 1,033,629,689 -Non-accrual loans 3,864,605 3,365,753 - 596,547 98,255 1,199,935 107,409 423,866 9,656,370 -Adjustment of discount (145,069) (513,725) - (57,554) (206,088) (99,951) (78,210) (88,360) (1,188,957) and premium Other financial assets 191,257 58,951 - - - 6,045 - 41,474 297,727

Total $ 1,224,181,976 348,782,609 165,765,706 126,956,951 229,856,258 278,229,666 117,151,229 9,945,435 2,500,869,830

Off balance sheet Guarantee and commitment $ 586,115,384 142,676,825 67,375,559 181,032,232 78,681,495 302,241,300 123,487,683 2,115,130 1,483,725,608

(Continued) 418 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2018 Financial Individual Public Sector Corporate Institution Clients Total Financial assets measured at fair value $ 111,648,332 83,586,616 171,923,598 13,562,600 380,721,146 through other comprehensive income Investment in debt instruments Financial assets for hedging 26,382 - 7,830 - 34,212 Reinsurance assetsClaims recoverable from - - 722,006 - 722,006 reinsurers Reinsurance assetsDue from reinsurers and - - 578,989 - 578,989 ceding companies Investment in debt instrument at amortized 688,975,569 349,238,704 590,726,390 - 1,628,940,663 cost Total $ 800,650,283 432,825,320 763,958,813 13,562,600 2,010,997,016

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

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

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

(Continued) 419 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) By Area

December 31, 2018 Asia (excluding Taiwan North America Taiwan) Others Total On balance sheet Financial assets measured at fair $ 64,675,960 68,140,594 186,496,583 61,408,009 380,721,146 value through other comprehensive income Investment in debt instruments Financial assets for hedging 34,212 - - - 34,212 ReceivablesCredit card 84,265,074 - - - 84,265,074 ReceivablesFactoring 7,458,824 1,027,848 10,608,317 2,483,343 21,578,332 Loans Consumer finance Mortgage loans 642,147,515 - - - 642,147,515 Automobile loans 8,273,766 - - - 8,273,766 Consumer loans 115,548,807 - - - 115,548,807 Corporate finance Corporate loans 552,282,072 157,000 97,509 34,222 552,570,803 Micro-business loans 10,887,956 - 9,127 - 10,897,083 Life insurance loans 19,841,658 - - - 19,841,658 Premium advance loans 3,351,963 - - - 3,351,963 Foreign currency loans 33,916,192 129,456,618 796,016,720 74,240,159 1,033,629,689 Non-accrual loans 1,769,992 186,825 7,670,262 29,291 9,656,370 Adjustment of discount and (340,454) 10,836 (789,147) (70,192) (1,188,957) premium Reinsurance assetsClaims 158,301 139,724 422,311 1,670 722,006 recoverable from reinsurers Reinsurance assetsDue from 208,431 77,132 288,046 5,380 578,989 reinsurers and ceding companies Investments in debt instruments at 586,104,686 384,148,863 309,193,700 349,493,414 1,628,940,663 amortised cost Other financial assets 250,208 - 47,519 - 297,727 Total $ 2,130,835,163 583,345,440 1,310,060,947 487,625,296 4,511,866,846

Off balance sheet Guarantee and commitment $ 1,098,261,793 23,721,683 328,754,534 32,987,598 1,483,725,608

(Continued) 420 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

(Continued) 421 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

The measurement of credit risk of the Company and subsidiaries is based on three stage classification of credit risk status of financial assets and the estimation of three major credit risk components including Probability of Default, Loss Given Default and Exposure At Default, which are used to measure the 12-month and lifetime expected credit losses.

For Probability of Default, to evaluate the expected credit losses, the Company and subsidiaries consider the internal history default experience and external credit rating default rate information of financial assets or issuers or counterparties, the risk segmentation is developed according to obligor’s risk characteristics industry and country.

For Loss Given Default, the risk segmentation depends on whether the asset is partially secured, fully secured, product characteristics or other else. Current exposure method or expected exposure approach is adopted for the estimation of exposure at default. The on-balance sheet exposure at default is measured by gross carrying amount or amortized cost; the off-balance sheet exposure at default is estimated by carrying amount multiplied by credit conversion factor.

The Company and subsidiaries evaluate credit risk whether financial instruments increased significantly that should be included in credit loss provisions. The Company and subsidiaries consider to disclose the information which can prove the significant increases in credit risk. The criteria for identifying the significant increases in credit risk are set as below:

i) Obligor’ s risk rating or collateral value at the reporting date deteriorates significantly compared to that at the initial recognition date.

ii) Past due information.

iii) Significant increases in credit risk on other financial instruments of the same borrower.

iv) Credit quality status placed in early warning list due to the mechanism of early warning at reporting date.

(Continued) 422 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company and subsidiaries' definition of default on financial assets generally includes the items as below:

i) Significant financial difficulty of the issuer or the borrower;

ii) Potential breach of contract due to adverse changes in the repayment status of borrower;

iii) Decease, dissolution, or it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

iv) The disappearance of an active market for that financial asset because of financial difficulties; or

v) Significant adverse news in the market, e.g. the fair value of the debt instrument has been less than its amortized cost, causing the impairment of the financial asset.

The estimation of the expected credit loss includes forward-looking information and primarily references to historically macroeconomic data and relevant macroeconomic factors (e.g. economic growth rate, consumer price index, interest rate or unemployment rate etc.) to develop internal forward-looking risk signals. The risk signals incorporate internal and external loss experiences and apply the forward-looking adjustments to credit risk position. Besides, the Company and subsidiaries consider macroeconomic forecast derived from industry, public agencies, and academic institutions to reflect the estimation of impairment allowance.

There is no significant change on the methodology or assumptions for assessment of expected credit losses during for the year ended December 31, 2018.

(Continued) 423 ) 228,844 1,188,118 ( air value 4,494,425,472 1,483,128,340 +(C)+(D)-(E) Total (A)+(B) (Continued) ) 839 ( 68,883 597,268 17,441,374 Impairment allowances (E) ) 1,437 ( 101,724 639,346 19,370,764 assessed Collectively impaired (D) ) Stage 3 45 ( low credit risk. Some products consider their low credit risk. Some 74,792 52,439 14,918,584 it quality loan or depository and demolition industry. assessed Individually impaired (C) operational guarantee deposits, and settlement fund, are ) 17,362 ( - 5,003,494 30,584,812 Subtotal (B) Central Bank, call loans to banks, financial assets measured at f ) 6,555 he reporting date. ( te has increased significantly. - 4,752,850 11,106,135 High risk grade ) Stage 2 11,149 ( 248,788 December 31, 2018 - 8,703,127 grade Sub-investment 342 1,856 - 10,775,550 grade Investment are normally with good credit quality and can be considered as ) ities purchased under resell agreements, refundable deposits, refundable agreements, resell ities purchased under 121,211 1,170,113 ( 4,446,992,686 1,478,030,329 Subtotal (A) ) and subsidiaries, such as cash equivalent, due from 194,040 ( - y 87,141,440 290,153,087 Notes to the Consolidated Financial Statements High risk grade ) Stage 1 640,788 the Compan ( - CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES 771,440,235 428,048,080 grade Sub-investment ) 34,212 - - 34,212 ------34,212 335,285 966,338 7,924,699 1,554,815 10,445,852 - 130,114 224,962 355,076 50,617 45,538 43,365 10,853,718 668,122534,032 - - - - 668,122 534,032 42,590 14,128 10,707 12,868 - 587 53,884 26,996 - 17,961 - - - 17,761 561,228 722,006 121,211 ( ------111,118 111,118 5,759,889 3,785,363 4,781,553 4,874,817 3,351,963 - - 3,351,963 ------3,351,963 6,551,377 10,618,775 3,739,337 20,909,489 - 513 - 513 668,330 - 575,919 21,002,413 8,262,095 - - 8,262,095 954 - - 954 - 10,717 7,788 8,265,978 79,491,63419,841,658 20,870,538 6,589,409 - 106,951,581 - 6,408 19,841,658 28,550 - 696,886 731,844 - - - 7,865,382 2,595,551 - 112,953,256 - - - 19,841,658 69,578,868 8,494,511 2,815,234 80,888,613 1,259 5,191 227,258 233,708 - 3,142,753 1,100,231 83,164,843 630,411,837 5,992,843 1,474,528 637,879,208 108,007 23,288 165,107 296,402 - 3,971,905 344,826 641,802,689 404,366,098 440,030,769 171,966,155 1,016,363,022 60,800 2,917,955 7,778,270 10,757,025 6,060,823 448,819 5,556,526 1,028,073,163 276,764,095 226,620,099 45,447,507 548,831,701 - 428,680 1,024,205 1,452,885 2,286,217 - 813,241 551,757,562 grade 1,541,282,916 27,996,475 53,773,374 1,623,052,765 1,458,577 4,429,321 - 5,887,898 - - 1,257,141 1,627,683,522 Stage 3 is the loss allowance measured at lifetime ECL measurement and the credit losses has impaired of a financial asset at t Stage 3 is the loss allowance measured at lifetime ECL measurement Stage 2 is the loss allowance measured at lifetime ECL measurement and credit risk of a financial asset reporting da Investment $ 3,385,399,364 $ 962,840,809 $ 343,508,193 23,532,314 2,986,768 370,027,275 9,082,485 727,089 884,297 10,693,871 - - 279,428 380,441,718 Note 1: The balances of impairment allowance, as shown above, are in compliance with the IFRSs accepted by FSC. Note 1: The balances of impairment allowance, as shown above, are in compliance with the IFRSs Note 2: Stage 1 is the loss allowance measured at 12-month expected credit of financial instrument. m r m through profit or loss, available-for-sale financial assets, secur excluded from this analysis since the most of counterparties characteristics and experiences with no historical impairments and are therefore considered as low-risk products, such as depos are therefore considered as low-risk characteristics and experiences with no historical impairments Below tables provide the credit quality analysis for rest of financial assets. i) Credit quality analysis of financial assets Credit quality and impairment analysis of financial assets financial assets held by Some Investment in Due from reinsurers and Claims recoverable fro Item mitment Credit cards Factoring Mortgage loans Consumer loans Micro-business loans Automobile loans Corporate loans Life insurance loans advance loans Premium Foreign currency loans Non-accrual loans comprehensive incomes comprehensive debt instruments Consumer finance Corporate finance Adjustment of discount and premiu reinsurers ceding companies cost Reinsurance assets Investments in debt instruments at amortised On balance sheet Financial assets at fair value through othe Reinsurance assets Total Off balance sheet Guarantee and com Financial assets for hedging Receivables Receivables Loans Other financial assets

424 842,096,894 966,115,181 4,212,157,540 +(C)+(D)-(E) Total (A)+(B) (Continued) 103,789 15,164,108 Impairment allowances (E) 95,959 21,441,556 assessed Collectively impaired (D) 4,554 14,279,342 assessed Individually impaired (C) - 12,392,138 Subtotal (B) - 5,378,693 High risk grade December 31, 2017 - Past due not impaired 3,236,290 grade Sub-investment - 3,777,155 grade Investment - - - 957 957 4,943,708 3,730,244 4,717,239 3,957,670 9,952,020 63,511 - - 63,511 - 15,598 98,257 9,932,872 (1,361,944) 574 2,393 (3,817) (850) (409) 4,253 (835) (1,358,115) 737,483,611 ------11,870 737,471,741 842,100,170 4,179,208,612 Subtotal (A) 2,553,604 208,918,013 Notes to the Consolidated Financial Statements High risk grade 558,083 1,720,740 10,114,302 3,262 35,032 6,304 44,598 77,215 138,165 29,139 10,345,141 21,654,489 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES 820,903,325 grade Neither past due nor impaired Sub-investment 510,677504,517 38,540 12,640 - - 549,217 517,157 ------17,562 - 121 - 17,621 517,219 549,217 77,527,067 16,899,287 3,655,763 98,082,117 350,297 636,077 1,774,884 2,761,258 - 8,225,161 2,675,199 106,393,337 grade Investment $ 3,149,387,274 $ 276,723,184 58,539,720 - 335,262,904 - - - - 153,945 - 94,412 335,322,437 Note: The balances of impairment allowance, as shown above, are in compliance with the IFRSs accepted by FSC. Investment hedging 137,146 - (136) 137,010 ------137,010 nd premium (434,893) (712,515) (214,536) assets 657,494,357 79,489,254 500,000 Due from reinsurers and Claims recoverable from Item loans 400,408,149 417,567,965 141,487,826 959,463,940 515,129 1,122,419 2,309,865 3,947,413 5,930,603 1,249,168 4,475,943 ets 817,892,077 Credit cardsFactoring 57,572,492 7,180,302 8,451,904 8,091,740 2,023,066 720,450 68,047,462 15,992,492 64,246 20,779 132,368 87,200 562,337 758,951 722 - 108,701 649,583 3,255,157 - 1,115,323 70,946,247 543,685 16,207,091 cial ass Mortgage loansMortgage Automobile loans 557,571,313 9,952,020 3,887,591 - 571,825 562,030,729 - 2,759,357 1,018,031 599,707 4,377,095 - 4,727,730 420,797 570,714,757 Consumer loans Corporate loansMicro-business loans 261,421,249 2,835,479 201,424,627 5, 55,899,411 518,745,287 - 202,770 127,734 330,504 2,502,581 - 861,669 520,716,703 Consumer finance in debt instruments Corporate finance Non-accrual loansAdjustment of discount a - - - Life insurance loans insurance Life loans advance Premium Foreign currency 18,977,259 3,114,879 - - - - 18,977,259 3,114,879 ------18,977,259 3,114,879 ceding companies reinsurers Available for sale financial assets Available Total Other finan Reinsurance assets Held-to-maturity financial Reinsurance assets Receivables Receivables Loans Derivative financial assets

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

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

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

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

(Continued) 426 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

i) Impairment analysis on impaired financial assets

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

j) Foreclosed properties

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

(Continued) 427 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

UnitIn Thousands of New Taiwan Dollars, %

Month / Year December 31, 2018 Non-performing Non-performing Allowance for Categories / Items loans Total loans loans ratio credit losses Coverage ratio Corporate Secured 2,815,475 447,868,905 0.63 % 16,642,662 277.46 % finance Unsecured (Note 10) 3,182,744 870,033,709 0.37 % Residential mortgages 1,812,202 811,901,377 0.22 % 7,527,006 415.35 % Cash cards 38,562 2,165,549 1.78 % 87,713 227.46 % Consumer Micro credit Original 1,863,093 112,734,257 1.65 % 4,734,402 254.12 % finance loans Purchase - 121 - % 1 - % Others Secured 150,538 94,440,683 0.16 % 999,845 243.12 % Unsecured 260,721 5,727,270 4.55 % Total loan business 10,123,335 2,344,871,871 0.43 % 29,991,629 296.26 % Overdue Balance of Delinquency Allowance for receivables receivables ratio credit losses Coverage ratio Credit cards business 95,546 84,364,387 0.11 % 1,166,342 1,220.71 % Without recourse factoring - 21,578,332 - % 782,315 - %

Month / Year December 31, 2017 Non-performing Non-performing Allowance for Categories / Items loans Total loans loans ratio credit losses Coverage ratio Corporate Secured 2,256,677 440,309,874 0.51 % 14,781,239 297.55 % finance Unsecured (Note 10) 2,710,908 792,624,652 0.34 % Residential mortgages 1,739,911 749,216,775 0.23 % 6,695,029 384.79 % Cash cards 47,264 2,487,566 1.90 % 104,823 221.78 % Consumer Micro credit Original 1,774,160 106,744,413 1.66 % 4,852,285 273.50 % finance loans Purchase - 273,766 - % 2,736 - % Others Secured 157,078 74,391,755 0.21 % 788,876 229.72 % Unsecured 186,332 5,180,987 3.60 % Total loan business 8,872,330 2,171,229,788 0.41 % 27,224,988 306.85 % Overdue Balance of Delinquency Allowance for receivables receivables ratio credit losses Coverage ratio Credit cards business 88,430 72,153,532 0.12 % 1,194,514 1,350.80 % Without recourse factoring - 16,750,776 - % 687,688 - %

(Continued) 428 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 1: Non-performing loans represent the amount of overdue loans as reported in accordance with the “Regulations on the Procedures for Banking Institutions to Evaluate Assets and Deal with Past Due/Non-performing Loans.” The credit card overdue loans represent the amount of overdue loans as reported in accordance with Jin Kuan Yin (4) Zi No. 0944000378, dated July 6, 2005.

Note 2: Non-performing loan ratio = non-performing loans ÷ total loans; credit card delinquency ratio = Overdue receivables ÷ balance of receivables.

Note 3: Coverage ratio for loans = allowance for credit losses ÷ non-performing loans; Coverage ratio for credit card business = allowance for credit losses ÷ overdue receivables.

Note 4: For residential mortgage loans, a borrower provides his/her (or spouse’s or minor child’s) house as collateral in full and pledges it to the financial institution for the purpose of obtaining funds to purchase property and to construct or repair a house.

Note 5: Microcredit loans are defined by Jin Kuan Yin (4) Zi No. 09440010950, dated December 19, 2005, and do not include credit cards or cash cards.

Note 6: Others in consumer finance are secured and unsecured consumer loans other than residential mortgage loans, cash card loans, and microcredit loans, and do not include credit cards.

Note 7: In accordance with Jin Kuan Yin (5) Zi No. 094000494, dated July 19, 2005, the amounts of without recourse factoring will be classified as overdue receivables within three months from the date that suppliers or insurance companies resolve not to compensate the loss.

Note 8: The balances of impairment allowance, as shown above, are calculated in accordance with the IFRSs accepted by the FSC and “ Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans,” and other related regulations. Additionally, the amounts exclude non-accrual loans arising from guarantees. Related allowance for credit losses is recognized under provisions.

Note 9: Supplemental disclosures:

The information below shows supplemental disclosures of the Company’ s subsidiary CTBC Bank Co., Ltd.’s loans and receivables that may be exempted from reporting as non-performing loans and overdue receivables, respectively.

(Continued) 429 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Unit: In Thousands of New Taiwan Dollars

December 31, 2018 December 31, 2017 Loans that may be Receivables that Loans that may be Receivables that exempted from may be exempted exempted from may be exempted reporting as a non- from reporting as reporting as a non- from reporting as performing loan overdue receivables performing loan overdue receivables Pursuant to a contract under a debt 47,964 147,558 63,640 124,658 negotiation plan (Note 1) Pursuant to a contract under a debt 687,286 65,706 719,490 69,932 liquidation plan and a debt relief plan (Note 2) Total 735,250 213,264 783,130 194,590

Note 1: In accordance with Jin Kuan Yin (1) Zi No. 09510001270, dated April 25, 2006, a bank is required to make supplemental disclosures of credit information which was approved under the “Debt Coordination Mechanism of Unsecured Consumer Debts by the Bankers Association of the R.O.C.”

Note 2: In accordance with Jin Kuan Yin (1) Zi No. 09700318940, dated September 15, 2008, and with Jin Kuan Yin No. 10500134790, dated September 20, 2016, a bank is required to make supplemental disclosures of credit information once debtors apply for pre-negotiation, pre-meditation, relief and liquidation under the “Consumer Debt Clearance Act.”

Note 10:Those loans that are not 100% backed by collateral are classified as unsecured.

ii) The Company’ s subsidiary CTBC Bank Co., Ltd.’ s concentration of credit extensions

Unit: In Thousands of New Taiwan Dollars, %

December 31, 2018 Credit amount/ stockholders’ Ranking Enterprise group by industry sector Credit amount equity (%) 1 A group. Cement manufacturing 18,089,161 6.12 % 2 B group. Liquid crystal panel and components 16,306,995 5.51 % manufacturing 3 C group. Iron and steel smelting 9,623,607 3.25 % 4 D group. Manufacture of other computer peripheral 7,127,320 2.41 % equipment 5 E group. Consulting group 6,923,881 2.34 % 6 F group. Cement manufacturing 6,628,455 2.24 % 7 G group. Other food, beverage and tabacco productcs 6,489,646 2.19 % retailing 8 H group. Manufacture of Electric Wires and Cables 6,300,786 2.13 % 9 I group. Cable telecommunications 6,025,850 2.04 % 10 J group. Metal Die Manufacturing 6,000,000 2.03 %

(Continued) 430 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Unit: In Thousands of New Taiwan Dollars, %

December 31, 2017 Credit amount/ stockholders’ Ranking Enterprise group by industry sector Credit amount equity (%) 1 A group. Cement and concrete products manufacturing 12,576,050 4.50 % 2 C group. Other unclassified financial service 9,497,867 3.40 % 3 B group. Iron and steel smelting 9,271,347 3.32 % 4 K group. Liquid crystal panel and components 6,917,943 2.47 % manufacturing 5 L group. Print circuits manufacturing 6,645,032 2.38 % 6 G group. Cable telecommunications 6,457,217 2.31 % 7 M group. Consulting group 5,934,728 2.12 % 8 N group. Other unclassified financial service 5,786,462 2.07 % 9 O group. Manufacture of Electric Wires and Cables 5,572,616 1.99 % 10 P group. Cement manufacturing 5,283,902 1.89 %

Note 1: The top ten enterprise groups other than government or state owned enterprises are ranked according to their total outstanding credit amount. If the borrowers belong to an enterprise group, the aggregate credit balance of the enterprise should be calculated and disclosed as a code number for each such borrower together with an indication of the borrowers’ line of business. In addition, if the borrowers are enterprise groups, the enterprise group’ s industry sector with the maximum exposure to credit risk in its main industry sector should be disclosed, along with the “class” of the industry, in compliance with the Standard Industrial Classification System of the R.O.C. posted by the Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C.

Note 2: Enterprise group is as defined in Article 6 of the “ Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings.”

Note 3: The total outstanding credit amount is the sum of the balances of all loan types (including import and export bill negotiations, loans, overdrafts, short/medium/long term secured and unsecured loans, margin loans receivable, and non-accrual loans), bills purchased, without recourse factoring, acceptances receivable, and guarantees receivable.

(Continued) 431 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Liquidity Risk Management Mechanism

a) Description and origin of liquidity risk

Liquidity risk refers to the risk of inability to obtain funds at a reasonable cost within a reasonable timeframe to meet the financial obligations and to cause the impact on the Company’s earnings or stockholder’s equity value.

Liquidity risk may stem from external and internal factors, one of the external key factors could be undermined payment capability caused by financial market volatility, and one of the internal factors could be funding shortage caused by mismatch between the timing of capital inflow and outflow.

b) Management procedures of liquidity risk

Based on the Company’ s Financial Risk Management Policy, the Company and subsidiaries set robust management procedures and risk measurement to identify, measure, monitor, and report the liquidity risk. To avoid liquidity crisis events, the Company and subsidiaries continuously monitor liquidity status by applying various assessment tools, coordinating responsible units to handle potential liquidity risk issues and implementing necessary disposals. Moreover, the risk limit is set and monitored, in order to ensure the actual risk profile comply with the risk tolerance requirements.

c) Measurement of liquidity risk

The measurement of liquidity risk includes:

i) Maturity gap analysis: The measure discloses cash flow gap by time bucket.

ii) Ratio of fund source to fund usage: The indicators are loan-to-deposit ratio, and current ratio, etc.

iii) Stress test: The test assesses the liquidity impact from extreme scenarios.

iv) Financial market liquidity: The information about changes of market liquidity is used for cross-check the appropriateness of its own liquidity position.

The Company and subsidiaries should adopt appropriate measurements to help implement management procedures in accordance with their respective characteristics and complexity of assets and liabilities.

(Continued) 432 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

d) Maturity analysis of non-derivative liabilities

Table below shows the analysis of cash outflows of non-derivative liabilities of the Company and subsidiaries based on time remaining until the contractual maturity date. The amount disclosed is based on contractual cash flows and may be different from that included in the consolidated balance sheets.

December 31, 2018 0-30 days 31-90 days 91-180 days 181 days-1 year Over 1 year Total Deposits from Central Bank and $ 51,673,603 17,306,366 3,186,498 2,332,225 - 74,498,692 other banks Due to Central Bank and other 3,276,806 2,623,833 1,336,998 2,652,415 4,151,723 14,041,775 banks Non-derivative financial liabilities - - - - 37,930,181 37,930,181 measured at fair value through profit and loss Securities sold under repurchase 64,311,160 6,213,045 - - - 70,524,205 agreements Commercial papers payable 11,286,000 16,830,000 10,560,000 - - 38,676,000 Payables 59,676,696 11,974,690 11,087,633 17,714,715 88,662,354 189,116,088 Current income tax liabilities 13,347 1,357,146 2,270,741 72,078 - 3,713,312 Deposits and remittances 1,927,381,499 381,769,504 257,517,023 417,746,278 153,601,024 3,138,015,328 Bonds payable - 9,600,000 800,000 150,000 88,200,000 98,750,000 Other financial liabilities 26,296,935 6,920,325 14,311,466 28,224,480 44,539,827 120,293,033

December 31, 2017 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Deposits from Central Bank and $ 57,663,783 9,411,532 4,274,955 3,524,513 - 74,874,783 other banks Due to Central Bank and other 2,781,104 2,928,582 2,072,707 4,782,645 2,905,595 15,470,633 banks Non-derivative financial liabilities - - 6,975 - 34,090,353 34,097,328 measured at fair value through profit and loss Securities sold under repurchase 59,569,701 14,548,525 - - - 74,118,226 agreements Commercial papers payable 14,736,333 19,992,667 16,099,000 998,000 - 51,826,000 Payables 52,490,734 11,653,118 10,119,708 16,962,259 91,027,992 182,253,811 Current income tax liabilities - 80,898 6,089,958 52,922 6,944 6,230,722 Deposits and remittances 2,105,255,472 249,323,851 210,928,618 333,922,425 45,542,801 2,944,973,167 Bonds payable - 291,390 1,086,090 8,900,000 101,950,000 112,227,480 Other financial liabilities 68,873,192 5,094,973 7,792,305 14,171,977 37,123,632 133,056,079

Note: For demand deposits included in “Deposit and remittances,” the amount will be disclosed in the earliest period since such deposits can be withdrawn at anytime.

(Continued) 433 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

e) Maturity analysis of derivative liabilities

i) Net settled derivatives

Net settled derivatives engaged by the Company and subsidiaries include but not limited to:

1. Foreign exchange derivatives: Non-delivery forwards and net settled FX options;

2. Interest rate derivatives: Forward rate agreements, interest rate swaps, and interest rate futures;

3. Other derivatives: Equity options and commodity futures.

For derivatives held by trading purpose, the amount will be disclosed in the earliest period with fair value to reflect the nature of short-term trading behavior; for hedging derivatives, the amount disclosed is based on contractual cash flow and may be different from that included in the consolidated balance sheets. The maturity analysis of net settled derivatives liabilities is as follows:

December 31, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial liabilities measured at fair value through profit or loss Foreign exchange derivatives $ 3,075,557 - - - - 3,075,557 Interest rate derivatives 29,809,444 - - - - 29,809,444 Other derivatives 155,284 31 117,395 3,149 51,077 326,936 Derivative financial liabilities for hedging Foreign exchange derivatives 1,374,721 1,832,961 - - - 3,207,682 Total $ 34,415,006 1,832,992 117,395 3,149 51,077 36,419,619

December 31, 2017 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Derivative financial liabilities measured at fair value through profit or loss Foreign exchange derivatives $ 3,253,298 - - - - 3,253,298 Interest rate derivatives 12,349,226 - - - - 12,349,226 Other derivatives 374,260 5,298 322,835 29,783 98,007 830,183 Derivative financial liabilities for hedging Foreign exchange derivatives 1,346,340 1,792,366 - - - 3,138,706 Interest rate derivatives 14,720 - 15,081 31,126 - 60,927 Total $ 17,337,844 1,797,664 337,916 60,909 98,007 19,632,340

(Continued) 434 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) Gross settled derivatives

Gross settled derivatives engaged by the Company and subsidiaries include:

Foreign exchange derivatives: forwards, currency swaps, cross currency swaps, and gross settled foreign currency options. For forwards, currency swaps, and cross currency swaps, the amount disclosed is based on contractual cash flow and may be different from that included in the consolidated balance sheet; for gross settled foreign currency options, the amount will be disclosed in the earliest period with fair value, as currency options are for trading purpose and can be disposed at anytime. The maturity analysis of gross settled derivatives is as follows:

December 31, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial instruments measured at fair value through profit or loss Foreign exchange derivatives Cash outflow $ 1,757,500,900 678,027,960 521,388,262 639,985,690 45,689,930 3,642,592,742 Cash inflow 1,754,284,705 678,696,389 523,691,742 635,806,225 43,232,956 3,635,712,017 Financial liabilities for hedging Foreign exchange derivatives Cash outflow 31,984,532 - - - - 31,984,532 Cash inflow 31,842,019 - - - - 31,842,019 Cash outflow subtotal 1,789,485,432 678,027,960 521,388,262 639,985,690 45,689,930 3,674,577,274 Cash inflow subtotal 1,786,126,724 678,696,389 523,691,742 635,806,225 43,232,956 3,667,554,036 Net cash flow $ (3,358,708) 668,429 2,303,480 (4,179,465) (2,456,974) (7,023,238)

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

(Continued) 435 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

f) Maturity analysis of off-balance-sheet items

Table below shows the maturity analysis of off-balance-sheet items for the Company and subsidiaries. The amount of the guarantee and committed credit lines will be allocated to the earliest period when such obligation can be exercised at anytime by clients. The amount disclosed is based on contractual cash flow and may be different from that included in the consolidated balance sheets.

December 31, 2018 0~30 days 31~90 days 91~180 days 181 days~1 year Over 1 year Total Financial guarantee contracts $ 60,516,495 - - - - 60,516,495 Unused lines of credit commitments 113,118,176 - - - 2,481,507 115,599,683 Unused letter of credit 24,896,128 - - - - 24,896,128 Unused credit card commitments 537,641,080 - - - - 537,641,080 Total $ 736,171,879 - - - 2,481,507 738,653,386

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

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

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

i) Maturity analysis of the Company’s subsidiary CTBC Bank Co., Ltd.’s assets and liabilities in New Taiwan Dollars

December 31, 2018

Unit: In Millions of New Taiwan Dollars

Amount remaining to maturity date Total 0~10 days 11~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 2,557,873 248,314 296,793 307,580 255,910 210,780 1,238,496 Major cash outflow at maturity 2,763,035 180,384 221,406 393,227 376,084 560,924 1,031,010 Gap (205,162) 67,930 75,387 (85,647) (120,174) (350,144) 207,486

December 31, 2017

Unit: In Millions of New Taiwan Dollars

Amount remaining to maturity date Total 0~10 days 11~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 2,546,270 429,709 248,084 278,639 249,735 228,490 1,111,613 Major cash outflow at maturity 2,758,713 193,180 252,822 434,068 363,856 537,122 977,665 Gap (212,443) 236,529 (4,738) (155,429) (114,121) (308,632) 133,948

Note: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. is denominated in New Taiwan Dollar.

(Continued) 436 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) Maturity analysis of the Company’s subsidiary CTBC Bank Co., Ltd.’s assets and liabilities in U.S. Dollars

December 31, 2018

Unit: In Thousands of U.S. Dollars

Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 80,994,096 36,784,299 16,831,419 9,139,587 8,206,772 10,032,019 Major cash outflow at maturity 90,740,142 42,156,848 17,389,195 10,360,006 11,116,285 9,717,808 Gap (9,746,046) (5,372,549) (557,776) (1,220,419) (2,909,513) 314,211

December 31, 2017

Unit: In Thousands of U.S. Dollars

Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 67,177,780 24,513,908 18,842,741 8,892,652 7,089,084 7,839,395 Major cash outflow at maturity 82,067,818 32,627,180 17,946,067 10,199,762 10,493,601 10,801,208 Gap (14,890,038) (8,113,272) 896,674 (1,307,110) (3,404,517) (2,961,813)

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

iii) Maturity analysis of the Company’ s subsidiary CTBC Bank Co., Ltd.’ s overseas branches’ assets and liabilities in U.S. Dollars

December 31, 2018

Unit: In Thousands of U.S. Dollars

Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 43,234,202 21,069,414 8,593,275 3,675,000 5,477,297 4,419,216 Major cash outflow at maturity 48,283,524 28,958,046 6,669,412 3,792,088 5,994,029 2,869,949 Gap (5,049,322) (7,888,632) 1,923,863 (117,088) (516,732) 1,549,267

December 31, 2017

Unit: In Thousands of U.S. Dollars

Amount remaining to maturity date Total 0~30 days 31~90 days 91~180 days 181days~1year Over 1 year Major cash inflow at maturity $ 32,045,978 11,377,225 9,238,702 4,204,286 3,897,599 3,328,166 Major cash outflow at maturity 40,783,615 20,685,327 7,544,444 4,308,722 4,798,902 3,446,220 Gap (8,737,637) (9,308,102) 1,694,258 (104,436) (901,303) (118,054)

(Continued) 437 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Market Risk Management Mechanism

a) Description and origin of market risk

Market risk is the risk that the earnings, capital or its ability to meet business objectives adversely affects the Company and subsidiaries by having volatile interest rate (including credit spread), foreign exchange rate, securities price and commodity price. The market correlation and liquidity of these types of instruments are also covered.

The Company and subsidiaries’ market risk exposures come from trading and non- trading portfolios. The trading portfolio includes positions arising from trading activities, which aim at benefiting from short-term price movements, such as proprietary trading and market making. The non-trading portfolios are held for obtaining capital gain in the long term.

b) Management procedures of market risk

Based on the Company’ s Financial Risk Management Policy, the Company and subsidiaries set robust management procedures, facilitate market risk communication within the Company and subsidiaries and provide proper management.

An effective market risk management process begins at risk identification. The appropriate and consistent market risk measurement methodologies are defined in accordance with the business characteristics and risk source. The measurement results are applied to daily management and serve as the foundation of market risk planning, monitoring, and control.

To ensure that the actual risk profile can comply with the risk appetite requirements, the risk limit mechanism is established and further transmitted to operational level and translated into various management indicators, which can effectively help observe the risk profile changes, analyze the impacts, and form the management decisions promptly.

c) Measurement of market risk

i) Value at Risk (VaR)

Value at Risk measures the maximum potential loss under a particular confidence interval and a given holding period.

ii) Stress Testing

Stress testing is used to calculate a range of trading exposures which result from extreme market events or scenarios. Stress testing measures the impact of exceptional changes in market rate/price, volatility or correlation in the fair value of trading portfolios.

(Continued) 438 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

iii) Factor Sensitivity

Factor sensitivity is a measurement for monitoring the cross-product exposures within each risk type, including but not limited to foreign exchange, interest rate and equity price.

1. Interest Rate Risk

Interest rate risk, mostly arising from bonds and interest rate derivatives, is measured in different yield curves and currencies. PVBP, the change in fair value as the yield curves parallel shifts up by 0.01% (1bp), is used to measure interest rate risk exposures.

PVBP for the trading portfolio is illustrated as follow, and for PVBP for the non-trading one, please refer to (d) sensitivity analysis.

UnitIn Thousands of New Taiwan Dollars

December 31, December 31, Yield curve parallel shift up by 1 b.p. Currency 2018 2017 CNY $ (776) (677) EUR (7) 5 HKD (160) 138 JPY (14) (22) NTD (803) (1,916) USD (1,318) (3,366) Others (188) (378)

2. Foreign Exchange Risk

Foreign exchange risk, mostly arising from spots, FX derivatives and other positions denominated in foreign currency, is measured in different currencies or currency pairs. FX delta, the change in net present value as the foreign exchange rate moves up by one unit, 1%, is used to measure foreign exchange risk exposures.

FX delta for the trading portfolio is illustrated as follow, and for FX delta for the non-trading one, please refer to (d) sensitivity analysis.

UnitIn Thousands of New Taiwan Dollars

December 31, December 31, Underlying currency appreciate by 1% Currency 2018 2017 AUD $ 124 (527) CNY 16,878 4,434 EUR 2,717 2,670 GBP (1,516) 85 HKD (3,631) (10,605) JPY (553) 5,562 KRW (86) 32 USD (21,585) (23,920) Others (845) 6,643 (Continued) 439 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3. Equity Price Risk

Equity price risk, mostly arising from stocks and related derivatives, is measured in equity delta, the change in fair value as the underlying stock price or index price moves up by 1%. Equity delta for the trading portfolio is illustrated as follow, and for equity delta for the non-trading one, please refer to (d) sensitivity analysis. Unit: In Thousands of New Taiwan Dollars

Country/ December 31, December 31, Commodity 2018 2017 Equity factor sensitivity Stock price upward movement by 1% Taiwan $ 30,128 43,890 US 106,756 79,053 HK - 455 China 7,593 16,463 Japan 14,744 24,424 Others 5,594 20,639 Sensitivity of commodity risk Commodity price upward movement by 1% Gold (53) 44 Sensitivity of credit risk premium Credit spread upward shift by 0.01% (139) (32) d) Sensitivity analysis

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

December 31, 2018

Amount Risk Items Movement

Profit and Loss Equity

Interest Rate Risk Interest Rate Curve shift up by 1 bp $ (1,187) (221,266) Interest Rate Curve shift down by 1 bp 1,187 221,266

Foreign Exchange Rate Risk Foreign Currency appreciate by 1% against NTD 1,297,266 720,421 Foreign Currency depreciate by 1% against NTD (1,297,266) (720,421)

Equity Price Risk Equity price appreciate by 1% 245,674 1,929,801 Equity price depreciate by 1% (245,674) (1,929,801)

(Continued) 440 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017

Risk Items Movement Amount

Profit and Loss Equity

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

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

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

Note: For fair value hedges or hedges of a net investment in a foreign operation, changes in profit and loss would offset each other in hedge duration, leading to little influence on the Company’s overall profit and loss, and hence, were not incorporated in the above aggregate positions.

e) Foreign exchange rate gap information

According to IFRS 7 “ Financial Instruments” 34(a), an entity shall disclose summarized quantitative data about its exposure to that risk at the end of the reporting period. Significant foreign exchange rate risk exposure was as follows:

December 31, 2018 Foreign currency Spot rate NTD amount Financial assets Monetary items JPY $ 2,559,347,254 0.2783 737,904,675 USD 28,570,412 30.7330 863,735,999 CNY 31,004,300 4.4854 130,840,200 CAD 2,107,217 22.5895 46,083,176 HKD 45,253,593 3.9239 1,044,172,180 Non-monetary items JPY 8,985,958 0.2783 11,039,413 USD 2,249,324 30.7330 9,707,418 CNY 17,547,815 4.4854 5,918,245 HKD 2,230,723 3.9239 67,316,277 THB 17,406,613 0.9491 16,520,616

(Continued) 441 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2018 Foreign currency Spot rate NTD amount Financial liabilities Monetary items JPY $ 2,518,835,211 0.2783 700,991,840 USD 35,230,404 30.7330 1,082,651,263 CNY 26,043,392 4.4854 116,815,030 HKD 7,348,418 3.9239 31,213,009 AUD 1,716,293 21.6791 37,207,688

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

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

(Continued) 442 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

4) Asset and Liability Management Mechanism

a) Description and origin of ALM mismatch risk

ALM mismatch risk refers to the risk that the earnings or capital that is adversely affected by different sensitivity of assets and liabilities to interest rate change, such as mismatches of reset timing and amount of asset and liability, varying magnitude of changes in short-term and long-term interest rates, and various interest rate indexes to which asset and liability are linked, or embedded options.

b) Management procedures of ALM mismatch risk

Based on the Company’ s Financial Risk Management Policy, the Company and subsidiaries set robust management procedures and clearly define authorities and responsibilities, so that the Company and subsidiaries keep their finances and operations sound.

The appropriate and consistent measurement methodologies are adopted in accordance with the business characteristics and risk source. The measurement results are embedded to management procedures and become the reference when monitoring and reporting risk status.

The Company and subsidiaries can adjust the structures of assets and liabilities by means of derivatives. Prior to executing an external hedge, the hedge plans with specified hedged position, profit and loss analysis and detailed scheme are prepared and authorized. After executing hedge deals, the hedge effectiveness are periodically reviewed.

c) Measurement of ALM mismatch risk

The measurement of ALM mismatch risk includes:

i) Re-pricing Gap Report: This report measures the re-pricing gap between asset and liability by time buckets in order to understand interest rate mismatch.

ii) Interest rate sensitivity: This measures the impact of 1 basis point change in interest rate on net interest income (NII) and economic value of equity (EVE).

iii) Duration: This calculates the weighted-average term to maturity of rate- sensitive assets and liabilities.

iv) Stress TestThis evaluates the impact of a significant change in interest rate on economic value of equity.

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

(Continued) 443 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

d) Disclosure items required by the “ Regulations Governing The Preparation of Financial Reports by Financial Holding Company”

i) The Company’ s subsidiary CTBC Bank Co., Ltd.’ s sensitivity analysis of interest rate for assets and liabilities. (New Taiwan Dollars)

December 31, 2018

UnitIn Thousands of New Taiwan Dollars %

1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 1,612,249,160 177,418,209 72,985,844 122,464,823 1,985,118,036 assets Interest rate sensitive 525,842,160 1,009,011,367 128,570,396 61,684,519 1,725,108,442 liabilities Interest rate sensitivity 1,086,407,000 (831,593,158) (55,584,552) 60,780,304 260,009,594 gap Net worth 295,738,873 Ratio of interest rate sensitive assets to liabilities (%) 115.07 Ratio of interest rate sensitivity gap to net worth (%) 87.92

December 31, 2017

UnitIn Thousands of New Taiwan Dollars %

1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 1,557,616,121 182,796,327 88,148,239 109,057,285 1,937,617,972 assets Interest rate sensitive 521,428,782 952,324,513 119,522,340 65,673,702 1,658,949,337 liabilities Interest rate sensitivity 1,036,187,339 (769,528,186) (31,374,101) 43,383,583 278,668,635 gap Net worth 279,632,639 Ratio of interest rate sensitive assets to liabilities (%) 116.80 Ratio of interest rate sensitivity gap to net worth (%) 99.66

Note 1: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. are denominated in NTD, excluding contingent assets and liabilities.

Note 2: Interest rate sensitive assets and liabilities are the interest- earning asset or interest-bearing liabilities whose revenue or costs are affected by interest rate change.

Note 3: Interest-rate-sensitivity gap = Interest-rate-sensitive assets Interest-rate-sensitive liabilities.

Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest- rate-sensitive assets ÷ Interest-rate-sensitive liabilities (denominated in NTD).

(Continued) 444 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) The Company’s subsidiary CTBC Bank Co., Ltd’s sensitivity analysis of the interest rate for assets and liabilities (U.S. Dollars)

December 31, 2018

UnitIn Thousands of U.S. Dollars, %

1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 12,784,448 569,636 175,761 3,519,510 17,049,355 assets Interest rate sensitive 9,504,382 11,086,921 1,543,267 1,517,407 23,651,977 liabilities Interest rate sensitivity 3,280,066 (10,517,285) (1,367,506) 2,002,103 (6,602,622) gap Net worth 9,622,844 Ratio of interest rate sensitive assets to liabilities (%) 72.08 Ratio of interest rate sensitivity gap to net worth (%) (68.61)

December 31, 2017

UnitIn Thousands of U.S. Dollars, %

1~90 days 91~180 days 181 days~1 year Items Over 1 year Total (inclusive) (inclusive) (inclusive) Interest rate sensitive $ 11,837,889 879,863 527,733 2,514,784 15,760,269 assets Interest rate sensitive 7,829,584 12,429,061 1,530,551 1,236,530 23,025,726 liabilities Interest rate sensitivity 4,008,305 (11,549,198) (1,002,818) 1,278,254 (7,265,457) gap Net worth 9,368,555 Ratio of interest rate sensitive assets to liabilities (%) 68.45 Ratio of interest rate sensitivity gap to net worth (%) (77.55)

Note 1: Listed amount of the Company’s subsidiary CTBC Bank Co., Ltd. are denominated in U.S dollars, excluding contingent assets and liabilities.

Note 2: Interest rate sensitive assets and liabilities are the interest- earning asset or interest-bearing liabilities whose revenue or costs are affected by interest rate change.

Note 3: Interest-rate-sensitivity gap = Interest-rate-sensitive assets Interest-rate-sensitive liabilities.

Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest- rate-sensitive assets ÷ Interest-rate-sensitive liabilities (denominated in U.S. dollars.)

(Continued) 445 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(v) Transferred financial assets that are not fully derecognized

The transactions, relating to transferred financial assets not qualifying for full derecognition, the Company and subsidiaries conduct during daily operation mostly involve securities lending in accordance to repurchase agreements. Since the right to receive contractual cash flow has been transferred to others and the Company and subsidiaries’ obligation to repurchase the transferred assets for a fixed price at a future date is recognized under liability, the said transferred assets are not fully derecognized.

December 31, 2018 Carrying Carrying amount of Fair value of amount of associated Fair value of associated transferred financial transferred financial Types of financial assets financial assets liabilities financial assets liabilities Net fair value Financial assets measured at fair value through profit or loss Repurchase agreements $ 13,968,788 13,740,884 13,968,788 13,740,884 227,904 Financial assets measured at fair value through other comprehensive income Repurchase agreements 31,431,550 29,953,261 31,431,550 29,953,261 1,478,289 Securities lending agreements 14,733,891 19,337,702 14,733,891 19,337,702 (4,603,811) Financial assets at amortised cost Repurchase agreements 27,878,851 26,830,060 27,550,994 26,830,060 720,934

December 31, 2017 Carrying Carrying amount of Fair value of amount of associated Fair value of associated transferred financial transferred financial Types of financial assets financial assets liabilities financial assets liabilities Net fair value Financial assets measured at fair value through profit or loss Repurchase agreements $ 21,724,368 21,163,275 21,724,368 21,163,275 561,094 Available-for-sale financial assets Repurchase agreements 5,322,644 5,179,055 5,322,644 5,179,055 143,588 Securities lending agreements 31,549,510 30,656,153 31,549,510 30,656,153 893,357 Held-to-maturity financial assets Repurchase agreements 47,905,315 47,775,896 48,917,076 47,775,896 1,141,180

(vi) Offsetting financial assets and financial liabilities

The Company and subsidiaries have an exercisable master netting arrangement or similar agreement in place with counterparties. When both parties reach a consensus regarding net settlement, the aforesaid exercisable master netting arrangement or similar agreement can be net settled by offsetting financial assets and financial liabilities. If not, the transaction can be settled at total amount. In the event of default involving one of the parties, the other party can have the transaction net settled.

(Continued) 446 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The following tables present the aforementioned offsetting financial assets and financial liabilities.

December 31, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amount Net amount of Amount not off set in the balance Gross amount of financial financial assets sheet (d) of recognized liabilities offset presented in Financial financial assets in the balance the balance instruments Cash collateral Net amount (a) sheet (b) sheet (c)=(a)-(b) (Note) received (e)=(c)-(d) Derivative financial assets $ 42,550,883 - 42,550,883 27,542,424 3,774,671 11,233,788

December 31, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Net amount of Gross amount financial Amount not off set in the balance Gross amount of financial liabilities sheet (d) of recognized assets offset in presented in Financial financial the balance the balance instruments Cash collateral Net amount liabilities (a) sheet (b) sheet (c)=(a)-(b) (Note) pledged (e)=(c)-(d) Derivative financial liabilities $ 68,825,337 - 68,825,337 27,233,648 5,820,173 35,771,516 Securities lending agreements 19,337,702 - 19,337,702 14,733,891 - 4,603,811 Total $ 88,163,039 - 88,163,039 41,967,539 5,820,173 40,375,327

December 31, 2017 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amount Net amount of Amount not off set in the balance Gross amount of financial financial assets sheet (d) of recognized liabilities offset presented in Financial financial assets in the balance the balance instruments Cash collateral Net amount (a) sheet (b) sheet (c)=(a)-(b) (Note) received (e)=(c)-(d) Derivative financial assets $ 33,880,567 - 33,880,567 21,267,359 5,431,665 7,181,543

December 31, 2017 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Net amount of Gross amount financial Amount not off set in the balance Gross amount of financial liabilities sheet (d) of recognized assets offset in presented in Financial financial the balance the balance instruments Cash collateral Net amount liabilities (a) sheet (b) sheet (c)=(a)-(b) (Note) pledged (e)=(c)-(d) Derivative financial liabilities $ 34,326,008 - 34,326,008 21,062,833 2,703,647 10,559,528 Securities lending agreements 30,656,153 - 30,656,153 30,656,153 - - Securities sold under repurchase 74,118,226 - 74,118,226 9,273,490 - 64,844,736 agreement Total $ 139,100,387 - 139,100,387 60,992,476 2,703,647 75,404,264

NoteMaster netting arrangements and non-cash financial collaterals are included.

(vii) Capital management

1) Capital management goal and procedure

The goal of the Company’s capital management is to meet the regulatory requirement for different businesses on capital adequacy of the Company and subsidiaries and the organization’ s target of maximizing returns for shareholders by following capital management procedures and raising return on capital.

(Continued) 447 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company’ s group capital planning accounts for short-term and long-term capital requirements. The Company makes yearly capital planning based on operation planning, current and forecast future capital requirement, and promised returns for shareholders. The Company also makes back-up plan to meet capital requirement not included in the planning. The Company also regularly conducts stress tests and scenario simulation analyses to calculate different capital ratios, fully taking into account of external conditions and other factors, including potential risks, changes in financial markets, and other events impacting risk taking capabilities, to make sure that the Company can maintain adequate capital in case of detrimental events and huge market changes.

Planning for yearly earnings distribution follows the principles and ratios mandated by articles of incorporation and dividend policy, and are put into effect after being approved by the board of directors and shareholders’ meeting. The Company’ s group capital adequacy, potential investment needs, and dividend amount of previous years are taken into account. The needs to maintain proper financial ratios and satisfy capital requirement of the parent company are also preconditions of the distribution.

2) Definition and regulation

The regulator of the Company is FSC of the Republic of China. FSC issued “Regulations Governing the Consolidated Capital Adequacy of Financial Holding Companies” and monitors and manages the Company’ s group capital status on a consolidated basis. Subsidiaries in different businesses should also follow capital adequacy rules announced by regulators of their businesses.

The Company’s group capital adequacy ratio should not be lower than 100%. The group capital adequacy ratio refers to the group's net eligible capital divided by the group’ s statutory capital requirement. The group’ s net eligible capital and group’ s statutory capital requirement refers to the combined total of the eligible capital of a financial holding company and those of its subsidiaries calculated based on the financial holding company’s shareholding in the subsidiary less the amounts of legal deductions.

3) Eligible capital

The Company’s eligible capital refers to the sum of the common stocks, preferred stocks, subordinated debts, capital collected in advance, capital surplus, retained earnings, and other equity less the sum of goodwill, other intangible assets, deferred assets, and treasury stocks. Statutory capital requirement refers to total assets less cash (including cash equivalents), tax receivable (including tax refund receivable), prepaid taxes, the book value of the use of short-term funds set forth in Paragraph 1, Article 39 of Financial Holding Company Act, goodwill, other intangible assets, and deferred assets.

To maintain the quality of financial holding companies’ capital, the regulator also has rules in place regarding the terms and upper limit of hybrid capital instrument, preferred stocks, and subordinated debts that can be included in eligible capital.

(Continued) 448 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

4) Capital adequacy ratio of CTBC Group

UnitIn Thousands of New Taiwan Dollars %

December 31, 2018 Items Percentage of Group’s Net Group’s Statutory Company Ownership Eligible Capital Capital Requirement CTBC Financial Holding Co., Ltd. 100.00 % $ 316,503,251 373,027,105 CTBC Bank Co., Ltd. 100.00 % 263,317,969 171,536,546 CTBC Securities Co., Ltd. 100.00 % 6,352,540 1,570,641 Taiwan Life Insurance Co., Ltd. 100.00 % 89,049,027 66,528,936 CTBC Venture Capital Co., Ltd. 100.00 % 3,612,411 2,136,024 CTBC Security Co., Ltd. 100.00 % 58,965 56,910 CTBC Asset Management Co., Ltd. 100.00 % 5,432,932 3,832,092 Taiwan Lottery Co., Ltd 100.00 % 763,303 517,803 CTBC Investments Co., Ltd. 100.00 % 482,477 309,104 Deduction (394,177,506) (372,444,351) Subtotal 291,395,369 247,070,810 Capital adequacy ratio of CTBC Group 117.94 %

UnitIn Thousands of New Taiwan Dollars %

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

(Continued) 449 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

December 31, December 31, Items 2018 2017 Common stock 194,969,896 194,969,896 Capital surplus 50,368,539 50,366,018 Legal reserve 24,189,775 20,467,553 Special reserve 29,719,062 30,688,581 Accumulated profit or loss 48,945,112 37,417,514 Equity adjustments (36,453,220) (15,759,469) Preferred stock meet under Net additional Tier 1 3,333,300 3,333,300 Capital of the Bank Subordinated debentures 1,440,000 3,840,000 Less: Goodwill (3,328) (1,632) Less: Treasury stock - (582,754) Less: Deferred assets (5,885) (2,984) Total eligible capital 316,503,251 324,736,023

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

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

Interests held by the Company and The types of structured entities Nature and purpose subsidiaries Asset-backed Securities Securitizing financial or non-financial assets Investing or lending in securities issued by and issuing them to raise funds. these entities. Private funds Raising funds to create investment Investing in funds issued by these entities. opportunities in a variety of assets. Special purpose entities Set up for participating in the program of Investing in stocks issued by the entity. “Kaohsiung City Hofa industrial park development, sell (bid) and management”, and for conducting the project of “Taichung Intercontinental Baseball Stadium extension, renovation and operation”

(ii) The scales of structured entities not included in consolidated financial reports were as follows.

December 31, December 31, 2018 2017 Asset-backed securities $ 167,831,370,778 160,442,133,657 Private funds 5,897,891,559 3,894,773,941 Special purpose entities 15,517,831 16,191,470

(Continued) 450 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

December 31, December 31, 2018 2017 Assets held by the Company and subsidiaries Financial assets measured at fair value through profit or $ 19,167,394 - loss Financial assets measured at fair value through other 29,991,382 - comprehensive income Available for sale financial assets—net - 40,275,237 Loan—net 900,940 1,098,087 Financial assets at amortised cost 25,061,457 - Held-to-maturity financial assets—net - 480,916 Investments under equity method—net 13,794,992 14,617,903 Investment in debt instruments without active markets— - 23,643,521 net Other assets—net - 580,509 Total assets held by the Company and subsidiaries $ 88,916,165 80,696,173

December 31, December 31, 2018 2017 Liabilities held by the Company and subsidiaries Deposits and remittances $- 4,524

The maximum amount of risk exposures the Company and subsidiaries endure to a loss incurred from special purpose entities that are not included in consolidated financial reports is the carrying amount of interests held by the Company and subsidiaries.

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

(Continued) 451 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ax) Nature and scope of insurance contract risk

(i) Life insurance business

1) Evaluation and management of the scope of insurance risks from a corporate wide point of view

To properly manage the risks in different stages such as product design, pricing, issuance, policy approval, and payment for damage, the subsidiary CTBC Life Insurance Co., Ltd. has management mechanism as follows:

a) Management of risks associated with product design and pricing

Management of risks associated with product design and pricing result from inappropriateness, inconsistency, or unexpected changes relating to product design, insurance covenants, and pricing sources. The subsidiary Taiwan Life Insurance Co., Ltd. devises an “insurance product design standard process” before selling a product to make sure of the risk control before and after selling a product, to ensure compliance with regulations, and to strengthen internal control. The subsidiary Taiwan Life Insurance Co., Ltd. also adopts profit tests and sensitivity analyses to measure the risks for different product types and natures, and, at the same time, takes responsibility for auditing an insurance product. After selling a product, the relevant department will propose an inspection after selling report in the biannual insurance product management conference.

b) Management of risks associated with insurance approval

Management of risks associated with insurance approval refer to unexpected losses resulting from product promotion and approval, and related expenses. In order to control those risks, the subsidiary Taiwan Life Insurance Co., Ltd. puts in place standard approval procedures, guidelines, and manuals.

c) Management of risks associated with reinsurance

Management of risks associated with reinsurance result from the failure to arrange appropriate reinsurance or the incapacity of the reinsurer to fulfill its obligation which makes it impossible for the premium, payment for damage, and other expenses to be recovered. The subsidiary Taiwan Life Insurance Co., Ltd. has put in place a management plan for reinsurance risks which covers the management of retained risks, reinsured risks, and risks from selling reinsurance to other insurance companies. The subsidiary Taiwan Life Insurance Co., Ltd. will then evaluate its retention risk limits based on classification of risks and its ability to cover those risks. Also, it devises a set of procedures and criteria on the choice of reinsurers, and, after purchasing the reinsurance, monitors the credit ratings of reinsurers to avoid a default on the part of reinsurers.

(Continued) 452 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

d) Management of risks associated with catastrophe

Management of risks associated with catastrophe are associated with risk events that are of a magnitude significant enough to cause multiple losses for hazard units of a single or several sorts of insurance, and thus could affect the credit ratings and solvency of an insurance company. The subsidiary Taiwan Life Insurance Co., Ltd. measures and manages the catastrophe risks by means of catastrophic loss records to estimate possible amount of losses in cases of recurrence.

e) Management of risks associated with payment for damage

Management of risks associated with payment for damage result from the failure to properly process damage claims by the insured. The subsidiary Taiwan Life Insurance Co., Ltd. puts in place a standard procedure to reduce the risks.

f) Management of risks associated with reserves

Management of risks associated with reserves result from sales’ underestimate of liability, which renders the reserve provision insufficient for future obligation risks. The subsidiary Taiwan Life Insurance Co., Ltd. puts in place a standard procedure for reserve provision and conducts regular sufficiency analysis to reduce the risks.

2) Limits on and transfer of risk exposures, and prevention of inappropriate risk concentration

The subsidiary Taiwan Life Insurance Co., Ltd. puts in place a management plan for reinsurance risks which covers the management of retained risks, reinsured risks, risks from selling reinsurance to other insurance companies, and reinsurance risks within the Company and subsidiaries. The subsidiary Taiwan Life Insurance Co., Ltd. will then evaluate its retention risk limits based on classification of risks and its ability to cover those risks. Also, it devises a set of procedures and criteria on the choice of reinsurers, and, after purchasing the reinsurance, periodically monitors the credit ratings of reinsurers to avoid a default on the part of reinsurers and maintain the safety of the operation.

3) Asset and liability management

a) The Company’ s subsidiary Taiwan Life Insurance Co., Ltd. has its own asset/liability management committee, who is responsible for reviewing and approving the overall investment and liability management decisions.

b) In compliance with asset and liability matching regulations, the match of asset and liability is routinely reviewed with its risk limit monitored to ensure alignment with the Company’ s subsidiary Taiwan Life Insurance Co., Ltd.’ s objectives. If risk levels exceed the tolerance or in special circumstances, prompt mitigation plans are escalated to senior levels, followed by communications with the people in charge to propose improvement plans.

(Continued) 453 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

4) Administration and control policies on additional debts or equity commitments required to undertake when acquiring or providing assets under certain circumstances.

To comply with regulations and strengthen capital base, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. routinely assesses its capital adequacy. If it falls below minimum capital requirements, instant alerts with required timeframe and projected amount will be reported to senior levels, followed by a capital strengthening proposal to fulfill regulatory requirements.

