Cosmos Bank, Taiwan Financial Statements for the Years Ended December 31, 2007 and 2006 and Independent Auditors’ Report INDEPENDENT AUDITORS’ REPORT The Board of Directors and Stockholders Cosmos Bank, Taiwan We have audited the accompanying balance sheets of Cosmos Bank, Taiwan as of December 31, 2007 and 2006, and the related statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As stated in Note 15 to the financial statements, the Bank signed individual contracts with asset management companies between 2002 and 2006 to sell nonperforming loans. Based on the Law Governing Mergers of Financial Institutions, the losses on these sales were amortized using the straight-line method over 60 months. The unamortized balance was recorded as deferred loss on the sale of nonperforming loans. Had these losses not been deferred, the carrying values of the losses as of December 31, 2007 and 2006 would have decreased by NT$23,012,779 thousand and NT$32,712,701 thousand, respectively, and retained earnings would have decreased by NT$17,259,584 thousand and NT$24,534,526 thousand, respectively. In addition, the loss after tax would have decreased by $7,204,376 thousand in 2007 and increased by NT$10,478,372 thousand in 2006. In our opinion, except for the effects of the deferred loss on the sale of the nonperforming loans mentioned in the third paragraph, the financial statements referred to above present fairly in all material respects, the financial position of Cosmos Bank, Taiwan as of December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Public Banks, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. - 1 - As stated in Note 3 to the financial statements, Cosmos Bank, Taiwan adopted on January 1, 2006 the newly released Statements of Financial Accounting Standards (“Statements” or SFAS) No. 34 - “Accounting for Financial Instruments” and No. 36 - “Disclosure and Presentation of Financial Instruments” and related revisions of previously released Statements. The Bank also adopted, effective January 1, 2006, the newly revised SFAS No. 25 - “Business Combinations - Accounting Treatment under the Purchase Method,” which provided that goodwill should no longer be amortized and that goodwill should be assessed for impairment periodically. Cosmos Bank, Taiwan began applying SFAS No. 35 - “Accounting for Asset Impairment” on January 1, 2005. March 25, 2008 Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail. - 2 - COSMOS BANK, TAIWAN BALANCE SHEETS DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Par Value) Percentage Percentage Increase Increase 2007 2006 (Decrease) 2007 2006 (Decrease) ASSETS Amount Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount Amount % CASH AND CASH EQUIVALENTS (Note 4) $ 3,009,940 $ 5,618,763 (46 ) DUE TO THE CENTRAL BANK AND OTHER BANKS (Note 16) $ 32,157,167 $ 19,677,269 63 DUE FROM THE CENTRAL BANK AND CALL LOANS TO BANKS (Notes 5 and 27) 40,553,922 34,285,795 18 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 3 and 6) 15,366 31,214 (51 ) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 3, 6 and 17) 195,503 4,223,017 (95 ) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (Notes 2, 17 and 26) 40,920 2,160,839 (98 ) RECEIVABLES, NET (Notes 2, 7 and 27) 6,504,729 7,055,771 (8 ) PAYABLES (Notes 18 and 26) 4,502,347 5,711,646 (21 ) ASSET HELD FOR SALE (Notes 2 and 8) 212,941 - - DEPOSITS AND REMITTANCES (Notes 19 and 26) 131,126,060 191,104,604 (31 ) DISCOUNTS AND LOANS, NET (Notes 2, 9 and 26) 113,651,805 130,593,007 (13 ) BANK DEBENTURES (Notes 2 and 20) 515,000 13,167,163 (96 ) AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 2, 3, 10, 17 and 27) 648,440 1,894,082 (66 ) ACCRUED PENSION LIABILITIES (Notes 