Code: 5830 web page: www.cotabank.com.tw Taiwan Stock Exchange M.O.P.S web page: mops.twse.com.tw ANNUAL REPORT 2018 COTA COMMERCIAL BANK ANNUAL REPORT 2018 Contents 2018 1 To Our Shareholders 001 2 Corporate Profile 007 3 Corporate Governance 009 4 Capital Arrangement 051 5 Business Operation 059 6 Financial Status 077 7 Financial Status Analysis, Operation Performance 171 Analysis and Risk Management 8 Special Notes 185 * Chronological Highlights 186 * Head Office and Branches 188 To Our Shareholders 1 Annual Report 2018 Annual Report 2018 001 1 To Our Shareholders 1-1. Year 2018 Business Report 1-1-1. Financial Environment According to the International Monetary Fund (IMF), the global economic growth rate was 3.6% in 2018, primarily affected by the global manufacturing and trade recovery in 2017, with the weakening of investors’ confidence in the global economic outlook, the trade war, the weak economic growth in Europe, and the possible impact of the Brexit without agreement, the global economic growth rate is estimated 3.5% in 2019, meanwhile, is the lowest increase within three years. The global expansion of the economy has shown an unbalanced development and it has affected its growth momentum as the downside risks are realized one by one under the influence of the rising trade conflict between China and USA and the amplification of international financial market unpredictability. This shows that the USA economy is strong, but the growth of advanced economies such as Europe and Japan is not as expected, and the Chinese economy has further slowed down under the impact of the trade war. In terms of the domestic financial market, according to the information of the General Office of the Executive Yuan, the economic growth rate of domestic was 2.60% in 2018. Due to the stable global warming and the application of emerging technologies, the market conditions of semiconductors and the demand for machinery are heating up, to promote domestic export momentum. In addition, the government actively removes investment barriers and implements industrial innovation plans. Due to trade disputes and slowing of China demand, the effect of the US tax reduction policy has diminished and the global financial situation has tightened in 2019. Looking forward, the financial fragility is rising of some emerging market economies. The monetary policy of central banks will also affect directionally its financial stability in major economies. The development of relevant international economic and financial situations is still the focus of current financial markets. COTA will adopt a mobile business strategy and be cautious in responding to the ever-changing business environment 1-1-2. Organization Development None 1-1-3. Business Plans and Strategies Performance 1-1-3-1. Main Achievements • ATM cardless withdrawal service lunched. • Foreign exchange B2B banking launched. • “AML/ Compliance Backlists Database Compliance Link System” upgraded. • Mobile Internet Banking added the “Fingerprint Identification and Face Recognition Login” service. • “Taiwan Pay QR Code scanning transfer, payment and consumption deduction” service lunched. • "Electronic Payment Tax Processing Platform" medical referral action app payment platform service and financial institution collection mode lunched. 1-1-3-2. Budget Execution As of Dec. 31, 2018, our deposits balance with sum of TWD149.6 billion (excluding deposits from banks) increased by TWD5.3 billion compared with previous year; our loans balance with sum of TWD116.7 billion was flat compared to the previous year.COTA would be committed to provide diversified products to satisfy the requirement of the customer, strengthen the Fintech services, expansion e-banking services, to develop new financial products, to achieve better structure of quality between deposits and loans and higher multi-source income. 002 Annual Report 2018 003 1 To Our Shareholders To Main business budget executions reported as follows: • Final account of average deposits balance amounted to TWD146.2 billion, achieved 100.83% budgeting goal of TWD145 billion. • Final account of average loans balance amounted to TWD116.3 billion, achieved 98.56% budgeting goal of TWD118 billion. • Final account of trust assets balance amounted TWD5.18 billion, achieved 110.92% budgeting goal of TWD4.67 billion. 