5) Information on insurance risk

a) Sensitivity of insurance risk-insurance contracts and financial instruments with a discretionary feature

For the year ended December 31, 2018 Change Change in income Change in in assumption before tax stockholders’ equity Mortality/Morbidity Increase 5% Decrease 274,221 Decrease 219,377 Rate of return Decrease0.1 % Decrease 1,518,067 Decrease 1,214,454 Expense (fixed expense) Increase 5 % Decrease 842,903 Decrease 674,322 Decrement and lapse rate Increase 5 % Increase 68,593 Increase 54,874

For the year ended December 31, 2017 Change Change in income Change in in assumption before tax stockholders’ equity Mortality/Morbidity Increase 5% Decrease 238,454 Decrease 197,917 Rate of return Decrease0.1 % Decrease 1,287,953 Decrease 1,069,001 Expense (fixed expense) Increase 5 % Decrease 963,661 Decrease 799,838 Decrement and lapse rate Increase 5 % Increase 51,815 Increase 43,006

i) The above profit or loss changes are the influence of assumptions on the Company’s subsidiary Taiwan Life Insurance Co., Ltd.’s pre-tax income for the years ended December 31, 2018 and 2017. The influence on stockholders’ equity assumes that income tax is calculated at 20% and 17% of pre-tax income.

ii) The sensitivity test does not take how market changes affect operations into account.

iii) The underlying assumption is that the changes in each factor are not correlated.

(Continued) 454 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

b) Concentration of insurance risks

The subsidiary Taiwan Life Insurance Co., Ltd. only operates in Taiwan and thus incurs geographical risk concentration. The subsidiary Taiwan Life Insurance Co., Ltd. reduces risk concentration via reinsurance contracts. To reduce the degree of risk concentration, the subsidiary Taiwan Life Insurance Co., Ltd. regularly reviews its profit and loss on claims, monitors risks, and evaluates the need to make adjustments to catastrophe insurance and the amount of self-retention of reinsurance.

According to the “Regulations Governing Insurance Enterprises for Setting Aside Various Reserves ” starting from January 1, 2011, the subsidiary Taiwan Life Insurance Co., Ltd. should set aside a special reserve after deducting income tax under stockholders’ equity each year for significant incidents and catastrophe. The special reserve for significant incidents is the provision for huge indemnity caused by future significant accidents. The special reserve for catastrophe is the provision for abnormal changes in loss ratios for each line of insurance and claims. After deducting income tax pursuant to IAS 12, the special reserves recognized under liabilities before December 31, 2012 shall be recognized under stockholders’ equity, starting from January 1, 2013, unless otherwise specified by the competent authority for monitoring purposes.

c) Claim development trend

i) Claims development from direct business

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

December 31, 2018 Development year Accident Claims year 1 2 3 4 5 6 7 8 reserve 2011 1,604,776 1,658,047 1,671,486 1,677,554 1,676,058 1,678,655 1,680,193 1,682,627 - 2012 1,580,537 1,674,595 1,726,325 1,734,986 1,742,530 1,745,563 1,746,626 1,748,170 1,544 2013 1,654,500 1,745,064 1,765,499 1,767,906 1,779,614 1,781,532 1,783,280 1,784,958 3,426 2014 1,727,002 1,840,108 1,857,685 1,882,480 1,909,745 1,912,603 1,914,532 1,916,386 6,641 2015 1,851,932 1,992,332 2,001,600 2,014,455 2,020,256 2,023,238 2,025,395 2,027,401 12,946 2016 1,863,529 2,023,099 2,058,575 2,069,328 2,075,528 2,078,766 2,081,113 2,083,295 24,720 2017 1,951,241 2,389,001 2,413,082 2,425,734 2,433,011 2,436,866 2,439,676 2,442,281 53,280 2018 2,315,656 2,459,727 2,481,823 2,493,190 2,499,905 2,503,800 2,506,784 2,509,488 200,832 Not reported and not paid claim reserve 303,389 Add: Reported but not paid claims 547,791 Provision for not paid claims per other statutory requirement 175 Claims reserve 851,355

(Continued) 455 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

The above table demonstrates the development trend of claims. The vertical axis represents the year in which the claim event occurred, and the horizontal axis represents the development years. Each horizontal axis figure represents the accumulated compensation amount at the end of each year. The compensation amount refers to the claims whether they are finalized or not. The table explains how Taiwan Life Insurance Co., Ltd. estimates the compensation amount for each year over time. The scenarios and trends which affect the provision of claims reserve may change in the future; therefore, the estimated future compensation amount is not able to be determined by the claim development trend.

ii) Claims development from retained business

The Company’s subsidiary Taiwan Life Insurance Co., Ltd. for the operating benchmark are balanced and conservative, and no longer get on the reinsurance cede business, since July 2016. The relevant development trend information for non-reported insurance claims reserve loss please look at the disclosure in claims development from direct business.

The Company’s subsidiary Taiwan Life Insurance Co., Ltd. provides a claim reserve based on the expected claims payment and relevant handling fee for RBNA and IBNR claims. Such provision involves vast uncertainty, estimates and judgments; hence, it is highly complicated. Any change in estimate or judgment is regarded as a change in accounting estimate; and the amount of change is recognized as current gains or losses. Some claimants may delay notifying Taiwan Life Insurance Co., Ltd. In addition, when estimating the potential IBNR claims, past loss experience and subjective judgment are involved; therefore, it is not certain that the estimated claims reserve on the Balance sheet date will be equal to the final compensation amount. The estimate of claims reserve is based on the information currently available; however, the final result may deviate from the original estimate due to subsequent developments.

(Continued) 456 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Property insurance business:

1) Objectives, policies, procedures, and methods for managing risks arising from insurance contracts

In order to achieve the risk management objective to ensure solvency, enhance long-term competitiveness, and increase the value of equity, the sub-subsidiary TLG Insurance Co., Ltd. has established the “ Risk Management Policy” as the prime guiding principle to properly identify, measure, response, and control risks. Insurance risk is one of the major risks, it originates from the risk transferred by the insured after the sub-subsidiary TLG Insurance Co., Ltd. receives premiums and thereby results in contractual obligations of insurance claim payment for damage caused by unforeseeable events. The sub-subsidiary TLG Insurance Co., Ltd. established effective management mechanism for each insurance risk as follows:

a) Risk from product design and pricing

These risks arise from improper product design, inconsistency between contract terms and the information used in pricing, or unexpected changes. The sub- subsidiary TLG Insurance Co., Ltd. has established the loss allocation model for each homogeneous insurance risk to quantitatively measure the expected value insurance risk loss and possible losses under different confidence levels. In the meanwhile, the sub-subsidiary TLG Insurance Co., Ltd. evaluates risks under qualitative basis and describes the possibility and the degree of influence. The possible controlling procedures according to each commodity characteristics are as follows:

i) Risk-transfer strategies: Take approaches to transfer all or part of risks depending on certain circumstances.

ii) Actuarial assumptions: The adopted actuarial assumptions for setting up expense rates could add up proper safety coefficient in conformity with regulations depending on certain circumstances.

iii) After-sales experience tracking: Periodically analyzing each actuarial assumption after sales, applying profit testing or sensitivity analysis to test and adjust commodity and rate-setting.

b) Risk from insurance underwriting:

These risks arise from unexpected loss risk of business solicitation, insurance underwriting, and other operating processes. The sub-subsidiary TLG Insurance Co., Ltd. established proper management mechanism for risk from insurance underwriting as follows:

i) Established internal underwriting systems and procedures for business solicitation, underwriting policy.

ii) Provided an insurance underwriting handbook to effectively maintain quality and reduce potential risk from insurance underwriting.

(Continued) 457 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

iii) Set indicators for insurance underwriting risk management and report periodically to management.

c) Risk from reinsurance:

These risks result from the failure to arrange appropriate reinsurance or the incapacity of the reinsurer to fulfill its obligation which makes it impossible for the premium, payment for damage, and other expenses to be recovered. The sub- subsidiary TLG Insurance Co., Ltd. established reinsurance risk management mechanism in conformity with relative regulations, and after purchasing the reinsurance, monitors the credit ratings of reinsurers to avoid a default on the part of reinsurers.

d) Risk from catastrophe:

The sub-subsidiary TLG Insurance Co., Ltd. identifies catastrophes that might cause material loss based on the characteristics of the products, regularly reviews the relation between the effect of cumulative risks and limits of risks for each insurance product under different assumed catastrophe, and evaluates whether its capital is sufficient to cover the capital requirement of catastrophe risk.

e) Risk of claim:

These risks result from the failure to properly process damage claims by the insured. The sub-subsidiary TLG Insurance Co., Ltd. has built a proper internal claim-handling process including the qualifications, responsibilities, quota of authorizes and scopes of authority of claim adjuster.

f) Reserve-related risk:

These risks result from sales’ underestimate of liability, which renders the reserve provision insufficient for future obligation risks. The sub-subsidiary TLG Insurance Co., Ltd. puts in place a standard procedure for reserve provision and risk controlling mechanism in accordance with different reserve-related risk incidence and the possible controlling procedures are as follows:

i) Risk-transfer strategies: Take approaches to transfer all or part of risks depending on certain circumstances.

ii) Plans for increase in reserve: Increase reserve when it is overrun or insufficient to cover the risk.

(Continued) 458 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Information on insurance risk

a) Sensitivity of insurance risk:

For the year ended December 31, 2018 Effects to net income as the expected loss rate increases (decreases) 5% Insurance Expected Before After Item Premium loss rate reinsurance reinsurance Fire insurance $ 400,95158.1 % 20,789 8,043 Marine insurance 49,85763.6 % 2,685 448 Miscellaneous casualty insurance 201,14073.9 % 13,494 5,990 Personal accident and health 261,92768.6 % 13,760 8,510 insurance Voluntary auto insurance 1,040,09869.5 % 52,866 52,723 Compulsory auto TPL insurance 419,691 Not applicable Not applicable Not applicable

For the year ended December 31, 2017 Effects to net income as the expected loss rate increases (decreases) 5% Insurance Expected Before After Item Premium loss rate reinsurance reinsurance Fire insurance $ 398,14458.2 % 20,079 7,348 Marine insurance 43,30863.1 % 1,911 457 Miscellaneous casualty insurance 239,71066.6 % 12,102 4,934 Personal accident and health 325,67168.8 % 16,049 11,247 insurance Voluntary auto insurance 1,060,79369.5 % 51,852 51,638 Compulsory auto TPL insurance 453,570 Not applicable Not applicable Not applicable

b) Description of insurance risk concentration

The sub-subsidiary TLG Insurance Co., Ltd. establishes risk limits based on each risk unit and each insured event and transfers the over-limit risk by reinsurance to reduce the effect of insurance risk concentration.

i) Business concentration

For the year ended December 31, 2018 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 400,95116.89 % 143,0038.21 % Marine insurance 49,8572.10 % 8,5100.49 % Miscellaneous casualty insurance 201,1418.48 % 80,8524.64 % Personal accident and health insurance 261,92711.03 % 168,9599.69 % Voluntary auto insurance 1,040,09843.82 % 1,037,23659.52 % Compulsory auto TPL insurance 419,691 17.68 % 304,126 17.45 % Total $ 2,373,665 100.00 % 1,742,686 100.00 %

(Continued) 459 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the year ended December 31, 2017 Premium income Retained earned premiums Item Amount % Amount % Fire insurance $ 398,14415.79 % 133,6457.24 % Marine insurance 43,3081.72 % 8,2000.44 % Miscellaneous casualty insurance 239,7109.51 % 93,4455.06 % Personal accident and health insurance 325,67112.92 % 228,26912.36 % Voluntary auto insurance 1,060,79342.07 % 1,058,11857.29 % Compulsory auto TPL insurance 453,570 17.99 % 325,397 17.61 % Total $ 2,521,196 100.00 % 1,847,074 100.00 %

ii) Loss concentration

Self–claim as of Self–claim as of December 31, 2018 December 31, 2017 Item Amount % Amount % Fire insurance $ 20,6483.30 % 21,4633.38 % Marine insurance 5,9650.95 % 6,3100.99 % Miscellaneous casualty insurance 64,05310.24 % 53,1968.37 % Personal accident and health insurance 38,1226.10 % 36,5835.75 % Voluntary auto insurance 316,43150.60 % 327,66951.53 % Compulsory auto TPL insurance 180,137 28.81 % 190,612 29.98 % Total $ 625,356 100.00 % 635,833 100.00 %

iii) Trends in claims development

1. Claims development from direct business and arrange reinsurance business

The sub-subsidiary TLG Insurance Co., Ltd.'s claims development from direct business and arrange reinsurance business, the cumulative claims over the past years were as follows:

December 31, 2018 Development year Accident Cumulative Reported Claim year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 claims paid but unpaid Unpaid reserve 2009 5,083,381 1,921,143 1,974,432 1,968,341 1,959,136 1,946,966 1,947,920 1,947,612 1,949,861 1,950,157 1,949,292 865

2010 731,225 887,990 917,652 925,371 922,365 921,213 921,267 923,815 920,841 919,640 1,201

2011 859,809 1,078,873 1,114,607 1,120,276 1,130,005 1,129,171 1,132,362 1,129,436 1,123,954 5,482

2012 885,653 1,088,513 1,139,401 1,141,031 1,140,165 1,139,363 1,135,624 1,134,452 1,172

2013 815,688 994,571 1,043,050 1,050,437 1,054,039 1,048,848 1,045,386 3,462

2014 1,031,688 1,226,439 1,265,429 1,279,183 1,275,842 1,256,435 19,407

2015 1,081,950 1,198,254 1,205,616 1,202,002 1,198,584 3,418

2016 1,103,788 1,271,401 1,290,246 1,263,997 26,249

2017 993,289 1,197,458 1,102,517 94,941

2018 1,075,384 705,952 369,432

Total 525,629 386,747 912,376

(Continued) 460 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

2017 993,289 636,895 356,394

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

2. Claims development from retained business

The sub-subsidiary TLG Insurance Co., Ltd.'s claims development from retained business, the cumulative claims over the past years were as follows:

December 31, 2018 Development year Accident Cumulative Reported Claim year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 claims paid but unpaid Unpaid reserve 2009 3,208,720 1,295,166 1,348,014 1,341,408 1,332,982 1,326,753 1,327,469 1,327,653 1,323,987 1,326,271 1,325,496 775

2010 472,945 550,366 579,075 576,434 579,318 579,111 579,166 581,384 578,732 578,151 581

2011 319,488 434,055 452,541 456,646 460,523 460,177 462,873 460,001 458,974 1,027

2012 322,156 430,261 463,422 461,614 460,802 462,417 458,929 458,985 (56)

2013 309,566 389,766 413,261 415,501 420,720 417,022 416,131 891

2014 339,270 405,799 428,001 443,771 440,224 434,910 5,314

2015 427,366 486,185 493,026 489,687 490,041 (354)

2016 664,691 755,956 785,122 769,345 15,777

2017 823,289 950,364 890,893 59,471

2018 868,689 565,668 303,021

Total 386,447 238,817 625,264

Cumulative impairment loss 92 - 92

$ 386,539 238,817 625,356

(Continued) 461 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Development year Accident Cumulative Reported Claim year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 claims paid but unpaid Unpaid reserve 2008 1,941,637 1,037,173 1,023,914 1,056,901 1,050,305 1,042,543 1,036,008 1,036,398 1,036,646 1,013,546 1,015,213 (1,667)

2009 229,910 271,252 291,113 291,103 290,439 290,745 291,071 291,007 310,441 310,501 (60)

2010 472,945 550,366 579,075 576,434 579,318 579,111 579,166 581,384 578,218 3,166

2011 319,488 434,055 452,541 456,646 460,523 460,177 462,873 458,997 3,876

2012 322,156 430,261 463,422 461,614 460,802 462,417 458,690 3,727

2013 309,566 389,766 413,261 415,501 420,720 416,885 3,835

2014 339,270 405,799 428,001 443,771 433,194 10,577

2015 427,366 486,185 493,026 482,634 10,392

2016 664,691 755,956 698,660 57,296

2017 823,289 517,767 305,522

Total 396,664 239,069 635,733

Cumulative impairment loss 100 - 100

$ 396,764 239,069 635,833

The sub-subsidiary TLG Insurance Co., Ltd. recognizes the claims reserve based on expected future claims, including both reported and unreported claims. Because the recognition of this kind of reserve involves many uncertainties, estimations, and judgments, it contains high complexity. Any changes in estimations and judgments are regarded as changes in accounting estimates, and the effect of the changes will be recognized in the net income of the current period. Some claims might have a delay in reporting to the sub-subsidiary TLG Insurance Co., Ltd. In addition, estimating the expected possible claims of unreported claims might involve previous claim experience and subjective judgment. Therefore, the claims reserve recognized at the balance sheet date may not be the same as the final claim payments. Claims reserve recognized is estimated based on the currently available information. However, the final result may depart from the initial estimation due to the subsequent development of claims.

(7) Related-Party Transactions:

(a) Names of related parties and relationship with the Company

Name of related party Relationship with the Company CTBC Security Co., Ltd. An investee company carried under the equity method. Grand Bills Finance Corporation King Dragon Life Insurance Co., Ltd. Hofa Land Development Co., Ltd. Wu Tzu Development Co., Ltd. Star Shining Energy Co., Ltd. Top Taiwan IX Venture Capital Co., Ltd.

(Continued) 462 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Company Giga Green Energy Co., Ltd. An investee company carried under the equity method. LH Financial Group Public Company Limited Xiamen Jinmeixin Consumer Finance Co., Ltd. CTBC Investment Trust Funds A securities investment trust fund managed by the Company’s subsidiary CTBC Investments Co., Ltd. Taiwan Institute of Economic Research The Company’s subsidiary contributed over 1/3 of its total funds. CTBC Business School CTBC Charity Foundation CTBC Culture Foundation CTBC Anti-drug Educational Foundation Kainan High School of Commerce and The Chairman of the Company is its body Industry corporate representative. Heng Da Culture Foundation The Director of the Company is its body corporate representative Straits Exchange Foundation The Chairman of the Company’s subsidiary is its body corporate representative. CTBC Financial Park Mangement authority The Director of the Company’s subsidiary is its body corporate representative. TransWorld University CTBC Technology Building Management authority Pei-sheng Cultural and Educational Foundation Asian Bankers Association The general manager of the Company is its body corporate representative Jing Kwan Investment Co., Ltd. The Chairman of the Company’s subsidiary is its chairman. Shin Wen Investment Co., Ltd. Overseas Investment & Development Corp. The Director of the Company’s subsidiary is its chairman. Taiwan Relo Club, Ltd. Taipei Medical University The Director of the Company's subsidiary's investee company carried under the equity method is its body corporate representative. Yi Chuan Investment Co., Ltd. The Institutional Director of the Company. Chung Yuan Investment Co., Ltd.

(Continued) 463 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Company Hewei Investment Co., Ltd The Chairman of the Company is its director. Sunghung Investment Co., Ltd. Fenglu Development & Investment Co., Ltd. Taiwan Sports Lottery Co., Ltd. Within the second-degree relative of the Chairman of the Company is its chairman. Chuan Wei Investment Co., Ltd. Yan Yuan Investment Co., Ltd. The Director of the Company’s subsidiary is its general manager. Nan Ya Plastics Corporation The Chairman of the Company’s subsidiary is its director. Formosa Sumco Technology Corporation Showa Denko HD Trace Corp. Taipei Financial Center Corporation Brothers Entertaining Co., Ltd. The Director of the Company’s subsidiary is its director. Rich Healthy Fruits & Vegetable Corp. The General manager of the Company’s subsidiary is its director. Noratech Pharmaceuticals, Inc. Prince Pharmaceutical Co., Ltd. Kinpo Electionc Co., Ltd. The Chairman of the Company's sub-subsidiary is its director. Huaku Development Co., Ltd. The second-degree relative of the Director of the Company’s sub-subsidiary is its general manager. Hong Chang Precision Industrial Co., Ltd. The second-degree relative of the Chief Investment Officer of the Company is its chairman. Chailease Finance Co., Ltd. Related party in substance. Sungbo Co., Ltd. Jungguan Investment Co., Ltd. Kuan Ho Development Co., Ltd. CTC Group Inc. Chailease Insurance Brokers Co., Ltd. Chung-Chie Property Management Co., Ltd. Chinatrust Real Estate Co., Ltd. APEX Credit Solution Inc. Kae Lee Investment Ltd. Chia Shih Investment Co., Ltd.

(Continued) 464 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Company Yi Huao Investment Co., Ltd. Related party in substance. Yi Kao Investment Co., Ltd. Songyong Investment Co., Ltd. Chailease Auto Rental Co., Ltd. Fina Finance & Trading Co., Ltd. Chailease Holding Company Limited (Cayman) Ronghua Investment Co., Ltd. Global Hospitality Group Inc. Shin Ing Technology Co., Ltd. Chung Cheng Investment Ltd. Chinese Taipei Baseball Association Other related parties The directors of the Company and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.

(b) Significant transactions between related parties and the Company

(i) Lease

For the years ended December 31, 2018 and 2017, the rental revenue that the Company's subsidiary CTBC Bank Co., Ltd. received from related parties for the rental of buildings, parking spaces, and safe deposit boxes amounted to $271,898 and $270,509, respectively, constituting 53.00% and 53.75%, respectively, of total rental income.

As of December 31, 2018 and 2017, deposits of the Company's subsidiary, CTBC Bank Co. Ltd for renting safe boxes to related parties amounted to $7 and $5, respectively, the rents received in advance from related parties amounted to $11,534 and $7,665, respectively. The guarantee deposit for the use of space and machinery received from related parties amounted to $67,121 and $69,358, respectively.

(ii) Donations

For the years ended December 31 Related party 2018 2017 CTBC Culture Foundation $ 44,000 49,000 CTBC Charity Foundation 54,000 54,000 CTBC Anti-Drug Educational Foundation 47,000 33,000 CTBC Business School 139,971 130,412 Total $ 284,971 266,412

(Continued) 465 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Guarantee

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

(iv) Loans

December 31, 2018 Settlement status Number/name of Maximum Ending Normal Overdue Loan Categories related parties balance balance loans loans Collateral conditions Consumer loan—employee 43 $ 20,620 15,125 15,125 - None None Home loan mortgage 519 2,739,317 2,500,001 2,500,001 - Real estate/ others Others Nan Ya Plastics Corporation 3,346,842 3,346,842 3,346,842 - Real estate/ plant/ machine room CTC Group Inc. 396,456 386,568 386,568 - Real estate Jungguan Investment Co., 350,000 350,000 350,000 - Land Ltd. Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate Ltd. Others 253,234 236,320 236,320 - Real estate

December 31, 2017 Settlement status Number/name of Maximum Ending Normal Overdue Loan Categories related parties balance balance loans loans Collateral conditions Consumer loan—employee 45 $ 20,604 11,182 11,182 - None None Home loan mortgage 444 2,356,026 2,194,369 2,194,369 - Real estate/ others Others Nan Ya Plastics Corporation 2,613,535 2,480,637 2,480,637 - Real estate/ plant/ machine room Huaku Development Co., 1,050,000 1,050,000 1,050,000 - Land Ltd. CTC Group Inc. 439,229 385,039 385,039 - Real estate Taipei Financial Center 376,756 269,573 269,573 - Real estate Corporation Jungguan Investment Co., 355,000 350,000 350,000 - Land Ltd. Kuan Ho Development Co., 245,000 245,000 245,000 - Real estate Ltd. Others 136,574 121,849 121,849 - Real estate

(Continued) 466 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(v) Deposits

December 31, 2018 Interest expenses (For the year Maximum Ending Range of ended Related party balance balance interest rates December 31) Showa Denko HD Trace Corp $ 2,544,117 2,316,988 0~2.98% 35,729 Yan Yuan Investment Co., Ltd. 2,991,684 1,853,257 0~0.01% 161 Taiwan Sports Lottery Co., Ltd.. 1,609,508 1,597,219 0~0.01% 82 Hofa Land Development Co., Ltd. 3,493,926 1,596,213 0~0.45% 10,651 Sungyong Investment Co., Ltd. 1,302,000 1,281,396 0~0.01% 72 CTBC Charity Foundation 1,109,917 983,674 0~1.07% 5,934 Taiwan Institute of Economic Research 545,524 477,163 0~1.09% 2,399 Yi Huao Investment Co., Ltd. 383,346 383,308 0~0.01% 23 Chia Shih Investment Co., Ltd. 380,945 380,903 0~0.01% 19 Kainan High School of Commerce and Industry 319,913 289,487 0~1.04% 2,060 Kuan Ho Development Co., Ltd. 261,334 261,334 0~0.01% 20 Chuan Wei Investment Co., Ltd. 478,310 259,611 0~0.01% 24 Ronghua Investment Co., Ltd. 212,072 211,977 0~0.01% 10 Chinatrust Real Estate Co., Ltd. 214,052 209,920 0~1.80% 1,812 Pei-sheng Cultural and Educational Foundation 566,588 203,714 0~0.05% 167 Straits Exchange Foundation 196,830 196,830 0.10~1.09% 1,910 Wu Tzu Development Co., Ltd. 174,368 169,239 0~1% 164 Chailease Holding Company Limited (Cayman) 4,599,750 159,930 0~0.22% 74 Jungguan Investment Co., Ltd. 286,982 159,157 0.01% 9 CTBC Business School 197,283 148,572 0~1.09% 223 Chung Yuan Investment Co., Ltd. 149,965 143,737 0.01% 8 Sunghung Investment Co., Ltd. 145,437 143,265 0~0.01% 13 Yi Chuan Investment Co., Ltd. 212,242 128,054 0~0.01% 14 Hewei Investment Co., Ltd. 128,935 127,784 0~0.01% 11 Fenglu Development & Investment Co., Ltd. 216,213 124,143 0~0.01% 21 Kae Lee Investment Co., Ltd. 121,930 121,724 0~0.01% 12 Shin Ing Technology Co., Ltd. 111,125 111,125 0~1.07% 308 Chung Cheng Investment Ltd. 113,720 110,978 0~0.01% 8 Heng Da Culture Foundation 106,657 105,216 0~3.15% 1,082 Others 19,883,792 7,621,802 42,193 Total $ 43,058,465 21,877,720 105,213

(Continued) 467 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

(vi) Derivative financial commodity trading

December 31, 2018 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Money market 08.31.2018~ USD 117,250 2,939 (Note 1) 2,939 Investment swap 03.04.2019 Trust Funds

(Continued) 468 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

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

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

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

(vii) Securities purchased under resell agreements

For the year ended December 31, 2018 Ending Interest Interest Related party balance payable expenses Straits Exchange Foundation $ 13,600 2 66

(viii) Funds

December 31, December 31, Related party Content 2018 2017 CTBC Securities Co., Ltd. CTBC Investment Trust $ 155,915 222,017 Funds CTBC Investments Co., Ltd. 25,613 32,613 Taiwan Life Insurance Co., Ltd. 1,837,396 2,042,821 Total $ 2,018,924 2,297,451

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

December 31, December 31, Related party 2018 2017 Nan Ya Plastics Corporation $ 1,171,361 1,317,912 Rich Healthy Fruits & Vegetable Corp. - 90,000 Noratech Pharmaceuticals Inc. - 60,000 Prince Pharmaceutical Co., Ltd. - 40,000 Taipei Financial Center Corporation 956,880 742,500 Formosa Sumco Technology Corporation 247,692 351,860 Total $ 2,375,933 2,602,272

(Continued) 469 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(x) Others

1) Commission and other income generated between the Company’s subsidiary CTBC Bank Co., Ltd. and related parties.

For the years ended December 31 Related party Summary 2018 2017 Taipei Financial Center Corporation Commission income and the remunerations $ 172,369 - to directors Grand Bills Finance Corporation Commission income, the remunerations to 4,345 860 directors, resignation income and transportation allowance Sungbo Co., Ltd. Commission income 3,067 - Kinpo Electronics, Inc. Commission income 2,059 2,006 CTBC Charity Foundation Commission income and allocation of 1,502 439 information Chinatrust Real Estate Co., Ltd. Business service income 566 - Individuals Commission income 5,913 5,761 $ 189,821 9,066

Foregoing transactions, accounts receivable balances were as follows:

December 31, December 31, Related party Summary 2018 2017 Grand Bills Finance Corporation Commission income, the $6562 remunerations to directors, resignation income and transportation allowance Kinpo Electronics, Inc. Commission income - 164 CTBC Charity Foundation Commission income and 445 436 allocation of information $ 510 662

(Continued) 470 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Handling fees and other general administration expenses

For the years ended December 31 Related party Summary 2018 2017 Brothers Entertaining Co., Ltd. Sponsorship, marketing feedback fund and $ 290,015 229,376 gift expenses CTBC Security Co., Ltd. Security fees 139,491 131,871 CTBC Financial Park Management Head office general administration expenses 137,636 151,001 authority Taipei Financial Center Corporation Sponsorship, joint-brand credit card 117,206 126,643 payment and ATM utilities Taiwan Relo Club, Ltd. Marketing fees and gift expenses 44,238 52,842 Fina Finance & Trading Co., Ltd. Business service expenses 22,387 69,627 APEX Credit Solutions Inc. Collection assistance fees 17,873 17,043 Taiwan Institute of Economic Research Expense for domestic economics 12,400 13,850 research and business consulting commissioned research Chailease Finance Co., Ltd. Leasing of official vehicles, rental fees 5,071 9,982 and service fees Chinese Taipei Baseball Association Sponsorship 5,000 - Chailease Auto Rental Co., Ltd. Rental fees and repair expense 2,446 840 Sungbo Co., Ltd. Administration expenses, catering fees and 2,262 1,755 gifts expenses CTBC Technology Building Management Management fees 2,242 - authority Chung-Chie Property Management Co., Cleaning fees and administration expenses 2,170 8,568 Ltd. Chinatrust Real Estate Co., Ltd. Agency service fees 2,101 - Asian Banker Association Annual fee and sponsorship 795 - CTBC Culture Foundartion Business promotion fees and gift expenses 626 799 Global Hospitality Group Inc. Personal expenditure and catering fees - 1,205 $ 803,959 815,402

Foregoing transactions, accounts payable balances were as follows:

December 31, December 31, Related party Summary 2018 2017 Brothers Entertaining Co., Ltd. Sponorship, marketing feedback fund and $ 146 3,779 gift expenses CTBC Security Co., Ltd. Security fees 16,275 5,011 CTBC Financial Park Management Head office general administration 33,999 28,681 authority expenses Taipei Financial Center Corporation Sponsorship, joint-brand credit card 11,588 13,144 payment and ATM utilities Business Fina Finance & Trading Co., Ltd. Business service expenses 1,502 5,024 APEX Credit Solution Inc. Collection assistance fees 2,051 3,460 Taiwan Institute of Economic Research Expense for domestic economics research 5,100 6,550 and business consulting commissioned research Chailease Finance Co., Ltd. Leasing of official vehicles, rental fees and 81 314 service fees Sungbo Co., Ltd. Administration expenses, catering fees and 134 157 gifts expenses CTBC Technology Building Management Management fees 739 - authority Chung-Chie Property Management Co., Ltd. Cleaning fees and adminstration expenses 85 206 $ 71,700 66,326

(Continued) 471 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Others

December 31, 2018 Income statement Balance sheet Trading Company Trading Company Summary accounts Amount accounts Amount

CTBC Bank Co., Ltd. Chailease Finance Co., Released undue - $- Other receivables 6,296 Ltd. loans (Note) Fina Finance & Trading - - 140,082 Co., Ltd. Others Affiliates Advance payment for - - 8,002 utilities expenses, security fees, training fees and postage expense etc. CTBC Securities Co., CTBC Financial Park Cleaning fees, Other general 8,168 Other payables 2,140 Ltd. Management security fees and administration authority utilities expenses expenses Chung-Chie Property Cleaning fees and 729 - - Management Co., management fees Ltd. CTBC Investments Co., Funds managed by the Management fees Service fees and 540,455 Management 47,621 Ltd. Company and sales fees commission receivables income CTBC Venture Capital CTBC Security Co., Security fees Other general 2,811 Accrued expenses 117 Co., Ltd. Ltd. administration expenses CTBC Financial Park Utilities and Other general 1,152 " 185 Management administrative administration authority expenses expenses Taiwan Life Insurance CTBC Financial Park Rental expenses Other general 35,374 - - Co., Ltd. Management administration authority expenses Taipei Medical Premium revenue Insurance income 10,029 - - University TLG Capital Co., Ltd. Hong Chang Precision Leasing revenue Interest revenue 353 Other receivables 7,794 Industrial Co., Ltd. Taiwan Lottery Co., CTBC Financial Park Utilities and Other general 3,719 Accrued expenses 620 Ltd. Management administrative administration authority expenses expenses $ 602,790 212,857

(Continued) 472 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Income statement Balance sheet Trading Company Trading Company Summary accounts Amount accounts Amount CTBC Bank Co., Ltd. Chailease Finance Co., Released undue - $- Other receivables 23,999 Ltd. loans (Note) Fina Finance & Trading - - " 426,851 Co., Ltd. Others Affiliates Advance payment for - - " 8,184 utilities expenses, security fees, training fees and postage expenses CTBC Securities Co., CTBC Financial Park Cleaning fees, Other general 7,397 Other payables 1,199 Ltd. Management security fees and administration authority utilities expenses expenses Chung-Chie Property Cleaning fees and 1,018 " 10 Management Co., administration Ltd. expenses CTBC Investments Co., Funds managed by the Management fees Service fees and 305,500 Management 45,786 Ltd. Company and sales fees commission receivables income CTBC Venture Capital CTBC Security Co., Security fees Other general 2,878 Accrued expenses 32 Co., Ltd. Ltd. administration expenses CTBC Financial Park Utilities and Other general 1,128 203 Management administrative administration authority expenses expenses Taiwan Life Insurance CTBC Financial Park Rental expenses Other general 39,964 - - Co., Ltd. Management administration authority expenses Chailease Insurance Commision fees Service fees 3,471 Commision payable 261 Brokers Co. Ltd. Taipei Medical Premium revenue Insurance income 10,544 - - University TLG Capital Co., Ltd. Hong Chang Precision Interest revenue Interest revenue 456 Other receivables 10,870 Industrial Co., Ltd. $ 372,356 517,395

Note: The Company’ s subsidiary CTBC Bank Co., Ltd. signed strategic alliance agreements with Chailease Finance Co., Ltd. and Fina Finance & Trading Co., Ltd. agreeing loans will be released directly to Fina and Chailease’s clients, and Fina and Chailease pledged to buyback and settle all debts once any delay arises.

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

(Continued) 473 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the years ended December 31 2018 2017 Salary and other short-term employee benefits $ 2,142,808 2,047,209 Post-employment benefits 28,010 29,457 Share-based payment 694,015 306,897 Total $ 2,864,833 2,383,563

(8) Pledged Assets:

Pledged assets of the Company and subsidiaries were as follows:

Unit: In Thousands of New Taiwan Dollars

Assets December 31, 2018 December 31, 2017 Purpose of collateral Subsidiary—CTBC Bank Co., Ltd. and its subsidiaries Bonds $ 18,256,725 53,527,925 Guarantee deposits for transaction settlements and call loans from banks, repurchase agreement pledge, etc. Negotiable certificates of deposit 30,291,000 25,191,000 Daytime overdrafts of Central Bank, foreign currency call loan guarantee pledge, call loan liquidation account in U.S. Dollars, etc. Time deposits 368,742 5,573,695 Operation guarantee deposits for securities firm, underwriting business guarantee deposits for securities firm, compliance guarantee deposits for futures dealer and guarantee deposit, etc. Receivables 1,300 9,400 Guarantee for all the debts and other guarantee deposits Subsidiary—CTBC Securities Co., Ltd. and its subsidiaries Restricted time deposits 780,810 779,878 Guarantee for all the debts Subsidiary—CTBC Investments Co., Ltd. Restricted time deposits 55,000 55,000 Operation guarantee deposits Subsidiary—Taiwan Life Insurance Co., Ltd. and its subsidiaries Time deposits 476,921 232,648 Compliance guarantee deposits Accounts Receivable 404,576 707,615 Short-term borrowings Government bonds 8,817,045 7,367,702 Compliance guarantee deposits and other guarantee deposits

As of December 31, 2018 and 2017, the deposits for public welfare lottery issuance of the Company’s subsidiary CTBC Bank Co., Ltd.’s irrevocable standby letter of credit were all $1,050,000.

(Continued) 474 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(9) Significant Contingent Liabilities and Unrecognized Contract Commitment:

(a) Major commitments and contingencies

December 31, December 31, 2018 2017 CTBC Financial Holding Co., Ltd. Promissory notes of short term borrowing and other financing $ 91,000,000 67,500,000 Subsidiary—CTBC Bank Co., Ltd. and its subsidiaries Contingent liabilities from guarantee and letter of credit business 85,412,623 83,585,619 Promissory note to Central Bank for bank’s clearance 575,110 969,419 Client notes in custody 94,305,146 91,164,866 Marketable securities and debts in custody 2,939,919,751 2,585,480,564 Consigned travelers’ checks in custody 268,568 283,004 Designated purpose trust accounts 1,005,007,104 841,738,263 Other items in custody 487,664 444,735 $ 4,216,975,966 3,671,166,470

As of December 31, 2018 and 2017, the credit amount of the cancellable loan commitments of the Company’ s subsidiary CTBC Bank Co., Ltd. and its subsidiaries were $1,316,824,268 and $1,517,591,873, respectively.

The Company’ s subsidiary CTBC Bank Co., Ltd. renewed the services contract of information resources with International Business Machines, authorizing a five years and four months contract term commencing from September 1, 2017, and ending on December 31, 2022, in the amount of $2,670,000, which comprises a host computer lease fee, an authorization fee, and an annual software maintenance fee.

The Company’s subsidiary CTBC Bank Co., Ltd. was designated by the Ministry of Finance (the “MOF”) as the issuing institution for the fourth term of public welfare lottery. The period is from January 1, 2014 to December 31, 2023. The Company’ s subsidiary CTBC Bank Co., Ltd. was authorized to arrange and issue traditional lottery, scratch and win lottery, and computerized lottery tickets. For the fourth term of public welfare lottery, the Company’s subsidiary CTBC Bank Co., Ltd. receives a commission for issuing lottery tickets, representing 4.35% of the total lottery sales amount. The commission will be settled monthly. The Company’ s subsidiary CTBC Bank Co., Ltd.’ s profit will be what remains after a fixed payment of $2,700,000 to the MOF per year. Furthermore, in order to ensure that the lottery prize payout rate is not greater than 60% of the lottery issuing amount, not only did the Company’ s subsidiary CTBC Bank Co., Ltd. created a transitional monitoring account-provision for the lottery prize, but also has already adopted appropriate risk control strategies.

(Continued) 475 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

On May 31, 2013, the Company’s subsidiary CTBC Bank Co., Ltd. signed a renewed contract for lottery software, hardware purchase and establishment and maintenances services amounting to $2,322,756 (within which $1,633,851 was for maintenance service). The maintenance service started from May 31, 2013 to December 2023, and may take the obligation in consider to be fulfilled only after the accounts are settled, the hardware are transferred and all post events are carried out.

The Company’ s subsidiary CTBC Bank Co., Ltd. entrusted the Company’ s subsidiary Taiwan Lottery Co., Ltd. to operate the public welfare lottery’ s ticket issuing, sales, promotion, drawing, payment of prize, and management, with a contract period from November 11, 2013, and ending on June 30, 2024. The Company’s subsidiary CTBC Bank Co., Ltd. will disburse 4.35% of the total lottery sales amount as commission to The Company’ s subsidiary Taiwan Lottery Co., Ltd. The Company’ s subsidiary CTBC Bank Co., Ltd. agreed that Taiwan Lottery Co., Ltd. can receive a reward, amounting to the commission revenue after the deduction of value-added tax (VAT), rebates and direct costs incurred for the lottery business, and the addition of marginal benefits, if the balance is positive. Otherwise, The Company’ s subsidiary Taiwan Lottery Co., Ltd. should pay for the discrepancy, if the balance is negative. An amendment regarding not adding marginal benefits toward the said entrusted benefits has been made on May 20, 2015, with an effective date traced back to January 1, 2015.

As of December 31, 2018, due to the procurement contract and the storage contract for lottery tickets, the Company’s subsidiary Taiwan Lottery Co., Ltd. had requested contractors to create and deposit the guarantee notes, which are accounted for under guarantee notes payable amounting to $23,000.

As of December 31, 2018, the Taxation Administration Ministry of Finance entrusted the Company’ s subsidiary Taiwan Lottery Co., Ltd. to conduct the procurement of five-year-period deposit insurance and an allowance for computerized lottery agents to switch to another career. The insurance company that won the tender transferred and deposited unregistered central government bonds amounting to $5 million in the Company’s subsidiary Taiwan Lottery Co., Ltd.

To help CTBC Leasing Co., Ltd., the Company’ s sub-subsidiary, obtaining financing facility, a Letter of Comfort was issued to financial institutions to request a credit limit of RMB573,279 thousand and US$20,000 thousand as of December 31, 2018, in order to declare that the operation of the company is actively supported by the Company.

To help CTBC Leasing Co., Ltd., the Company’ s sub-subsidiary obtaining financing facility, a Letter of Comfort to financial institution was issued by CTBC Asset Management Co., Ltd. to request a credit limit of US$123,000 thousand and RMB557,000 thousand as of December 31, 2018.

(Continued) 476 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

On September 4, 2012, the Company’ s subsidiary CTBC Bank Co., Ltd. signed with Continental Development Corporation (hereafter “Continental Development”) a contract of purchase of buildings and land. The $2,181,339 contract price was negotiated based on the appraisal report prepared by DTZ Real Estate Appraisal Firm and Savills Real Estate Appraisal Firm. Besides, on April 27, 2018, the Company’ s subsidiary CTBC Bank Co., Ltd. signed supplementary clauses with Continental Development, and expected to obtain the rights of land, zone 99 & 100 at Huikuo Section, Xitun District, Taichung City, currently owned by Continental Development Corporation, along with the 1st to 6th floors and part of 7th floor including the part of the new building should belong to the Bank. The building area is expected to be 3,455.41 Ping with 11 plane parking spaces and 86 mechanical parking spaces in the basement. The Bank paid the contract price in installments proportionately with construction progress during the contract period, accounted for under premises and equipmentnet, prepayment for land and buildings. On December 24, 2018, The bank signed supplementary clauses with Continental Development Corporation to make an additional construction cost of $60,051. As of December 31, 2018, the outstanding balance amounted to $60,051. The property is expected to be delivered in January, 2019.

In September 2012, the Company’ s subsidiary Taiwan Life Insurance Co., Ltd. signed a pre-sale contract for building and land with Continental Development Corporation. On April 27, 2018, an supplementary contract was signed to purchase the rights of land, zone 99 & 100 at Huikuo Section, Xitun District, Taichung City, along with the 8th to 28th floors and part of 7th floor including the part of the new building belonging to Taiwan Life Insurance Co., Ltd. The building area is expected to be 8,206.62 ping with 19 plane parking spaces and 178 mechanical parking spaces in the basement. The Company's subsidiary Taiwan Life Insurance Co., Ltd. has obtained the ownership certificate in December, 2018.

On July 23, 2015, the Company's subsidiary CTBC Bank Co., Ltd. signed with Yung-Yue Construction and Development Co., Ltd. and Chong Hong Construction Co., Ltd. a contract of purchase of buildings and land. The Bank will obtain the rights of land, zone 13-1 and 13-7 at An- Kang Section, Nei-Hu District, Taipei City, along with the ten floors above ground as well as four floors underground of the new buildings located there. The $5,139,800 contract price was negotiated based on the appraisal report prepared by Elite Real Estate Appraisers Firm and Grand Elite Real Estate Appraisers Firm. The contract price will be paid in contractual installments proportionately with construction progress during the contract period, amounted for under premises and equipmentnet, prepayment for land and buildings. As of December 31, 2018, the outstanding balance amounted to $224,086.

On November 6, 2015, the Company's subsidiary CTBC Bank Co., Ltd. signed with Zile Development Co., Ltd.(BVI) and Shuohe Development Co., Ltd. a contract of joint construction for a building on the land, zone 18 at Xinyi section 4, Xinyi District, Taipei City. The Bank will retain 5% of the rights of the land for joint construction, get 5% of the whole construction area of the new building and the corresponding land, and burden 5% of the costs of construction based on purchase contract and joint construction contract. The Bank expects to invest $530 million of the total costs of the construction. As of December 31, 2018, the Bank has paid $37,261.

(Continued) 477 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

As of December 31, 2018, the outstanding balance of the signed contract and property acquisition of the Company’s subsidiary Taiwan Life Insurance Co., Ltd. amounted to $7,331,015.

As of December 31, 2018, the outstanding balance of the committed investment facility of signed private fund contract of the Company and subsidiaries amounted to JPY$5,129,466 thousand, USD$1,362,007 thousand, EUR$166,831 thousand and DKK$54,922 thousand, respectively.

(b) The below information is shown based on the disclosure requirements of Enforcement Rules of the Trust Enterprise Act, Article 17.

Balance Sheet of Trust Accounts

December 31, 2018 and 2017

December 31, December 31, December 31, December 31, Trust Assets 2018 2017 Trust Liabilities 2018 2017 Cash $ 32,486,154 43,595,648 Payables 425,228,493 231,962,660 Bonds 20,162,495 15,753,104 Other liabilities 104,016 42,949 Stocks 169,326,755 204,422,205 Trust capital 547,105,178 540,889,727 Mutual funds 285,764,308 278,511,607 Miscellaneous reserves 31,731,586 67,906,551 and accumulated earnings Structured products 19,700,853 19,325,008 Other investments 2,794,970 1,940,434 Receivables 88,061 25,149 Real estatesnet 49,250,605 46,092,141 Securities in custody 424,564,283 231,121,155 Other assets 30,789 15,436 Total trust assets $1,004,169,273 840,801,887 Total trust liabilities 1,004,169,273 840,801,887

Note: As of December 31, 2018 and 2017, the Company's subsidiary CTBC Bank’ s Offshore Banking Unit invested in foreign securities under specific purpose trust accounts amounting to $3,314,631 and $2,336,913, respectively.

(Continued) 478 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Properties Catalog of Trust Accounts

December 31, 2018 and 2017

Investments December 31, 2018 December 31, 2017 Cash $ 32,486,154 43,595,648 Bonds 20,162,495 15,753,104 Stocks 169,326,755 204,422,205 Mutual funds 285,764,308 278,511,607 Structured products 19,700,853 19,325,008 Other investments 2,794,970 1,940,434 Receivables 88,061 25,149 Real estatesnet Lands 49,191,030 46,006,798 Buildings 59,575 85,343 Subtotal 49,250,605 46,092,141 Securities in custody 424,564,283 231,121,155 Other assets Prepaid other payments 608 784 Long-term prepaid rent 30,181 14,652 Subtotal 30,789 15,436 Total $ 1,004,169,273 840,801,887

Income Statement of Trust Accounts

For the years ended December 31, 2018 and 2017

For the years ended December 31, 2018 2017 Trust revenues $ 9,068,760 9,547,473 Trust expenses (1,088,558) (603,146) Earnings before tax 7,980,202 8,944,327 Income tax (7,337) (30,667) Net profits $ 7,972,865 8,913,660

(Continued) 479 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Total amount of minimum future irrevocable operating lease payment were as below:

December 31, December 31, 2018 2017 Less than 1 year $ 1,361,680 1,199,464 1 year to 5 years 1,764,428 2,260,338 More than 5 years 677,948 752,552 Total $ 3,804,056 4,212,354

(d) Lessor

The Company’ s subsidiary Taiwan Life Insurance Co., Ltd. and its subsidiaries and CTBC Asset Management Co., Ltd. lease their investment property and rental assets under operating leases; please refer to Note 6(q) and 6(t). Non-cancellable operating lease rentals receivable were as follows:

December 31, December 31, 2018 2017 Less than 1 year $ 1,501,237 1,631,048 1 year to 5 years 4,453,621 5,320,019 More than 5 years 10,208,773 15,475,863 Total $ 16,163,631 22,426,930

(e) Other significant litigation or legal matters

(i) Structured notes case

During September to December in 2005, Hong Kong Branch of the Company’ s subsidiary CTBC Bank, with approval of the board of directors, purchased structured notes (“ oversea structured notes”) from Barclays Bank PLC at par value US$390 million. In the year 2006, the Company intended to invest Mega Financial Holding Company. To comply with the requirement specified in the Banking Act of The Republic of China, which requires that a commercial bank shall not invest more than five percent (5%) shares of a company, Hong Kong Branch of the Company’ s subsidiary CTBC Bank sold the above oversea structured notes at market price to Red Fire, a special purpose vehicle acquired by the former President of the Company’s subsidiary CTBC Bank’s Institutional Banking division, Mr. Chen. A profit of US$8,448 thousand incurred due to the disposal. Subsequently, Red Fire filed an application of redemption to Barclays Bank PLC and incurred a profit amounting to US$30.47 million. The opening balance of US$9.50 million was embezzled by Mr. Chen with malicious intent, while the rest of the amount (US$20.90 million) was remitted to the Company’ s overseas sub- subsidiary. In considerations of maintaining operations, the institutional director of the Company remitted an advance payment of US$ 30.47 million to CTBC Bank in accordance to the request from the FSC. No loss had incurred since the remitted amount of US$ 30.47 million was far greater than US$ 9.50 million, which was not remitted to the Company’ s overseas sub-subsidiary. On April 28, 2011, the Company’s subsidiary CTBC Bank received a letter from Chung Cheng Investment and Kuan Ho Construction & Development, the (Continued) 480 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

institutional directors of the Company, informed that according to the Analysis Report on the Sale of Structured Notes to Red Fire by CTBC Bank’ s Hong Kong Branch (the “ Analysis Report” ), the attachment of the letter from the Company with Chung Hsin Chin No. 1002243570005, dated March 10, 2011, the Company’s subsidiary CTBC Bank did not sustain loss from the sale of the structured notes. Based on the aforesaid Analysis Report, the premise of the Company’s subsidiary CTBC Bank sustaining damages no longer stands for the prior execution of the contract dated February 9, 2009 by and among the Company, Chung Cheng Investment, and Kuan Ho Construction & Development. Therefore, the Company’s subsidiary CTBC Bank has been requested to negotiate with Chung Cheng Investment and Kuan Ho Construction & Development for reasonable resolution. On August 16, 2011, the Company’s subsidiary CTBC Bank sent a letter to Chung Cheng Investment and Kuan Ho Construction & Development requesting the institutional directors of the Company to withdraw the right of recourse regarding the advance payment of US$30.47 million to the Company’ s subsidiary CTBC Bank. The institutional directors of the Company responded on August 18, 2011, agreeing to the request and wishing that the Company’ s subsidiary CTBC Bank spends US$20.90 million of the advance payment on emergency assistance and public welfare loans and pays US$9.57 million to the Company as recovery for the investment income which originally should have been recognized by the Company. The latter amount was considered to be the investment loss of CT Opportunity Investment Company, a sub-subsidiary of the Company. The Company’ s subsidiary CTBC Bank has not yet fulfilled the aforementioned requirement, and the institutional directors still insisted the amount of US$20.90 million should be designated as the fund of welfare loans for emergency salvage. The matter will be proceeded once both parties reach agreement. Cited from the internal investigation and the opinion letter from the attorney designated by the Company, Red Fire is believed to be the Company’ s SPV, since the ultimate profit and loss attribution belonged to the Company. In addition, from the perspective of cash flow, Mr. Koo, the former Chairman of the Company’s subsidiary CTBC Bank, and the three involved employees did not obtain any personal benefits through the case.

After appealing for the third instance, the Supreme Court of Republic of China revoked the original second verdict of August 2014 and urged Taiwan High Court to remand its verdict. The first verdict of the case has been modified by Taiwan High Court that partial parties are guilty as of September 12, 2018, and the others are not. All of the guilty parties and Taiwan High Prosecutors Office have already filed the appeal. Thus, the case has not yet finished. According to the legal opinion issued by the counsel retained by the Company, “Red Fire have remitted the profits from the Structured notes-around US$ 20.9 million of the book value, to the CT Opportunity Company, which is the overseas sub-subsidiary of CTBC Holding. At the same time, the shareholders of CTBC Holding have reimbursed US$ 30,474,717 to CTBC Bank. As the total amount of the aforementioned reimbursement and the remittance have already exceeded the profits of the book value from the redemption of the Structured notes, CTBC Holding has not suffered from the damage. Furthermore, regarding the legal liability, the aforementioned case is deemed as a criminal case, and considering the fact that CTBC Holding is a corporate entity, the employees’ individual criminal liability will not have any influence on CTBC Holding. Meanwhile, the case has not yet finished. Therefore, there should be no significant negative effects on the financial or business operations of CTBC Holding, and the fact that CTBC Holding has not suffered from the damage would not be affected as well.” The Company evaluates that this case is expected to have no significant impact on operation and shareholders’ equity of its subsidiary CTBC Bank and the Company.

(Continued) 481 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Taiwan High Prosecutors Office has filed a motion to Taiwan High Court on July 6, 2016 against the Company to pursue the illegal proceed of $261,696 arising from the claimed manipulation of securities price. Taiwan High Court has noticed the Company to participate in the judiciary proceeding as a third party. The Company declares that no manipulation of securities price has been conducted by such personnel and the Company did not obtain or withhold any illegal proceeds therefrom. The Company has appointed external legal counsel to represent it during the judiciary proceeding. So far, Taiwan High Court has pronounced that there is no confiscation and compulsory collection of the Company’s property on September 12, 2018. The reason of the judgment was briefly concluded that as there was not any illegal behavior of manipulation of security prices, so the Company did not withhold any illegal proceeds therefrom.

(ii) Others

As for the real estate and non-performing loans transactions among the Company’s subsidiary CTBC Bank Co., Ltd. and Tectonics Laboratories (Cayman Islands) Co., Ltd. and other related parties during 2005 and 2006, some employees were accused in violations of Banking Act and Securities and Exchange Act for engaging in such transactions and not disclosing related-party transactions. The case is currently under prosecutors' investigation. The case is expected to have no significant effect on operation and shareholders’ equity of the Company's subsidiary CTBC Bank Co., Ltd.

The Company’s subsidiary CTBC Securities Co., Ltd. previously served as the underwriter for issuing the domestic convertible bonds of Chou Chin Industrial Company (Chou Chin). After terminating the underwriting agreement, the former Chairman and related person of Chou Chin were found to be illegally engaged in influencing its share price and illegal trading of its shares, which resulted in the delisting of Chou Chin’ s shares from the stock market. Consequently, the Securities and Futures Investors Protection Center sued Chou Chin’s board of directors, supervisors, certified public accountants and securities underwriter with joint liability amounting to $515,157 plus 5% interest. On April 3, 2014, the judgment of the second instance (Taiwan High Court) decided in favor of the Company’ s subsidiary CTBC Securities Co., Ltd. The Taiwan Supreme Court made the judgment of Tai Shang Zi No. 1894 on October 7, 2015. The result of the appeal of Securities and Future Investors Protection Center is that CTBC Securities Co., Ltd. wins partly, and the other parts remand to Taiwan High Court. Reason for the winning: CTBC securities Co., Ltd. had made underwriting evaluation based on the audited financial reports certificated by the CPA. Since CTBC Securities Co., Ltd. had no negligence or misconduct in underwriting, it shall not be responsible for any loss or damage. Reason for the remand: the judgment of Taiwan High Court did not respond to and provide reasons for the request of the assertion of Securities and Future Investors Protection Center according to the Securities Exchange Act Art. 20.3 before amendment which caused the judgment to be automatically held in contravention of laws and regulations. Regarding the parts remanded from the Supreme Court, Taiwan High Court had judged in favor of the Company’s subsidiary CTBC Securities Co., Ltd. on May 22, 2018. In addition, the Securities and Futures Investors Protection Center did not appeal within the statutory period. Therefore, the judgment is final and binding. The management of the Company’ s subsidiary CTBC Securities Co., Ltd. evaluated that the lawsuit would have no impact on the financial reports as of December 31, 2018 of CTBC Securities Co., Ltd.

(Continued) 482 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

According to the press release of Supreme Prosecutors Office on October 5, 2016, Mr. Koo, the former Chairman of the Company's subsidiary CTBC Bank has been involved in the controversy of oversea investment case amounted USD$300 million during 2004 to 2007. The case is currently under the trial of Taiwan Taipei District Court. The opinion letter of the Company’ s external legal counsel states that “ According to the consolidated financial statement of CTBC Holding for 2006, the oversea investment balance of CT Opportunity Investment Company (“CTO”), which is the subsidiary of CTBC Asset and a sub-subsidiary of the Company, amounted to USD$339.31 million at the end of 2005. Then, CTO recovered USD$304.988 million in 2006 which had surpassed the amount, USD$300 million, aforementioned in the press release. At the end of liquidation of CTO, since the amount remitted for the investment is fully recovered, CTBC Holding and CTBC Asset Management did not suffer from the damage. Therefore, there should be no significant impact on the finances of CTBC Asset Management and CTBC Holding.” According to the opinion of the above legal counsel, the Company evaluated this case is expected to have no significant impact on operation and shareholders’ equity of CTBC Asset Management and the Company.

According to the press release of Supreme Prosecutors Office on October 5, 2016, the Company's subsidiary CTBC Life Insurance has involved in the controversy of Gobo Group’s property acquisition case before merging Taiwan Life Insurance. This case is currently under the trial of Taiwan Taipei District Court. The opinion letter of the Company’s external legal counsel states that “ according to the information provided by CTBC Life Insurance, the acquisition price of the second floor of the Asia Plaza Building was lower than the appraised prices provided by two independent appraisal institutions and the maximum purchase amount approved by the Board of Directors of CTBC Life Insurance. The acquisition price should be reasonable since such price did not surpass the appraised prices provided by independent appraisal institutions without clear evidence showing that the appraisal reports of the independent appraisal institutions were unconvincing. This transaction should cause no impairment to either the interest of CTBC Life Insurance or which of CTBC Holding.” According to the opinion of the above legal counsel, the Company evaluated this case is expected to have no significant impact on operation and shareholders’ equity of Taiwan Life Insurance and the Company.

Regarding the prosecution made on January 12, 2017 and the additional prosecution on January 4, 2018 by Taipei District Prosecutors Office against employees of the Company’ s subsidiary CTBC Bank Co., Ltd.( “the Bank”) involving earning unjust price gains from the transaction of the land at Zone 15-2, Ankang Section, Neihu Dist., Taipei City and two buildings for computer facilities and administration building, respectively, at Zone 13-1 and 13-7, Ankang Section, Neihu Dist., Taipei City, Taipei District Court has pronounced that all defendants are guilty of the aforementioned prosecution on October 11, 2018. All defendants have already filed the appeal. Meanwhile, the additional prosecution is still on the trial.

(Continued) 483 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the aforementioned judgment of the transactions of the two buildings, which was pronounced that the Company and the Bank have suffered from the damage, according to the legal opinion issued by the counsel retained by the Company, “ The purchases of the two buildings have all been approved by the Board of Directors of the Bank, and the Bank has appointed professional appraisal institutions to provide the appraised values of the two buildings as reference. Despite the fact that Taipei District Court determined that the appointed appraisal institutions had lost objectivity concerning the above transactions, the judgment did not deny the conclusion of the appraisal reports prepared by the appraisal institutions. The acquisition prices of the two buildings were lower than the appraisal prices provided by the appraisal institutions, and both of the acquisition prices did not exceed the authorized amount set by the Board of the Directors of the Bank. Considering the aforementioned facts, the acquisition prices of CTBC Bank should be commensurate with the reasonable prices by that time. Meanwhile, the persons in charge of the transactions also followed the resolution of the board, which were not illegal. Therefore, the transactions did not cause any damages to the Bank. Furthermore, regarding the legal liability, the aforementioned case is deemed as a criminal case, and considering the fact that CTBC Holding is a corporate entity, the employees’ individual criminal liability will not have any influence on CTBC Holding. Meanwhile, the case has not yet finished. Thus, there should be no significant disadvantageous effects on the financial or business operations of the Bank or CTBC Holding.”

In addition, for the aforementioned judgment which determined that the trade between Yongyue Development Co., Ltd. and the Bank was a related- party transaction, and should be revealed in the financial reports of the Company and the Bank, the board of directors of the Company assigned the management departments to coordinate with external legal counsel to analyze the case. According to the analysis report, “ Mr. Chang was not a substantial responsible person of the company, and he did not have decision-making power over the Bank’ s business. The procedure and the acquisition prices of the two transactions with regard to the Bank purchasing the land at Zone 15-2, Ankang Section, Neihu Dist., Taipei City, and the land and the buildings at Zone 13-1 and 13-7, at the Ankang Section, Neihu Dist., Taipei City, were in compliance with legal procedures. Moreover, Mr. Chang did not attend the board meeting, which resolved to purchase of the aforementioned real estates. Mr. Chang did not participate in the decision-making procedures.” Besides, according to the legal opinion issued by the external counsel, “Based on the definitions and explanations from the regulations that were effective at that time including Regulations Governing the Acquisition and Disposal of Assets by Public Companies, Paragraph 1, Article 45 of Financial Holding Company Act, Regulations governing the transactions other than credit extension by the quasi-interested party of CTBC Bank that amended by the Bank on July 31, 2013, Regulations Governing the Preparation of Financial Reports by Securities Issuers, Regulations Governing the Preparation of Financial Reports by Public Banks, or IAS 24 and related regulation or explanation, etc., which should apply to the transactions of computer facilities building and administration building. Mr. Chang should not be considered as an interested party or a quasi-interested party of the Bank in formal or in substantial.”

“Ms. Wu, the shareholder and the ultimate beneficiary person of Yongyue Development Co., is the spouse of the man whose brother is Mr. Chang, the senior executive officer of CTBC Bank (viz. second-degree by marriage in law), but Ms. Wu does not take on any duties with decision- making power over the business of the company specified in the aforementioned regulations. Meanwhile, she did not occupy any positions as defined in the Section 9 of IAS 24(Part A). Thus, Ms. Wu is not an interested party or quasi- interested party of CTBC Bank, either.”

(Continued) 484 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Cited from the aforesaid analysis report and legal opinion, Mr. Chang is not the substantial responsible person in charge of the Bank, and not an interested party or a quasi-interested party of the Bank in formal or in substantial. Suppose that Mr. Chang was the substantial person in charge of the Bank, his second-degree relatives by marriage should not be considered as the interested party or quasi-interested party of the Bank in accordance with Section 9 of IAS 24(Part A). Therefore, Ms. Wu must not be the interested party or quasi-interested party of the Bank as well.

Besides, according to the legal opinion mentioned above, “Regardless the trial is not finished, the current evidence in the verdict is not strong enough to support the point that Mr. Chang substantially ran Yongyue Development Co., and the investment profits of Yongyue Development Co. are also not related to Mr. Chang. Judging from the above information, since the transactions between the Bank and Yongyue Development Co. should not be considered as related-party transactions, it is unnecessary to reveal such information in the financial reports.”

“ In addition, according to the objective evidence revealed from the reason for the decision, there is no evidence to determine that Mr. Chang was a substantially-managing person of Yongyue Development Co. as mentioned above, and Mr. Chang and Ms. Wu are not the interested parties or quasi- interested parties of CTBC Bank. In view of this, we could judge that Yongyue Development Co. must not be considered as related-party or quasi-interested party of CTBC Bank. Since the purchases of the two buildings of CTBC Holding and the Bank were not related to related-party transactions, CTBC Holding did not need to reveal such information as transactions with related-parties in its quarterly financial reports and annual financial reports, which means that there were no misstatements in the financial reports.”

According to the above opinion of legal counsel, the acquisition prices of the two buildings were reasonable at that time. The persons in charge of the transactions were also in compliance with the resolution by the board, which were not illegal. Thus, the Bank did not suffer from the damage of the transactions of two real estates. Besides, neither of Mr. Chang and Yongyue Development Co. is the related-party or quasi- interested party of CTBC Bank so the Company is not required to reveal these as related-parties transactions in its quarterly and annual financial reports, which means that there are no misstatements in the financial reports. So far, the Company evaluates that this case is expected to have no significant impact on operation and shareholders’ equity of CTBC Bank and the Company.

(10) Significant Catastrophic Losses:None

(11) Significant Subsequent Events:

On December 21, 2018, The Company’ s board of directors resolved to issue 166,660 thousand shares of Series C Preferred Stock to increase capital by cash, with the subscription price at NT$60 per share. The capital increase was approved by the FSC in accordance with Ruling No.1070348778 on January 17, 2019. The subscription date is expected to be April 3, 2019.

(Continued) 485 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(12) Other:

(a) Business segment financial information For the year ended December 31, 2018 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 52,832,170 103,958 49,378,005 (39,212) 102,274,921 Non-interest income 37,320,175 1,191,625 172,780,468 807,402 212,099,670 Net revenue 90,152,345 1,295,583 222,158,473 768,190 314,374,591 (Provisions for) reversal of bad (4,740,162) (51,948) 12,178 (123,394) (4,903,326) debt expenses, commitments and guarantee reserve Net changes in insurance liability - - (205,361,796) - (205,361,796) reserve Operating expenses (53,595,738) (949,994) (4,089,857) (3,084,381) (61,719,970) Net income (loss) before tax 31,816,445 293,641 12,718,998 (2,439,585) 42,389,499 Income tax (expense) income (6,048,906) (43,102) 789,963 (1,052,243) (6,354,288) Net income (loss) 25,767,539 250,539 13,508,961 (3,491,828) 36,035,211

For the year ended December 31, 2017 Unit: In Thousands of New Taiwan Dollars Business Segment Items Banking Securities Insurance Others Consolidation Net interest income $ 48,197,646 109,743 43,346,500 (48,723) 91,605,166 Non-interest income 37,242,958 1,237,349 218,993,254 684,930 258,158,491 Net revenue 85,440,604 1,347,092 262,339,754 636,207 349,763,657 (Provisions for) reversal of bad (2,480,381) (74,309) 115,780 (80,192) (2,519,102) debt expenses and guarantee reserve Net changes in insurance liability - - (239,860,214) - (239,860,214) reserve Operating expenses (52,897,720) (905,323) (5,782,158) (3,072,845) (62,658,046) Net income (loss) before tax 30,062,503 367,460 16,813,162 (2,516,830) 44,726,295 Income tax (expense) income (6,625,232) (58,711) (972,602) 154,430 (7,502,115) Net income (loss) 23,437,271 308,749 15,840,560 (2,362,400) 37,224,180

(Continued) 486 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(b) Public notices pursuant to Financial Holding Company Law, Article 46

The aggregate amount of credit extended, guarantees given, or any other transactions conducted by all subsidiaries of the financial holding company to, for, or with the same person, same related person, or same affiliate, disclosure of which is required under Article 46 of the Financial Holding Company ACT:

December 31, 2018

Unit: In Thousands of New Taiwan Dollars; %

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth A. The same person CENTRAL BANK OF REPUBLIC OF CHINA(TAIWAN) $ 379,125,000 120.33 % TAIWAN GOVERNMENT 195,806,602 62.15 % TAIWAN POWER COMPANY 58,313,314 18.51 % US GOVERNMENT 38,588,446 12.25 % TAIWAN RAILWAYS ADMINISTRATION 35,603,340 11.30 % MORGAN STANLEY 31,953,616 10.14 % BANK OF AMERICA 28,772,506 9.13 % GOLDMAN SACHS GROUP INC 26,696,378 8.47 % CITIGROUP INC. 26,640,442 8.46 % AT&T INC. 23,994,772 7.62 % JP MORGAN CHASE & CO 22,303,349 7.08 % DEUTSCHE BANK AG 20,159,663 6.40 % VERIZON COMMUNICATIONS INC. 20,103,126 6.38 % SAUDI ARABIAN GOVERNMENT 19,579,555 6.21 % BANK OF CHINA LIMITED 18,727,313 5.94 % TAICHUNG CITY GOVERNMENT 18,000,000 5.71 % FINANCE BUREAU OF KAOHSIUNG CITY GOVERNMENT 18,000,000 5.71 % MINISTRY OF FINANCE, JAPAN 17,358,963 5.51 % RABOBANK NEDERLAND 16,240,997 5.15 % INDONESIAN GOVERNMENT 15,912,769 5.05 % COMCAST CORP 15,628,304 4.96 % COMISION FED DE ELECTRIC 15,588,761 4.95 %

(Continued) 487 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth BNP PARIBAS SA $ 15,530,873 4.93 % RUSSIAN GOVERNMENT 15,478,421 4.91 % ADCB FINANCE CAYMAN LTD. 14,727,525 4.67 % CHINA DEVELOPMENT BANK 14,497,097 4.60 % HON HAI PRECISION INDUSTRY CO., LTD. 14,326,981 4.55 % ELECTRICITE DE FRANCE S.A. 13,990,817 4.44 % HSBC HOLDINGS PLC 13,796,717 4.38 % MEXICAN GOVERNMENT 13,717,236 4.35 % JP GOVERNMENT 13,176,239 4.18 % QATAR GOVERNMENT 12,667,696 4.02 % CITIC LTD. 12,078,731 3.83 % NATIXIS 12,020,625 3.82 % FIRST ABU DHABI BANK PJSC 11,870,174 3.77 % HOFA LAND DEVELOPMENT CO., LTD. 11,788,779 3.74 % COMMONWEALTH BANK OF AUSTRALIA 11,630,319 3.69 % ANZ BANKING GROUP LTD 11,566,244 3.67 % ENEL FINANCE INTERNATION NV 11,194,966 3.55 % WELLS FARGO & CO. 11,093,694 3.52 % BRAZIL GOVERNMENT 11,072,225 3.51 % QNB FINANCE LTD 11,069,762 3.51 % INDUSTRIAL AND COMMERCIAL BANK OF CHINA 10,905,388 3.46 % BARCLAYS BANK PLC 10,843,308 3.44 % CPC CORPORATION, TAIWAN 10,691,350 3.39 % SOCIETE GENERALE SA 10,675,637 3.39 % TAINAN CITY GOVERNMENT 10,579,000 3.36 % CREDIT SUISSE 10,573,978 3.36 % BANK OF TOKYO-MITSUBISHI UFJ 10,547,958 3.35 % LLOYDS BANK PLC. 10,242,770 3.25 % CENTRAL TAIWAN SCIENCE PARK BUREAU 10,000,000 3.17 % NATIONAL AUSTRALIA BANK LIMITED 9,857,638 3.13 %

(Continued) 488 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth TAIWAN CEMENT LTD. $ 9,710,601 3.08 % PETROLEOS MEXICANOS 9,664,676 3.07 % ROYAL BANK OF CANADA 9,190,778 2.92 % ANHEUSER-BUSCH INBEV SA/NV 9,061,313 2.88 % CATHAY FINANCIAL HOLDINGS CO., LTD. 9,032,001 2.87 % CREDIT AGRICOLE SA 8,837,182 2.80 % WESTPAC BANKING CORP. 8,707,876 2.76 % FREDDIE MAC 8,687,337 2.76 % CATCHER TECHNOLOGY CO., LTD. 8,219,191 2.61 % BANK OF NOVA SCOTIA, TORONTO 8,209,451 2.61 % MANULIFE FINANCIAL CORP. 8,208,382 2.61 % APPLE INC 8,142,594 2.58 % BARCLAYS PLC. 7,803,928 2.48 % AIG INC. 7,729,241 2.45 % COLOMBIA GOVERNMENT 7,698,918 2.44 % CHUNGHWA TELECOM CO., LTD. 7,390,002 2.35 % NEXEN ENERGY ULC 7,312,460 2.32 % MEGA FINANCIAL HOLDING CO., LTD. 7,236,169 2.30 % LLOYDS BANKING GROUP PLC 7,184,012 2.28 % STANDARD CHARTERED PLC. 7,048,608 2.24 % EXPORT-IMPORT BANK OF KOREA 6,906,226 2.19 % UBS AG 6,688,156 2.12 % BANK OF COMMUNICATIONS CO., LTD. 6,659,361 2.11 % BANK OF MONTREAL 6,586,249 2.09 % CATHAY SECURITIES INVESTMENT TRUST CO., LTD. 6,580,993 2.09 % HSBC BANK MIDDLE EAST LTD. 6,566,099 2.08 % HSBC BANK PLC. 6,491,434 2.06 % FUHUA TRUST CO., LTD. 6,468,451 2.05 % BPCE SA 6,456,903 2.05 % PERTAMINA PERSERO PT 6,408,912 2.03 % NAN SHAN LIFE INSURANCE CO., LTD. 6,205,087 1.97 %

(Continued) 489 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth EMIRATES NBD PJSC $ 6,187,418 1.96 % INNOLUX CORPORATION 6,099,446 1.94 % ABN AMRO BANK NV 6,052,559 1.92 % CREDIT SUISSE GROUP FUNDING GUERNSEY LTD 6,039,178 1.92 % AMERICA MOVIL SAB DE CV 6,023,564 1.91 % THE EXPORT-IMPORT BANK OF CHINA 5,914,156 1.88 % FUBON SECURITIES EQUITY INVESTMENT CO., LTD. 5,826,727 1.85 % HONGKONG GOVERNMENT 5,651,035 1.79 % GAZPROM VIA GAZ CAPITAL SA 5,636,313 1.79 % NOMURA INTERNATIONAL FUNDING PTE LTD 5,631,435 1.79 % YUANTA SECURITIES CO., LTD. 5,558,548 1.76 % DP WORLD LTD 5,544,094 1.76 % AMGEN INC 5,430,265 1.72 % CELGENE CORP. 5,385,033 1.71 % TAISHIN FINANCIAL HOLDING CO., LTD. 5,383,801 1.71 % MALAYAN BANKING BERHAD 5,361,872 1.70 % FUBON FINANCIAL HOLDING CO., LTD. 5,319,678 1.69 % TAOYUAN CITY GOVERNMENT 5,306,000 1.68 % ARES CAPITAL CORP 5,304,392 1.68 % SUMITOMO MITSUI FINANCIAL GROUP INC. 5,285,025 1.68 % CHINA CONSTRUCTION BANK CORPORATION 5,179,839 1.64 % PEOPLES REPUBLIC OF CHINA GOVERNMENT 5,172,159 1.64 % SOUTHERN POWER COMPANY 5,171,977 1.64 % PINGTUNG COUNTY GOVERNMENT 5,160,000 1.64 % VALE OVERSEAS LIMITED 5,139,547 1.63 % CIMB BANK BERHAD 5,098,688 1.62 % PHILLIPS 66 5,072,809 1.61 %

(Continued) 490 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth ING GROEP NV $ 5,064,040 1.61 % AGRICULTURAL DEVELOPMENT BANK OF CHINA 5,014,839 1.59 % ABBVIE INC 5,004,291 1.59 % DEPARTMENT OF RAPID TRANSIT SYSTEMS, TAIPEI CITY GOVERNMENT 4,956,000 1.57 % TAIPEI FUBON COMMERCIAL BANK CO., LTD. 4,955,059 1.57 % UBS LONDON (CCP) 4,888,739 1.55 % THE SHANGHAI COMMERCIAL & SAVINGS BANK, LTD. 4,866,885 1.54 % NATIONAL BANK OF CANADA 4,712,233 1.50 % HUARONG FINANCE 2017 CO., LTD. 4,705,854 1.49 % DA-FU MEDIA CORP. 4,702,933 1.49 % FIRST FINANCIAL HOLDING CO., LTD. 4,700,435 1.49 % PERUSAHAAN LISTRIK NEGARA PT 4,688,718 1.49 % YUANTA FUNDS CO., LTD. 4,681,681 1.49 % SHINHAN BANK 4,617,525 1.47 % CATHAY UNITED BANK 4,562,844 1.45 % E.SUN COMMERCIAL BANK, LTD. 4,533,960 1.44 % CANADIAN IMPERIAL BK OF COMM 4,523,140 1.44 % CHINA CINDA FINANCE 4,484,339 1.42 % BLOCKROCK FUND ADVISORS 4,479,907 1.42 % COMPAL ELECTRONICS, INC. 4,458,640 1.42 % FORMOSA HA TINH (CAYMAN) LIMITED 4,438,836 1.41 % SULTANATE OF OMA 4,389,228 1.39 % TAIWAN MOBILE CO., LTD. 4,377,378 1.39 % CHINA STATE GRID CORPORATION OF CHINA 4,372,533 1.39 % FANNIE MAE 4,337,568 1.38 % HONGKONG ELECTRIC FINANCE LTD. 4,334,467 1.38 % CAPITAL INVESTMENT TRUST CORP. 4,322,673 1.37 %

(Continued) 491 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth SANTANDER INTERNATIONAL PRODUCT PLC. $ 4,279,517 1.36 % BAYER US FINANCE II LLC 4,264,511 1.35 % TORONTO-DOMINION BANK 4,248,388 1.35 % AU OPTRONICS CORP. 4,247,343 1.35 % HUAKU DEVELOPMENT CO., LTD. 4,205,911 1.33 % NORDEA BANK AB 4,182,647 1.33 % CHINA NETWORK SYSTEMS CO., LTD. 4,173,636 1.32 % SHIN KONG BANK CO., LTD. 4,163,638 1.32 % FIRST COMMERCIAL BANK CO., LTD. 4,157,182 1.32 % NAN YA PLASTICS CORP. 4,153,150 1.32 % VODAFONE GROUP PLC. 4,148,883 1.32 % GRUPO TELEVISA SA-SPON ADR 4,113,260 1.31 % YUANTA COMMERCIAL BANK CO., LTD. 4,112,081 1.31 % TAQA ABU DHABI NATL ENER 4,093,579 1.30 % MACQUARIE BANK LIMITED 4,054,931 1.29 % TRANS-CANADA PIPELINES 4,043,346 1.28 % REPUBLIC OF SINGAPORE 4,037,848 1.28 % TAIWAN BUSINESS BANK CO., LTD. 4,031,239 1.28 % DEVELOPMENT BANK OF JAPAN 4,006,997 1.27 % SOUTHERN TAIWAN SCIENCE PARK BUREAU 4,000,000 1.27 % GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 3,995,496 1.27 % CORP NATIONAL DEL COBRE 3,988,824 1.27 % KOREA DEVELOPMENT BANK, THE, SEOUL 3,978,892 1.26 % CHINA STEEL CORPORATION 3,965,335 1.26 % STATE BANK OF INDIA 3,957,060 1.26 % SUNCOR ENERGY INC 3,947,553 1.25 % HUA NAN COMMERCIAL BANK., LTD. 3,900,399 1.24 % AXA SA 3,889,867 1.23 % PETROCHINA CO., LTD. 3,822,973 1.21 %

(Continued) 492 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth NATIONWIDE BUILDING SOCIETY $ 3,771,268 1.20 % UNITED OVERSEAS BANK LTD. 3,769,879 1.20 % SOUTHERN COPPER CORP. 3,769,381 1.20 % ECOPETROL SA 3,721,925 1.18 % BIOGEN INC 3,688,448 1.17 % CHANG HWA COMMERCIAL BANK LTD. 3,675,596 1.17 % CHINA OVERSEAS FINANCE CAYMA 3,651,156 1.16 % SANTANDER UK PLC 3,646,404 1.16 % ASIA CEMENT(CHINA) HOLDINGS CORP 3,637,914 1.15 % SANTANDER UK GROUP HOLDINGS 3,635,343 1.15 % ASIA CEMENT CORPORATION 3,551,660 1.13 % KEB HANA BANK 3,500,220 1.11 % HUALIEN COUNTY GOVERNMENT 3,500,000 1.11 % 21ST CENTURY FOX AMERICA INC. 3,486,406 1.11 % IT GOVERNMENT 3,484,344 1.11 % ZENTOSHIN CORP. 3,478,750 1.10 % ROGERS COMMINICATIONS INC. 3,474,983 1.10 % ALIBABA GROUP HOLDING LTD 3,425,525 1.09 % TRAFIGURA PTE LTD 3,402,668 1.08 % TAISHIN INTERNATIONAL BANK CO., LTD. 3,380,937 1.07 % NB ALTERNATIVES ADVISERS LLC 3,360,629 1.07 % THE VANGUARD GROUP INC 3,344,087 1.06 % PRUDENTIAL PLC. 3,332,946 1.06 % MORGAN STANLEY FINANCE LLC 3,325,941 1.06 % E.ON INTERNATIONAL FINANCE BV 3,268,722 1.04 % KAZMUNAYGAZ NATIONAL CO JSC 3,263,819 1.04 % AGRICULRURAL BANK OF TAIWAN 3,255,863 1.03 % MOROCCO GOVERNMENT 3,244,500 1.03 % MIAOLI COUNTY GOVERNMENT 3,217,000 1.02 % SHELL INTERNATIONAL FIN. 3,182,400 1.01 % ANHEUSER-BUSCH COS LLC / ANH 3,180,852 1.01 %

(Continued) 493 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth CHINA CINDA FINANCE 2017 I LTD $ 3,170,190 1.01 % SHIN KONG LIFE INSURANCE CO., LTD. 3,153,124 1.00 % REPUBLIC OF KOREA GOVERNMENT 3,152,619 1.00 % STANDARD CHARTERED BANK 3,089,034 0.98 % MASTERLINK SECURITIES CO., LTD. 3,082,097 0.98 % THE BANK OF YOKOHAMA, LTD. 3,072,989 0.98 % PFIZER INC. 3,061,310 0.97 % OVERSEA CHINESE BANKING CORPORATION LIMITED 3,056,813 0.97 % MIZUHO SECURITIES CO., LTD. 3,048,038 0.97 % FUBON SECURITIES CO., LTD. 3,035,695 0.96 % AIA GROUP LTD (HK) 3,016,600 0.96 % KEELUNG CITY GOVERNMENT 3,000,000 0.95 % HSINCHU COUNTY GOVERNMENT 3,000,000 0.95 % CHANGHUA COUNTY GOVERNMENT 3,000,000 0.95 % B. The same related person Mr./Ms. Lu 14,695,481 4.66 % Mr./Ms. Wu 9,827,292 3.12 % Mr./Ms. Chang 9,710,933 3.08 % Mr./Ms. Du 6,723,087 2.13 % Mr./Ms. Wang 6,090,662 1.93 % Mr./Ms. Lee 5,920,280 1.88 % Mr./Ms. Jhuang 5,072,272 1.61 % Mr./Ms. Wu 4,342,238 1.38 % Mr./Ms. Jhuang 3,856,345 1.22 % Mr./Ms. Chen 3,730,786 1.18 % Mr./Ms. Jhuang 3,576,785 1.14 % Mr./Ms. Jhan 3,284,000 1.04 % Mr./Ms. Jhan 3,284,000 1.04 % Mr./Ms. Jhan 3,284,000 1.04 %

(Continued) 494 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth C. The same affiliate MORGANSTANLEY GROUP $ 38,030,932 12.07 % MERRILL LYNCH GROUP 33,026,024 10.48 % HSBC HOLDINGS GROUP 31,827,680 10.10 % SHIN KONG GROUP 30,512,666 9.68 % GOLDMAN SACHS GROUP 29,922,219 9.50 % CITIGROUP GROUP 27,892,912 8.85 % HON HAI GROUP 26,789,225 8.50 % THE FAR EASTERN GROUP 26,717,367 8.48 % JP MORGAN CHASE GROUP 25,703,901 8.16 % FUBON GROUP 25,092,846 7.96 % CITIC GROUP 22,908,383 7.27 % LINYUAN GROUP 22,693,801 7.20 % BOC GROUP 21,180,371 6.72 % DEUTSCHE BANK AG GROUP 20,975,183 6.66 % CREDIT SUISSE GROUP 19,071,899 6.05 % BARCLAYS BANK PLC GROUP 18,647,236 5.92 % NATIXIS GROUP 18,477,528 5.86 % KAOHSIUNG CITY GOVERNMENT GROUP 18,300,000 5.81 % LLOYDS BANKING GROUP 17,426,782 5.53 % COMCAST CORP GROUP 17,174,565 5.45 % RABOBANK NEDERLAND GROUP 16,934,780 5.20 % FANNIE MAE GROUP 16,394,009 5.20 % CHINA DEVELOPMENT BANK GROUP 16,196,930 5.14 % REPUBLIC OF INDONESIA GROUP 16,093,636 5.11 % ANHEUSER-BUSCH GROUP 15,330,300 4.87 % YUANTA FINANCIAL HOLDING GROUP 14,650,538 4.65 % ICBC GROUP 14,633,005 4.64 % NATIONAL BANK OF ABU DHABI GROUP 14,213,674 4.51 % SOCIETE GENERALE GROUP 13,266,031 4.21 % TAIWAN CEMENT GROUP 12,703,684 4.03 %

(Continued) 495 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth STANDARD CHARTERED GROUP $ 12,399,826 3.94 % ANZ BANKING GROUP GROUP 12,338,080 3.92 % MEGA HOLDING GROUP 11,762,918 3.73 % ENEL SPA GROUP 11,547,832 3.67 % WELLS FARGO & CO. GROUP 11,433,644 3.63 % FCFC GROUP 11,184,163 3.55 % AIG GROUP 10,789,015 3.42 % FIRST FINANCIAL HOLDING GROUP 10,641,502 3.38 % NOMURA HOLDINGS INC. GROUP 10,554,635 3.35 % TAIWAN TELECOM GROUP 10,403,226 3.30 % CNOOC GROUP 10,050,712 3.19 % CHINA CINDA GROUP 9,365,460 2.97 % CREDIT AGRICOLE SA GROUP 9,321,466 2.96 % SOUTHERN POWER COMPANY GROUP 9,268,162 2.94 % BANCO SANTANDER GROUP 9,210,755 2.92 % CHINA STEEL GROUP 8,476,611 2.69 % UMC GROUP 8,391,302 2.66 % CATCHER GROUP 8,299,109 2.63 % MANULIFE FIN GROUP 8,209,138 2.61 % ING BANK GROUP 8,055,728 2.56 % BANK OF COMMUNICATIONS GROUP 7,726,886 2.45 % TAIWAN COOPERATIVE FINANCIAL HOLDING GROUP 7,617,103 2.42 % RUENTEX GROUP 7,432,015 2.36 % PRUDENTIAL FINANCIAL INC. GROUP 7,098,022 2.25 % SINOPEC GROUP 7,026,625 2.23 % CNS GROUP 6,923,881 2.20 % UNITED OVERSEAS BANK GROUP 6,782,845 2.15 % UBS AG GROUP 6,688,156 2.12 % WALSIN LIHWA GROUP 6,559,927 2.08 %

(Continued) 496 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth CHINA HUARONG ASSET MANAGEMENT GROUP $ 6,518,733 2.07 % PHOENIX PROPERTY GROUP 6,506,213 2.06 % TING HSIN INTERNATIONAL GROUP 6,501,743 2.06 % PERUSAHAAN LISTRIK NEGARA GROUP 6,083,139 1.93 % CCB GROUP 6,076,464 1.93 % TAIPEI CITY GOVERNMENT GROUP 5,955,940 1.89 % YULON GROUP 5,954,414 1.89 % CHINA OVERSEAS LAND & INVESTMENT GROUP 5,863,087 1.86 % RELIANCE INDUSTRIES LTD GROUP 5,686,476 1.80 % CHINA DEVELOPMENT BANK GROUP 5,685,236 1.80 % KINGSTON GROUP 5,610,152 1.78 % SUMITOMO MITSUI BANKING CORPORATION GROUP 5,507,247 1.75 % AUO GROUP 5,443,146 1.73 % KINPO ELECTRONICS GROUP 5,442,261 1.73 % UNI-PRESIDENT GROUP 4,988,752 1.58 % CNPC GROUP 4,928,049 1.56 % EVERGREEN GROUP 4,862,538 1.54 % AERCAP GROUP 4,682,292 1.49 % LITEON GROUP 4,587,291 1.46 % ASE GROUP 4,574,513 1.45 % E.SUN FINANCIAL HOLDING GROUP 4,534,572 1.44 % CHINA STATE GRID CORP. GROUP 4,514,489 1.43 % SPORTS CITY INTERNATIONAL GROUP 4,411,028 1.40 % THE CAPITAL GROUP 4,334,263 1.38 % NEW CHARM GROUP 4,277,381 1.36 % DBS GROUP 4,251,111 1.35 % ROYAL BANK OF SCOTLAND GROUP GROUP 4,243,147 1.35 % HNA INFRASTRUCTURE GROUP 4,173,587 1.32 %

(Continued) 497 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate amount Aggregate of credits, percentage of the guarantees or any financial holding Names or titles other transactions company’s net worth NAN YA GROUP $ 4,158,649 1.32 % MIZUHO BANK GROUP 4,131,886 1.31 % KEELUNG CITY GOVERNMENT GROUP 4,105,400 1.30 % YUANLIH GROUP 3,999,425 1.27 % HUA NAN FINANCIAL HOLDING GROUP 3,914,368 1.24 % TOPMSO GROUP 3,893,359 1.24 % AXA SA GROUP 3,889,891 1.23 % SINOPAC FINANCIAL HOLDING GROUP 3,776,957 1.20 % SAN MIGUEL GROUP 3,682,934 1.17 % SINOCHEM GROUP 3,643,342 1.16 % CONTINENTAL ENGINEERING GROUP 3,623,651 1.15 % TWENTY-FIRST CENTURY FOX GROUP 3,532,042 1.12 % HONTAI GROUP 3,524,665 1.12 % HSINCHUNG INTERNATIONAL GROUP 3,490,949 1.11 % ROYAL DUTCH SH-A GROUP 3,460,168 1.10 % HFF GROUP 3,440,298 1.09 % KABUSHIKIGAISHA GROUP 3,385,582 1.07 % BEIJING ENTERPRISES HOLDINGS GROUP 3,384,755 1.07 % ASUS GROUP 3,293,023 1.05 % AGRIBANK GROUP 3,259,189 1.03 % GVL GROUP 3,219,875 1.02 % CMBC GROUP 3,185,140 1.01 % CMP GROUP 3,098,739 0.98 % FORMOSA GROUP 3,048,076 0.97 %

Note: 1. If the aggregate amount of credit extended, guarantees given, or any other transactions conducted by all subsidiaries of the financial holding company to, for, or with the same person, same related person or same affiliate is greater than the lower of 5% of net worth of the financial holding company or NT$3 billion, the related transaction information needs to be filed according to the table refer above.