2 and 21) 1,053,269 6,041 17,335 EQUITY INVESTMENTS UNDER THE EQUITY METHOD (Notes 2, 3, 11 and 12) 42,749 37,481 14 OTHER FINANCIAL LIABILITIES (Notes 2 and 20) 3,058,197 318,056 862 OTHER FINANCIAL ASSETS, NET (Notes 2, 12 and 27) 1,887,056 12,278,073 (85 ) OTHER LIABILITIES (Note 2) 460,243 620,992 (26 ) FIXED ASSETS (Notes 2 and 13) Total liabilities 172,928,569 232,797,824 (26 ) Cost Land 4,288,952 4,553,582 (6 ) CAPITAL STOCK (NT$10 PAR VALUE; AUTHORIZED: 2007 - 20,000,000 Buildings 2,774,061 2,848,599 (3 ) THOUSAND SHARES; 2006 - 2,500,000 THOUSAND SHARES) Machinery and equipment 1,643,276 1,675,701 (2 ) Common stock (issued and outstanding: 2007 - 6,786,650 thousand shares; Transportation and communications equipment 268,888 281,241 (4 ) 2006 - 1,967,780 thousand shares) 67,866,500 19,677,795 245 Miscellaneous equipment 381,935 401,254 (5 ) Preferred stock (issued and outstanding: 1,650,000 thousand shares) 16,500,000 - - Total cost 9,357,112 9,760,377 (4 ) Accumulated depreciation (2,108,586 ) (1,792,988 ) 18 Total capital stock 84,366,500 19,677,795 329 Accumulated impairment (436,590 ) (176,728 ) 147 6,811,936 7,790,661 (13 ) CAPITAL SURPLUS Construction in progress and prepayments for equipment 35,260 41,511 (15 ) Additional paid-in capital - 927,567 (100 ) Treasury stock transactions - 2,245 (100 ) Net fixed assets 6,847,196 7,832,172 (13 ) Others 15,831,910 12,712 124,443 INTANGIBLE ASSETS (Notes 2, 3, 13 and 26) Total capital surplus 15,831,910 942,524 1,580 Goodwill 327,053 409,776 (20 ) Computer software 62,892 62,243 1 RETAINED EARNINGS (ACCUMULATED DEFICIT) Legal reserve - 777,389 (100 ) Total intangible assets 389,945 472,019 (17 ) Special reserve - 1,813,493 (100 ) Accumulated deficit (67,902,864 ) (11,286,541 ) 502 OTHER ASSETS Refundable deposits, net (Notes 26 and 28) 2,184,800 2,796,110 (22 ) Total accumulated deficit (67,902,864 ) (8,695,659 ) 681 Foreclosed collaterals, net (Notes 2 and 14) 413,880 164,159 152 Deferred loss on the sale of nonperforming loans (Notes 2 and 15) 23,012,779 32,712,701 (30 ) OTHERS Deferred income tax assets, net (Notes 2 and 24) 4,799,212 3,813,426 26 Unrealized gains (losses) on financial instruments 2,978 (30,663 ) 110 Others, net (Notes 2, 13 and 26) 872,196 915,245 (5 ) Total stockholders' equity 32,298,524 11,893,997 172 Total other assets, net 31,282,867 40,401,641 (23 ) TOTAL $ 205,227,093 $ 244,691,821 (16 ) TOTAL $ 205,227,093 $ 244,691,821 (16 ) The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 25, 2008) - 3 - COSMOS BANK, TAIWAN STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2007 AND 2006 (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share) Percentage Increase 2007 2006 (Decrease) Amount Amount % INTEREST REVENUE (Notes 2 and 26) $ 12,066,082 $ 14,555,747 (17 ) INTEREST EXPENSE (Note 26) (4,214,379 ) (4,362,795 ) (3 ) NET INTEREST 7,851,703 10,192,952 (23 ) NET REVENUES (LOSSES) OTHER THAN INTEREST Service fee income, net (Note 2) 1,160,967 1,208,227 (4 ) Gains on financial assets and liabilities at fair value through profit or loss (Notes 2, 3 and 6) 96,883 447,637 (78 ) Realized gains (losses) on the sale of available-for-sale financial assets (Notes 2 and 22) (29,330 ) 461 (6,462 ) Income from equity investments under the equity method (Notes 2 and 11) 5,268 54,395 (90 ) Foreign exchange gains, net (Note 2) 79,212 43,610 82 Loss on asset impairment (Notes 2, 8, 11, 12, 13, 14, 26 and 28) (1,000,227 ) (934,317 ) 7 Realized gains on the sale of debt instruments with no active market (Note 2) (796,170 ) - - Amortization of loss on the sale of nonperforming loans (Notes 2 and 15) (9,605,835 ) (6,911,364 ) 39 Other noninterest losses (Notes 2 and 12) (126,224 ) (133,045 ) (5