HNFHC HUA NAN FINANCIAL HOLDINGS CO., LTD. ANNUAL REPORT 2003 1. Hua Nan Financial Holdings Co., Ltd. Address: No. 38, Sec. 1, Chungching South Road, Taipei Telephone: (02)2371-3111 Website: http://www.hnfhc.com.tw 2. Subsidiaries (1)Hua Nan Commercial Bank, Ltd. Address: No. 38, Sec. 1, Chungching South Road, Taipei Telephone: (02)2371-3111 Website:http://www.hncb.com.tw (2)Hua Nan Securities Co., Ltd. Address: No. 5F, 54, Sec. 4, Minsheng East Road, Taipei Telephone: (02)2545-6888 Website: http://www.entrust.com.tw (3) Nua Nan Bills Finance Corp. Address: 10F, No. 188, Nanjing East Road, Sec. 5, Taipei Telephone: (02)2747-2345 Website: http://www.huananbills.com.tw (4) South China Insurance Co., Ltd. Address: 5F, No. 562, Jungshiau East Road, Sec.4, Taipei Telephone: (02)2758-8418 Website: http://www.south-china.com.tw (5) Nua Nan Securities Investment Trust Co., Ltd. Address: 3-1F, No. 54, Minsheng East Road, Sec.4, Taipei Telephone: (02)2719-6888 Website: http://www.hnitc.com.tw 3. Company Spokesman Name: Mao-hsien Liu Position: Executive Vice President Telephone: (02)2371-3111 Ext.2601 4. Securities handling organization Name: Hua Nan Securities Co., Ltd. Address: Address:No. 5F, 54, Sec. 4, Minsheng East Road, Taipei Telephone: (02)2545-6888 5. Financial report auditors Name: Chih-rung Lee, Jih-yen Chang Company: T N Soong & Co. Address: 12F, No. 156, Sec. 3, Minsheng East Road, Taipei Telephone: (02)2545-9988 6. Credit rating agency Name: Taiwan Ratings Corp. Address: 23F, No. 100, Sec. 1, Roosevelt Road, Taipei Telephone: (02)2368-8277 Table of Contents I. Message to Shareholders......................................................................................................... 2 II. State of Company 1. Company Introduction and Background of Subsidiaries ...................................................... 6 2. Brief History of HNFHC’s Subsidiaries................................................................................ 6 3. Company Organization (1) Organization Chart ........................................................................................................11 (2) Board of Directors and Supervisors.............................................................................. 12 (3) Top Management........................................................................................................... 14 (4) Flowchart of HNFHC Group ........................................................................................ 15 4. Capital and Issuance of Domestic Stock (including preferred shares)............................... 16 5. Issuance of Corporate Bonds(including overseas corporate bonds).................................. 16 6. Issuance of Overseas Depository Receipts ......................................................................... 17 III. State of Operations 1. Business Scope of HNFHC ................................................................................................. 18 2. Operations of Subsidiaries and Planned Development of New Financial Product (1) Hua Nan Commercial Bank......................................................................................... 19 (2) Hua Nan Securities Co., Ltd........................................................................................ 24 (3) Hua Nan Bills Finance Corp....................................................................................... 26 (4) South China Insurance Co., Ltd.................................................................................. 27 (5) Hua Nan Investment Trust Co., Ltd............................................................................. 28 3. Market Analysis................................................................................................................... 29 4. Operational Goals and Strategies....................................................................................... 31 5. Staff Background ................................................................................................................. 34 6. Cross-Investment................................................................................................................. 34 7. Risk Management................................................................................................................ 35 IV. Operations and Capital Utilization Plans 1. 2004 Operations Plans........................................................................................................ 39 2. 2004 Plans to Acquire or Dispose of Real Estates or Long-Term Investments Scheme ..... 47 3. Research and Development................................................................................................. 47 4. Capital Utilization Plans.................................................................................................... 54 - 3 - V. Financial Profile 1. Simplified Balance Sheet for 2003...................................................................................... 57 2. Simplified Income Statement for 2003 ................................................................................ 57 3. Financial Analysis for 2003................................................................................................ 58 4. Net Share Value, Profits, Dividends and Market Price for 2003 ........................................ 58 5 Financial Report Review by Supervisor for 2003................................................................ 59 VI. Special Notes 1. Information about Subsidiaries........................................................................................... 60 2. Dividend Policy and State of Implementation..................................................................... 61 3. Statement on Internal Controls ........................................................................................... 63 4. Legal Infractions and Penalties or Other Oversights in the Past Two Years and State of Improvement.................................................................................................................... 64 5. Important Resolutions......................................................................................................... 64 6. Other Important Information .............................................................................................. 64 7. Last Year Substantial Influences from Article 36, Clause 2, Sub-Clause 2 of Securities and Exchange Act on Shareholders’ Equity or Stock Price .............................................. 65 8. Other Disclosures................................................................................................................ 65 VII. Financial Statements 1. Independent Auditors’ Report ............................................................................................. 66 2. Balance................................................................................................................................ 68 3. Statements of Changes in Stockholders’ Equity .................................................................. 70 4. Statements of Income........................................................................................................... 72 5. Statements of Cash Flows ................................................................................................... 73 6. Consolidated Balance Sheet................................................................................................ 74 7. Consolidated Statements of Changes in Stockholders’ Equity............................................ 76 8. Consolidated Statements of Income .................................................................................... 78 9. Consolidated Statements of Cash Flows............................................................................. 79 10. Notes of Financial Statements........................................................................................... 81 VIII. Appendix 1. Branches of Hua Nan Commercial Bank Co., Ltd............................................................ 134 2. Branches of Hua Nan Securities Cp., Ltd. ........................................................................ 140 3. Central Bills Financial Co., Ltd. ...................................................................................... 142 - 4 - HIGHLIGHT (Consolidated) Dec. 31 2002 Dec.31 2003 NT million US million NT million US million BALANCE SHEET ITEMS： Total Assets 1,344,960 38,671 1,465,486 43,383 Total Deposits and Remittances Payable 1,069,823 30,760 1,128,033 33,394 Total Loans, Discounts and Bills Purchased 810,229 23,296 862,507 25,533 Stockholders’ Equity 58,154 1,672 70,988 2,101 INCOME STATEMENT ITEMS: Interest Revenues 43,043 1,238 32,814 971 Total Operating Revenues 53,683 1,544 53,967 1,598 Income before Tax (38,659) (1,112) 12,767 338 Net Income (29,183) (839) 10,102 299 PROFITABILITY： NT Dollar US Dollar NT Dollar US Dollar Earning Per Share (6.54) (0.19) 2.14 0.06 Operating Revenues Per Person 7,110,331 204,503 6,155,684 182,229 Profit Per Person (3,865,298) (111,126) 1,152,224 34,110 ADDITIONAL DATA Employees 7,550 8,767 Domestic Branches and office 228 262 Overseas Branches and office 7 6 Note：The Exchange Rate as of December 31, 2002 was NT$35.007 to US$1 The Exchange Rate as of December 31, 2003 was NT$33.780 to US$1 1 I.Message to Shareholders Ming-Cheng Lin, Chairman Taiwan’s economy in early 2003 continued the rebound that began in the fourth quarter of 2002. However, the US-Iraq War broke out in March and Taiwan