(Continued) 498 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2. Credit includes loans, discounts, overdrafts, acceptances, guarantees and other lines of business operations designated by the Central Competent Authority. 3. Guarantees here are indicative of endorsements and guarantees of bills finance corporations. 4. Other transactions with the same person, same related person, or same affiliate (thereinafter referred to as “the affiliates”) here are indicative of the transactions listed below: (1) Investment in or purchase of securities issued by any of the affiliates mentioned in the preceding paragraph; (2) Purchase of real estate or other assets from any of the affiliates mentioned in the preceding paragraph; (3) Sale of securities, real estate or other assets to any of the affiliates mentioned in the preceding paragraph; (4) Entering into agreements regarding payment of money or provision of services with any of the affiliates mentioned in the preceding paragraph; (5) Arrangements involving any of the affiliates mentioned in the preceding paragraph acting as an agent or broker of a financial holding company or its subsidiaries or providing other services which charge commission or fees; (6) Engaging in transactions with third parties having a relationship with any of the affiliates mentioned in the preceding paragraph or engaging in transactions with third parties in which the affiliates mentioned in the preceding paragraph are involved; and (7) The amount of the transactions with the affiliates mentioned in the preceding paragraph shall not include negotiable certificates of deposit issued by a bank subsidiary.

(Continued) 499 - - 18 82 % 100 171,569 (Continued) (582,754) 73,454,068 Amount 320,900,639 394,354,707 December 31, 2017 December - - 16 84 % 100 9- - - 20,058 - 8,629 - - 206,812 3,333,300 1 3,333,300 1 1,441,369 -1,354,931 - 1,481,375 - 35,529 - 58,491,430 50,368,539 14 50,366,018 13 23,800,000 7 27,000,000 7 24,189,775 6 20,467,553 5 315,072,464 December 31, 2018 December ty $ 373,563,894 liabilities and Equi Total Liabilities Total Equity Total Preferred stock Common stockCommon 194,969,896 52 194,969,896 49 Legal reserve reserveSpecial Undistributed earnings 48,945,112 29,719,062 13 8 37,417,514 30,688,581 10 8 Liabilities and EquityCapital stock Amount Commercial papers payable-net papers Commercial $ 31,668,251 9 44,756,966 11 Capital surplus Retained earnings Payables Current income tax Bonds payable Provisions Deferred tax liabilities Other liabilities Other equity interestOther (36,453,220) (10) (15,759,469) (4) Treasury stock Liabilities Equity - Parent Company Stockholders’ Total Liabilities 31103 31101 31500 22600 23000 32001 32003 32011 32500 23200 24000 24600 29300 29500 32600 100 BALANCE SHEETS Amount December 31, 2018 and 2017 394,354,707 December 31, 2017 December CTBC Financial Holding Co., Ltd. 100 Notes to the Consolidated Financial Statements 12 - 9 - (Expressed in Thousands of New Taiwan Dollars) 3,328 - 1,632 - 26,175 - 18,916 - 372,444,351 100 373,126,916 95 Amount December 31, 2018 December CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES $ 373,563,894 me 478,440 - - - nsive inco through other comprehe t - - 1,679,451 - cial assets-ne ity method-net assets 379,438 - 391,333 - ment-net 78,127 - 82,087 - valents $ 148,138 - 18,680,129 5 Assets Cash and cash equi and cash Cash Financial assets measured at fair value Available-for-sale finan Current income tax Receivables-net Premises and equip Intangible assets-net Investments under equ assets-net financial Other - - 371,250 - Deferred income tax assets tax income Deferred 5,885 - 2,984 - Other assets-net Total assets (c) statements of the Parent company Financial 11000 12100 12150 13000 15000 15500 13200 19000 18500 19300 19500 500 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

CTBC FINANCIAL HOLDING CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 2018 and 2017 (Expressed In Thousands of New Taiwan Dollars)

2018 2017 Amount % Amount % Income Proportionate share of gains from associates or joint ventures under equity $ 38,868,547 100 38,938,119 100 method Other income 128,295 - 55,024 - Expenses and Losses Operating expenses (1,399,382) - (1,420,982) - Other expenses and losses (548,720) - (594,243) - Net Income before Tax 37,048,740 100 36,977,918 100 Income tax (expense) benefit (1,016,315) (3) 244,299 1 Net Income 36,032,425 97 37,222,217 101 Other comprehensive (losses) income (net amount after tax) (28,167,785) (72) 1,059,380 3 Total Comprehensive Income $ 7,864,640 25 38,281,597 104

Basic EPS (in NT dollars) $ 1.85 1.91

(Continued) 501 2 1,853 (14,383) 585,581 1,059,380 6,790,901 7,864,640 (2,920,473) 38,281,597 19,982,074 37,222,217 36,032,425 (28,167,785) (16,549,348) (21,056,749) 327,691,540 315,072,464 (Continued) Total equity 582,754 (582,754)(582,754) 320,900,639 ------Treasury stock Treasury stock - - - - - 1,552,859 1,552,859 (12,416,338) (12,416,338) (10,863,479) Other overlay approach under the income on income comprehensive reclassification (310,604) - - - 1,422,950 1,112,346 1,112,346 (1,105,808) (1,105,808) financial liabilities credit loss Changes in profit or loss designated as value through attributable to measured at fair measured ------6,388,993 6,388,993 5,608,490 (5,608,490) (1,422,950) sale (losses) gains on Unrealized available-for- financial assets Total other equity interest (646,184) (646,184) - - - - - other (19,056,015) (19,056,015) (18,434,666) income (losses) on value through comprehensive financial assets measured at fair measured Unrealised gains 61,300 , respectively, which were deducted from the statements of comprehensive 61,300 , respectively, 63,679 , respectively, which were deducted from the statements of comprehensive 63,679 , respectively, (804) ------1,884,362 1,884,362 (4,313,666) (4,313,666) (8,728,833) (6,844,471) overseas Exchange translation subsidiaries’ differences of financial reports 89,861 276,540 307,860 - - 37,312,078 37,694,054 36,340,285 48,945,112 earnings Undistributed 2 ------30,688,581 29,719,062 Special reserve Retained earnings - (969,519) 969,519 ------2,792,898 - (2,792,898) 3,722,222 - (3,722,222) 20,467,553 24,189,775 Legal reserve Notes to Consolidated Financial Statements (Expressed in Thousands of New Taiwan Dollars) CTBC FINANCIAL HOLDING CO., LTD. Statements of Changes in Stockholder's Equity For the years ended December 31, 2018 and 2017 2,827 ------50,366,018 50,368,539 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Capital surplus ------3,333,300 3,333,300 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) Preferred share Share capital - - - - 8,801,584 (8,801,584) - - - - - (1,267,533) - 1,267,533 ------1)---(18) ----- (18)------stock Common $ 194,969,896 - 36,637,717 17,674,655 21,886,995 28,249,266 (4,414,363) - (11,997,483) (317,142) - (582,754) 282,106,787 f tments 194,969,896 kk ------(16,549,348) - (21,056,749) ter adjus us - - (2,920,473) ference share - - - - - (14,383) reserve - - - 31, 2017 194,969,896 3,333,300 50,366,018 20,467,553 30,688,581 37,417,514 (8,728,029) common stoc common stoc appropriated mber 31, 2018mber $ 194,969,896 appropriatedappropriated ------ital surpl For the year ended December 31 2018, the estimated compensations of employee and remunerations to directors were $18,580 $2 ended December 31 2018, the estimated compensations of employee For the year income. and remunerations to directors were $18,834 $2 ended December 31 2017, the estimated compensations of employee For the year income. value through other comprehensive income subsidiaries acquired or disposed Legal reserve Legal reserve Special reserve Cash dividends - Legal reserve Cash dividends - - pre dividends Cash Reversal of special et incomeet incomeet ------37,222,217 - - 36,032,425 Effects of retrospective application new standards - Disposal of treasury stock - Cash from cap stock common of Issuance - 3,333,300 16,648,774 Others - Balance at January 1, 2017 N Total comprehensive income (losses)Appropriation and distribution of retained earnings: Balance at December Balance at January 1, 2018 af N (losses)Total comprehensive Income Appropriation and distribution of retained earnings: - Balance at Dece - Note Others - - (306) - - 2,159 Other comprehensive income (losses)Other comprehensive income (losses) - - Disposal of investments in equity instruments designated at fair Difference between consideration and carrying amount of shares o 502 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

CTBC FINANCIAL HOLDING CO., LTD. Statements of Cash Flows For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

For the years ended December 31 2018 2017 Cash Flows from Operating Activities: Net Income before Tax $ 37,048,740 36,977,918 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Adjustments to reconcile profit (loss) Depreciation expense 6,134 9,572 Amortization expense 804 76 Interest expenses 548,720 592,632 Interest income (6,728) (7,831) Dividend income (58,680) (58,860) Proportionate share of gains from associates or joint ventures under equity method (38,868,547) (38,938,119) Losses on determination of lease contract of leased assets - (120) Gain on disposal and retirement of premises and equipment - (2) Subtotal of income and expense items with no effect on cash flows (38,378,297) (38,402,652) Net Changes in Operating Assets and Liabilities Net Changes in Operating Assets Increase in available-for-sale financial assets - (1,079,652) Decrease in financial assets at fair value through other comprehensive income 1,679,510 - Increase in receivables (12) - (Increase) decrease in other assets (7,259) 29,617 Net Changes in Operating Assets 1,672,239 (1,050,035) Net Changes in Operating Liabilities (Decrease) increase in payables (24,782) 511,904 (Decrease) increase in employee benefits liabilities (2,055) 46 Decrease in other financial liabilities - (162) Increase in other liabilities 35,243 50,182 Net Changes in Operating Liabilities 8,406 561,970 Net Changes in Operating Assets and Liabilities 1,680,645 (488,065) Total Adjustments (36,697,652) (38,890,717) Interest received 6,737 78,510 Dividends received 18,144,343 666,138 Interest paid (563,944) (597,127) Income tax refund 315,265 212,969 Net Cash Provided by (Used in) Operating Activities 18,253,489 (1,552,309) Cash Flows from Investing Activities Purchase of investment under equity method (6,234) - Purchase of premises and equipment (2,174) (12,108) Disposal of premises and equipment - 25 Purchase of intangible assets (2,500) (1,708) Net Cash Used in Investing Activities (10,908) (13,791) Cash Flows from Financing Activities (Decrease) increase in commercial paper payable (13,088,715) 18,978,039 Repayments of bonds (3,200,000) - Cash dividends paid (21,071,132) (19,469,821) Issuance of preferred stock - 19,982,074 Disposal of treasury stock 585,581 - Other (306) - Net Cash (Used in) Provided by Financing Activities (36,774,572) 19,490,292 Net (Decrease) Increase in Cash and Cash Equivalents (18,531,991) 17,924,192 Cash and Cash Equivalents, at the Beginning of the Period 18,680,129 755,937 Cash and Cash Equivalents, at the End of the Period $ 148,138 18,680,129

(Continued) 503 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(d) The condensed balance sheets and condensed comprehensive income statements of financial holding company’s subsidiaries (i) CTBC Bank Co., Ltd. 1) Condensed Balance Sheets Unit: In Thousands of New Taiwan Dollars December 31, December 31, 2018 2017 Cash and cash equivalents $80,277,801 78,962,339 Due from Central Bank and call loans to banks 133,740,059 167,619,090 Financial assets measured at fair value through profit or 144,999,930 99,461,184 loss Financial assets measured at fair value through other 186,348,230 - comprehensive income Investments in debt instruments at amortised cost 581,713,332 - Available-for-sale financial assetsnet - 140,560,022 Financial instrumentshedging/ Derivative financial 34,212 137,010 assetshedgingnet Securities purchased under resell agreements 1,481,876 - Receivablesnet 152,998,614 116,935,669 Current income tax assets 818,382 421,834 Loansnet 1,713,497,284 1,568,002,853 Held-to-maturity financial assetsnet - 641,595,770 Investments under equity methodnet 89,167,115 81,529,265 Other financial assetsnet 2,274,636 2,996,034 Investment propertynet 1,841,957 2,207,123 Premises and equipmentnet 45,569,994 44,110,239 Intangible assetsnet 12,919,547 12,491,323 Deferred income tax assets 4,555,917 4,211,654 Other assetsnet 18,562,228 11,546,566 Total assets 3,170,801,114 2,972,787,975 Deposits from Central Bank and other banks 71,980,131 62,448,335 Due to Central Bank and other banks 396,555 770,271 Financial liabilities measured at fair value through profit 82,434,630 59,124,552 or loss Financial instrumentshedging/ Derivative financial 184,195 16,865 liabilitieshedgingnet Securities sold under repurchase agreements 60,659,817 53,163,109 Payables 71,319,250 63,969,796 Current income tax liabilities 1,870,430 2,038,009 Deposits and remittances 2,498,022,245 2,357,738,017 Financial debentures 58,999,992 67,928,314 Other financial liabilities 13,837,167 11,405,536 Provisions 4,859,082 5,041,394 Deferred income tax liabilities 1,087,641 858,112 Other liabilities 9,411,106 8,653,026 Total liabilities 2,875,062,241 2,693,155,336 Common stock 140,685,719 140,685,719 Capital surplus 29,788,688 29,788,688 Retained earnings 133,019,685 120,055,826 Other equity interest (7,755,219) (10,897,594) Total equity 295,738,873 279,632,639 Total liabilities and equity 3,170,801,114 2,972,787,975

(Continued) 504 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Interest revenues $ 58,744,203 74 49,363,379 64 Less: Interest expenses (21,833,097) (28) (16,086,963) (21) Net interest income 36,911,106 46 33,276,416 43 Non-interest incomenet 42,418,024 54 44,620,307 57 Net revenue 79,329,130 100 77,896,723 100 Provisions for bad debt expenses, (4,009,560) (5) (2,616,224) (3) commitments and guarantee reserve Operating expenses (41,293,173) (52) (41,192,857) (53) Net income before tax from continuing 34,026,397 43 34,087,642 44 operations Income tax expenses (4,346,321) (6) (4,066,191) (5) Net income 29,680,076 37 30,021,451 39 Other comprehensive income (losses) 3,072,010 4 (3,402,866) (4) Total comprehensive income 32,752,086 41 26,618,585 34 EPS—net income (after tax) (in NT dollars) 2.11 2.13

(Continued) 505 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) CTBC Securities Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

December 31, December 31, 2018 2017 Current assets $ 19,609,283 24,383,638 Financial assets carried at costnon-current - 3,600 Financial assets measured at fair value through other 33,105 - comprehensive income Investments under equity methodnet 533,980 213,003 Premises and equipmentnet 89,059 89,495 Investment propertynet 47,323 47,729 Intangible assetsnet 56,901 56,916 Deferred income tax assets 114,556 91,583 Other non-current assets 437,636 447,401 Total assets 20,921,843 25,333,365 Current liabilities 13,330,551 17,892,402 Provisionsnon-current liabilities 48,640 60,912 Deferred income tax liabilities - 8,286 Other non-current liabilities 220 225 Total liabilities 13,379,411 17,961,825 Common stock 6,027,140 6,027,140 Capital surplus 796,191 796,191 Retained earnings 779,281 671,467 Other equity interest (60,180) (123,258) Total equity 7,542,432 7,371,540 Total liabilities and equity 20,921,843 25,333,365

(Continued) 506 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Revenues $ 1,427,246 100 1,469,350 100 Service fee expenses (68,927) (5) (63,448) (4) Employee benefits expenses (564,488) (40) (543,496) (37) Proportionate share of losses from associates (13,074) (1) (1,577) - or joint ventures under equity method Operating expenses (482,168) (34) (492,084) (33) Net income before tax from continuing 298,589 21 368,745 25 operations Income tax expense (43,124) (3) (58,349) (4) Net income 255,465 18 310,396 21 Other comprehensive income (losses) 16,654 1 (51,103) (3) Total comprehensive income 272,119 19 259,293 18 EPS—net income (after tax) (in NT dollars) 0.42 0.51

(iii) CTBC Venture Capital Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

December 31, December 31, 2018 2017 Current assets $ 106,873 228,477 Available-for-sale financial assetsnet - 2,490,562 Financial assets measured at fair value through profit or 4,133,319 - loss Investments under equity methodnet 24,073 23,683 Premises and equipmentnet 4,790 5,344 Intangible assets 276 370 Deferred income tax assets 26,756 17,705 Other non-current assets 1,254 1,647,383 Total assets 4,297,341 4,413,524 Current liabilities 684,897 500,076 Deferred income tax liabilities 33 42 Total liabilities 684,930 500,118 Common stock 3,245,169 3,000,000 Capital surplus 1,081 1,081 Retained earnings 366,408 331,652 Other equity interest (247) 580,673 Total equity 3,612,411 3,913,406 Total liabilities and equity 4,297,341 4,413,524 (Continued) 507 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Operating revenues $ 297,305 100 497,442 100 Operating costs (176,351) (59) (117,696) (24) Operating expenses (98,373) (33) (101,767) (20) Operating income 22,581 8 277,979 56 Non-operating income and expenses 905 - (14,093) (4) Net income before tax from continuing 23,486 8 263,886 52 operations Income tax benefit 31,647 11 8,524 2 Net income 55,133 19 272,410 54 Other comprehensive losses (453) - (240,253) (48) Total comprehensive income 54,680 18 32,157 6 EPSnet income (after tax) (in NT dollars) 0.17 0.84

(iv) CTBC Asset Management Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

December 31, December 31, 2018 2017 Current assets $ 59,275 417,208 Available-for-sale financial assetsnet - 548,868 Financial assets measured at fair value through profit or 712,452 - loss Investments under equity methodnet 1,432,146 1,496,252 Investment propertiesnet 5,401,190 5,037,140 Premises and equipmentnet 1,085 529 Intangible assetsnet 177 184 Deferred income tax assets 52,137 38,531 Other non-current assets 4,488 13,201 Total assets 7,662,950 7,551,913 Current liabilities 771,429 2,058,902 Deferred income tax liabilities 23,772 12,736 Other non-current liabilities 1,434,817 10,099 Total liabilities 2,230,018 2,081,737 Common stock 5,358,820 5,358,820 Capital surplus 448 448 Retained earnings 135,838 85,005 Other equity interest (62,174) 25,903 Total equity 5,432,932 5,470,176 Total liabilities and equity 7,662,950 7,551,913 (Continued) 508 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Operating revenues $ 153,410 100 29,371 100 Operating costs (42,101) (27) (12,617) (43) Operating expenses (64,486) (42) (48,192) (164) Operating income (losses) 46,823 31 (31,438) (107) Non-operating income and expenses 71,840 47 85,861 291 Net income before tax from continuing 118,663 77 54,423 184 operations Income tax (expense) benefit (14,213) (9) 692 2 Net income 104,450 68 55,115 186 Other comprehensive (losses) income (25,916) (17) 8,619 29 Total comprehensive income 78,534 51 63,734 215 EPS—net income (after tax) (in NT dollars) 0.19 0.10

(v) CTBC Security Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

December 31, December 31, 2018 2017 Current assets $ 110,260 113,816 Financial assets carried at cost - 103 Premises and equipmentnet 2,071 2,387 Intangible assetsnet - 658 Other non-current assets 666 - Financial assets measured at fair value through other 103 - comprehensive income Deferred income tax assets 719 814 Total assets 113,819 117,778 Current liabilities 41,087 42,399 Other non-current liabilities 13,767 18,254 Total liabilities 54,854 60,653 Common stock 47,695 47,695 Capital surplus 739 739 Retained earnings 10,531 8,691 Total equity 58,965 57,125 Total liabilities and equity 113,819 117,778

(Continued) 509 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Operating revenues $ 235,452 100 239,418 100 Operating costs (211,187) (90) (215,661) (90) Operating expenses (17,358) (7) (17,287) (7) Operating income 6,907 3 6,470 3 Non-operating income and expenses 482 - 489 - Net income before tax from continuing 7,389 3 6,959 3 operations Income tax expense (1,524) (1) (1,252) (1) Net income 5,865 2 5,707 2 Other comprehensive income (losses) 259 - (947) - Total comprehensive income 6,124 3 4,760 2 EPSnet income (after tax) (in NT dollars) 1.23 1.20

(vi) Taiwan Lottery Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

December 31, December 31, 2018 2017 Current assets $ 871,790 1,181,151 Premises and equipmentnet 109,504 126,498 Intangible assetsnet 29,957 27,565 Deferred income tax assets 6,941 5,884 Other non-current assets 19,101 21,413 Total assets 1,037,293 1,362,511 Current liabilities 272,230 284,063 Other non-current liabilities 1,760 1,900 Total liabilities 273,990 285,963 Common stock 500,000 500,000 Capital surplus 9,865 9,865 Retained earnings 253,438 566,683 Total equity 763,303 1,076,548 Total liabilities and equity 1,037,293 1,362,511

(Continued) 510 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Operating revenues $ 1,151,885 100 1,460,169 100 Operating expenses (986,512) (86) (977,102) (67) Operating income 165,373 14 483,067 33 Non-operating income and expenses 3,800 - 7,411 - Net income before tax from continuing 169,173 15 490,478 33 operations Income tax expense (40,735) (4) (81,808) (6) Net income 128,438 11 408,670 27 Total comprehensive income 128,438 11 408,670 27 EPSnet income (after tax) (in NT dollars) 2.57 8.17

(vii) Taiwan Life Insurance Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

December 31, December 31, 2018 2017 Cash and cash equivalents $ 76,456,436 101,421,518 Receivables 15,527,555 14,291,554 Current income tax assets 1,927,850 824,196 Assets classified as held for sale 523,182 - Financial assets measured at fair value through profit or 194,037,879 25,227,288 loss Available-for-sale financial assets - 251,678,518 Financial assets measured at fair value through other 202,281,190 - comprehensive income Financial assets carried at cost - 5,070,047 Financial assets at amortised cost 1,023,081,172 - Investments under equity methodnet 18,376,508 18,468,640 Debt investments without active market - 829,221,684 Held-to-maturity financial assets - 86,144,642 Other financial assetsnet 949,894 121,114 Investment properties 54,083,724 53,123,917 Loans 50,637,324 51,875,041 Reinsurance assets 1,901,079 1,858,356

(Continued) 511 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, December 31, 2018 2017 Premises and equipment $ 4,378,913 4,418,872 Intangible assets 6,866,816 6,738,325 Deferred income tax assets 8,089,724 6,442,591 Other assets 24,510,570 23,448,724 Separated account insurance product assets 72,962,418 56,484,072 Total assets 1,756,592,234 1,536,859,099 Payables 14,722,491 13,342,502 Current income tax liabilities - 3,343,616 Financial liabilities measured at fair value through profit or 13,120,549 384,455 loss Bonds payables 15,924,960 15,922,005 Other financial liabilities - 211,324 Insurance liabilities 1,569,189,334 1,355,449,410 Reserve for insurance policies with financial instrument 3,329 3,193 features Foreign exchange rate fluctuation reserves 2,273,640 730,720 Provisions 116,452 164,714 Deferred income tax liabilities 1,260,334 3,319,456 Other liabilities 1,704,721 5,531,190 Separated account insurance product liabilities 72,962,418 56,484,072 Total liabilities 1,691,278,228 1,454,886,657 Common stock 41,791,135 31,944,991 Capital surplus 27,279,200 27,279,200 Retained earnings 17,502,335 20,751,454 Other equity interest (21,258,664) 1,996,797 Total equity 65,314,006 81,972,442 Total liabilities and equity 1,756,592,234 1,536,859,099

(Continued) 512 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Operating revenues $ 339,500,668 100 338,702,445 100 Operating costs (328,404,712) (97) (322,272,301) (95) Operating expenses (3,579,622) (1) (5,094,371) (2) Operating income 7,516,334 2 11,335,773 3 Non-operating revenues and expenses (31,294) - (178,849) - Net income before tax from continuing 7,485,040 2 11,156,924 3 operations Income tax benefit (expense) 812,585 - (951,923) - Net Income 8,297,625 2 10,205,001 3 Other comprehensive (losses) income (31,208,803) (9) 4,748,994 2 Total comprehensive (losses) income (22,911,178) (7) 14,953,995 5 EPS—net income (after tax) (in NT dollars) 1.99 2.44

(viii) CTBC Investments Co., Ltd.

1) Condensed Balance Sheets

Unit: In Thousands of New Taiwan Dollars

December 31, December 31, 2018 2017 Current assets $ 494,680 459,296 Financial assets measured at fair value through profit or 25,613 - loss Available-for-sale financial assetsnet - 32,613 Premises and equipmentnet 19,524 22,115 Intangible assets 19,178 19,168 Deferred income tax assets 6,215 9,587 Other non-current assets 57,914 57,547 Total assets 623,124 600,326 Current liabilities 140,647 99,892 Total liabilities 140,647 99,892 Common stock 425,000 425,000 Capital surplus 155,950 155,950 Accumulated deficits (98,473) (83,678) Other equity interest - 3,162 Total equity 482,477 500,434 Total liabilities and equity 623,124 600,326

(Continued) 513 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Condensed Comprehensive Income Statement

Unit: In Thousands of New Taiwan Dollars

For the years ended December 31 2018 % 2017 % Operating revenues $ 560,625 100 344,752 100 Operating expenses (583,302) (104) (366,327) (105) Operating losses (22,677) (4) (21,575) (5) Non-operating revenues and expenses 3,640 1 (1,080) (1) Net losses before tax from continuing (19,037) (3) (22,655) (6) operations Income tax benefit (expense) 1,079 - (4,313) (1) Net losses (17,958) (3) (26,968) (7) Other comprehensive income - - 1,675 1 Total comprehensive losses (17,958) (3) (25,293) (6) EPS—net losses (after tax) (in NT dollars) (0.42) (0.63)

(e) Profitability of the Company

Unit: %

Items December 31, 2018 December 31, 2017 Return on assets ratio (annual) Before income tax 9.65 10.13 After income tax 9.38 10.19 Return on equity ratio Before income tax 11.65 12.26 (annual) (Note 3) After income tax 11.33 12.35 Net income ratio 93.72 96.94

Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.

Note 2: Return on equity ratio = Net income before/after income tax ÷ average total equity.

Note 3: Return on common equity ratio = (Net income before/after income taxpreferred stock dividend) ÷ average total common equity. As of December 31, 2018 and 2017, the Company’ s return on common equity ratio (annual) before and after income tax were 12.43%, 12.09%, 12.68% and 12.77%, respectively.

Note 4: Net income ratio = Net income after income tax ÷ Net revenue.

(Continued) 514 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(f) Profitability of the Company and subsidiaries Unit: % Items December 31, 2018 December 31, 2017 Return on assets ratio (annual) Before income tax 0.76 0.88 After income tax 0.65 0.73 Return on equity ratio Before income tax 13.33 14.83 (annual) (Note 3) After income tax 11.33 12.35 Net income ratio 11.46 10.64

Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.

Note 2: Return on equity ratio = Net income before/after income tax ÷ average total equity.

Note 4: Net income ratio = Net income after income tax ÷ Net revenue.

(g) Profitability of the Company’s subsidiaries

(i) Profitability of CTBC Bank Co., Ltd. and its subsidiaries

Unit: %

Items December 31, 2018 December 31, 2017 Return on assets ratio (annual) Before income tax 0.93 1.01 After income tax 0.77 0.82 Return on equity ratio Before income tax 12.42 13.76 (annual) After income tax 10.32 11.27 Net income ratio 31.12 32.05

Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.

Note 2: Return on equity ratio = Net income before/after income tax ÷ average total equity.

Note 3: Net income ratio = Net income after income tax ÷ Net revenue.

Note 4: Net income before/after tax represented accumulated income of the current year.

(Continued) 515 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Profitability of CTBC Securities Co., Ltd. and its subsidiaries

Unit: %

Items December 31, 2018 December 31, 2017 Return on assets ratio (annual) Before income tax 1.29 1.58 After income tax 1.10 1.33 Return on equity ratio Before income tax 4.00 5.10 (annual) After income tax 3.43 4.29 Net income ratio 19.10 22.43

Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.

Note 2: Return on equity ratio = Net income before/after income tax ÷ average total equity.

Note 3: Net income ratio = Net income after income tax ÷ Net revenue.

Note 4: Net income before/after tax represented accumulated income of the current year.

(iii) Profitability of Taiwan Life Insurance Co., Ltd. and its subsidiaries

Unit: %

Items December 31, 2018 December 31, 2017 Return on assets ratio (annual) Before income tax 0.49 0.81 After income tax 0.53 0.74 Return on equity ratio Before income tax 11.02 15.48 (annual) After income tax 11.93 14.09 Net income ratio 3.82 3.97

Note 1: Return on assets ratio = Net income before/after income tax ÷ average total assets.

Note 2: Return on equity ratio = Net income before/after income tax ÷ average total equity.

Note 3: Net income ratio = Net income after income tax ÷ Net revenue.

Note 4: Net income before/after tax represented accumulated income of the current year.

(h) Related information of its subsidiaries’ investments in Mainland China: Please refer to Note 13(c).

(i) Significant commitments and contingencies of its subsidiaries: Please refer to Note 9.

(j) Significant catastrophic losses of its subsidiaries: None.

(Continued) 516 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(k) Significant subsequent events of its subsidiaries: On January 18, 2019, The Company' s subsidiary Taiwan Life Insurance Co., Ltd. signed with Mitsui Fudosan Co., Ltd. (hereafter “Mitsui Fudosan”) a leasing contract to rent out the superficies of lot 15 at Jingmao Section, Nankang District, Taipei City. After the completion and delivery of the building at Jingmao Section, Nankang District, Taipei City, the mall will be on lease to Mitsui Fudosan with an annual rental of 772,000, excluding the component of variable lease payments. The duration of lease is 20 years.

(l) Related party transactions of the Company’s subsidiaries of $100 million or more are summarized as follow:

(i) CTBC Bank Co., Ltd.

1) Names of related parties and their relationship

Name of related party Relationship with the Bank CTBC Financial Holding Co., Ltd. Parent company of the Bank. CTBC Bank (Philippines) Corp. An investee company carried under equity method by the Bank. PT Bank CTBC Indonesia CTBC Bank Corp. (Canada) CTBC Capital Corp. The Tokyo Star Bank, Ltd. LH Financial Group Public Company Limited Grand Bills Finance Corporation Xiamen Jinmeixin Consumer Finance Co., Ltd. CTBC Bank Corp. (USA) An investee company carried under equity method by CTBC Capital Corp. Tokyo Star Business Finance, Ltd. An investee company carried under equity method by The Tokyo Star Bank, Ltd. TSB Servicer, Ltd. Taiwan Institute of Economic Research The Bank contributed over 1/3 of its total funds. CTBC Charity Foundation CTBC Culture Foundation CTBC Business School The company which is controlled by the same company as the Bank contributed over 1/3 of its total funds. Kinpo Electronics, Inc. The Chairman of the Bank’s subsidiary is its director. Showa Denko HD Trace Corp. The Chairman of the Bank is its director. Straits Exchange Foundation The Chairman of the Bank is its body corporate representative.

(Continued) 517 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Bank CTBC Securities Co., Ltd. Controlled by the same company as the Bank. CTBC Asia Limited CTBC Securities Investment Service Co., Ltd. CTBC Securities Venture Capital Co., Ltd. CTBC Venture Capital Co., Ltd. CTBC Asset Management Co., Ltd. CTBC Security Co., Ltd. Taiwan Lottery Co., Ltd. CTBC Investments Co., Ltd. Taiwan Life Insurance Co., Ltd. TLG Capital Co., Ltd. TLG Insurance Co., Ltd. Wu Tzu Development Co., Ltd. An investee company carried under equity method controlled by the same company as the Bank. Hofa Land Development Co., Ltd. CTBC Investment Trust Funds A securities investment trust fund managed by the company which is controlled by the same company as the Bank. Overseas Investment & Development Corp. The director of the Bank is its Chairman. Chung Yuan Investment Co., Ltd. The director of the parent company. Yi Chuan Investment Co., Ltd. Hewei Investment Co., Ltd. The Chairman of the Bank's parent company is its director. Sunghung Investment Co., Ltd. Fenglu Development & Investment Co., Ltd. Taiwan Sports Lottery Co., Ltd. The second-degree relative of the Chairman of the Bank’s parent company is its Chairman. Chuan Wei Investment Co., Ltd. Kainan High School of Commerce and Industry The Chairman of the Bank’s parent company is its body corporate representative. Heng Da Cultural and Educational Foundation The director of the parent company of the Bank is its body corporate representative. Asian Bankers Association The General Manager of the parent company of the Bank is its body corporate representative.

(Continued) 518 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Bank TransWorld University The director of the company which is controlled by the same company as the Bank is its body corporate representative. CTBC Financial Park Management authority CTBC Technology Building Management authority Pei Sheng Cultural and Educational Foundation Jing Kwan Investment Co., Ltd. The Chairman of the company which is controlled by the same company as the Bank is its Chairman. Shin Wen Investment Co., Ltd. Taipei Financial Center Corporation The Chairman of the company which is controlled by the same company as the Bank is its director. Nan Ya Plastics Corporation Brothers Entertaining Co., Ltd. Taiwan Relo Club, Limited The director of the company which is controlled by the same company as the Bank is its Chairman. Huaku Development Co., Ltd. The second-degree relative of the director of the company controlled by the same company as the Bank is its general manager. Yan Yuan Investment Co., Ltd. The director of the company which is controlled by the same company as the Bank is its general manager. Chailease Finance Co., Ltd. Related party in substance. Sungyong Investment Co., Ltd. Sungbo Co., Ltd. Jungguan Investment Co., Ltd. Kuan Ho Development Co., Ltd. CTC Group Inc. APEX Credit Solution Inc. Yi Huao Investment Co., Ltd. Yi Kao Investment Co., Ltd. Chinatrust Real Estate Co., Ltd. Chia Shih Investment Co., Ltd. Kae Lee Investment Ltd. Chung-Chie Property Management Co., Ltd. Global Hospitality Group Inc. Chailease Auto Rental Co., Ltd.

(Continued) 519 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Name of related party Relationship with the Bank Fina Finance & Trading Co., Ltd. Related party in substance. Chailease Holding Company Limited (Cayman) Ronghua Investment Co., Ltd. Shin Ing Technology Co., Ltd. Chung Cheng Investments and Development Co., Ltd. Chinese Taipei Baseball Association Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.

2) Significant transactions between related parties and the Bank

a) Loans

December 31, 2018 Settlement status Number/name of Maximum Ending Normal Loan Categories related parties balance balance loans Overdue loans Collateral conditions Home loan mortgage 519 $ 2,739,317 2,500,001 2,500,001 - Real estate/ Note others Others Nan Ya Plastics 3,346,842 3,346,842 3,346,842 - Real estate/ Corporation plant/ machine room CTBC Bank 2,304,975 2,304,975 2,304,975 - None (Philippines) Corp. PT Bank CTBC 1,444,451 1,444,451 1,444,451 - None Indonesia CTC Group Inc. 396,456 386,568 386,568 - Real estate

Jungguan Investment 350,000 350,000 350,000 - Real estate Co., Ltd. Kuan Ho 245,000 245,000 245,000 - Real estate Development Co., Ltd.

December 31, 2017 Settlement status Number/name of Maximum Ending Normal Loan Categories related parties balance balance loans Overdue loans Collateral conditions Home loan mortgage 444 $ 2,356,026 2,194,369 2,194,369 - Real estate/ Note others Others Nan Ya Plastics 2,613,535 2,480,637 2,480,637 - Real estate/ Corporation plant/ machine room Huaku Development 1,050,000 1,050,000 1,050,000 - Real estate Co., Ltd. CTC Group Inc. 439,229 385,039 385,039 - Real estate

Taipei Financial 376,756 269,573 269,573 - Real estate/ Center Corporation buildings for commercial use Jungguan Investment 355,000 350,000 350,000 - Real estate Co., Ltd. Kuan Ho 245,000 245,000 245,000 - Real estate Development Co., Ltd.

(Continued) 520 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note: The terms of loans between related and non-related parties are identical.

b) Deposits

December 31, 2018 Interest expenses (For the year Maximum Range of ended Related party balance Ending balance interest rates December 31) Taiwan Life Insurance Co., Ltd. $ 44,868,913 15,241,564 0~0.50% 20,248 Showa Denko HD Trace Corp. 2,544,117 2,316,988 0~2.98% 35,729 CTBC Securities Co., Ltd. 3,463,253 2,129,633 0~1.07% 12,132 Yan Yuan Investment Co., Ltd. 2,991,684 1,853,257 0~0.01% 161 Taiwan Sports Lottery Co., Ltd. 1,609,508 1,597,219 0~0.01% 82 Hofa Land Development Co., Ltd. 3,493,926 1,596,213 0~0.45% 10,651 Sungyong Investment Co., Ltd. 1,302,000 1,281,396 0~0.01% 72 CTBC Charity Foundation 1,109,917 983,674 0~1.07% 5,934 Taiwan Lottery Co., Ltd. 1,015,780 676,307 0~0.12% 593 Taiwan Institute of Economic Research 545,524 477,163 0~1.09% 2,399 CTBC Investments Co., Ltd. 503,096 441,185 0~0.48% 1,558 Yi Hua Investment Co., Ltd. 383,346 383,308 0~0.01% 23 Chia Shih Investment Co., Ltd. 380,945 380,903 0~0.01% 19 CTBC Securities Investment Service Co., Ltd. 299,281 298,642 0.01~1.07% 488 Kainan High School of Commerce and 319,913 289,487 0~1.04% 2,060 Industry Kuan Ho Development Co., Ltd. 261,334 261,334 0~0.01% 20 Chuan Wei Investment Co., Ltd. 478,310 259,611 0~0.01% 24 Ronghua Investment Co., Ltd. 212,072 211,977 0~0.01% 10 Chinatrust Real Estate Co., Ltd. 214,052 209,920 0~1.80% 1,812 Pei Sheng Cultural and Educational Foundation 566,588 203,714 0~0.05% 167 Straits Exchange Foundation 196,830 196,830 0.10~1.09% 1,910 CTBC Asia Limited 797,989 180,184 0~2.77% 2,710 Wu Tzu Development Co., Ltd. 174,368 169,239 0~1% 164 Chailease Holding Company Limited (Cayman) 4,599,750 159,930 0~0.22% 74 Jing Kwan Investment Co., Ltd. 286,982 159,157 0~0.01% 9 CTBC Business School 197,283 148,572 0~1.09% 223 CTBC Financial Holding Co., Ltd. 17,594,183 148,137 0~0.22% 73 Zhongyuan Investment Co., Ltd. 149,965 143,737 0.01% 8 Sunghung Investment Co., Ltd. 145,437 143,265 0~0.01% 13 Yi Chuan Investment Co., Ltd. 212,242 128,054 0~0.01% 14 Hewei Investment Co., Ltd. 128,935 127,784 0~0.01% 11 Fenglu Development & Investment Co., Ltd. 216,213 124,143 0~0.01% 21 Kae Lee Investment Co., Ltd. 121,930 121,724 0~0.01% 12 Shin Ing Technology Co., Ltd. 111,125 111,125 0~1.07% 308 Chung Cheng Investments and Development Co., 113,720 110,978 0~0.01% 8 Ltd. Heng Da Cultural and Educational Foundation 106,657 105,216 0~3.15% 1,082 Total $ 91,717,168 33,371,570 100,822

(Continued) 521 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2017 Interest expenses (For the year Maximum Range of ended Related party balance Ending balance interest rates December 31) CTBC Financial Holding Co., Ltd. $ 20,078,851 18,678,943 0~0.16% 81 Taiwan Life Insurance Co., Ltd. 34,900,558 15,996,525 0~0.30% 10,219 Hofa Land Development Co., Ltd. 3,370,887 2,952,819 0~0.45% 2,030 Showa Denko HD Trace Cop. 3,207,376 2,332,749 0~2.02% 23,725 CTBC Securities Co., Ltd. 4,940,108 1,921,013 0~1.07% 10,198 CTBC Charity Foundation 1,111,542 909,871 0~1.07% 5,934 Taiwan Sports Lottery Co., Ltd. 1,014,570 699,636 0~0.01% 53 Taiwan Lottery Corporation 854,835 676,013 0~0.14% 483 Yan Yuan Investment Co., Ltd. 808,739 559,505 0~0.01% 45 Chuan Wei Investment Co., Ltd. 505,811 480,260 0~0.01% 30 Taiwan Institute of Economic Research 472,821 423,814 0~1.33% 2,106 Shin Wen Investment Co., Ltd. 421,426 421,426 0~0.01% 12 CTBC Investments Co., Ltd. 444,002 415,124 0~0.45% 1,347 Yi Kao Investment Co., Ltd. 416,142 377,272 0.01% 23 Kainan High School of Commerce and Industry 345,795 298,311 0~1.22% 2,119 Overseas Investment & Development Corp. 299,142 282,671 0~1.53% 1,958 CTBC Real Estate Co., Ltd. 403,474 268,125 0~1.25% 2,681 Fenglu Development & Investment Co., Ltd. 216,213 216,213 0~0.01% 18 CTBC Venture Capital Co., Ltd. 526,591 208,325 0~0.16% 20 Kuan Ho Development Co., Ltd. 201,841 201,841 0~0.01% 10 Chia Shih Investment Co., Ltd. 190,926 190,881 0~0.01% 12 Straits Exchange Foundation 187,030 187,030 0.15~1.22% 1,907 CTBC Asia Limited 222,412 163,428 0.25~1.55% 758 Yi Huao Investment Co., Ltd. 159,505 159,445 0~0.01% 12 CTBC Business School 211,089 159,153 0~1.22% 193 Sunghung Investment Co., Ltd. 127,767 127,767 0~0.01% 5 Kae Lee Investment Co., Ltd. 122,080 121,930 0~0.01% 6 Wu Tzu Development Co., Ltd. 462,421 118,402 0~0.01% 20 Hewei Investment Co., Ltd. 111,564 107,413 0~0.01% 10 Yi Chuan Investment Co., Ltd. 121,080 106,419 0~0.01% 7 Trans World University 234,056 103,700 0~1.22% 165 Total $ 76,690,654 49,866,024 66,187

c) Call loans to banks

For the year ended December 31, 2018 Ending Range of Interest Related party balance interest rates revenues CTBC Bank (Philippines) Corp. $ 2,335,708 1.91~3.28% 50,978 The Tokyo Star Bank, Ltd. 6,146,600 2.22~3.085% 72,101 Total $ 8,482,308 123,079

(Continued) 522 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

For the year ended December 31, 2017 Ending Range of Interest Related party balance interest rates revenues CTBC Bank(Philippines) Corp. $ 2,238,600 1.22~2.45% 8,457

d) Call loans from banks

For the year ended December 31, 2017 Ending Range of Interest Related party balance interest rates revenues The Tokyo Star Bank, Ltd. $ 529,800 0.05~0.06% 634

e) Due from other banks

December 31, December 31, Related party 2018 2017 CTBC Bank Corp. (USA) $ 6,108,691 4,305,364

f) Derivative financial instruments

December 31, 2018 Derivative Balance sheet financial Contract Notional Unrealized Ending Related party instruments period principal profit Account Balance CTBC Investments Money market 08.31.2018~ USD 117,250 2,939 (Note 1) 2,939 Co., Ltd. Trust swap 03.04.2019 Funds

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

g) Others

i) Commission and other income

For the years ended December 31 Related party Summary 2018 2017 Taiwan Life Insurance Co., Ltd. Commission for joint sales, $ 5,100,560 5,532,257 income from group catering, allocation of information and commission income Taipei Financial Center Commission income, 172,369 - Corporation remunerations to directors and dividend income $ 5,272,929 5,532,257

The balance of accounts receivable for foregoing transactions were as follows:

December December Related party Summary 31, 2018 31, 2017 Taiwan Life Insurance Co., Commission for joint sales, income from $ 440,987 664,579 Ltd. group catering, allocation of information and commission income

(Continued) 523 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

ii) Handling fees and other general administration expenses

For the years ended December 31 Related party Summary 2018 2017 Taiwan Lottery Co., Ltd. Lottery service fees and $ 1,221,894 1,528,907 maintenance fees Brothers Entertaining Co.,Ltd Sponsorship, marketing feedback 290,015 229,376 fund and gift expenses CTBC Security Co., Ltd. Security fees 139,491 131,871 CTBC Financial Park Head office general administration 137,636 151,001 Management authority expenses Taiwan Life Insurance Co., Ltd. Group Insurance, sales bonus, 127,427 126,604 rental fees Taipei Financial Center Sponsorship, joint-brand credit 117,206 126,643 Corporation card payment, and ATM utilities $ 2,033,669 2,294,402

The balance of accounts payable for foregoing transactions were as follows:

December December Related party Summary 31, 2018 31, 2017 Taiwan Lottery Co., Ltd. Lottery service fees and maintenance fees $ 101,266 412,540 Brothers Entertaining Co., Sponsorship, marketing feedback fund and 146 3,779 Ltd. gift expenses CTBC Security Co., Ltd. Security fees 16,275 5,011 CTBC Financial Park Head office general administration expenses 33,999 28,681 Management authority Taiwan Life Insurance Co., Group Insurance, sales bonus, rental fees 11,718 12,139 Ltd. Taipei Financial Center Sponsorship, joint-brand credit card payment, 11,588 13,144 Corporation and ATM utilities $ 174,992 475,294

iii) Others

December December Related party Summary 31, 2018 31, 2017 Taipei Financial Center Balance of share holdings $ 478,440 371,250 Corporation Fina Finance & Trading Co., Referral maturity fees (Note1) 140,082 - Ltd. CTBC Asset Management Co., Gains on property transaction investment - 2,535,287 Ltd. property (Note2) $ 618,522 2,906,537

Note 1: The Company’s subsidiary CTBC Bank Co., Ltd. signed a strategic alliance agreement with Fina Finance & Trading Co., Ltd. and Chailease Finance Co., Ltd. agreeing loans will be released directly to Fina and Chailease’ s clients, and Fina and Chailease pledged to buyback and settle all debts once any delay arises.

(Continued) 524 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 2: The transaction prices were setting in reference to the appraisal report of an real estate appraisers firm.

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

(ii) CTBC Securities Co., Ltd.

1) Names of related parties and relationship

Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same parent company as the Company. CTBC Venture Capital Co., Ltd. CTBC Asset Management Co., Ltd. CTBC Security Co., Ltd. Taiwan Lottery Co., Ltd. CTBC Investments Co., Ltd. Taiwan Life Insurance Co., Ltd. TLG Insurance Co., Ltd. TLG Capital Co., Ltd. CTBC Investments Co., Ltd. Trust A securities investment trust fund managed by the Funds company which is controlled by the same company as the Company. CTBC (Mauritius) Holding Co., Ltd. An investee company carried under equity method. CTBC Securities Venture Capital Co., Ltd. CTBC Investment Service Co., Ltd. CTBC Asia Limited An investee company carried under equity method by CTBC (Mauritius) Holding Co., Ltd. CTBC Financial Park Management The Director of the company which is controlled by authority the same company as the Company is its body corporate representative. CTBC Technology Building Management authority Chung-Chie Property Management Co., Related party in substance. Ltd. Other related parties The representative of the Company’s director, etc.

2) Significant transactions with related parties

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

Please refer to Note 7(b)(viii) for transactions with CTBC Investments Co., Ltd.

(Continued) 525 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) CTBC Venture Capital Co., Ltd.

1) Names of the related parties and relationship

Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Securities Co., Ltd. CTBC Asset Management Co., Ltd. Taiwan Lottery Co., Ltd. CTBC Security Co., Ltd. CTBC Investments Co., Ltd. Taiwan Life Insurance Co., Ltd. TLG Insurance Co., Ltd. CTBC Capital International Co., Ltd. An investee company carried under equity method. CTBC Venture Capital Investment An investee company carried under equity method by Management (Shanghai) Co., Ltd. CTBC Capital International Co., Ltd. CTBC Financial Park Management The Director of the company which is controlled by authority the same company as the Company is its body corporate representative. Rich Healthy Fruits & Vegetable Corp. The General Manager of the Company is its director. (Note) Noratech Pharmaceuticals, Inc. Prince Pharmaceutical Co., Ltd. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.

(Note) The General Manager of the Company has resigned in 2018. It is no longer the Company’s related party.

2) Significant transactions with related parties

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

(Continued) 526 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) CTBC Asset Management Co., Ltd.

1) Names of the related parties and relationship

2) Significant transactions with related parties

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

(Continued) 527 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(v) CTBC Security Co., Ltd.

1) Names of the related parties and relationship

Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Venture Capital Co., Ltd. Taiwan Lottery Co., Ltd. CTBC Charity Foundation The company which is controlled by the same company as the Company contributed over 1/3 of its total funds. Chuan Wei Investment Co., Ltd. The second-degree relative of the Chairman of the parent company is its chairman. Chung Yuan Investment Co., Ltd. The Institutional Director of the parent company. Yi Chuan Investment Co., Ltd. Changchi Investment Ltd. Yi Kao Investment Co., Ltd. Related party in substance. Bo Yu Investment Co., Ltd. Jungguan Investment Co., Ltd. Kuan Ho Development Co., Ltd. Chung-Chie Property Management Co., Ltd. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.

2) Significant transactions with related parties

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

(Continued) 528 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(vi) Taiwan Lottery Co., Ltd.

1) Names of the related parties and relationship

2) Significant transactions with related parties

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

(Continued) 529 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(vii) Taiwan Life Insurance Co., Ltd.

1) Names of the related parties and relationship

Name of related party Relationship with the Company CTBC Financial Holding Co., Ltd. Parent company of the Company. CTBC Bank Co., Ltd. Controlled by the same company as the Company. CTBC Securities Co., Ltd. CTBC Venture Capital Co., Ltd. CTBC Asset Management Co., Ltd. CTBC Security Co., Ltd. Taiwan Lottery Co., Ltd. CTBC Investments Co., Ltd. CTBC Investments Trust Funds A securities investment trust fund managed by the company which is controlled by the same company as the Company. TLG Insurance Co., Ltd. A subsidiary company of the Company. TLG Capital Co., Ltd. Hofa Land Development Co., Ltd. An investee company carried under equity method by the Company. Wu Tzu Development Co., Ltd. Star Shining Energy Co., Ltd. Top Taiwan IX Venture Capital Co., Ltd. King Dragon Life Insurance Co., Ltd. Giga Green Energy Co., Ltd. Nan Ya Plastics Corporation The Chairman of the company which is controlled by the same company as the Company is its director. Formosa Sumco Technology Corporation CTBC Financial Park Management The Director of the company which is controlled by authority the same company as the Company is its body corporate representative. Chailease Insurance Brokers Co., Ltd. Related party in substance. Taipei Medical University The director of the investee company carried under equity method by the Company is its corporate representative. Other related parties The directors of CTBC Financial Holding Co., Ltd. and subsidiaries (including independent directors), supervisors, managers and their families, spouses, etc.

(Continued) 530 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Significant transactions with related parties

a) The following table presents the commission by the company and its related parties

For the years ended December 31 Related party 2018 2017 CTBC Investments Co., Ltd. $ 257,332 64,039

b) The following table presents the handling fee by the company and its related parties

For the years ended December 31 Related party 2018 2017 CTBC Investments Co., Ltd. $ 112,310 75,307 TLG Capital Co., Ltd. 63,121 113,476 Total $ 175,431 188,783

c) The following table presents the ending balance of the discretionary account invested by the related parties

December 31, December 31, Related party 2018 2017 CTBC Investments Co., Ltd. $ 68,321,825 62,003,848

d) The following table presents information regarding stocks issued by the related party that are being held by the Company

December 31, December 31, Related party 2018 2017 Nan Ya Plastics Corporation $ 1,171,361 1,299,372 Formosa Sumco Technology Corporation 235,007 351,860 Total $ 1,406,368 1,651,232

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

Please refer to Note 7(b)(viii) for transactions with CTBC Investments Co., Ltd.

(Continued) 531 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(viii) CTBC Investments Co., Ltd.

1) Names of the related parties and relationship

2) Significant transactions with related parties

Please refer to Note 12(l)(i) for transactions with CTBC Bank Co., Ltd.

Please refer to Note 7(b)(viii) for funds investment transactions with CTBC Investments Co., Ltd.

(m) Significant contracts: Please refer to Note 9(a).

(n) The income and expenses arising from the joint marketing operation and information interoperability amongst the Financial Holding Company’s subsidiaries were allocated as follows:

The Company’s subsidiary CTBC Bank Co., Ltd. (“CTBC Bank”) and Taiwan Life Insurance Co., Ltd.(“Taiwan Life”) have gained from the joint business promotion. The bonus for joint marketing with CTBC Bank and Taiwan Life shared based on annual commission rate agreed between all parties for each insurance product.

(Continued) 532 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(o) The movement of compulsory auto and motorcycle insurance reserves (retained business) for the Company’s sub-subsidiary TLG insurance Co., Ltd.:

For the year ended December 31, 2018 Beginning Current Current Ending Compulsory auto insurance balance provision recovery balance Unearned premium reserve $ 73,470 67,703 73,470 67,703 Claim reserve 136,327 127,723 136,327 127,723 Special reserve (203,462) 8,419 - (195,043) Total $ 6,335 203,845 209,797 383

For the year ended December 31, 2017 Beginning Current Current Ending Compulsory auto insurance balance provision recovery balance Unearned premium reserve $ 73,748 73,470 73,748 73,470 Claim reserve 130,077 136,327 130,077 136,327 Special reserve (204,344) 882 - (203,462) Total $ (519) 210,679 203,825 6,335

For the year ended December 31, 2018 Beginning Current Current Ending Compulsory moto insurance balance provision recovery balance Unearned premium reserve $ 64,819 63,412 64,819 63,412 Claim reserve 54,285 52,414 54,285 52,414 Special reserve 259,201 - 2,656 256,545 Total $ 378,305 115,826 121,760 372,371

For the year ended December 31, 2017 Beginning Current Current Ending Compulsory moto insurance balance provision recovery balance Unearned premium reserve $ 63,274 64,819 63,274 64,819 Claim reserve 55,543 54,285 55,543 54,285 Special reserve 248,610 10,591 - 259,201 Total $ 367,427 129,695 118,817 378,305

(Continued) 533 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(p) The information of segmentation of specific assets of the Company’s sub-subsidiary TLG Insurance Co., Ltd.:

(i) The Company’s sub-subsidiary TLG Insurance Co., Ltd is engaged in compulsory auto TPL insurance (hereinafter referred to as “ this insurance” ), in accordance with “ Compulsory Automobile Liability Insurance Law”, The Company’s sub-subsidiary TLG Insurance Co., Ltd. build an independent account to record the operation and financial activities of the insurance. As of December 31, 2018 and 2017, assets and liabilities of the Company’ s sub-subsidiary TLG Insurance Co., Ltd. operated on this insurance were as below:

December 31, December 31, 2018 2017 Assets Cash and cash equivalents $ 355,356 342,136 Notes receivable 2,589 2,268 Premiums receivable 4,030 4,342 Claims recoverable from reinsurers 11,088 32,891 Due from reinsurers and ceding companies 12,046 12,378 Ceded unearned premiums reserve 69,030 76,263 Ceded claim reserve 105,048 116,663 Temporary payments and suspense accounts 43 3,669 Total Assets $ 559,230 590,610 Liabilities Notes payable $ 505 403 Due to reinsurers and ceding companies 11,876 12,485 Unearned premium reserve 200,145 214,552 Claim reserve 285,185 307,275 Special reserve 61,502 55,739 Temporary receipts and suspense accounts 14 139 Other liabilities 3 17 Total liabilities $ 559,230 590,610 According to the article 5 of “ Regulations for Deposit and Management of the Reserve of Compulsory Automobile Liability Insurance Article”, special reserves provided shall deposit in financial institutions as time deposits, once insurer has reported and gotten the approval of the competent authority, it may purchase domestic securities. As of December 31, 2018 and 2017, the amount of time deposits the Company’s sub-subsidiary TLG Insurance Co., Ltd. placed in financial institutions described in preceding paragraph were $61,502 and $55,739, respectively. Additionally, according to article 6 of “Regulations for Deposit and Management of the Reserve of Compulsory Automobile Liability Insurance” , except for the aforesaid special reserve provided, funds (including reserves, payables, and suspense accounts to carry forward) shall be deposited in financial institutions in the form of demand deposits and time deposits, but as funds provided that with the approval of the competent authority, an insurer may purchase domestic securities. The Company’ s sub-subsidiary TLG Insurance Co., Ltd. placed deposits in financial institutions to support the expenditures of the insurance, as of December 31, 2018 and 2017, the amount of demand deposits were $88,943 and $49,780, (Continued) 534 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

respectively, note deposits were $413 and $76, respectively, and time deposits were $204,498 and $236,541, respectively.

(ii) The information of the Company’s sub-subsidiary TLG Insurance Co., Ltd. for the insurance revenue and cost:

For the years ended December 31 2018 2017 Operating revenue Premium (containing reinsurance premium) $ 336,826 362,497 Less: Reinsurance expense (115,565) (128,173) Net change in unearned premiums reserve 7,174 (1,267) Retained earned premium 228,435 233,057 Interest income 577 458 $ 229,012 233,515 Operating costs Insurance claim payment (contain reinsurance indemnity) $ 344,614 350,567 Less: Claims recoverable from reinsurers (110,890) (133,517) Retained claim payment 233,724 217,050 Net change in claim reserve (10,475) 4,992 Net change in special claim reserve 5,763 11,473 $ 229,012 233,515 (iii) According to the article 11 of “Regulations for the Management of the Various Reserve for Compulsory Automobile Liability Insurance” when an insurer suspends or terminates its operations, reserves of the insurance shall transfer into the reserves provided by the other insurer that assume the business. If in a situation that there is no any insurer to assume the insurance business and the balance of the special reserve is positive, it shall transfer the assets corresponding to the special reserve to the Motor Vehicle Accident Compensation Fund.

When an insurer has been duly ordered to suspend business and undergo rehabilitation, ordered to dissolve, or its permission to operate the insurance business has been revoked, and no other insurer is to assume this insurance business, and there is no outstanding liability under the insurance and the balance of the special reserve is positive, the assets corresponding to the special reserve shall be transferred to the Motor Vehicle Accident Compensation Fund.

(q) The Company’s sub-subsidiary TLG Insurance Co., Ltd. reinsured its business to BEST RE (L) Ltd. directly or by other reinsurers, although the main contract was expired, the responsibility of compensate was still effective. In accordance with the “Regulations Governing Insurance Enterprises Engaging in Operating Reinsurance and Other Risk Spreading Mechanisms” , since the rating of BEST RE (L) Ltd.’s was downgraded to B plus by Standard & Poor's, it has become an unauthorized reinsurance company on October 22, 2013. For the years ended December 31, 2018 and 2017, the income for reinsurance corporate with BEST RE (L) Ltd. were $23 and $26, respectively. As of December 31, 2018 and 2017, the amount of unauthorized insurance reserve the Company’s sub- subsidiary TLG Insurance Co., Ltd. should increase to meet the supervisory report request were $92 and $100, respectively. The component of the preceding amount includes unearned premium reserve amounted to $0, claims recoverable from reinsurers which were reported but unpaid amounted to $92 and $98, respectively, and claims recoverable from reinsurers of paid claims overdue in nine months amounted to $0 and $2 , respectively.

