Bank SinoPac and Subsidiaries Consolidated Financial Statements for the Six Months Ended June 30, 2017 and 2016 and Independent Auditors’ Report INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Bank SinoPac Opinion We have audited the accompanying financial statements of Bank SinoPac and its subsidiaries (collectively referred to as the Group), which comprise the consolidated balance sheets as of June 30, 2017, December 31, 2016 and June 30, 2016, and the related consolidated statements of comprehensive income for the three months ended June 30, 2017 and 2016, six months ended June 30, 2017 and 2016, and changes in equity and cash flows for the six months ended June 30, 2017 and 2016, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of June 30, 2017, December 31, 2016 and June 30, 2016, and its consolidated financial performance for the three months ended June 30, 2017 and 2016, and their consolidated financial performance and cash flows for the six months ended June 30, 2017 and 2016 in conformity with the Regulations Governing the Preparation of Financial Reports by Public Banks, the guidelines issued by the authority, and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with Regulations Governing Auditing and Attestation of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the six months ended June 30, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. - 1 - Key audit matters for the Group’s consolidated financial statements for the six months ended June 30, 2017 are stated as follows: Allowance for Loans and Receivables As detailed in Note 5 to the accompanying consolidated financial statements, to assess collectively the impairment of discounts, loans and receivables, management makes judgments on whether there are any observable indications of the impairment. Management then estimates expected future cash flows and assesses impairment loss based on historical loss for a portfolio of assets with similar credit risk characteristics and objective evidence of impairment. The methodology and assumptions used for estimating objective evidence of impairment and the amount and timing of future cash flows, such as the portfolio for the impairment occurrence rate, and recovery rate, are critical judgments and estimates; therefore, the provision of the allowance for loans and receivables is identified as a key audit matter for the six months ended June 30, 2017. Refer to Notes 4, 5 and 46 to the accompanying consolidated financial statements for the relevant accounting policies, judgments for estimations, estimation uncertainty and other related disclosures of the allowance for loans and receivables. Our key audit procedures performed in respect of the above area included the following: We understood and assessed management’s methodology, assumptions and inputs used in the impairment model to verify whether they appropriately reflected the actual outcome. We assessed the consistency of the effective interest rate, the impairment occurrence rate, recovery rate, etc. used in estimating expected future cash flows and evaluating collateral values. We performed sampling on loans and receivable cases to verify their completeness and calculation accuracy. Finally, we considered related guidelines issued by the authorities and examined whether the provision of the allowance for loans and receivables complied with the related regulation. Impairment of Goodwill As detailed in Note 5 to the accompanying consolidated financial statements, in determining the impairment of goodwill, management estimates the future cash flows expected to arise from the cash-generating unit and decides on a discount rate for calculating the present value of these cash flows to evaluate the fair value of the cash-generating units which have been allocated to goodwill. The inputs, assumptions and expected growth rate used for estimating the expected future cash flows and used in the impairment model are critical judgments and estimates; therefore, the impairment of goodwill is identified as a key audit matter for the six months ended June 30, 2017. Refer to Notes 4, 5 and 19 to the accompanying consolidated financial statements for the relevant accounting policies, judgments for estimations, estimation uncertainty and other related disclosures of the impairment of goodwill. Our key audit procedures performed in respect of the above area included the following: The audit procedures we performed in response to the key audit matter including accessing possibility of impairment. If any impairment indication exists, the recoverable amount of the goodwill is estimated. Other Matter We have also audited the parent company only financial statements if Bank SinoPac as of and for the six months ended June 30, 2017 and 2016 on which we have issued an unmodified opinion. - 2 - Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, the guidelines issued by the authority, and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant