Bank SinoPac · 2015-04-30 · - 5 - BANK SINOPAC STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars) Other Equity

Bank SinoPac Financial Statements for the Years Ended December 31, 2014 and 2013 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Bank SinoPac

We have audited the accompanying balance sheets of Bank SinoPac (the “Bank”) as of December

31, 2014 and 2013, and the related statements of comprehensive income, changes in equity and

cash flows for the years ended December 31, 2014 and 2013. 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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the

financial position of the Bank as of December 31, 2014 and 2013, and its financial performance

and its cash flows for the years ended December 31, 2014 and 2013, in conformity with Criteria

Governing the Preparation of Financial Reports by Public Banks, Criteria Governing the

Preparation of Financial Reports by Securities Firms and the guidelines issued by the authority.

March 11, 2015

Notice to Readers

The accompanying financial statements are intended only to present the financial position,

financial performance 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 applied

in the Republic of China.

For the convenience of readers, the independent 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

independent auditors’ report and financial statements shall prevail.

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BANK SINOPAC

BALANCE SHEETS

DECEMBER 31, 2014 AND 2013

(In Thousands of New Taiwan Dollars)

2014 2013

ASSETS Amount % Amount %

CASH AND CASH EQUIVALENTS (Notes 4, 6 and 41) $ 39,614,377 3 $ 23,545,074 2

DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS (Note 7) 79,649,683 6 58,955,096 4

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 5, 8, 41 and 42) 47,418,153 3 25,370,342 2

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 4, 10 and 41) 12,894,149 1 - -

RECEIVABLES, NET (Notes 4, 5, 11 and 41) 140,608,907 10 118,432,710 9

CURRENT TAX ASSETS (Notes 4, 29 and 41) 1,175,944 - 1,271,286 -

DISCOUNT AND LOANS, NET (Notes 4, 5, 12, 41 and 42) 762,007,556 55 781,918,923 59

AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 4, 5, 13, 14, 42 and 47) 204,773,740 15 56,309,091 4

HELD-TO-MATURITY FINANCIAL ASSETS, NET (Notes 4, 14, 42 and 47) 43,501,740 3 211,578,290 16

INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD, NET (Notes 4 and 15) 21,822,134 2 15,516,534 1

OTHER FINANCIAL ASSETS, NET (Notes 4, 5, 16, 41 and 42) 6,239,440 1 19,924,558 2

PROPERTY AND EQUIPMENT, NET (Notes 4, 17 and 41) 10,625,187 1 10,742,005 1

INTANGIBLE ASSETS, NET (Notes 4, 5 and 18) 1,426,660 - 1,490,433 -

DEFERRED TAX ASSETS (Notes 4, 5 and 29) 2,132,154 - 1,649,751 -

OTHER ASSETS, NET (Notes 4, 19 and 41) 6,169,585 - 1,103,212 -

TOTAL $ 1,380,059,409 100 $ 1,327,807,305 100

LIABILITIES AND EQUITY

DEPOSITS FROM THE CENTRAL BANK AND BANKS (Notes 20 and 41) $ 67,209,325 5 $ 87,282,453 7

FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 5, 8 and 41) 21,597,828 2 11,831,968 1

DERIVATIVE FINANCIAL LIABILITIES FOR HEDGING (Notes 4 and 9) - - 3,789 -

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 4, 13, 21 and 41) 7,103,953 1 451,771 -

PAYABLES (Notes 22, 27, 30 and 41) 17,724,022 1 16,631,252 1

CURRENT TAX LIABILITIES (Notes 4, 29 and 41) 972,837 - 724,735 -

DEPOSITS AND REMITTANCES (Notes 23 and 41) 1,094,663,361 79 1,065,373,051 80

BANK DEBENTURES (Notes 4 and 24) 48,565,756 4 45,087,336 3

OTHER FINANCIAL LIABILITIES (Note 25) 15,198,214 1 6,721,787 1

PROVISIONS (Notes 4, 5, 26 and 27) 2,744,306 - 2,754,549 -

DEFERRED TAX LIABILITIES (Notes 4, 5 and 29) 912,157 - 827,807 -

OTHER LIABILITIES (Notes 28 and 41) 3,704,937 - 2,564,895 -

Total liabilities 1,280,396,696 93 1,240,255,393 93

EQUITY

Share capital

Ordinary shares 66,374,857 5 59,616,160 5

Capital surplus

Additional paid-in capital in excess of par 2,335,205 - 2,335,205 -

Capital surplus from business combination 8,076,524 1 8,076,524 1

Others 69,244 - 1,733 -

Total capital surplus 10,480,973 1 10,413,462 1

Retained earnings

Legal reserve 10,497,474 - 7,616,601 -

Special reserve 393,452 - 367,188 -

Unappropriated earnings 11,367,878 1 9,665,834 1

Total retained earnings 22,258,804 1 17,649,623 1

Other equity 548,079 - (127,333) -

Total equity 99,662,713 7 87,551,912 7

TOTAL $ 1,380,059,409 100 $ 1,327,807,305 100

The accompanying notes are an integral part of the financial statements.

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BANK SINOPAC

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Percentage

Increase

2014 2013 (Decrease)

Amount % Amount % %

INTEREST REVENUE $ 26,940,823 92 $ 23,789,473 95 13

LESS: INTEREST EXPENSE 11,807,468 40 9,994,514 40 18

NET INTEREST (Notes 4, 31 and 41) 15,133,355 52 13,794,959 55 10

NET REVENUES OTHER THAN

INTEREST (Note 4)

Commission and fee revenues, net

(Notes 32 and 41) 4,584,526 15 4,218,483 17 9

Gains on financial assets and liabilities

at fair value through profit or loss,

net (Notes 33 and 41) 2,893,546 10 4,102,807 16 (29)

Realized gains on available-for-sale

financial assets, net (Note 34) 14,513 - 11,097 - 31

Realized losses on held to maturity

financial assets (Note 14) (11,619) - - - -

Foreign exchange gains, net 883,337 3 1,398,512 5 (37)

Reversal gains (impairment losses) on

assets (Notes 5 and 35) 235,194 1 (70,298) - 435

Share of profit of subsidiaries

(Note 15) 1,653,612 6 1,191,298 5 39

Other revenue (Note 36) 3,390,116 11 - - -

Other noninterest net revenues

(Notes 36 and 41) 554,679 2 446,652 2 24

Total net revenues other than

interest 14,197,904 48 11,298,551 45 26

TOTAL NET REVENUES 29,331,259 100 25,093,510 100 17

ALLOWANCE FOR DOUBTFUL

ACCOUNTS AND GUARANTEES

(Notes 4, 11, 12 and 16) 3,886,127 13 2,092,031 9 86

OPERATING EXPENSES

Employee benefits (Notes 4, 5, 27

and 37) 7,621,791 26 7,408,553 30 3

Depreciation and amortization

(Notes 4 and 38) 618,007 2 613,942 2 1

Others (Notes 39 and 41) 4,587,544 16 4,287,610 17 7

Total operating expenses 12,827,342 44 12,310,105 49 4

(Continued)

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BANK SINOPAC

STATEMENTS OF COMPREHENSIVE INCOME


(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Percentage

Increase

2014 2013 (Decrease)

Amount % Amount % %

INCOME BEFORE INCOME TAX $ 12,617,790 43 $ 10,691,374 42 18

INCOME TAX EXPENSE (Notes 4, 5

and 29) 1,262,915 4 1,088,465 4 16

NET INCOME 11,354,875 39 9,602,909 38 18

OTHER COMPREHENSIVE INCOME

(LOSS)

Exchange differences on translating

foreign operations 714,300 2 (1,415) - 50,581

Unrealized valuation gains (losses) on

available-for-sale financial assets 53,144 - (188,305) (1) 128

Cash flow hedges 3,789 - 18,787 - (80)

Actuarial gains and loss arising from

defined benefit plans 15,666 - (51,794) - 130

Share of other comprehensive income

of subsidiaries, associates and joint

ventures 31,631 - (102,324) - 131

Income tax relating to the components

of other comprehensive income

(Notes 4, 5 and 29) (130,115) - 23,247 - (660)

Other comprehensive income for

the period, net of income tax 688,415 2 (301,804) (1) 328

TOTAL COMPREHENSIVE INCOME

FOR THE YEAR $ 12,043,290 41 $ 9,301,105 37 29

EARNINGS PER SHARE (Note 40)

Basic $ 1.71 $ 1.45

The accompanying notes are an integral part of the financial statements. (Concluded)

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BANK SINOPAC

STATEMENTS OF CHANGES IN EQUITY



Other Equity

Exchange Unrealized

Differences on Gain (Loss) on

Translating Available-

Share Capital (Note 30) Retained Earnings (Note 30) Foreign for-sale Cash

Shares in Common Capital Surplus Unappropriated Operations Financial Assets Flow Hedges

Thousand Shares (Notes 4 and 30) Legal Reserve Special Reserve Earning Total (Notes 4 and 30) (Notes 4 and 30) (Notes 4 and 30) Total Total Equity

BALANCE AT JANUARY 1, 2013 5,386,202 $ 53,862,022 $ 10,413,462 $ 5,150,542 $ 367,188 $ 8,326,111 $ 13,843,841 $ (211,616) $ 361,836 $ (18,738) $ 131,482 $ 78,250,807

Appropriation and distribution of retained earnings generated in

2012

Legal reserve - - - 2,466,059 - (2,466,059) - - - - - -

Stock dividends - common shares 575,414 5,754,138 - - - (5,754,138) (5,754,138) - - - - -

Net profit for the year ended December 31, 2013 - - - - - 9,602,909 9,602,909 - - - - 9,602,909

Other comprehensive income for the year ended December 31,

2013, net of income tax - - - - - (42,989) (42,989) (1,159) (273,249) 15,593 (258,815) (301,804)

Total comprehensive income for the year ended December 31,

2013 - - - - - 9,559,920 9,559,920 (1,159) (273,249) 15,593 (258,815) 9,301,105

BALANCE AT DECEMBER 31, 2013 5,961,616 59,616,160 10,413,462 7,616,601 367,188 9,665,834 17,649,623 (212,775) 88,587 (3,145) (127,333) 87,551,912

Appropriation and distribution of retained earnings generated in

2013

Legal reserve - - - 2,880,873 - (2,880,873) - - - - - -

Special reserve - - - - 26,264 (26,264) - - - - - -

Stock dividends - common shares 675,870 6,758,697 - - - (6,758,697) (6,758,697) - - - - -

Share-based payment transactions - - 67,511 - - - - - - - - 67,511

Net profit for the year ended December 31, 2014 - - - - - 11,354,875 11,354,875 - - - - 11,354,875

Other comprehensive income for the year ended December 31,

2014, net of income tax - - - - - 13,003 13,003 592,888 79,379 3,145 675,412 688,415

Total comprehensive income for the year ended December 31,

2014 - - - - - 11,367,878 11,367,878 592,888 79,379 3,145 675,412 12,043,290

BALANCE AT DECEMBER 31, 2014 6,637,486 $ 66,374,857 $ 10,480,973 $ 10,497,474 $ 393,452 $ 11,367,878 $ 22,258,804 $ 380,113 $ 167,966 $ - $ 548,079 $ 99,662,713

The accompanying notes are an integral part of the financial statements.

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BANK SINOPAC

STATEMENTS OF CASH FLOWS



2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 12,617,790 $ 10,691,374

Adjustments for:

Depreciation expenses 438,293 444,787

Amortization expenses 179,714 169,155

Allowance for doubtful accounts 5,162,138 3,114,376

Interest expenses 11,807,468 9,994,514

Interest revenues (26,940,823) (23,789,473)

Dividend revenues (83,354) (57,210)

Net change in provisions for guarantee liabilities 114,258 (11,378)

Net change in other provisions 8,084 6,904

Share-based payment 66,102 -

Share of profit of subsidiaries (1,653,612) (1,191,298)

Gains on disposal or retirement of property and equipment (53,030) (195,140)

Losses (gains) on disposal of investments 10,679 (10,641)

Impairment losses on financial assets - 74,957

Reversal of impairment loss on financial assets (199,123) -

Reversal of impairment losses on non-financial assets (36,071) (4,659)

Losses on disposal of collaterals assumed 13,071 1,272

Changes in operating assets and liabilities

(Increase) decrease in due from the Central Bank and call loans to

other banks (424,678) 8,576,363

(Increase) decrease in financial assets at fair value through profit

or loss (22,047,811) 1,640,345

Increase in receivables (22,348,908) (57,065,955)

Decrease (increase) in discounts and loans 15,196,808 (34,611,036)

(Decrease) increase in deposits from the central bank and banks (20,073,128) 17,293,369

Increase in financial liabilities at fair value through profit or loss 9,765,860 3,160,911

Increase (decrease) in payables 477,405 (4,449,026)

Increase in deposits and remittances 29,290,310 56,587,252

Decrease in provision for employee benefits (117,899) (31,468)

Net cash used in operations (8,830,457) (9,661,705)

Interest received 27,205,614 23,798,939

Dividend received 957,764 876,044

Interest paid (11,575,200) (10,080,944)

Income tax paid (1,238,497) (79,623)

Net cash generated from operating activities 6,519,224 4,852,711

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of available-for-sale financial assets (589,871,077) (445,637,932)

Proceeds from disposal of available-for-sale financial assets 441,474,511 429,956,762

Acquisition of held-to-maturity financial assets (1,622,857,397) (1,830,097,021)

Proceeds from disposal of held-to-maturity financial assets 14,553 -

Proceeds from repayments of held-to-maturity financial assets 1,790,814,638 1,845,995,029

(Continued)

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BANK SINOPAC




2014 2013

Acquisition of financial assets measured at cost $ (6,000) $ -

Proceeds from capital reduction of financial assets measured at cost 6,206,621 12,500

Acquisition of equity investments (6,114,623) (9,714,624)

Proceeds from capital reduction of equity investment 1,542,766 -

Acquisition of property and equipment (411,243) (434,670)

Proceeds from disposal of property and equipment 93,184 287,061

(Increase) decrease in guarantee deposits (4,990,996) 480,147

Proceeds from disposal of collaterals assumed 20,700 15,466

Increase in securities purchased under agreement to resell (10,007) -

Decrease (increase) in other financial assets 7,734,491 (11,629,074)

Increase in other assets (475,719) (626,605)

Net cash generated from (used in) investing activities 23,164,402 (21,392,961)

CASH FLOWS FROM FINANCING ACTIVITIES

Bank debentures issued 7,074,819 3,497,948

Repayment of bank debentures on maturity (3,600,000) (1,400,000)

Increase (decrease) in securities sold under agreements to repurchase 6,652,182 (749,679)

Increase in other financial liabilities 8,476,427 1,036,961

Increase in other liabilities 1,142,342 708,678

Net cash generated from financing activities 19,745,770 3,093,908

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE

OF CASH HELD IN FOREIGN CURRENCIES (206,042) 36,912

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 49,223,354 (13,409,430)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

YEAR 51,025,501 64,434,931

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 100,248,855 $ 51,025,501

(Continued)

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BANK SINOPAC




Reconciliation of the amounts in the statement of cash flows with the equivalent items reports in the balance

sheets as of December 31, 2014 and 2013:

December 31

2014 2013

Cash and cash equivalents in balance sheets $ 39,614,377 $ 23,545,074

Due from the Central Bank and call loans to other banks reclassified as

cash and cash equivalents under IAS 7 “Statement of Cash Flows” 47,750,336 27,480,427

Securities purchased under agreement to resell reclassified as cash and

cash equivalents under IAS 7 “Statement of Cash Flows” 12,884,142 -

Cash and cash equivalents in statements of cash flows $ 100,248,855 $ 51,025,501

The accompanying notes are an integral part of the financial statements. (Concluded)

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BANK SINOPAC

NOTES TO FINANCIAL STATEMENTS


(In Thousands of New Taiwan Dollars, Unless Otherwise Stated)

1. ORGANIZATION

August 8, 1991 Bank SinoPac (the “Bank”) obtained government approval to incorporate.

January 28, 1992 The Bank started operations.

May 9, 2002 The Bank swap shares with SinoPac Securities Corporation and SinoPac Securities

Co., Ltd. (the “SPS”) to establish SinoPac Financial Holdings Company Limited

(the “SPH”), a financial holding company, resulting in the Bank becoming an

unlisted wholly owned subsidiary of SPH, the ultimate parent company of SPH.

December 26, 2005 SPH finished the merger with International Bank of Taipei Co., Ltd. (IBT), through

a 100% share swap.

May 8, 2006 The boards of directors of IBT resolved to transfer credit card business and related

assets and liabilities to SinoPac Card Services Co., Ltd. (“SinoPac Card”). The

transaction has been approved by the authorities on June 22, 2006 and the assets

have been transferred at the book value of $5,171,080 on August 4, 2006.

November 13, 2006 The preliminary effective date of the share swap and merger. The Bank acquired

the assets and liabilities of IBT through a share swap at ratio of 1.175 shares of

the Bank to swap for 1 share of IBT.

June 1, 2009 The Bank’s cash merger with SinoPac Card took effect, with this merger amounting

to $3,873,675. Under this merger, the Bank was the surviving entity.

The Bank’s ultimate parent and controller is SinoPac Holdings which holds 100% ordinary shares of the

Bank.

The functional currency of the Bank is New Taiwan dollars. The financial statements are presented in

New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors on March 11, 2015.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. The Criteria Governing the Preparation of Financial Reports by Public Bank, the 2013 version of the

International Financial Reporting Standards (IFRS), International Accounting Standards (IAS),

Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) in issue but not yet effective

Rule No. 1030010325 and 1030006010 issued by the FSC, stipulated that the Bank should apply the

2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”) endorsed by the FSC and the

related amendments to the Criteria Governing the Preparation of Financial Reports by Public Bank

starting January 1, 2015.

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New, Amended and Revised

Standards and Interpretations (the “New IFRSs”)

Effective Date

Announced by IASB (Note)

Improvements to IFRSs (2009) - amendment to IAS 39 January 1, 2009 and January 1, 2010,

as appropriate

Amendment to IAS 39 “Embedded Derivatives” Effective for annual periods ended on

or after June 30, 2009

Improvements to IFRSs (2010) July 1, 2010 and January 1, 2011, as

appropriate

Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013

Amendment to IFRS 7 “Disclosure - Offsetting Financial

Assets and Financial Liabilities”

January 1, 2013

Amendment to IFRS 7 “Disclosure - Transfer of Financial

Assets”

July 1, 2011

IFRS 11 “Joint Arrangements” January 1, 2013

IFRS 12 “Disclosure of Interests in Other Entities” January 1, 2013

Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated

Financial Statements, Joint Arrangements and Disclosure of

Interests in Other Entities: Transition Guidance”

January 1, 2013

Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment

Entities”

January 1, 2014

IFRS 13 “Fair Value Measurement” January 1, 2013

Amendment to IAS 1 “Presentation of Other Comprehensive

Income”

July 1, 2012

Amendment to IAS 12 “Deferred Tax: Recovery of

Underlying Assets”

January 1, 2012

IAS 19 “Employee Benefits” January 1, 2013

IAS 27 “Separate Financial Statements” January 1, 2013

IAS 28 “Investments in Associates and Joint Ventures” January 1, 2013

Amendment to IAS 32 “Offsetting Financial Assets and

Financial Liabilities”

January 1, 2014

IFRIC 20 “Stripping Costs in Production Phase of a Surface

Mine”

January 1, 2013

Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or

after the respective effective dates.

Except for the following, the initial application of the above 2013 IFRSs version and the related

amendments to the Criteria Governing the Preparation of Financial Reports by Public Bank have not

had any material impact on the Bank’s accounting policies:

1) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value,

establishes a framework for measuring fair value, and requires disclosures about fair value

measurements. The disclosure requirements in IFRS 13 are more extensive than those required in

the current standards. For example, quantitative and qualitative disclosures based on the

three-level fair value hierarchy currently required for financial instruments only will be extended by

IFRS 13 to cover all assets and liabilities within its scope.

The fair value measurements under IFRS 13 will be applied prospectively from January 1, 2015.

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2) Amendments to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendments to IAS 1 requires items of other comprehensive income to be grouped into those

items that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassified

subsequently to profit or loss. Income taxes on related items of other comprehensive income are

grouped on the same basis. Under current IAS 1, there were no such requirements.

The Bank will retrospectively apply the above amendments starting from 2015. Items not

expected to be reclassified to profit or loss are the actuarial gain (loss) arising from defined benefit

plans and share of the actuarial gains (loss) arising from defined benefit plans of associates

accounted for using the equity method. Items expected to be reclassified to profit or loss are the

exchange differences on translating foreign operations, unrealized valuation gains (loss) on

available-for-sale financial assets, cash flow hedges, and share of the other comprehensive income

(except the share of the actuarial gains (loss) arising from defined benefit plans) of associates and

joint ventures accounted for using the equity method. However, the application of the above

amendments will not result in any impact on the net profit for the year, other comprehensive income

for the year (net of income tax), and total comprehensive income for the year.

3) Revision to IAS 19 “Employee Benefits”

Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fair

value of plan assets when they occur, and hence eliminates the “corridor approach” permitted under

current IAS 19 and accelerate the recognition of past service costs. The revision requires all

remeasurements of the defined benefit plans to be recognized immediately through other

comprehensive income in order for the net pension asset or liability to reflect the full value of the

plan deficit or surplus.

All actuarial gains and losses of the Bank, which happened during the period, had immediately

recognized in other comprehensive profit and loss. As a result, this does not cause any changes in

accounting treatment after excluding “corridor approach”.

Furthermore, the interest cost and expected return on plan assets used in current IAS 19 are replaced

with a “net interest” amount, which is calculated by applying the discount rate to the net defined

benefit liability or asset. In addition, the revised IAS 19 introduces certain changes in the

presentation of the defined benefit cost, and also includes more extensive disclosures.

In preparing the financial statements for the year ended December 31, 2015, the Bank would elect

not to present 2014 comparative information about the sensitivity of the defined benefit obligation.

The anticipated impact of the initial application of the revised IAS 19 is detailed as follows:

Impact on Assets,

Liabilities and Equity Carrying

Amount

Adjustments

Arising from

Initial

Application

Adjusted

Carrying

Amount

December 31, 2014

Deferred tax assets $ 2,132,154 $ 27,681 $ 2,159,835

Provisions $ 2,744,306 $ 162,830 $ 2,907,136

Retained earnings $ 22,258,804 $ (135,149) $ 22,123,655

(Continued)

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Impact on Assets,

Liabilities and Equity Carrying

Amount

Adjustments

Arising from

Initial

Application

Adjusted

Carrying

Amount

January 1, 2014

Deferred tax assets $ 1,649,751 $ 32,295 $ 1,682,046

Provisions $ 2,754,549 $ 189,969 $ 2,944,518

Retained earnings $ 17,649,623 $ (157,674) $ 17,491,949

(Concluded)

Impact on Total

Comprehensive Income Carrying

Amount

Adjustments

Arising from

Initial

Application

Adjusted

Carrying

Amount

For the year ended December 31, 2014

Operating expense $ 12,827,342 $ (33,668) $ 12,793,674

Income tax expense $ 1,262,915 $ 5,723 $ 1,268,638

Total effect on net profit for the year $ 11,354,875 $ 27,945 $ 11,382,820

Total effect on other comprehensive

income for the year, net of income tax $ 688,415 $ (5,420) $ 682,995

Total effect on total comprehensive

income for the year $ 12,043,290 $ 22,525 $ 12,065,815

b. New IFRSs in issue but not yet endorsed by FSC

The Bank has not applied the following New IFRSs issued by the IASB but not yet endorsed by the

FSC. As of the date the financial statements were authorized for issue, the FSC has not announced

their effective dates.

New IFRSs

Effective Date

Announced by IASB (Note 1)

Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2)

Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014

Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 4)

IFRS 9 “Financial Instruments” January 1, 2018

Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures”

January 1, 2018

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets

between an Investor and its Associate or Joint Venture”

January 1, 2016 (Note 3)

Amendment to IFRS 11 “Accounting for Acquisitions of Interests in

Joint Operations”

January 1, 2016

IFRS 14 “Regulatory Deferral Accounts” January 1, 2016

IFRS 15 “Revenue from Contracts with Customers” January 1, 2017

Amendments to IAS 16 and IAS 38 “Clarification of Acceptable

Methods of Depreciation and Amortization”

January 1, 2016

Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” January 1, 2016

Amendment to IAS 19 “Defined Benefit Plans: Employee

Contributions”

July 1, 2014

(Continued)

- 13 -

New IFRSs

Effective Date

Announced by IASB (Note 1)

Amendment to IAS 36 “Impairment of Assets: Recoverable Amount

Disclosures for Non-financial Assets”

January 1, 2014

Amendment to IAS 39 “Novation of Derivatives and Continuation of

Hedge Accounting”

January 1, 2014

IFRIC 21 “Levies” January 1, 2014

(Concluded)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after their respective effective dates.

Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or

after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition

date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the

remaining amendments are effective for annual periods beginning on or after July 1, 2014.

Note 3: Prospectively applicable to transactions occurring in annual periods beginning on or after

January 1, 2016.

Note 4: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that

occur in annual periods beginning on or after January 1, 2016; the remaining amendments are

effective for annual periods beginning on or after January 1, 2016.

The initial application of the above New IFRSs has not had any material impact on the Bank’s

accounting policies, except for the following:

1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39

“Financial Instruments: Recognition and Measurement” are subsequently measured at amortized

cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated

below.

For the Bank’s debt instruments that have contractual cash flows that are solely payments of

principal and interest on the principal amount outstanding, their classification and measurement are

as follows:

For debt instruments, if they are held within a business model whose objective is to collect the

contractual cash flows, the financial assets are measured at amortized cost and are assessed for

impairment continuously with impairment loss recognized in profit or loss, if any. Interest

revenue is recognized in profit or loss by using the effective interest method.

For debt instruments, if they are held within a business model whose objective is achieved by both

the collecting of contractual cash flows and the selling of financial assets, the financial assets are

measured at fair value through other comprehensive income (FVTOCI) and are assessed for

impairment. Interest revenue is recognized in profit or loss by using the effective interest method,

and other gain or loss shall be recognized in other comprehensive income, except for impairment

gains or losses and foreign exchange gains and losses. When the debt instruments are

derecognized or reclassified, the cumulative gain or loss previously recognized in other

comprehensive income is reclassified from equity to profit or loss.

- 14 -

Except for above, all other financial assets are measured at fair value through profit or loss.

However, the Bank may make an irrevocable election to present subsequent changes in the fair

value of an equity investment (that is not held for trading) in other comprehensive income, with

only dividend income generally recognized in profit or loss. No subsequent impairment

assessment is required, and the cumulative gain or loss previously recognized in other

comprehensive income cannot be reclassified from equity to profit or loss.

The impairment of financial assets

IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit

Losses Model”. The credit loss allowance is required for financial assets measured at amortized

cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising

from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and

financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required

for a financial asset if its credit risk has not increased significantly since initial recognition. A loss

allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has

increased significantly since initial recognition and is not low. However, a loss allowance for full

lifetime expected credit losses is required for trade receivables that do not constitute a financing

transaction.

For purchased or originated credit-impaired financial assets, the Bank takes into account the

expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate.

Subsequently, any changes in expected losses are recognized as a loss allowance with a

corresponding gain or loss recognized in profit or loss.

Hedge accounting

The main changes in hedge accounting amended the application requirements for hedge accounting

to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes

include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening

the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging

derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing

retrospective effectiveness assessment with the principle of economic relationship between the

hedging instrument and the hedged item.

2) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to the

disclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose in

every reporting period the recoverable amount of an asset or each cash-generating unit. The

amendment clarifies that such disclosure of recoverable amounts is required only when an

impairment loss has been recognized or reversed during the period. Furthermore, the Bank is

required to disclose the discount rate used in measurements of the recoverable amount based on fair

value less costs of disposal measured using a present value technique.

3) Annual Improvements to IFRSs: 2010-2012 Cycle

The amended IFRS 8 requires an entity to disclose the judgments made by management in applying

the aggregation criteria to operating segments, including a description of the operating segments

aggregated and the economic indicators assessed in determining whether the operating segments

have “similar economic characteristics”. The amendment also clarifies that a reconciliation of the

total of the reportable segments’ assets to the entity’s assets should only be provided if the

segments’ assets are regularly provided to the chief operating decision-maker.

- 15 -

IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measure

short-term receivables and payables with no stated interest rate at their invoice amounts without

discounting, if the effect of not discounting is immaterial.

IAS 24 was amended to clarify that a management entity providing key management personnel

services to the Bank is a related party of the Bank. Consequently, the Bank is required to disclose

as related party transactions the amounts incurred for the service paid or payable to the management

entity for the provision of key management personnel services. However, disclosure of the

components of such compensation is not required.


The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial

assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that

are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those

contracts do not meet the definitions of financial assets or financial liabilities within IAS 32.


The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is

continuing involvement in a transferred asset.

Except for the above impact, as of the date the financial statements were authorized for issue, the Bank

is continuingly assessing the possible impact that the application of other standards and interpretations

will have on the Bank’s financial position and financial performance, and will disclose the relevant

impact when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

The financial statements have been prepared in accordance with Criteria Governing the Preparation of

Financial Reports by Public Banks, Criteria Governing the Preparation of Financial Reports by Securities

Firms, and the guidelines issued by the authority (the “Regulations”).

Basis of Preparation

The financial statements have been prepared on the historical cost basis except for financial instruments that

are measured at fair value, and properties and equipment that are chosen the deemed cost as exemptions by

IFRS 1 through Regulations Governing the Preparation of Financial Reports by Public Banks on the IFRS

transition date. Historical cost is generally based on the fair value of the consideration given in exchange

for assets.

When preparing its financial statements, the Bank used equity method to account for its investment in

subsidiaries. In order for the amounts of the net profit for the year, other comprehensive income for the

year and total equity in the financial statements to be the same with the amounts attributable to the owner of

the Bank in its financial statements, adjustments arising from the differences in accounting treatment

between basis and consolidated basis were made to equity investment - equity method, share of profit or

loss of subsidiaries and share of other comprehensive income of subsidiaries and related equity items, as

appropriate, in the financial statements.

Since the operating cycle in the banking industry cannot be reasonably identified, the accounts included in

the Bank financial statements were not classified as current or noncurrent. Nevertheless, accounts were

properly categorized in accordance with the nature of each account and sequenced by their liquidity.

Please refer to Note 45 for the maturity analysis of assets and liabilities.

- 16 -

The significant accounting policies are set out as below.

Principles for Preparing Financial Statements

The accompanying financial statements include the accounts of the Head Office, OBU, all branches and the

representative office. All interoffice transactions and balances have been eliminated.

Foreign Currencies

a. Foreign currencies

In preparing the financial statements of the Bank, transactions in currencies other than the Bank’s

functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates

of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated

at the rates prevailing at that date. Exchange differences on monetary items arise from settlement or

translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated

at the rates prevailing at the date when the fair value was determined. Exchange differences arising on

the retranslation of non-monetary items are included in profit or loss for the period except for exchange

differences arising from the retranslation of non-monetary items in respect of which gains and losses are

recognized directly in other comprehensive income, in which case, the exchange differences are also

recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

b. Exchange differences on translating foreign operations

For the purposes of presenting financial statements, the assets and liabilities of the Bank’s foreign

operations are translated into New Taiwan dollars using exchange rates prevailing at the end of each

reporting period. Income and expense items are translated at the average exchange rates for the

period. Exchange differences arising are recognized in other comprehensive income.

Cash and Cash Equivalents

Cash and cash equivalent in financial statements includes cash on hand, demand deposits and investments

with original maturities within three months from the date of acquisition, highly liquid, readily convertible

to a known amount of cash and be subject to an insignificant risk of changes in value. These cash

equivalents are held for the purpose of meeting short-term cash commitments.

For the purposes of presenting cash flows, the cash and cash equivalent includes cash and cash equivalents

in balance sheets, due from the Central Bank and call loans to other banks and securities purchased under

agreement to resell under IAS 7.

Investments Accounted for Using Equity Method

The Bank uses equity method of accounting on investment of subsidiaries.

The subsidiaries are the entities controlled by the Bank.

- 17 -

Under the equity method, the investment is initially recognized at cost and the carrying amount is increased

or decreased to recognize the Bank’s share of the profit or loss and other comprehensive income of the

subsidiary after the date of acquisition. Besides, the Bank also recognizes the Bank’s share of the change

in other equity of the subsidiary.

When the Bank’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary (which

includes any carrying amount of the investment in subsidiary accounted for by the equity method and

long-term interests that, in substance, form part of the Bank’s net investment in the subsidiary), the Bank

continues recognizing its share of further losses.

The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired is

recognized as goodwill. Goodwill is not amortized.

Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits and

losses from upstream with a subsidiary and side stream transactions between subsidiaries are recognized in

the financial statements only to the extent of interests in the subsidiary that are not related to the Bank.

Financial Instruments

Financial assets and financial liabilities are recognized when the Bank entity becomes a party to the

contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are

directly attributable to the acquisition or issue of financial assets and financial liabilities (other than

financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from

the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair

value through profit or loss are recognized immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

a. Measurement category

Financial assets have four categories: Financial assets at fair value through profit or loss,

held-to-maturity investments, available-for-sale financial assets and loans and receivables.

1) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is either

held for trading or designated as at fair value through profit or loss.

A financial asset is designated as at fair value through profit or loss upon initial recognition if:

a) This designation eliminates or significantly reduces a measurement or recognition inconsistency

that would arise without this designation; or

b) The financial asset forms part of a group of financial assets or financial liabilities or both, which

is managed and its performance is evaluated on a fair value basis, in accordance with the Bank’s

documented risk management or investment strategy, and information about the grouping is

provided internally on that basis; or

c) The contract contains one or more embedded derivatives so that the entire hybrid (combined)

contract can be designated as at fair value through profit or loss.

- 18 -

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses

arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or

loss incorporates any dividend or interest earned on the financial asset.

2) Available-for-sale financial assets

Available-for-sale financial assets are nonderivatives that either are designated as available-for-sale

or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair

value through profit or loss.

Fair value is determined in the manner described in Note 44.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of

available-for-sale monetary financial assets pertaining to changes in foreign currency exchange

rates, interest income calculated using the effective interest method and dividends on

available-for-sale equity investments are recognized in profit or loss. Other changes in the

carrying amounts of available-for-sale financial assets are recognized in other comprehensive

income. When the investment is disposed of or is determined to be impaired, the cumulative gain

or loss that previously accumulated in the investments revaluation reserve is reclassified to profit or

loss.

The effective interest method is a method of calculating the amortized cost of a debt instrument and

of allocating interest income over the relevant period. The effective interest rate is the rate that

exactly discounts estimated future cash receipts (including all fees and points paid or received that

form an integral part of the effective interest rate, transaction costs and other premiums or discounts

on financial instrument acquisition or issue) through the expected life of the debt instrument, or,

where appropriate, a shorter period, to the net carrying amount on initial recognition.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s

right to receive the dividends are established.

Available-for-sale equity investments that have no quoted market prices in an active market and

have fair values that cannot be reliably measured and derivatives that are linked to and must be

settled by delivery of such unquoted equity investments are measured at cost less any identified

impairment loss at the end of each reporting period and are recognized in a separate line item as

financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets

cannot be reliably measured, the financial assets are remeasured at fair value. The difference

between carrying amount and fair value is recognized in other comprehensive income on financial

assets. Any impairment losses are recognized in profit and loss.

3) Held-to-maturity investments

Corporate bonds and foreign government bonds, which are above certain credit ratings and on

which the Bank has positive intent and ability to hold to maturity, are classified as held-to-maturity

investments.

Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using

the effective interest method less any impairment.

4) Loans and receivables

Loans and receivables are measured at amortized cost using the effective interest method, less any

impairment, except for short-term receivables when the effect of discounting is immaterial.

- 19 -

b. Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of

impairment at the end of each reporting period. Financial assets are considered to be impaired when

there is objective evidence that, as a result of one or more events that occurred after the initial

recognition of the financial asset, the estimated future cash flows of the investment have been affected.

In determining the allowance for credit losses and provision for losses on guarantees, the Bank assesses

the collectability of discounts and loans, receivables, and other financial assets, as well as guarantees

and acceptances as of the balance sheet date.

Loans and receivables are assessed for impairment at the end of each reporting period and considered to

be impaired when there is objective evidence that, as a result of one or more events that occurred after

the initial recognition of the foregoing discounts and loans, receivables, and other financial assets, the

estimated future cash flows of the asset have been affected. Objective evidence of impairment could

include:

Significant financial difficulty of the debtor;

The foregoing discounts and loans, receivables, and other financial assets becoming overdue; or

Probability that the debtor will enter into bankruptcy or undergo financial reorganization.

Discounts and loans, receivables, and other financial assets that are assessed as not impaired

individually are further assessed for impairment on a collective basis. Objective evidence of

impairment for a portfolio of discounts and loans, receivables, and other financial assets could include

the Bank’s past experience of collecting payments and an increase in the number of delayed payments,

as well as observable changes in national or local economic conditions that correlate with defaults on

loans and receivables.

The amount of the impairment loss recognized is the difference between the asset carrying amount and

the present value of estimated future cash flows, after taking into account the related collaterals and

guarantees, discounted at the original effective interest rates. The carrying amount of the discounts

and loans, receivables, and other financial assets is reduced through the use of an allowance account.

Under the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal

with Nonperforming/Nonaccrual Loans” (the “Regulations”), the Bank evaluates credit losses on the

basis of the estimated collectability. In accordance with the Regulations, credit assets are classified as

normal assets, assets that require special mentioned, assets with substandard, assets with doubtful

collectability, and assets on which there is loss. The Bank evaluates value of collaterals of specified

loans and assesses recoverablities of nonperforming loans.

Based on the above Regulations, the minimum allowance for credit losses and provision for losses on

guarantees for assets that are normal excluding claims against ROC government agencies that require

special mentioned, assets that are substandard, assets with doubtful collectability, and assets on which

there is loss were 1% (0.5% before 2013), 2%, 10%, 50% and 100%, respectively of outstanding.

In addition, under Financial Supervisory Commission (FSC) guidelines No. 10010006830 there should

be a provision at more than 1% of sum of a minimum allowance for credit losses and the provision for

losses on guarantees. For improvement of risk affordability, FSC issued No. 10300329440 letter that

requires domestic banks allocate at least 1.5% allowance of repairing loans and construction loans

before 2016.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the

security below its cost is considered to be objective evidence of impairment.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses

previously recognized in other comprehensive income are reclassified to profit or loss in the period.

- 20 -

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss

are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is

recognized in other comprehensive income and accumulated under the heading of investments

revaluation reserve. In respect of available-for-sale debt securities, impairment loss are subsequently

reversed through profit or loss if an increase in the fair value of the investment can be objectively

related to an event occurring after the recognition of the impairment loss.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the

difference between the asset’s carrying amount and the present value of the estimated future cash flows

discounted at the current market rate of return for a similar financial asset. Such impairment loss will

not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced through the use of an allowance account,

accumulated impairment account, or book value. When those financial assets are considered

uncollectible, they are written off against the allowance account and accumulated impairment account.

Subsequent recoveries of amounts previously written off are debited against the bad debt expense or

credited against the allowance account in according with Criteria Governing the Preparation of

Financial Reports by Public Banks.

c. Derecognition of financial assets

The Bank derecognizes a financial asset only when the contractual rights to the cash flows from the

asset expire, or when it transfers the financial asset and substantially all the risks and rewards of

ownership of the asset to another party.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount

and the sum of the consideration received and receivable and the cumulative gain or loss that had been

recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by the Bank are classified as either financial liabilities or as equity in

accordance with the substance of the contractual arrangements and the definitions of a financial liability and

an equity instrument. Equity and debt instruments are recognized at the proceeds received, net of direct

issue costs.

a. Measurement and recognition

Except the following situation, all the financial liabilities are measured at amortized cost using the

effective interest method:

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial liability is

either held for trading or it is designated as at fair value through profit or loss.

A financial liability is classified as designated as at fair value through profit or loss if:

1) Such designation eliminates or significantly reduces a measurement or recognition inconsistency;

2) The financial liability forms part of a group of financial assets or financial liabilities or both, which

is managed and its performance is evaluated on a fair value basis, in accordance with the Bank’s

documented risk management or investment strategy, and information about the grouping is

provided internally on that basis to the entity’s key management personnel; or

- 21 -

3) The contract contains one or more embedded derivatives, so that the entire hybrid (combined)

contract can be designated at fair value through profit or loss.

Financial liabilities at fair value through profit or loss are stated at fair value. The net gain or loss

recognized in profit or loss incorporates any dividends paid on the financial liability. Fair value is

determined in the manner described in Note 44.

b. Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the

consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in

profit or loss.

Financial Guarantee Contracts

Financial guarantee contracts issued by the Bank is initially recognized at their fair values and, if not

designated as at fair value through profit or loss, are subsequently measured at amortized cost.

If obligation of a financial guarantee contract will most likely to be paid, it will be measured at the higher of

the best estimate or the amortized amount of the obligation under the contract.

Derivative Financial Instruments and Hedge Accounting

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are

subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss

is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging

instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge

relationship. When the fair value of derivative financial instruments is positive, the derivative is

recognized as a financial asset; when the fair value of derivative financial instruments is negative, the

derivative is recognized as a financial liability.

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet

the definition of a derivative, their risks and characteristics are not closely related to those of the host

contracts and the contracts are not measured at fair value through profit or loss.

The Bank designates certain hedging instruments as either fair value hedges or cash flow hedges.

a. Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are

recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset

or liability that are attributable to the hedged risk. The change in the fair value of the hedging

instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or

loss in the line item relating to the hedged item.

Hedge accounting is discontinued prospectively when the Bank revokes the designated hedging

relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no

longer meets the criteria for hedge accounting.

b. Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash

flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective

portion is recognized immediately in profit or loss.

- 22 -

The associated gains or losses that were recognized in other comprehensive income are reclassified

from equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item

in the same period when the hedged item affects profit or loss. If a hedge of a forecast transaction

subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated

gains and losses that were recognized in other comprehensive income are removed from equity and are

included in the initial cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued prospectively when the Bank revokes the designated hedging

relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no

longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument

that has been previously recognized in other comprehensive income from the period when the hedge

was effective remains separately in equity until the forecast transaction occurs. When a forecast

transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized

immediately in profit or loss.

Repurchase and Reverse Repurchase Transactions

Securities purchased under agreements to resell (reverse repurchase) agreements and securities sold under

agreements to repurchase are generally treated as collateralized financing transactions. Interest earned on

reverse repurchase agreements or interest incurred on repurchase agreements is recognized as interest

income or interest expense over the life of each agreement.

Property and Equipment

Property and equipment are stated at cost, less subsequent accumulated depreciation and subsequent

accumulated impairment.

Depreciation of property and equipment is recognized so as to write off the cost of assets less their residual

values over their estimated useful lives, using the straight-line method. The estimated useful lives,

residual values and depreciation method are reviewed at the end of each reporting period with the effect of

any change in estimate being accounted for on a prospective basis.

Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as

the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or

loss.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and

rewards of ownership to the lessee. All other leases are classified as operating leases.

a. The Bank as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant

lease unless another systematic basis is representative of the time pattern of the lessee’s benefit from the

use of the leased asset.

b. The Bank as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term,

except where another systematic basis is more representative of the time pattern in which economic

benefits from the leased asset are consumed.

- 23 -

Intangible Assets

a. Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and

subsequently measured at cost less accumulated amortization and accumulated impairment loss.

Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and

amortization method are reviewed at the end of each reporting period, with the effect of any changes in

estimate being accounted for on a prospective basis. The residual value of an intangible asset with a

finite useful life shall be assumed to be zero unless the Group expects to dispose of the intangible asset

before the end of its economic life.

b. Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognized separately from goodwill are

initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at

cost less accumulated amortization and accumulated impairment loss, on the same basis as intangible

assets that are acquired separately.

c. Derecognition of intangible assets

Gains or losses arising from derecognition of an intangible asset, measured as the difference between

the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the

asset is derecognized.

Goodwill

Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition

of the business less accumulated impairment loss.

For the purposes of impairment testing, goodwill is allocated to each of the Bank’s cash-generating units (or

groups of cash-generating units) that is expected to benefit from the synergies of the combinations.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more

frequently when there is an indication that the unit may be impaired, by comparing its carrying amount,

including the attributable goodwill, with its recoverable amount. However, if the goodwill allocated to a

cash-generating unit was acquired in a business combination during the current annual period, that unit

shall be tested for impairment before the end of the current annual period. If the recoverable amount of

the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the

carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based

on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or

loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that

unit, the goodwill associated with the operation disposed of is included in the carrying amount of the

operation when determining the gain or loss on disposal, and is measured on the basis of the relative values

of the operation disposed of and the portion of the cash-generating unit retained.

In assessing whether a controlled equity investment is impaired, the Bank considers the cash generating

units in entire financial reports aspect. If the recoverable amount of the cash-generating unit increase, the

reversal of impairment loss is recognized as gain. However, the increase of carrying amount after

impairment loss reversal can only to the extent of the carrying amount that would have been determined had

no impairment loss been recognized for the asset or cash-generating unit in prior years.

- 24 -

Collaterals Assumed

Collaterals assumed are recorded at cost and revalued at the lower of cost or net fair value as of the balance

sheet date.

Impairment of Tangible and Intangible Assets Other Than Goodwill

At the end of each reporting period, the Bank reviews the carrying amounts of its tangible and intangible

assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an

impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to

determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of

an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the

asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are

also allocated to the individual cash-generating units; otherwise they are allocated to the smallest group of

cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for

impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable

amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying

amount of the asset or cash-generating unit is reduced to its recoverable amount.

When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit

is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount

that would have been determined had no impairment loss been recognized for the asset or cash-generating

unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Provisions

Provisions, including those arising from the contractual obligation specified in the service concession

arrangement to maintain or restore the infrastructure before it is handed over to the grantor, are measured at

the best estimate of the consideration required to settle the present obligation at the end of the reporting

period, taking into account the risks and uncertainties surrounding the obligation. When a provision is

measured using the cash flows estimated to settle the present obligation, its carrying amount is the present

value of those cash flows (where the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from

a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be

received and the amount of the receivable can be measured reliably.

Employee Benefits

a. Retirement benefit costs

Payments to defined contribution retirement benefit plans are recognized as an expense when

employees have rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the

Projected Unit Credit Method. Any actuarial gains and losses generated from retirement benefit

obligation are recognized in other comprehensive income. Past service cost is recognized immediately

to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over

the average period until the benefits become vested.

- 25 -

The retirement benefit obligation recognized in the balance sheets represents the present value of the

defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair

value of plan assets. Any asset resulting from this calculation is limited to the unrecognized past

service cost, plus the present value of available refunds and reductions in future contributions to the

plan.

Curtailment or settlement gains or losses on the defined benefit plan are recognized when the

curtailment or settlement occurs.

b. Preferential interest on employees’ deposits

The Bank offers preferential interest rate to its current employees for their deposits within a prescribed

amount.

Under Article 28 of the Criteria Governing the Preparation of Financial Reports by Public Bank, if the

Bank’s preferential deposit interest rate for as stated in the employment contract exceeds the market

interest rate, the excess will be subject to IAS 19 “Employee Benefits” upon the employee’s retirement.

The actuarial valuation assumptions and parameters are based on those announced by authority, if any.

Share-based Payment Arrangements

Based on the Group’s estimate of equity instruments that will vest, the grant-date fair value of the

equity-settled share-based payments is expensed on a straight-line basis over the vesting period, with a

corresponding increase in capital surplus - employee share options. When the shares become fully vested,

the grant-date fair value of the equity-settled share-based payments is fully recognized as an expense

immediately.

The shares of the capital increased by cash of SPH was reserved for the Group’s employees. The grand

date was the date that the employees subscription and the fair value determined at the grant date of the

equity-settled share-based payments is recognized as an expense and paid-in capital.

Revenue Recognition

a. Interest income and expense

Except for financial assets and liabilities at fair value through profit or loss, all interest-earning financial

assets and interest-bearing financial liabilities are accrued using the effective interest rate method and

are accounted for as interest revenue and interest expense in the consolidated statement of

comprehensive income.

Transaction costs and all other premium or discounts associated with the loans and receivables are

adjusted to the carrying amount of the loans and receivables. The calculation of effective interest rate

includes transaction costs and all other premium or discounts paid or received by the Bank that is an

integral part of the effective interest rate.

Interest should not be accrued for loans that are transferred to nonperforming loans. The interest

revenue on those loans/credits is recognized upon collection.

Under Ministry of Finance (MOF) regulations, the interest revenue on structured loans is recognized

upon collection.

Interest income on revolving credit card receivables and cash advance is recognized on an accrual basis.

- 26 -

b. Commission revenue

Commission fee revenue and expenses are recognized when loans or other services are provided.

Service fees on significant projects are recognized when the project has been completed, for instance,

loans syndicated fees are recognized over the period during which the service is performed, or as an

adjustment to the effective interest rate on the loan and receivables.

Annual fee income is the membership fee received from card members and is recognized when card

members fail to meet the criteria for annual fee exemption; an allowance is estimated using past

experience and is recognized as a deduction from annual fee income within the year the annual fee

income is recognized.

Revenue from rendering services is recognized at the amount corresponding to the percentage of

services completed as of the balance sheet date.

c. Dividend income

Dividend income from investments is recognized when the shareholder’s right to receive payment has

been established provided that it is probable that the economic benefits will flow to the Bank and the

amount of income can be measured reliably.

Income Tax

Income tax expense represents the sum of the current tax and deferred tax.

a. Current tax

According to the Income Tax Act, an additional tax at 10% of unappropriated earnings is provided for

as income tax in the year the shareholders approve to retain the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

b. Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and

liabilities in the financial statements and the corresponding tax bases used in the computation of taxable

profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.

Deferred tax assets are generally recognized for all deductible temporary differences and unused loss

carry forward that it is probable that taxable profits will be available against which those deductible

temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in

subsidiaries and associates, and interests in joint ventures, except where the Bank are able to control the

reversal of the temporary difference and it is probable that the temporary difference will not reverse in

the foreseeable future. Deferred tax assets arising from deductible temporary differences associated

with such investments and interests are only recognized to the extent that it is probable that there will be

sufficient taxable profits against which to utilize the benefits of the temporary differences and they are

expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced

to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or

part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the

end of each reporting period and recognized to the extent that it has become probable that future taxable

profit will allow the deferred tax asset to be recovered.

- 27 -

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in

which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been

enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax

liabilities and assets reflects the tax consequences that would follow from the manner in which the Bank

expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and

liabilities.

c. Current and deferred tax for the period

Current and deferred tax are recognized in profit or loss, except when they relate to items that are

recognized in other comprehensive income or directly in equity, in which case, the current and deferred

tax are also recognized in other comprehensive income or directly in equity respectively.

d. Linked-tax system

SPH adopted the linked-tax system for income tax filings with its qualified subsidiaries, including the

Bank. The different amounts between tax expense and deferred tax liabilities and assets based on

consolidation and SPH with its qualified subsidiaries are adjusted on SPH; related amounts are

recognized as current tax assets or current tax liabilities.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

In the application of the Bank’s accounting policies, which are described in Note 4, management is required

to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are

not readily apparent from other sources. The estimates and associated assumptions are based on historical

experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimate is revised if the revision affects only that period

or in the period of the revision and future periods if the revision affects both current and future periods.

a. Impairment loss on loans and receivables

The Bank reviews loan portfolios to assess impairment periodically. In determining whether an

impairment loss should be recorded, the Bank makes judgments on whether there are any observable

data indicating that impairment. This evidence may include observable data indicating that there has

been an adverse change in the payment status of borrowers (e.g., payment delinquency or default), or

economic conditions that correlate with defaults on assets. To assess impairment, the management

uses estimates based on historical loss experience for assets with credit risk characteristics and objective

evidence of impairment similar to those in the portfolio when estimating expected future cash flows.

The methodology and assumptions used for estimating both the amount and timing of future cash flows

are reviewed regularly to decrease the difference between estimated loss and actual loss.

Impairment losses on loans and receivables are shown in Notes 11, 12, 16 and 45.

b. Fair value of financial instruments

As described in Note 44, the Bank’s management uses its judgment in selecting an appropriate

valuation technique for financial instruments with no quoted market prices in an active market.

Valuation techniques commonly used by market practitioners are applied. For derivative financial

instruments, assumptions are based on quoted market rates adjusted for specific features of the

instruments. Other financial instruments were valued using a discounted cash flow analysis that

includes assumptions based on quoted market prices or rates (if available). The measurement of the

fair value of unlisted equity investments includes assumptions not based on observable market prices or

- 28 -

rates. Note 44 provides information on the key assumptions used determining the fair value of

financial instruments. The Bank’s management believes that the chosen valuation techniques and

assumption used are appropriate in determining the fair value of financial instruments.

c. Impairment of goodwill

Determining goodwill impairment requires an estimation of the value in use of the cash-generating units

to which goodwill has been allocated. The value in use calculation requires management to estimate

the future cash flows expected to arise from the cash-generating unit and to use a suitable discount rate

to calculate the present value of these cash flows. When the actual future cash flows are less than

expected, a material impairment loss may arise.

Impairment of goodwill is shown in Note 18.

d. Income tax

As of December 31, 2014 and 2013, the carrying amounts of deferred income tax assets were

$2,132,154 and $1,649,751, respectively. As of December 31, 2014 and 2013, deferred income tax

assets amounting to $26,500 had not been recognized because of the unpredictability of future profit

streams. The realizability of the deferred income tax assets mainly depend on whether sufficient

future profits or taxable temporary differences will be available in the future. If the actual future

profits generated are less than expected, a material reversal of deferred income tax assets may arise,

which would be recognized in profit or loss for the period in which reversal takes place.

e. Employee benefit obligation reserve

The present value of defined benefit obligation and preferential interest on employees’ deposits are

based on several actuarial assumptions. Any changes on these assumptions will influence the fair

value of the employee benefit obligations.

One of the assumptions used to determine net pension cost (income) pertains to the discount rate. The

Bank determines the appropriate discount rate at the end of each year, and uses the rate to calculate the

present value of future cash flows on the estimated payment of employee benefit obligation.

The employee benefit obligation reserve is shown in Note 27.

6. CASH AND CASH EQUIVALENTS

December 31

2014 2013

Cash on hand $ 7,523,780 $ 7,459,671

Due from other banks 28,431,334 14,341,809

Checks for clearing 3,659,263 1,743,594

$ 39,614,377 $ 23,545,074

- 29 -

Cash and cash equivalents as of December 31, 2014 and 2013 as shown in the statements of cash flows can

be reconciled to the related items in the balance sheets as follows:

December 31

2014 2013

Cash and cash equivalents in balance sheets $ 39,614,377 $ 23,545,074

Due from the Central Bank and call loans to other banks that meet

the definition of cash and cash equivalents under IAS 7 “Statement

of Cash Flows” 47,750,336 27,480,427

Securities purchased under agreement to resell that meet the

definition of cash and cash equivalents under IAS 7 “Statement of

Cash Flows” 12,884,142 -

Cash and cash equivalents in statements of cash flows $ 100,248,855 $ 51,025,501

7. DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS

December 31

2014 2013

Call loans to banks $ 37,525,481 $ 20,838,072

Funded trade advance - interbank 4,656,114 5,310,376

Deposit reserve - checking accounts 12,594,809 7,889,096

Due from the Central Bank - interbank settlement funds 840,614 802,160

Deposit reserve - demand accounts 23,804,301 23,929,683

Deposit reserve - foreign currencies 228,364 185,709

$ 79,649,683 $ 58,955,096

Under a directive issued by the Central Bank of the ROC, New Taiwan dollar (NTD)-denominated deposit

reserves are determined monthly at prescribed rates based on average balances of customers’

NTD-denominated deposits. Deposit reserve - demand account should not be used, except for adjusting

the deposit reserve account monthly. In addition, the foreign-currency deposit reserves are determined at

prescribed rates based on the balances of foreign-currency deposits. These reserves can be withdrawn

momentarily at based on anytime at no interest.

8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31

2014 2013

Held-for-trading financial assets

Government bonds $ 19,196,723 $ 5,432,683

Corporate bonds 2,504,072 4,251,470

Bank debentures 1,722,123 250,382

Listed stocks 240,374 124,746

Option contracts 10,089,919 2,187,794

Currency swap contracts 9,248,771 4,940,440

Interest rate swap contracts 1,034,073 1,764,616

Forward contracts 947,030 2,738,960

Cross-currency swap contracts 188,616 103,315

(Continued)

- 30 -

December 31

2014 2013

Others $ 130,791 $ 123,078

Adjustment for change in value of held-for-trading financial assets 82,570 35,473

45,385,062 21,952,957

Financial assets designated at fair value through profit or loss

Convertible bonds 2,031,646 3,413,264

Adjustment for change in value of financial assets designated at

fair value through profit or loss 1,445 4,121

2,033,091 3,417,385

$ 47,418,153 $ 25,370,342

Held-for-trading financial liabilities

Option contracts $ 10,156,299 $ 2,338,841

Currency swap contracts 9,005,178 4,941,766


Forward contracts 968,203 2,533,490

Cross-currency swap contracts 286,157 185,253

Others 118,672 108,028

$ 21,597,828 $ 11,831,968

(Concluded)

a. The Bank designated hybrid instruments as financial assets and liabilities at FVTPL.

b. Financial assets at fair value through profit or loss had not been sold with agreement to repurchase.

Please refer to Note 42 for information relating to financial assets at fair value through profit or loss

pledged as security.

c. The Bank engages in derivative transactions mainly to accommodate customers’ needs and manage

their own exposure positions. Outstanding derivative contracts (nominal) on December 31, 2014 and

2013 are shown as follows:

Contract Amount

December 31

2014 2013

Currency swap contracts $ 948,367,379 $ 579,499,783


Option contracts

Long position 246,015,386 195,011,294

Short position 248,790,152 189,339,438

Forward contracts

Long position 54,271,155 26,847,334

Short position 32,227,492 22,392,937

Non-deliverable forward contracts

Long position 49,771,501 79,328,873

Short position 49,552,342 79,853,568

Cross-currency swap contracts 28,371,856 19,565,547

Assets swap contracts 2,031,646 3,413,264

Equity-linked swap contracts 1,292,787 2,030,257

Futures contracts 834,881 580,849

Commodity-linked swap contracts 208,628 263,743

- 31 -

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

The Bank’s management had established related risk management policy.

December 31

2014 2013

Derivative financial liabilities under hedge accounting

Cash flow hedge - interest rate swap $ - $ 3,789

The Bank used interest rate swap contracts to hedge against the risk of adverse interest rate fluctuations,

which could negatively affect future cash flow.

As of December 31, 2014, the Bank did not engage in the derivatives that are designated and qualify as cash

flow hedges.

January 1 to December 31, 2013

Hedged Items Hedging Instruments Notional

Amount Fair Value

Unrealized

Gain or Losses

on Cash Flow

Hedges

Bank debentures Interest rate swap $ 3,600,000 $ (3,789) $ 18,787

10. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

December 31,

2014

Commercial paper $ 11,833,820

Negotiable certificates of deposit 1,060,329

$ 12,894,149

Agreed-upon resell amount $ 12,900,949

Expiry April 2015

The Bank did not purchase any securities under agreements to resell on December 31, 2013.

Securities purchased under agreement to resell are not underlying for agreements to repurchase.

11. RECEIVABLES, NET

December 31

2014 2013

Account receivables - forfaiting $ 82,160,394 $ 69,232,903

Acceptances - forfaiting 25,756,268 15,422,003

Credit card receivables 17,327,213 17,115,895

(Continued)

- 32 -

December 31

2014 2013

Account receivables - factoring $ 10,296,684 $ 11,769,326

Interest and revenue receivables 2,104,968 1,987,449

Acceptances 2,095,801 1,709,103

Trust administration fee revenue receivables 597,011 574,288

Others 972,180 1,123,050

141,310,519 118,934,017

Less: Allowance for credit losses 701,612 501,307

Net amount $ 140,608,907 $ 118,432,710

(Concluded)

The Bank assessed the collectability of receivables to determine the allowance. Movements in the

allowance of receivables were shown as follows:

Year Ended December 31

2014 2013

Balance, January 1 $ 501,307 $ 451,897

Provisions 538,201 231,349

Write-off (353,961) (184,267)

Reclassification - 26

Effect of exchange rate changes 16,065 2,302

Balance, December 31 $ 701,612 $ 501,307

Please refer to Note 45 for the analysis of receivable impairment loss. The recovery of receivables

write-off as deduction of provision for the years ended December 31, 2014 and 2013 were $278,048 and

$538,710, respectively.

12. DISCOUNTS AND LOANS, NET

December 31

2014 2013

Export negotiation $ 727,827 $ 575,232

Overdrafts 2,097 3,276

Secured overdrafts 322,392 316,050

Account receivables - financing 2,245,383 2,473,607

Short-term loans 112,840,418 112,798,763

Secured short-term loans 99,217,470 92,997,816

Medium-term loans 110,150,888 123,042,572

Secured medium-term loans 76,010,660 84,019,282

Long-term loans 9,503,937 11,300,362

Secured long-term loans 362,101,260 360,504,376

Nonperforming loans transferred from loans 1,596,465 2,674,492

774,718,797 790,705,828

Less: Allowance for credit losses 12,469,687 8,546,558

Less: Premium or discount on discounts and loans 241,554 240,347

Net amount $ 762,007,556 $ 781,918,923

- 33 -

Please refer to Note 45 for the analysis of impairment loss on discounts and loans.

Please refer to Note 42 for information relating to discounts and loans pledged as security.

The Bank assessed the collectability of discounts and loans to determine the allowance.

Movement in the allowance of discounts and loans is shown as follows:


2014 2013

Balance, January 1 $ 8,546,558 $ 7,582,257

Provision 4,614,243 2,978,531

Write-off (791,430) (2,037,251)

Effect of exchange rate changes 100,316 23,021

Balance, December 31 $ 12,469,687 $ 8,546,558

The Bank received loans previous wrote-off $1,112,221 and $472,257 for the years ended December 31,

2014 and 2013, respectively, which recognized as deduction of provision expenses.

13. AVAILABLE-FOR-SALE FINANCIAL ASSETS

December 31

2014 2013

Negotiable certificates of deposits $ 142,373,059 $ 5,497,025

Commercial papers 21,996,592 13,782,378

Corporate bonds 18,024,169 17,578,399

Government bonds 16,400,675 11,955,118

Bank debentures 4,791,896 6,398,049

Agency bonds 940,674 898,590

Others 20,983 20,983

204,548,048 56,130,542

Adjustments for change in value of available-for-sale financial assets 225,692 178,549

$ 204,773,740 $ 56,309,091

As of December 31, 2014 and 2013, the book values of available-for-sale financial assets under agreements

to repurchase were $7,102,100 and $447,800, respectively.

Please refer to Note 42 for information relating to available-for-sale financial assets pledged as security.

14. HELD-TO-MATURITY FINANCIAL ASSETS, NET

December 31

2014 2013

Government bonds $ 28,815,794 $ 9,875,177

Negotiable certificates of deposit 12,933,586 199,934,765

(Continued)

- 34 -

December 31

2014 2013

Corporate bonds $ 1,752,360 $ 1,752,937

Bank debentures - 25,685

43,501,740 211,588,564

Less: Accumulated impairment - 10,274

Net amount $ 43,501,740 $ 211,578,290

(Concluded)

A change of intention led the Bank to reclassify available-for-sale financial assets (government bonds

$8,410,928 and corporate bonds $1,753,088) as held-to-maturity financial assets. Please refer to Note 47

for the related information.

The operations of the bank that had issued debentures and the bank’s restructuring was uncertain, which

could result in the bank’s inability to pay interest. Since the Bank evaluated that its recovery rate for the

debentures was low, it disposed one of the bank debentures before the maturity date in August 2014. As

of December 31, 2014, the cumulative amount of the debentures disposed of in 2014 was US$857, with a

gain of $10,213 on impairment loss reversal and a loss of $11,619 on disposal; the percentage of cumulative

amounts disposed of over the prior three years to total amounts of held-to-maturity investments as of

September 30, 2014 was 0.01%.

Please refer to Note 42 for information relating to held-to-maturity financial assets pledged as security.

15. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD, NET

December 31

2014 2013

Investments in subsidiaries - unlisted companies

Bank SinoPac (China) Ltd. $ 10,439,047 $ 9,760,662

SinoPac Bancorp 8,613,964 3,499,035

SinoPac Capital Limited (H.K.) 1,803,395 1,360,210

SinoPac Life Insurance Agent Co., Ltd. 929,469 863,905

SinoPac Property Insurance Agent Co., Ltd. 36,259 32,722

$ 21,822,134 $ 15,516,534

As the end of the reporting period, the proportion of ownership and voting rights in subsidiaries held by the

Bank were all 100%.

The Bank received the approval of Financial Supervisory Commission and Investment Commission,

MOEA for its investment in the subsidiary - SinoPac Bank (China) - which was a preparatory office

approved by China Banking Regulatory Commission in July 2013, and the capital was injected in August of

the same year. China Banking Regulatory Commission issued foreign-funded bank authorization and

financial license to SinoPac Bank (China) in December 2013, and then obtained the local operating license

in January 2014.

In October 2014, SinoPac Bancorp’s board of directors approved its capital increase of US$195,000, the

redemption of preferred shares amounting to US$195,000 and a return to the Bank of capital of US$50,000.

The shares issued for SinoPac Bancorp’s capital increase were all subscribed for by the Bank.

- 35 -

The Bank’s share of profit and other comprehensive income of subsidiaries for the years ended December

31, 2014 and 2013 was based on the subsidiaries’ financial statements audited by the accountants for the

same period.

The investments share of profit of subsidiaries were as follows:


2014 2013

Bank SinoPac (China) Ltd. $ 98,357 $ 59,315

SinoPac Bancorp 257,724 198,838

SinoPac Capital Limited (H.K.) 354,507 59,445

SinoPac Life Insurance Agent Co., Ltd. 913,032 847,123

SinoPac Property Insurance Agent Co., Ltd. 29,992 26,577

$ 1,653,612 $ 1,191,298

16. OTHER FINANCIAL ASSETS, NET

December 31

2014 2013

Unquoted equity instruments

Unlisted equity investments $ 364,092 $ 6,493,254

Purchase of the PEM Group’s instruments 4,458,015 4,224,732

Time deposits not belong to cash and cash equivalent 3,573,430 11,468,108

Excess margin of futures and options 204,601 151,561

Short-term loan advance 18,209 22,544

Nonperforming receivables transferred from other than loans 6,933 5,388

Exchange bills negotiated 285 695

8,625,565 22,366,282

Less: Allowance for credit loss 10,268 11,184

Less: Accumulated impairment 2,375,857 2,430,540

$ 6,239,440 $ 19,924,558

The board of directors of the Bank and SinoPac Bancorp resolved the redemption of preferred stocks by

US$195,000 (listed in unquoted equity instruments) in October 2014. And the capital was used for the

capital increase of the common stocks by the Bank.

The above item of time deposits not belong to cash and cash equivalent included time deposits exceeding

three months or those could not withdraw anytime.

Please refer to Note 42 for information relating to other financial assets pledged as security.

The Bank assessed the collectability of other financial assets to determine the allowance. Movements in

the allowance of other financial assets were shown as follows:


2014 2013

Balance, January 1 $ 11,184 $ 139,292

Provisions (reversal of provision) 9,649 (94,775)

Write-off (11,291) (36,613)

(Continued)

- 36 -


2014 2013

Reclassification $ - $ (26)

Effect of exchange rate changes 726 3,306

Balance, December 31 $ 10,268 $ 11,184

(Concluded)

The Bank was delegated by professional investors to sell the PEM Group’s investment products amounting

to US$146,000 through private placement. A court appointed a receiver for all assets that belonged to,

were being managed by, or were in the possession of or control of the PEM Group. To protect the client’s

interests, the Bank bought back the products at the price of the initial payment net of the distribution and

redemption costs. On December 24, 2010, the Bank’s board of directors resolved to abide by a court’s

appointment of a PEM Group receiver to take the PEM Group’s insurance policies at the price of

approximately US$40.4 million, and the Bank thus recognized impairment losses of US$11,152. On

March 7, 2011, the receiver transferred a portion of the insurance policies to a trustee established jointly by

certain banks to hold insurance policies. And the Bank had submitted to the authorities the results of this

policy transfer. As of December 31, 2014, a reserve of US$74,907 (NT$2,375,857) had been set aside to

cover the accumulated impairment losses.

17. PROPERTY AND EQUIPMENT, NET

The movements of property and equipment are summarized as follow:

Year Ended December 31, 2014

Land Buildings

Computer and

Machinery

Equipment

Transportation

Equipment

Other

Equipment

Leasehold

Improvement

Prepayments

for Equipment

and

Construction in

Progress Total

Cost

Balance, January 1 $ 6,561,105 $ 5,811,794 $ 2,111,306 $ 1,159 $ 1,187,140 $ 1,375,645 $ 116,800 $ 17,164,949

Addition - 29,453 101,249 - 81,947 32,159 166,435 411,243

Deduction 18,072 7,947 434,347 - 46,899 59,701 - 566,966

Reclassifications - 70,664 3,610 - 12,408 37,770 (174,962 ) (50,510 )

Effect of exchange rate changes - - 8,171 68 1,464 4,951 - 14,654

Balance, December 31 6,543,033 5,903,964 1,789,989 1,227 1,236,060 1,390,824 108,273 16,973,370

Accumulated depreciation

Balance, January 1 - 2,768,332 1,658,277 1,159 963,563 1,031,613 - 6,422,944

Depreciation expense - 150,984 151,130 - 54,750 81,429 - 438,293

Deduction - 2,335 426,963 - 45,051 52,466 - 526,815

Effect of exchange rate changes - - 7,731 68 1,251 4,711 - 13,761

Balance, December 31 - 2,916,981 1,390,175 1,227 974,513 1,065,287 - 6,348,183

Net amount

Balance, December 31 $ 6,543,033 $ 2,986,983 $ 399,814 $ - $ 261,547 $ 325,537 $ 108,273 $ 10,625,187


Land Buildings

Computer and

Machinery

Equipment

Transportation

Equipment

Other

Equipment

Leasehold

Improvement

Prepayments

for Equipment

and

Construction in

Progress Total

Cost

Balance, January 1 $ 6,609,808 $ 5,814,113 $ 2,181,733 $ 1,128 $ 1,153,435 $ 1,304,228 $ 114,219 $ 17,178,664

Addition - 33,453 100,421 - 80,695 49,411 170,690 434,670

Deduction 48,703 69,155 196,953 - 47,655 39,483 97 402,046

Reclassifications - 33,383 22,306 - - 59,309 (168,020 ) (53,022 )

Effect of exchange rate changes - - 3,799 31 665 2,180 8 6,683

Balance, December 31 6,561,105 5,811,794 2,111,306 1,159 1,187,140 1,375,645 116,800 17,164,949

Accumulated depreciation

Balance, January 1 - 2,647,293 1,699,811 1,128 954,916 978,926 - 6,282,074

Depreciation expense - 154,390 147,047 - 54,239 89,111 - 444,787

(Continued)

- 37 -


Land Buildings

Computer and

Machinery

Equipment

Transportation

Equipment

Other

Equipment

Leasehold

Improvement

Prepayments

for Equipment

and

Construction in

Progress Total

Deduction $ - $ 33,377 $ 192,079 $ - $ 46,076 $ 38,460 $ - $ 309,992

Reclassifications - 26 - - - - - 26

Effect of exchange rate changes - - 3,498 31 484 2,036 - 6,049

Balance, December 31 - 2,768,332 1,658,277 1,159 963,563 1,031,613 - 6,422,944

Accumulated impairment

Balance, January 1 1,115 602 - - - - - 1,717

Deduction 1,115 576 - - - - - 1,691

Reclassification - (26 ) - - - - - (26 )

Balance, December 31 - - - - - - - -

Net amount

Balance, December 31 $ 6,561,105 $ 3,043,462 $ 453,029 $ - $ 223,577 $ 344,032 $ 116,800 $ 10,742,005

(Concluded)

Reclassification were mainly from prepayments for equipment and construction in progress to buildings,

computer and machinery equipment, other equipment, leasehold improvement and computer software

(listed in intangible assets).

The above items of property and equipment were depreciated at the following rates per annum:

Category Useful Lives

Buildings 15-55 years

Computer and machinery equipment 3-5 years

Transportation equipment 5 years

Other equipment 3-15 years

Leasehold improvement 5 years

There are no property and equipment pledged as security.

18. INTANGIBLE ASSETS, NET

December 31, 2014

Items Original Cost

Accumulated

Amortization

Carrying

Amount

Goodwill $ 876,717 $ - $ 876,717

Computer software 948,487 398,544 549,943

$ 1,825,204 $ 398,544 $ 1,426,660

December 31, 2013

Items Original Cost

Accumulated

Amortization

Carrying

Amount

Goodwill $ 876,717 $ - $ 876,717

Computer software 852,177 238,461 613,716

$ 1,728,894 $ 238,461 $ 1,490,433

- 38 -

Movements in the intangible assets are shown as follows:


2014 2013

Costs

Balance, January 1 $ 1,728,894 $ 1,690,152

Addition 65,426 41,743

Deduction 19,638 56,029

Reclassifications 50,510 53,023

Effect of exchange rate changes 12 5

Balance, December 31 1,825,204 1,728,894

Accumulated amortization

Balance, January 1 238,461 125,334

Addition 179,714 169,155

Deduction 19,638 56,029

Effect of exchange rate changes 7 1

Balance, December 31 398,544 238,461

Net amount $ 1,426,660 $ 1,490,433

The above intangible assets were amortized on a straight-line basis over following years:

Category Useful Lives

Computer software 5 years

Goodwill includes referred to $876,717, resulted from the Bank’s cash merger with SinoPac Card Services,

and this merger was treated as a reorganized of SPH. The Bank takes impairment review of goodwill

annually or more frequently if events or changes in circumstance indicate goodwill impairment.

In assessing whether goodwill is impaired, the Bank considers the credit card department as a cash

generating unit and estimates the recoverable amount by its value in use. The Bank uses the department’s

or investee’s actual profitability in making key assumption to predict future cash flows and thus calculates

its value in use. Under a going-concern assumption, the Bank predicted the net cash flows generated from

the investee’s operating activities in the next 5 years and estimated salvage value and used the Bank’s

weighted average cost of capital to calculate the value in use.

After assessment, the Bank found no objective evidence that goodwill had been impaired as of December

31, 2014 and 2013.

19. OTHER ASSETS, NET

December 31

2014 2013

Guarantee deposits $ 5,559,949 $ 568,953

Temporary payment and suspense accounts 312,000 242,886

Prepayment 260,045 252,980

(Continued)

- 39 -

December 31

2014 2013

Collaterals $ - $ 36,071

Others, net 44,660 45,417

6,176,654 1,146,307

Less: Allowance for credit losses 7,069 7,024

Less: Accumulated impairment - collaterals - 36,071

$ 6,169,585 $ 1,103,212

(Concluded)

20. DEPOSITS FROM THE CENTRAL BANK AND BANKS

December 31

2014 2013

Call loans from banks $ 62,668,241 $ 77,688,792

Redeposit from the directorate general of postal remittance 4,422,239 9,503,860

Due to banks 118,845 89,801

$ 67,209,325 $ 87,282,453

21. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

December 31

2014 2013

Government bonds $ 7,103,953 $ 451,771

Agreed repurchase price $ 7,105,725 $ 452,281

Maturity date March 2015 March 2014

22. PAYABLES

December 31

2014 2013

Accounts payable - factoring $ 3,929,771 $ 5,992,485

Notes and checks in clearing 3,659,263 1,743,594

Accrued expenses 2,985,665 2,842,116

Acceptance payables 2,095,801 1,709,103

Interest payables 1,952,494 1,723,827

Dividends payables to SPH 1,435,025 1,435,025

Accounts payable 335,749 166,431

Remittance payables 273,905 268,999

Tax payables 258,803 173,178

Others 797,546 576,494

$ 17,724,022 $ 16,631,252

- 40 -

23. DEPOSITS AND REMITTANCES

December 31

2014 2013

Checking $ 14,712,775 $ 13,618,613

Demand 231,388,347 208,496,127

Savings - demand 256,423,001 245,106,148

Time deposits 350,446,955 355,034,441

Negotiable certificates of deposit 972,200 17,212,500

Savings - time 239,957,440 225,225,649

Inward remittances 607,613 620,852

Outward remittances 155,030 58,721

$ 1,094,663,361 $ 1,065,373,051

24. BANK DEBENTURES

To raise capital for its financial operation and increase its capital adequacy ratio, the Bank obtained

approval to issue bank debentures. Bank debentures list below:

December 31

2014 2013 Maturity Date Rates

Second subordinated bank

debentures issued in 2008 (A)

$ 4,499,909 $ 4,499,536 2008.03.25-2015.03.25

Principal is repayable on maturity date.

Index rate plus 1%. Interest rate is reset

quarterly since the issuance date and paid

annually.


debentures issued in 2008 (B)

499,990 499,949 2008.03.25-2015.03.25


Fixed interest rate of 3.2%, interest is paid

annually.

Third subordinated bank

debentures issued in 2008

- 3,599,925 2008.09.09-2014.03.09


Index rate plus 0.95%. Interest rate is reset


annually.

First subordinated bank


5,599,392 5,598,951 2009.04.29-2016.04.29



annually.



2,199,898 2,199,691 2009.06.23-2015.06.23



annually.



2,199,973 2,199,963 2009.06.23-2017.06.23



annually.



3,099,290 3,099,057 2010.12.09-2017.12.09



annually.



2,899,347 2,899,128 2010.12.09-2017.12.09


Index rate plus 0.35%. Interest rate is reset


annually.



999,689 999,596 2011.03.11-2018.03.11



annually.



3,798,935 3,798,655 2011.08.18-2018.08.18



annually.



2,998,921 2,998,771 2011.08.18-2021.08.18



annually.



3,199,009 3,198,762 2011.11.04-2018.11.04



annually.



4,698,306 4,697,962 2012.09.18-2019.09.18



annually.



1,299,460 1,299,395 2012.09.18-2022.09.18



annually.



1,499,184 1,499,000 2013.09.27-2019.03.27



annually.



1,998,896 1,998,995 2013.12.23-2019.06.23



annually.



1,998,837 - 2014.03.20-2019.09.20

Principal is repayable on maturity date


annually



2,498,506 - 2014.06.23-2019.12.23



annually.



1,878,708 - 2014.09.30-2020.03.30



annually.



699,506

-

2014.09.30-2024.09.30



annually.

$ 48,565,756 $ 45,087,336

- 41 -

25. OTHER FINANCIAL LIABILITIES

December 31

2014 2013

Principal received on structured notes $ 12,960,079 $ 6,677,942

Oversea certificate of deposits 2,219,280 -

Payments collected for share subscriptions 18,855 43,845

$ 15,198,214 $ 6,721,787

26. PROVISIONS

December 31

2014 2013

Provisions for employee benefits $ 2,435,419 $ 2,568,984

Provisions for guarantee liabilities 239,582 124,344

Provisions for decommissioning liabilities 69,305 61,221

$ 2,744,306 $ 2,754,549

27. PROVISIONS FOR EMPLOYEE BENEFITS

December 31

2014 2013

Recognized in balance sheets (account payables and provisions)

Defined contribution plans $ 31,057 $ 30,052

Defined benefit plans 2,131,210 2,290,136

Preferential interest on employees’ deposits 239,120 230,214

Deferred annual leave 65,089 48,634

$ 2,466,476 $ 2,599,036

a. Defined contribution plans

The Bank adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed

defined contribution plan. Based on the LPA, the Bank makes monthly contributions to employees’

individual pension accounts at 6% of monthly salaries and wages.

The total expense recognized in profit or loss for the years ended December 31, 2014 and 2013 was

$194,324 and $182,271, respectively, represents contributions payable to these plans by the Bank at

rates specified in the rules of the plans.

b. Defined benefit plans

For the Bank employees who adopt for defined benefit plans regulated by the Labor Standards Act, the

retirement benefits are paid to employees as follow: (i) a lump sum payment equal to two base units

for each year of service; (ii) that each year of service exceeding 15 years is entitled to only one base

unit of wage; and (iii) that the maximum payment is for up to 45 base units. Any fraction of a year

that is equal to six months or more is counted as one year of service, and any fraction of a year that is

less than six months is counted as half a year of service.

- 42 -

The Bank contributes pension fund to a pension fund administered by the pension fund monitoring

committee. Pension contributions are deposits in the Bank of Taiwan or Bank SinoPac in the

committee’s name.

Ministry of Labor Bureau of Labor funds invested plan assets in domestic (foreign) equity securities,

debt securities and bank deposits, etc., through the operation mode of self-use and entrusted.

However, according to the Labor Pension Fund payments safekeeping and utilization regulations, the

labor retirement funds’ income distribution did not allowed less than the for local bank deposit rates

calculated in two years.

The actuarial valuations of plan assets and the present value of the defined benefit obligation were

carried out by qualifying actuaries. The principal assumptions used for the purposes of the actuarial

valuations were as follows:

Valuation at

December 31

2014 2013

Discount rate 1.75% 1.75%

Expected future return on investment of plan assets 1.50% 1.50%

Expected future salary growth rate 1.75% 1.75%

The assessment of the overall expected rate of return was based on historical return trends and analysts’

predictions of the market for the asset over the life of the related obligation, by reference to the

aforementioned use of the plan assets and the impact of the related minimum return.

Amounts recognized in profit or loss in respect of these defined benefit plans are as follows:


2014 2013

Current service cost $ 96,139 $ 106,758

Interest cost 86,947 89,226

Expected return on plan assets (39,177) (49,156)

Past service cost 27,138 27,138

$ 171,047 $ 173,966

Actuarial gains and losses recognized in other comprehensive income for the years ended December 31,

2014 and 2013 were gain of $14,557 and loss of $44,188, respectively. The cumulative amount of

actuarial gains and losses recognized in other comprehensive income as of December 31, 2014 and

2013 were loss of $23,261 and loss of $37,818, respectively.

The amount included in balance sheets arising from the Bank’s obligation in respect of its defined

benefit plans were as follows:

December 31

2014 2013

Present value of funded defined benefit obligation $ 4,899,064 $ 5,030,429

Fair value of plan assets (2,605,023) (2,550,324)

Deficit 2,294,041 2,480,105

Past service cost not yet recognized (162,831) (189,969)

The provision of defined benefit plans $ 2,131,210 $ 2,290,136

- 43 -

Movements in the present value of the defined benefit obligations were as follows:


2014 2013

Opening defined benefit obligation $ 5,030,429 $ 5,310,328

Current service cost 96,139 106,758


Actuarial (gains) losses (19,209) 41,158

Benefits paid (295,242) (517,041)

Closing defined benefit obligation $ 4,899,064 $ 5,030,429

Movements in the fair value of the plan assets were as follows:


2014 2013

Opening fair value of plan assets $ 2,550,324 $ 2,743,130

Expected return on plan assets 39,177 49,156

Loss on plan assets (1,671) (12,081)

Contributions 312,435 287,160

Benefits paid (295,242) (517,041)

Closing fair value of plan assets $ 2,605,023 $ 2,550,324

For the years ended December 31, 2014 and 2013, the actual return on plan assets were $37,506 and

$37,075, respectively.

The major categories of plan assets at the end of the reporting period for each category were disclosed

based on the information announced by Bureau of Labor Funds, Ministry of Labor.

December 31

2014 2013

Saving in financial institution 19.12 22.86

Securities and beneficial certificate investments 12.15 8.41

Short-term bills 1.98 4.10

Bonds 11.92 9.37

Overseas investments 36.49 34.31

Others 18.34 20.95

100.00 100.00

The Bank chose to disclose the history of experience adjustments as the amounts determined for each

accounting period prospectively from the date of transition to IFRSs (January 1, 2012):

December 31,

2014

December 31,

2013

December 31,

2012

January 1,

2012

Present value of defined benefit

obligation $ 4,899,064 $ 5,030,429 $ 5,310,328 $ 5,392,520

Fair value of plan assets $ 2,605,023 $ 2,550,324 $ 2,743,130 $ 2,657,235

Deficit $ 2,294,041 $ 2,480,105 $ 2,567,198 $ 2,735,285

(Continued)

- 44 -

December 31,

2014

December 31,

2013

December 31,

2012

January 1,

2012

Experience adjustments on plan

liabilities $ 20,848 $ (79,108) $ 60,256 $ -

Change of actuarial hypothesis

on plan liabilities $ (1,639) $ 37,950 $ (33,630) $ -

Experience adjustments on plan

assets $ (1,671) $ (12,081) $ (18,952) $ -

(Concluded)

The Bank expects to make a contribution of $236,917 and $247,033 to the defined benefit plans for the

years ended December 31, 2015 and 2014, respectively.

c. Preferential interest on employees’ deposits

The Bank offers preferential interest on employees’ deposits to both current and retired employees.

The principal assumptions used for the purposes of the actuarial valuations were as follows:

Valuation at

December 31

2014 2013

Discount rate 4.00% 4.00%

Expected interest rate on preferential interest on employees’

deposits

Manager 7.38% 7.38%

Staff 13.00% 13.00%

Normal deposit interest rate 1.38% 1.38%

Return on deposits 2.00% 2.00%

Excess preferential interest

Manager 4.00% 4.00%

Staff 9.62% 9.62%

The probability of preferential interest on employees’ deposits is

canceled within ten years 50.00% 50.00%

The gains (losses) of preferential interest on employee’s deposits are as follows:


2014 2013

Interest cost $ 8,745 $ 7,546

Past service cost 18,931 45,259

$ 27,676 $ 52,805

For the years ended 2014 and 2013, the Bank has recognized actuarial loss $1,554 and gain $1,199 in

other comprehensive income, respectively. As of December 31, 2014 and 2013, the accumulated

amounts of actuarial losses of $16,662 and $15,108 were recognized in other comprehensive income,

respectively.

- 45 -

The amount included in balance sheets arising from the Bank’s obligation in respect of its preferential

interest on employees’ deposits were as follows:

December 31

2014 2013

Present value of preferential interest on employees’ deposits $ 239,120 $ 230,214

Past service costs not yet recognized - -

The provision of preferential interest on employees’ deposits $ 239,120 $ 230,214

Movements in the present value of the obligation the preferential interest on employees’ deposits:


2014 2013

Opening obligation of preferential interest on employees $ 230,214 $ 198,567

Effect on policy change 18,931 45,259


Actuarial losses (gains) 1,872 (1,445)

Benefit paid (20,642) (19,713)

Closing obligation of preferential interest on employees $ 239,120 $ 230,214

The Bank chose to disclose the history of experience adjustments at the amounts determined for each

accounting period prospectively from the date of transition to IFRSs (January 1, 2012):

December 31,

2014

December 31,

2013

December 31,

2012

January 1,

2012

Opening obligation $ 239,120 $ 230,214 $ 198,567 $ 170,548

Deficits $ 239,120 $ 230,214 $ 198,567 $ 170,548

Experiences adjustments on the

obligation of preferential

interest on employees’ deposits $ 1,872 $ 4,926 $ 8,856 $ -

Change of actuarial hypothesis on

the obligation of preferential

interest on employees’ deposits $ - $ (6,371) $ 10,791 $ -

28. OTHER LIABILITIES

December 31

2014 2013

Advance receipt $ 2,018,070 $ 1,100,360

Temporary receipt and suspense accounts 1,256,837 1,010,928

Guarantee deposits received 293,036 289,730

Deferred revenue 117,516 143,120

Others 19,478 20,757

$ 3,704,937 $ 2,564,895

- 46 -

29. INCOME TAX

Under Article 49 of the Financial Holding Company Act and related directives issued by the Ministry of

Finance, a financial holding company and its domestic subsidiaries that held over 90% of shares issued by

the financial holding company for 12 months within the same tax year may choose to adopt the linked-tax

system for income tax filings. Thus, SPH adopted the linked-tax system for income tax and

unappropriated earnings tax filings with its qualified subsidiaries since 2003.

a. Income tax recognized in profit or loss

The major components of tax expense were as follows:


2014 2013

Current tax

In respect of the current year $ 1,728,917 $ 1,140,589

In respect of prior periods (11,534) (65,977)

1,717,383 1,074,612

Deferred tax

Recovery of temporary difference (454,468) 13,853

Income tax expenses recognized through profit or loss $ 1,262,915 $ 1,088,465

A reconciliation of accounting profit and current income tax expenses is as follows:


2014 2013

Income before income tax $ 12,617,790 $ 10,691,374

Income tax expense at the 17% statutory rate $ 2,145,024 $ 1,817,534

Tax effect of adjusting items:

Permanent differences (1,042,636) (643,283)

Tax-exempt income (38,277) (41,355)

Additional income tax under the Alternative Minimum Tax

Act 184,235 21,692

Adjustments for prior years (11,534) (65,977)

Temporary differences - (146)

Others 26,103 -

Income tax expense recognized in profit or loss $ 1,262,915 $ 1,088,465

As the status of 2015 appropriations of earnings is uncertain, the potential income tax consequences of

2014 unappropriated earnings are not reliably determinable.

- 47 -

b. Income tax recognized in other comprehensive income


2014 2013

Deferred tax

Recognized in other comprehensive income

Cash flow hedges $ (644) $ (3,194)

Translation of foreign operations (121,431) 240

Share of other comprehensive income of subsidiaries (5,377) 17,396

Actuarial gains and losses on defined benefit plan (2,663) 8,805

Income tax recognized in other comprehensive income $ (130,115) $ 23,247

c. Current tax assets and liabilities

December 31

2014 2013

Current tax assets

Receivables from adopting the linked-tax system $ 1,155,938 $ 1,256,073

Others 20,006 15,213

$ 1,175,944 $ 1,271,286

Current tax liabilities

Payables form adopting the linked-tax system $ 948,384 $ 700,560

Others 24,453 24,175

$ 972,837 $ 724,735

d. Deferred tax assets and liabilities

December 31

2014 2013

Deferred tax assets

Allowance for doubtful accounts $ 820,607 $ 1,273

Loss carryforwards 698,345 912,798

Provision for employee benefits 367,558 391,003

Investments accounts for using the equity method 167,451 211,265

Others 78,193 133,412

$ 2,132,154 $ 1,649,751

Deferred tax liabilities

Land value increment tax $ 591,416 $ 591,993

Investments accounts for using the equity method 170,356 93,368

Exchange differences on translating foreign operations 76,166 -

Unrealized commission revenue - 95,890

Others 74,219 46,556

$ 912,157 $ 827,807

- 48 -

Deferred tax expenses recognized in profit or loss are shown as follows:


2014 2013

Investments accounts for using the equity method $ 120,802 $ 53,845

Defined benefit plan 24,939 13,464

Provisions (660,171) 266

Others 59,962 (53,722)

$ (454,468) $ 13,853

The unused loss carryforwards as of December 31, 2014 were as follows:

Amount The Last Year of Claiming Deductible Loss

$ 2,585,832 2018

1,522,078 2019

$ 4,107,910

e. The related information under the Integrated Income Tax System was as follows:

December 31

2014 2013

Balances of the imputation tax credit account (ICA) $ 1,216 $ 61,893

The Excepted

Creditable

Tax Ratio

Generated in

2014

The Actual

Creditable

Tax Ratio

Generated in

2013

The Bank 1.79% 2.66%

Under the Income Tax Law, for distribution of earnings generated after 1998, the imputation credits

allocated to ROC resident shareholders of the Bank was calculated based on the creditable ratio as of

the date of dividend distribution. The actual imputation credits allocated to shareholders of the Bank

was based on the balance of the imputation credit accounts as of the date of dividend distribution.

Therefore, the expected creditable ratio for the 2014 earnings may differ from the actual creditable ratio

to be used in allocating imputation credits to the shareholders.

As of December 31, 2014, the unappropriated earnings generated before 1998 was $8,758, which was

recorded as capital surplus resulting from a merger.

f. The Bank’s tax returns through 2008 had been assessed by the tax authorities. However, the tax

authorities had a different opinion about recognizing the interest expenses as the deduction of the

income from trading of domestic securities which is tax-exempt temporarily. Thus, the tax authorities

canceled the interest expenses deduction and increased taxable income by about $69,591. The Bank

had proposed administrative remedy to above event.

- 49 -

30. EQUITY

Common Shares

The Bank’s authorized capital is $80,000,000. And the Bank issued 8,000,000 thousand common shares

with each par value of NT$10.