(Continued) 535 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(13) Disclosures Required:

(a) Related information on significant transactions:

For the year ended December 31, 2018, according to the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, the related information on significant transactions by the Company and subsidiaries that should be further disclosed as follows:

(i) Loans to other businesses or individuals:

Unit: In Thousands of New Taiwan Dollars Collateral The limit The reason amount of The highest Ending Nature of Amount of for short- Provision for individual Total limit of Number Interaction Related balance in balance Actual Loan Interest rate the loan business term bad debt loan loan (Note 1) Creditor Debtor account party the period (Note 2) balance fluctuation (Note 3) contact borrowing allowance Item Value (Note 4) (Note 5) 1 CTBC Buynow Story Entrusted No 35,162 29,856 29,856 6.5% 1 44,752 Actual 597 - 287,292 574,584 Leasing Co., Electronic Ltd, loans/other business Ltd. Shanghai income contact 1 Hongtai Real No 44,752 - - 8.46% 1 89,504 - - 287,292 574,584 estate Development, Ltd., Ningbo 2 CTBC CTBC Capital Receivables Yes 613 613 613 3.83% 2 - Support - - 1,565,363 1,956,703 Venture International from related operating Capital Co., Co., Limited parties expenses Ltd.

Note 1Serial number is determined as follows: (1) 0 represents parent company. (2) Subsidiaries are numbered in a sequence of Arabic numerals from 1 based on company category. Note 2Those ending balances are effective credit/amount as of the reporting date. Note 3The natures of loans are determined as follows: (1) Please fill 1 if the category belongs to business relation (2) Please fill 2 if the category belongs to short-term loan (3) The natures of the leasing of the sub-subsidiary Note 4The limit to the individual borrower: 10% of the creditor’s net worth. Note 5The total limit of the loan: 40% of the creditor’s net worth. (ii) Endorsements and guarantees for others:

Unit: In Thousands of New Taiwan Dollars Ratio of Counter-party of accumulated guarantee and amounts of Parent Subsidiary Endorsements/ endorsement Limitation on Highest Balance of Amount of guarantees and company endorsements/ guarantees to amount of balance for guarantees property endorsements to endorsements/ guarantees third parties guarantees and guarantees and and Actual usage pledged for net worth of the Maximum guarantees to to third parties on behalf of endorsements endorsements endorsements amount guarantees latest amount for third parties on on behalf of companies in Name of Reason for a specific during as of during the and financial guarantees and behalf of parent Mainland No. guarantor Name (Note 2) enterprise the period reporting date period endorsements statements endorsements subsidiary company China 1 CTBC CTBC Asia 5 379,396 100,000 100,000 - - 1.30 % 3,035,167 Y N N Securities Limited. Co., Ltd.

Note 1Serial number is determined as follows: (1) 0 represents parent company. (2) Subsidiaries are numbered in a sequence of Arabic numerals from 1 based on company category. Note 2The reasons recognized between the securities-industry subsidiaries and endorsees or guarantees are as follow: (1) Overseas subsidiary of securities firm is required to perform underwriting business. (2) Overseas subsidiary issues call (put) warrants overseas. (3) Overseas subsidiary acting as the offshore structured product issuing institution or guarantor sells the products inside the ROC in accordance with the Regulations Governing Offshore Structured Products, and its domestic parent company acts as the general agent. (4) Overseas subsidiary is required for the issuance of corporate bonds. (5) Overseas subsidiary is financed from local financial institutions for the business needs. (6) Endorsements and guarantees between the overseas subsidiaries of securities firms. (7) Others (please indicate the reasons).

(Continued) 536 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Marketable securities held as of December 31, 2018 (the associates of invested subsidiaries and joint controlled organizations are excluded): Not applicable to bank, securities, and insurance subsidiaries; others:

Unit: In Thousands of New Taiwan Dollars/ Thousands of Shares Marketable Relationship Ending balance Name of company securities type with the securities Fair value holding securities and name issuer Account Number of shares Carrying amount Shareholding ratio (Note 1) Note CTBC Venture Capital Fusheng Precision Co., - Financial assets 1,500 239,250 5.79 % 239,250 Co., Ltd. Ltd. measured at fair value through profit or loss Others (Note2) - - 3,894,069 - % 3,894,069 CTBC Asset Privately Offered Fund – - - 712,452 - % 712,452 Management Co., Ltd. CVI Credit Value Fund B III CTBC Investments Co., Beneficiary Certificate – Securities 1,806 19,879 - % 19,879 Ltd. CTBC Hwa-win Money investment trust Market Fund fund managed by CTBC Investments Co., Ltd. Beneficiary Certificate – - 204 1,986 - % 1,986 CTBC Global Short Duration High Yield Bond Fund A Beneficiary Certificate– - 227 3,392 - % 3,392 CTBC Formosa Advantage Fund Beneficiary Certificate– 18 356 - % 356 CTBC China 50 Fund TLG Capital Co., Ltd. Cathay Financial Holding - 1,666 106,124 0.01 % 106,124 Co., Ltd. Preferred Stock (2882A) Union Bank of Taiwan - 4,000 213,600 0.15 % 213,600 (2838A) Formosa Chemicals & - Financial assets 125 13,125 - % 13,125 Fibre Corporation measured at fair value through other comprehensive income Taiwan Mobile - 429 45,689 0.01 % 45,689 Corporation Formosa Plastic - 97 9,797 - % 9,797 Corporation Mega Finance Holding - 1,442 37,420 0.01 % 37,420 Co., Ltd. Far EasTone - 119 9,092 - % 9,092 Telecommunications Co., Ltd. Quanta Computer Co., - 561 29,565 0.01 % 29,565 Ltd. Taiwan Telecom Co., Ltd. - 182 20,566 - % 20,566 Fubon Financial Holding - 92 4,329 - % 4,329 Co., Ltd. Sinopac Financial Holding - 513 5,284 - % 5,284 Co., Ltd.

Note 1Listed/OTC companies are measured at fair value. The net worth for a non-listed/ OTC company is calculated based on the proportion of total stockholders’ equity on hand. The net value of listed/ OTC companies’ preferred shares is based on the liquidation price plus dividends in arrears.

Note 2Those account balances are less than 5% of ending balance.

(Continued) 537 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Accumulative purchases or sales of the same investee's capital stock up to $300,000 or over 10% of paid-in capital:

Unit: In Thousands of New Taiwan Dollars/Thousands Shares Marketable Beginning Acquisition Disposition Ending Acquiring/ securities selling type and Number of Number of Number of Gain/loss Number of company name Account Counterparty Relationship shares Amount shares Amount shares Sell price Book value on disposal shares Amount CTBC Bank securities Investment Xiamen Investment - - - 795,471 - - - - - 761,208 Co., Ltd under equity Jinmeixin under equity method-net Consumer method Finance Co., Ltd.

(v) Acquisition of real estate up to $300,000 or 10% of paid-in capital:

Unit: In Thousands of New Taiwan Dollars Price Previous transfer of related party determination and Relationship supporting Company of Triggering Transaction Status of with the Date of reference Purpose of Other acquisition Property date price payment Counter-party Relationship Owner issuer transfer Amount materials acquisition commitment Taiwan Life Lot No. 26 in The 2,713,716 The price of Continental Non-related Not Not Not - Appraisal Real estate Insurance 3 avenues of subsidiary 1,144,186 Development parties applicable applicable applicable report investment Co., Ltd. Zhongzheng signed the paid by the Corporation district, joint- way of joint Taipei City construction construction contract and and the price the pre-sale of 1,569,530 contract in paid with November, construction 2012, and progress. The gained the total amount ownership in of the May, 2018. contract price has been paid. Land: Lot The 1,793,889 Down Easy Finder Non-related Not Not Not - - Real estate No. 26-5, 26- subsidiary payment: Publishing parties applicable applicable applicable investment in 7 at Jiuzong signed the 30% of the Ltd. accordance Section, contract in transaction with the Neihu November, price Insurance Law District, 2018, 2nd Taipei City; expected to installment: Buidling: gain the 20% of the No.1934~197 ownership in transaction 3, 2615 at February, price Jiuzong 2019. 3rd Section, installment: Neihu 45% of the District, transaction Taipei City price (including 4th 120 parking installment: spaces) 5% of the transaction price CTBC Asset NO. 142, An- April 3, 2018 332,001 332,001 Land Bank of Non-related Not Not Not - Appraisal Real estate Management Kang Road, Taiwan Co., parties applicable applicable applicable report investment Co., Ltd. Nei-Hu Ltd. district, Taipei City (land and building)

(Continued) 538 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(vi) Disposal of real estate up to $300,000 or 10% of paid-in capital:

Units: In Thousands of New Taiwan Dollars

Name of Type of Transaction Acquisition Carrying Transaction Status of Gain on Nature of Purpose of company property date date amount price receipt disposal Counter-party relationship disposal Price reference Other terms Taiwan Life Lot No. 26 in 3The subsidiary November, 1,144,186 1,144,186 Joint - Continental Non-related Joint venture Appraisal None Insurance Co., avenues of signed the 2012 construction Development parties report Ltd. Zhongzheng joint- Corporation district, Taipei construction City contract in November, 2012, and transferred the ownership in May, 2018. Land: Lot No. The subsidiary December 1, 523,182 851,580 Fully 328,398 Individual Non-related Real estate Appraisal None 20, Wenshang signed the 2010 recovered as of parties investment in report Section, Situn contract in February, 2019 accordance District, November, with the Taichung City 2018, expected Insurance Law to transfer the ownership in January, 2019.

(vii) Discount on commission fees for transaction with related parties up to $5,000: None.

(viii) Receivables from related parties up to $300,000 or over 10% of paid-in capital:

(In Thousands of New Taiwan Dollars) Subsequent Account receivable Balance due from Turnover Overdue from related party collections provision for creditor Counterparty Relationship related party rate Amount Disposal from related party bad debts CTBC Bank Co., Ltd. Taiwan Life Controlled by the 440,987 - % - - Fully recovered - Insurance Co., Ltd. same company as CTBC Bank Co., Ltd.

(ix) Financial derivative transactions: Not applicable to bank subsidiaries; others: Please refer to Note 6(av).

(x) Information on NPL disposal transaction:

1) Summary table of NPL disposal:

Unit: In Thousands of JPY Gains (losses) Trade date Counterparty Debt component Book value Sale price on disposal Additional term Relationship March 15, 2018 I.R Servicing, Ltd Non-secured loan JPY 190,284 JPY 184,608 JPY (5,676)None Non-related party May 25, 2018 Millennium Servicing, Secured loan JPY 12,277 JPY 12,280 JPY 3 None Non-related party Ltd May 25, 2018 Aozora Servicing, Ltd Secured loan JPY 13,274 JPY 13,274 JPY - None Non-related party May 25, 2018 Astry Servicing, Ltd Secured loan JPY 12,604 JPY 9,542 JPY (3,062)None Non-related party May 25, 2018 Abilio Servicer Co., Ltd Secured loan JPY 29,739 JPY 29,739 JPY - None Non-related party May 25, 2018 Yamada-Servicer.co.jp Secured loan JPY 13,143 JPY 13,143 JPY - None Non-related party November 30, 2018 Aozora Servicing, Ltd Secured loan JPY 3,253 JPY 1,342 JPY (1,910)None Non-related party November 30, 2018 Abilio Servicer Co., Ltd Secured loan JPY 34,946 JPY 40,288 JPY 5,342 None Non-related party November 30, 2018 Millennium Servicing, Secured loan JPY 11,000 JPY 11,000 JPY - None Non-related party Ltd November 30, 2018 Yamada-Servicer.co.jp Secured loan JPY 39,032 JPY 47,298 JPY 8,266 None Non-related party December 10, 2018 Japan Collection Service Non-secured loan JPY 231,236 JPY 42,150 JPY (189,086)None Non-related party Co., Ltd. December 26, 2018 Aozora Bank, Ltd Secured loan JPY 193,116 JPY 497,324 JPY 304,208 None Non-related party

2) Disposal of a single batch of NPL up to $1,000,000 and information on each transaction: None.

(xi) Types of securitization instruments approved to be issued pursuant to financial assets securitization rules or real estate securitization rules and other relevant information: None.

(Continued) 539 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(xii) Business relationships and material transaction between the parent company and subsidiaries:

Unit: In Thousands of New Taiwan Dollars Transaction status for the year ended December 31, 2018 Percentage of consolidated net No. revenue or consolidated (Note) Party Counterparty Relationship Account Amount Terms total assets 0 CTBC Financial CTBC Bank Co., Ltd. Parent company Cash and cash 148,137 The terms of loans between -% Holding Co., Ltd. to subsidiary equivalents / related and non-related Deposits and parties are identical. remittances 1 CTBC Bank Co., CTBC Securities Co., Subsidiary to Deposits and 300,000 0.01% Ltd. Ltd. subsidiary remittances / Other asset Deposits and 756,000 0.01% remittances / Other financial asset Deposits and 882,566 0.02% remittances / Cash and cash equivalents CTBC Investments Co., 411,186 0.01% Ltd. Taiwan Lottery Co., Ltd. 676,307 0.01% Payables / 101,266 -% Receivables Other general and 1,148,885 0.37% administrative expenses / Service income CTBC Securities Venture Deposits and 298,642 The terms of loans between 0.01% Capital Co., Ltd. remittances / related and non-related Cash and cash parties are identical. equivalents Taiwan Life Insurance 14,802,796 0.26% Co., Ltd. Receivables / 605,902 0.01% Payables Service fee and 5,008,415 1.59% commission income / Service fee and commission expenses Net other non- 142,148 0.05% interest incomes / Other general and administrative expenses Other general and 101,161 0.03% administrative expenses / Net other non-interest incomes CTBC Capital Corp. Subsidiary to Cash and cash 6,105,740 0.11% sub-subsidiary equivalents / Deposits and remittances The Tokyo Star Bank, Ltd. Due from Central 6,146,600 0.11% Bank and call loans to bank / Deposits from Central Bank and other banks CTBC Bank (Philippines) 2,335,708 0.04% Corp. Loans / Due to 2,304,975 0.04% Central Bank and other banks PT Bank CTBC Indonesia 1,444,451 0.03% CTBC Asia Limited. Deposits and 186,063 -% remittances / Cash and cash equivalents

(Continued) 540 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Transaction status for the year ended December 31, 2018 Percentage of consolidated net No. revenue or consolidated (Note) Party Counterparty Relationship Account Amount Terms total assets 2 Taiwan Life CTBC Investments Co., Subsidiary to Service fee and 105,913 The terms of loans between 0.03% Insurance Co., Ltd. Ltd. sub-subsidiary commission related and non-related expenses / service parties are identical. fee and commission income Service fee and 222,866 0.07% commission income / service fee and commission expenses

Note: Serial number is determined as follows:

1. 0 represents parent company.

2. Subsidiaries are numbered in a sequence of Arabic numerals from 1 based on company category.

(xiii) Other significant transactions that may have substantial influence upon the decisions made by financial report users: None.

(b) Related information on reinvestment:

The following is the information on investees for the year ended December 31, 2018 (excluding information on investees in Mainland China):

(Unit: In Thousands of New Taiwan Dollars/Thousands Shares) Aggregate shareholding of the Company and subsidiaries Name of Main Investment Number of Total investee business Shareholding Carrying gain(loss) Number of pro forma Number of Shareholding company Address scope ratio amount recognized shares shares shares ratio Note CTBC Bank No.166, 168, 170, Commercial banking 100.00% 293,231,154 29,739,149 14,068,572 - 14,068,572 100.00% The investment has Co., Ltd.. 186, 188 Jingmao and financing been eliminated 2nd Road, Taipei business when preparing the consolidated financial statements. CTBC Securities 3F., No.168, Jingmao Securities and futures 100.00% 7,562,744 255,216 602,714 - 602,714 100.00% " Co., Ltd. 2nd Road,Taipei business CTBC Venture 21F., No.168, Venture capital 100.00% 3,612,411 55,133 324,517 - 324,517 100.00% " Capital Co., Ltd. Jingmao 2nd investment Road,Taipei CTBC Asset 19F., No.168, Asset management 100.00% 5,432,932 104,449 535,882 - 535,882 100.00% " Management Jingmao 2nd business Co., Ltd. Road,Taipei CTBC Security 5F., No.188, Jingmao Protection, fire and 100.00% 58,706 5,865 4,770 - 4,770 100.00% Co., Ltd. 2nd Road,Taipei life safety services Taiwan Lottery 15F., No.188, Operate the public 100.00% 763,303 128,438 50,000 - 50,000 100.00% The investment has Co., Ltd. Jingmao 2nd welfare lottery for been eliminated Road,Taipei the issuing, sale, when preparing the promotion, drawing, consolidated payment of prize financial and management statements. CTBC 12F., No.188, Investment and trust 100.00% 662,532 (17,958) 42,500 - 42,500 100.00% " Investments Jingmao 2nd business Co.,Ltd. Road,Taipei Taiwan Life 8F., No.188, Jingmao Insurance business 100.00% 61,120,569 8,598,255 4,179,113 - 4,179,113 100.00% " Insurance Co., 2nd Road,Taipei Ltd. CTBC Bank 16th to 19th Floors, Commercial banking 99.60% 4,513,216 135,791 246,496 - 246,496 99.60% " (Philippines) Fort Legend and financing Corp. Towers 31st Street business corner 3rd Avenue Bonifacio Global City, Taguig City, 1634 Philippines PT Bank CTBC Tamara Center, Commercial banking 99.00% 5,827,643 204,845 1 - 1 99.00% " Indonesia 15th~17th F1, JI and financing Jenderal Sudirman business Kev. 24 Jakarta 12920 Indonesia CTBC Bank 1518 West Broadway, Commercial banking 100.00% 1,488,940 112,390 2,746 - 2,746 100.00% " Corp. (Canada) Vancouver, and financing B.C., Canada, business V6J1W8

(Continued) 541 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Aggregate shareholding of the Company and subsidiaries Name of Main Investment Number of Total investee business Shareholding Carrying gain(loss) Number of pro forma Number of Shareholding company Address scope ratio amount recognized shares shares shares ratio Note CTBC Capital 801 S. Figueroa Investment business 100.00% 15,474,440 1,146,974 6 - 6 100.00% The investment has Corp. Street, Suite 2300, been eliminated Los Angeles, CA when preparing the 90017, USA consolidated financial statements. Grand Bills 11F., No. 560, Sec. 4, Proprietary trading of 21.15% 1,975,668 120,323 114,399 - 114,399 21.15% Finance Jhongsiao E. short-term bills and Corporation Rd.,Taipei securities CTBC Bank 801 S. Figueroa Commercial banking 100.00% 14,714,390 1,175,565 Common shares- - Common shares- 100.00% The investment has Corp. (USA) Street, Suite 2300, and financing 3 3 been eliminated Los Angeles, CA business Preferred shares- Preferred shares- when preparing the 90017, USA 100 100 consolidated financial statements. The Tokyo Star 2-3-5 Akasaka, Commercial banking 100.00% 42,605,384 2,458,132 700 - 700 100.00% " Bank, Ltd. Minato-Ku, Tokyo, and financing 107-8480, Japan business Tokyo Star 2-7-1,Nishi Shinjuku, Financing and 100.00% 3,203,179 51,370 1,936 - 1,936 100.00% " Business Shinjuku,Tokyo assurance business Finance, Ltd. TSB Servicer, 2-2-17,Akasaka, Debts management 100.00% 568,053 35,987 - - - 100.00% " Ltd. Minato,Tokyo business CTBC 3rd Floor,Raffles Holding company 100.00% 205,791 (11,348) 17,363 - 17,363 100.00% "(Note 1) (Mauritius) Tower,19 Cybercity Holding Co., Ebene ,Republic of Ltd. Mauritius. CTBC Securities 14F., No.188, Security investment 100.00% 50,079 (465) 5,000 - 5,000 100.00% " Investment Jingmao 2nd consultant company Service Co., Ltd.Road,Taipei CTBC Securities 14F., No.188, Venture capital 100.00% 298,739 (1,261) 30,000 - 30,000 100.00% " Venture Capital Jingmao 2nd investment company Co., Ltd. Road,Taipei CTBC Asia Suite 2809, 28F., Two Securities company 100.00% 203,570 (11,327) 134,526 - 134,526 100.00% The investment has Limited International been eliminated Finance Centre, 8 when preparing the Finance Street, consolidated Central, financial Hong Kong statements. CTBC Capital Romm 511, 5F, Holding company 100.00% 24,073 947 2,060 - 2,060 100.00% " International Tower 1 Silvercord Co., Limited Centre No.30 Canton Road Tsim Sha Tsui, Hong Kong CTBC Romm 511, 5F, Holding company 100.00% 1,432,146 36,101 70,000 - 70,000 100.00% " International Tower 1 Silvercord Co., Limited Centre No.30 Canton Road Tsim Sha Tsui, HongKong CTCB Venture 12F., No.1386 Venture capital 100.00% 24,500 1,573 - - - 100.00% "(Note 2) Capital Wenguang Building, management and Investment Hongqiao Road, consulting Management Changning District, (Shanghai) Co., Shanghai Ltd. CTBC Leasing 12F., No.1386 Financial leasing 100.00% 1,406,583 36,350 - - - 100.00% " Co., Ltd. Wenguang Building, Hongqiao Road, Changning District, Shanghai TLG Insurance 18F-1, No.17, Property insurance 100.00% 1,714,729 49,168 200,000 - 200,000 100.00% " Co., Ltd. Xuchang St., business Zhongzheng Dist., Taipei City, Taiwan TLG Capital 17F., No.17, Xuchang Installment, leasing 100.00% 965,263 119,750 77,187 - 77,187 100.00% " Co., Ltd. St., Zhongzheng Dist., and account Taipei City, receivable factoring Taiwan business, etc. King Dragon 27F., Xiamen Lixin Insurance business 50.00% 519,564 (133,703) 350,000 - 350,000 50.00% Life Insurance Square Lake Road Company No. 90 in Fujian Province Top Taiwan IX 8F., No.99, Sec.1, Venture Capital 25.00% 204,924 (11,227) 20,000 - 20,000 25.00% Venture Capital Xinsheng S. Rd., Da Investment Co., Ltd. an Dist., Taipei City, Taiwan AZ-Star Co., 3-2-7, Kudan-minami, Fund management 40.00% 20,511 59,510 - - - 40.00% Ltd. Chiyodaku,Tokyo business

(Continued) 542 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 1: The carrying amount includes accumulated impairment loss amounted to $20,629.

Note 2: Liquidating.

(i) Related information on investee companies in Mainland China:

Unit: In Thousands of New Taiwan Dollars/US Dollars/Chinese Yuan Accumulated Investment flows Accumulated outflow of outflow of Investment gains Accumulated Name of investee Method of investment from investment from (losses) by an Percentage of Investment Book value as of inward remittance company in Mainland Total amount investment Taiwan as of Taiwan as of investee ownership for direct or gains (losses) December 31, of earnings as of China Main businesses of paid-in capital (Note 1) January 1, 2018 Outflow Inflow December 31, 2018 (Note 2) indirect investment (Note 2) 2018 December 31, 2018 CTBC Bank Co., Ltd., Commercial 6,194,068 (3) 6,194,068 - - 6,194,068 (17,438)A branch in Shanghai; (17,438) 6,757,711 None Shanghai Branch banking USD 206,045 USD 206,045 USD 206,045 CNY (5,366)not an investee CTBC Bank Co., Ltd., " 4,114,056 (3) 4,114,056 - - 4,114,056 419,088 A branch in 419,088 4,378,518 None Guangzhou Branch USD 130,531 USD 130,531 USD 130,531 CNY 91,410 Guangzhou; not an investee CTBC Bank Co., Ltd., " 4,081,960 (3) 4,081,960 - - 4,081,960 195,096 A branch in Xiamen; 195,096 3,906,398 None Xiamen Branch CNY 800,000 CNY 800,000 CNY 800,000 CNY 42,642 not an investee CTBC Bank Co., Ltd. " 1,351,890 (3) - 1,351,890 - 1,351,890 - A branch in - 1,351,890 None Shenzhen Branch CNY 100,000 CNY 100,000 CNY 100,000 Shenzhen founded on USD 29,395 USD 29,395 USD 29,395 January 9, 2019; not an investee Xiamen Jinmeixin Financing business 795,471 (1) - 795,471 - 795,471 1,341 34.00% 456 761,208 None Consumer Finance Co., CNY 170,000 CNY 170,000 CNY 170,000 CNY 301 Ltd. CTBC Leasing Co., Financial leasing 2,071,728 (2) 2,071,728 - - 2,071,728 36,350 100.00% 36,350 1,406,583 None Ltd. CNY 433,802 CNY 433,802 CNY 433,802 CNY 7,980 CTBC Venture Capital Venture capital 58,612 (2) 58,612 - - 58,612 1,573 100.00% 1,573 24,500 None Investment management CNY 12,578 CNY 12,578 CNY 12,578 CNY 345 Management and consulting (Shanghai) Co., Ltd. King Dragon Life Life insurance 3,529,890 (1) 1,646,486 - - 1,646,486 (267,406) 50.00% (133,703) 519,564 None Insurance Co., Ltd. business CNY 700,000 CNY 350,000 CNY 350,000 CNY 58,974

(Continued) 543 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Note 1: Three methods of investment are as below:

1. Invest in Mainland China companies directly.

2. Re-invest in Mainland China companies through another investee in a third area. (The investees in the third area are as follows: CTBC International Co., Limited and CTBC Capital International Co., Limited)

3. Other method: set up new overseas branches.

Note 2: For the column of “Investment gains (losses)”:

1. If the company is still in the preparation process, and does not have any investment gain or loss, please specify.

2. The bases for recognition of investment income or loss.

a. The audited financial reports that are issued by an international accounting firm which is connected to an accounting firm in Taiwan: CTBC Leasing Co., Ltd., CTBC Venture Capital Investment Management (Shanghai) Co., Ltd. and King Dragon Life Insurance Co., Ltd.

b. The audited financial reports that are issued by the Taiwanese parent company’s designated accounting firm: None.

c. Others: CTBC Bank Co., Ltd. Shanghai Branch, CTBC Bank Co., Ltd. Guangzhou Branch and CTBC Bank Co,. Ltd. Xiamen Branch.

3. Please specify if information regarding current gains or losses of an investee is not accessible.

(ii) Upper limit on investment in Mainland China:

Unit: In Thousands of New Taiwan Dollars/US Dollars/Chinese Yuan Accumulated outflow of investment Investment amounts authorized Upper limit on investment from Taiwan to Mainland China as of by Investment Commission, authorized by Investment Name of investor company December 31, 2018 MOEA Commission, MOEA CTBC Bank Co., Ltd. 16,537,445 16,701,014 177,488,934 (USD 365,971 ) (CNY 3,370,000 ) (CNY 1,070,000 ) CTBC Asset Management Co., Ltd. 2,071,728 2,071,728 3,233,985 (CNY 433,802 ) (CNY 433,802 ) (CNY 728,408 ) CTBC Venture Capital Co., Ltd. 58,612 58,612 2,167,447 (CNY 12,578 ) (CNY 12,578 ) (CNY 484,324 ) Taiwan Life Insurance Co., Ltd. 1,646,486 1,646,486 39,187,662 (USD 26,724 ) (USD 26,724 ) (CNY 170,000 ) (CNY 170,000 )

(iii) Significant transactions with investee companies in Mainland China: None

(Continued) 544 CTBC FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(14) Segment Information:

The Company and subsidiaries provide their chief operating decision maker with necessary information according to the characteristics of the business, to facilitate the assessment of performance and allocation of operational resources. The disclosures of assets, profits and losses are the same as the summary of significant accounting policies described in Note 4.

According to IFRS 8 “Operating Segments”, reportable segments are as follows:

The major operating activities of Institutional Banking are commercial banking and capital market activities which provide clients with flexible and tailor-made financing services and the design, supply, and propriety trading of various financial products.

The major operating activity of Retail Banking is providing target clients with relevant financial services, including wealth management, credit cards, secured loans, and unsecured individual loans, etc.

The major operating activity of Life Insurance is providing various sorts of life insurance services.

The major operating activities of other segments are investing and general administration. As of December 31, 2018 and 2017, the above operating segments did not meet the criteria for reportable segments when applying quantitative thresholds.

(a) Segment information:

For the year ended December 31, Consolidated Consolidated retail Adjustments and 2018 institutional banking banking Insurance Others eliminations Total Net interest income $ 32,649,395 19,731,878 49,398,129 495,519 - 102,274,921 Net non-interest income 17,887,079 22,767,500 168,016,377 5,021,666 (1,592,952) 212,099,670 Net revenue 50,536,474 42,499,378 217,414,506 5,517,185 (1,592,952) 314,374,591 Net Income (loss) before Tax $ 20,408,351 18,145,786 7,506,427 (3,671,065) - 42,389,499

Total assets $ 2,919,712,453 975,650,565 1,768,270,622 109,170,664 (19,556,758) 5,753,247,546

For the year ended December 31, Consolidated Consolidated retail Adjustments and 2017 institutional banking banking Insurance Others eliminations Total Net interest income $ 30,861,263 17,096,076 43,356,792 291,035 - 91,605,166 Net non-interest income 15,528,438 24,239,163 213,746,073 6,554,497 (1,909,680) 258,158,491 Net revenue 46,389,701 41,335,239 257,102,865 6,845,532 (1,909,680) 349,763,657 Net Income (loss) before Tax $ 18,562,997 17,805,028 11,177,926 (2,819,656) - 44,726,295

Total assets $ 2,817,813,347 880,106,889 1,547,734,806 133,273,247 (38,194,745) 5,340,733,544

(b) Geographic segment information:

The Company and subsidiaries are classified by the geographic locations of overseas operating segments, and the geographic segment information is as below:

Net revenue:

For the years ended December 31 Area 2018 2017 Taiwan $ 281,806,709 319,474,519 Asia 27,746,148 25,833,332 North America 4,821,734 4,455,806 Total $ 314,374,591 349,763,657

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

Non-current assets:

For the years ended December 31 Area 2018 2017 Taiwan $ 173,159,765 163,701,273 Asia 19,984,583 15,318,235 North America 2,332,268 2,278,783 Total $ 195,476,616 181,298,291

No individual customer of the Company and subsidiaries accounted for 10% or more of the Company and subsidiaries’ revenues in the statements of income.

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