1-1-3-3. Financial Structure and Profitability Our year 2018 solo earnings before income-tax figured as TWD899,537 thousand turned into EPS before income-tax as TWD1.11, consolidated earnings before income-tax figured as TWD899,537 thousand turned into EPS before income-tax as TWD1.11. While earning after income-tax figured as TWD753,611 thousand, turned into EPS after income-tax as TWD0.93. Our BIS ratio maintained at a level of 12.91% and net worth of per share stood at TWD13.41.Our non-performing loan coverage ratio to 295.71%. Overdue loan ratio decreased to 0.50%. Nevertheless, we would constant improve business effectiveness and risk control to boost operation capability and competitive edge. 1-1-3-4. Research and Development To keep in line with critical issues of international and domestic political and economic environments and demands of banking business expansion, our H.O. departments compiled assorted analyses and reports regarding financial situations, banking business development, industrial insight and tendency periodically or non-periodically. Such analyses and reports would circulate to our staff for reference and application through our electronic official document system to prompt business development. 1-2. Year 2019 Business Plans Outline We have always held the spirit of “Integrity, Innovation, Affability, and Service”, and fulfill compliance and legal affairs on business management. Meanwhile, strive more deeply rooted in corporate culture to satisfy the requirement of the customer and intensify managerial strength. Main business plans are described as follows. 1-2-1. Business Operating Policy 1 • Strengthen the capital structure and intensify managerial strength, achieve the risk management and corporate governance, promote medium-term and long-term risk response ability. • In line with the development of digital banking and financial technology, we will continue to develop and improve the electronic channel service system, expand the digitalization of various business transaction functions, and provide customers with more convenient financial services. • In response to government policies and the advent of an aging society, we actively participate in advocating for the promotion of elderly and mentally handicapped people’s trusts, fulfilling corporate social responsibility and enhancing customer experience. • Continue to strengthen the business practices and professional ethics, legal compliance and risk control mechanisms of financial management personnel to implement the implementation of internal control and auditing systems, and promote the practice of internal control three lines of defense to eliminate possible shortcomings. • Maintain risk-oriented banking management policies and continue to promote the long-term goal of sustainable growth and sustainable operation. • In response to changes in the financial environment, we will strengthen the handling of various operational force test operations, review and correct improvements as appropriate, and promptly formulate response measures and amendments to internal regulations or operating procedures in response to changes in various regulations or business environments, and adjust operations in accordance with market and economic conditions. Strategy to strengthen the competitiveness of the Bank. • Cooperate with the implementation of anti-money laundering and counter-terrorism financing matters, integrate the national risk identification, assessment, and control process system of the Bank, and strengthen blacklist control and inspection. • Continue to strengthen the education and training of the staff, train the seed of the e-finance business to be familiar with the system operation, and strengthen the ability of the branch to market digital financial services. 1-2-2. Business Target 1-2-2-1. Main Operating Volume Unit: TWD thousand: % Increase volume Main Business Budget of Year 2019 Result of Year 2018 Amount % Average deposits 148,500,000 146,192,169 2,307,831 1.58 Average loans 117,700,000 116,268,971 1,431,028 1.23 Wealth management 5,318,800 5,181,439 137,361 2.65 1-2-2-2. Schemed Targets • Continuously improve the function of e-banking, close up to the requirement of customers financial as a goal, improve customer willingness to use and the ration of penetration. • Innovate consumer financial products based on market dynamics, and develop diversified and customized projects with low risk and competitive advantages as the mainstay to increase the added value of various products, expand product services and increase the scale of personal financial loans. • Enhance the pre-existing risk control capabilities of the entire product to enhance asset quality and implement post-event management. Regularly review the operating conditions and asset quality of the consumer finance credit business, adjust the pricing and credit policies of the products at any time, and establish a management framework for the entire product line to ensure Respond to product performance. 004 Annual Report 2018 005 1 To Our Shareholders To • Integrate the Bank’s national risk identification, assessment, and control process systems, and strengthen blacklist control and inspection to strengthen