The board of directors of the Bank resolved to raise capital on March 13, 2013, capital increased to

$59,616,160, with 575,414 thousand shares, par value at $10. The appropriations of earnings had been

resolved by the board of directors which execute the rights and functions of the stockholder’s meeting on

May 24, 2013. The above transaction was approved by authorities, and the record date of earnings

capitalization was July 31, 2013.

On October 24, 2014, the Bank’s board of directors which execute the rights and functions of the

stockholders’ meeting resolved to issue 675,870 thousand shares by earnings reallocated as capital, with a

par value of NT$10 each, which increased the share capital issued and fully paid to $66,374,857. The

above transaction was approved by the authorities, and the record date of earnings capitalization was

December 10, 2014.

Capital Surplus

The capital surplus from the issuance of new shares at a premium (additional paid-in capital from issuance

of common shares, conversion of bonds and treasury stock transactions) and endowments received by the

Bank may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus

may be distributed as cash dividends or transferred to capital (limited to a certain percentage of the

Company’s paid-in capital every year).

On July 25, 2014, the board of directors of the parent company of the Bank, SPH, approved a capital

increase and retained 10% of shares for subscription by the Group’s employees. The criteria for the

employee entitlement to the employee share options were in accordance with IFRS 2 “Share-based

Payment”. Under IFRS 2 share options granted by a parent company to a subsidiary’s employees should

be treated as equity-settled share-based payments that match the services provided by employees and are

recognized as equity increase due to parent’s contribution. The Group’s capital surplus - employee share

options, which was determined on the basis of the grant-date fair value of the employee share options, was

$67,511 in 2014.

Options were priced using the Black-Scholes pricing model. The inputs into the model were as follows:

October 16, 2014

Grant date share price $12.85

Exercise price $11

Volatility 14.49%

Duration 0.0384 year

Risk-free interest rate 0.35%

The volatility was based on the historical annualized standard deviation of return rates from October 16,

2013 to October 16, 2014. The return rates over time were measured using natural logarithm of daily

restored closing stock price.

The capital surplus from investments accounted for using the equity method and from employee share

options may not be used for any purpose.

- 50 -

Other Equity Items

Exchange

Differences on

Translating

Foreign

Operations

Unrealized

Gain (Loss) on

Available-for-

sale Financial

Assets

Cash Flow

Hedges Total

Balance, January 1, 2014 $ (212,775) $ 88,587 $ (3,145) $ (127,333)

Available-for-sale financial assets

Current valuation - 54,084 - 54,084

Realized gain on revaluation - (940) - (940)

Cash flow hedges

Recognized as current income - - 3,789 3,789

Income tax - - (644) (644)

Exchange difference

Current year 714,300 - - 714,300

Income tax (121,431) - - (121,431)

Share of other comprehensive

income of subsidiaries

Current year 22 31,609 - 31,631

Income tax (3) (5,374) - (5,377)

Balance, December 31, 2014 $ 380,113 $ 167,966 $ - $ 548,079

Balance, January 1, 2013 $ (211,616) $ 361,836 $ (18,738) $ 131,482


Current valuation - (177,664) - (177,664)

Realized gain on revaluation - (10,641) - (10,641)

Cash flow hedges

Unrealized gain on revaluation - - 18,787 18,787

Income tax - - (3,194) (3,194)

Exchange difference

Current year (1,415) - - (1,415)

Income tax 240 - - 240

Share of other comprehensive

income of subsidiaries

Current year 18 (102,342) - (102,324)

Income tax (2) 17,398 - 17,396

Balance, December 31, 2013 $ (212,775) $ 88,587 $ (3,145) $ (127,333)

Earnings Distribution and Dividend Policy

The Bank’s Articles of Incorporation provide that annual net income should be appropriated after it has:

a. Deducted any deficit of prior years;

b. Paid all outstanding taxes;

c. Set aside 30% of remaining earnings as legal reserve;

d. Set aside any special reserve or retained earnings allocated at its option;

e. Allocated stockholders’ dividends;

- 51 -

f. Allocated at least 2.5% of the remaining earnings which allocated stockholders’ dividends as employee

bonus.

The Banking Act provides that, before the balance of the reserve reaches the aggregate par value of the

outstanding capital stock, annual cash dividends, remuneration to directors and supervisors, and bonus to

employees should not exceed 15% of the aggregate par value of the outstanding capital stock of the Bank.

The Bank meets well financial position as standard and setting aside legal reserve under Company Act is

not limited to the restriction.

To comply with the Bank’s globalization strategy, strengthen its market position, integrate its diversified

business operation and be a major local bank, the Bank has adopted the “Balanced Dividend Policy”.

Under this policy, dividends available for distribution are determined by referring to its capital adequacy

ratio (CAR). Cash dividends may be declared if the Bank’s CAR is above 10% and stock dividends may

be declared if the CAR is equal to or less than 10%. However, the Bank may make discretionary cash

distribution even if the CAR is below 10%, if approved at the stockholders’ meeting, for the purpose of

maintaining the cash dividends at a certain level in any given year.

Cash dividends and cash bonus are paid after the approval of the stockholders, while the distribution of

stock dividends requires the additional approval of the authorities.

The Bank accrued bonus to employees of $202,219 and $168,967 for the years ended December 31, 2014

and 2013, respectively. The Bank accrued bonus to remuneration to directors of $30,438 and $35,000 for

the years ended December 31, 2014 and 2013, respectively. The bonus to employees and the

remuneration to directors and supervisors recognized were estimated on the basis of the Bank’s Articles of

Incorporation and past experience. Material differences between such estimated amounts and the amounts

proposed by the board of directors in the following year are retroactively adjusted for in the current year.

If the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, the

differences are recorded in the year of stockholders’ resolution as a change in accounting estimate.

Under the Company Act, legal reserve shall be appropriated until it has reached the Company’s paid-in

capital. This reserve may be used to offset a deficit. Under the revised Company Act issued on January

4, 2012, when the legal reserve has exceeded 25% of the Bank’s paid-in capital, the excess may be

transferred to capital or distributed in cash. In addition, the Banking Act provides that, before the balance

of the reserve reaches the aggregate par value of the outstanding capital stock, annual cash dividends,

remuneration to directors and supervisors, and bonus to employees should not exceed 15% of the aggregate

par value of the outstanding capital stock of the Bank.

Under Article 50-2 of the Banking Act revised on December 30, 2008, when legal reserve meet the total

capital reserve or well financial position and setting aside legal reserve under Company Act is not limited to

the restriction of setting aside 30% of remaining earnings as legal reserve, and the appropriation of the

remainder and retained earnings from previous year was limited to 15% of total capital reserve when legal

reserve has not meet the total capital reserve. The requirements for financial positions of banks to be

established in accordance with this Act revised on April 30, 2012 shall be as prescribed by the FSC,

Executive Yuan, R.O.C.

According to FSC Rule No. 1010012865 and the rule of “Questions and Answers on Special Reserves

Appropriated Following the Adoption of IFRSs”, of amount of equal to the net debit balance of

shareholders’ other equity items shall be transferred from unappropriated earnings to a special reserve

before any appropriation of earnings generated. Any special reserve appropriated may be reversed to the

extent of the decrease in the net debit balance.

Under the Financial Holding Company Act, the board of directors is empowered to execute the authority of

the stockholders’ meeting, which is under no jurisdiction in the related regulations in the Company Act.

- 52 -

The 2013 earnings appropriation which the board of directors execute the rights and functions of the

stockholders’ meeting resolved on March 21, 2014, had revised under the resolution which board of

directors execute the rights and functions of the stockholders’ meeting on October 24, 2014. The 2013

earnings appropriation and cash dividend per share were as follow:

Appropriation of Earnings Dividends Per Share (NT$)

Revised Original Revised Original

Legal reserve $ 2,880,873 $ 2,880,873

Special reserve 26,264 26,264

Stock dividends 6,758,697 - $ 1.13370206 $ -

Cash dividends - - - -

The above board of directors which execute the right and functions of the stockholders’ meeting resolved

the revision of 2013 bonus to employees, and the remuneration to directors and supervisors at the same

time. The amounts were as follow:

Revised Original

Cash

Dividends

Stock

Dividends

Cash

Dividends

Stock

Dividends

Bonus to employees $ 94,447 $ - $ 168,967 $ -

Remuneration of directors and

supervisors 35,000 - 35,000 -

The amounts of bonus to employees, and the remuneration to directors and supervisors recognized in 2013

financial statements were $168,967 and $35,000. The difference between the board of directors execute

the right and functions of the stockholders’ meeting on October 24, 2014 was recorded in 2014 as a change

in accounting estimate.

On May 24, 2013, the board of directors execute the right and functions of the stockholders’ meeting

resolved the 2012 earnings appropriation and cash dividend per share were as follow:

Appropriation

of Earnings Dividends Per

Share (NT$)

Legal reserve $ 2,466,059

Special reserve -

Stock dividends 5,754,138 $ 1.06831083

Cash dividends -

The above board of directors executes the right and functions of the stockholders’ meeting resolved the

2012 bonus to employees, and the remuneration to directors and supervisors were as follow:

Cash Dividends Stock Dividends

Bonus to employees $ 76,526 $ -

Remuneration of directors and supervisors 28,000 -

The appropriations of earnings, bonus to employees and remuneration of directors and supervisors for 2012

were proposed according to the Bank’s financial statements for the year ended December 31, 2012, which

were prepared in accordance with the unamended Criteria Governing the Preparation of Financial Reports

by Public Bank, and ROC GAAP.

- 53 -

There was no difference between the amounts of the bonus to employees and the remuneration to directors

and supervisors approved in the board of directors which execute the right and functions of the

shareholders’ meetings on 2013 and the amounts recognized in the financial statements for the year ended

December 31, 2012.

In accordance with FSC guideline No. 09900146911, cash dividends and bonus to stockholders for 2009

amounting to $1,435,025 shall not be remitted to the parent company until the land transferred to SPL from

the Bank is disposed and the gain is realized.

The appropriations of earnings for 2014 will be proposed by the Bank’s board of directors on March 11,

2015. The appropriations and dividends per share were as follows:

Appropriation

of Earnings Dividends Per

Share (NT$)

Legal reserve $ 3,406,462

Reversal special reserve (127,332)

Cash dividends - $ -

Share dividends - -

The appropriations of earnings, the bonus to employees, and the remuneration to directors and supervisors

for 2014 are subject to the resolution of the shareholders’ meeting in 2015.

The information on the proposed and approved of the bonus to employees and the remuneration to directors

and supervisor is available on the Market Observation Post System (M.O.P.S.) website of the Taiwan Stock

Exchange.

31. INTEREST REVENUE, NET


2014 2013

Interest income

Loans $ 18,000,985 $ 17,462,586

Account receivables - forfaiting 2,887,542 1,245,389

Held-to-maturity financial assets 1,491,678 1,781,543

Due from the Central Bank and other banks 1,375,934 361,980

Available-for-sale financial assets 912,392 872,261

Credit card 748,352 812,209

Acceptances - forfaiting 630,138 225,916

Call loans to other banks 504,503 606,186

Others 389,299 421,403

26,940,823 23,789,473

Interest expense

Deposits 9,693,860 8,424,509

Bank debentures 922,136 892,323

Deposits from banks 663,039 431,104

Others 528,433 246,578

11,807,468 9,994,514

$ 15,133,355 $ 13,794,959

- 54 -

32. COMMISSION AND FEE REVENUES, NET


2014 2013

Commission and fee revenues

Trust and related services $ 2,107,664 $ 1,805,088

Credit card service 1,232,600 1,162,128

Loan service 645,443 701,591

Insurance service 502,917 471,942

Others 910,827 849,982

5,399,451 4,990,731

Commission and fee expenses

Credit card service 422,896 412,040

Interbank services 126,422 121,166

Foreign exchange transaction 56,424 58,878

Trust services 49,909 46,167

Others 159,274 133,997

814,925 772,248

$ 4,584,526 $ 4,218,483

33. GAINS ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR

LOSS


2014 2013

Realized gain or loss on financial assets and liabilities at fair value

through profit or loss

Government bonds $ 177,044 $ 24,761

Convertible bonds 77,646 96,628

Corporate bonds 47,330 54,152

Bank debentures 32,756 12,058

Listed stock 22,212 55,391

Beneficial certificates 519 12,691

Others 1,136 1,149

Derivative financial instruments

Option contracts 902,320 1,538,285

Currency swap contracts 647,502 2,949,163

Forward contracts 326,523 (332,220)

Interest rate swap contracts 61,673 (38,662)

Equity-linked swap contracts 32,240 6,295

Future contracts 28,516 2,097

Cross-currency swap contracts (28,901) 802

Others 1,923 2,416

2,330,439 4,385,006

Unrealized gain or loss on financial assets and liabilities at fair value


Government bonds 40,167 28,104

Corporate bonds 11,497 418

Beneficial certificates (5) (10,225)

Listed stock (2,893) 11,305

Others (4,478) 3,284

(Continued)

- 55 -


2014 2013


Currency swap contracts $ 528,987 $ (998,888)

Option contracts 281,911 460,907

Cross-currency swap contracts 1,910 (12,565)

Interest rate swap contracts (69,791) 96,660

Forward contracts (230,564) 130,613

Others 6,366 8,188

563,107 (282,199)

$ 2,893,546 $ 4,102,807

(Concluded)

a. Realized gain or loss on financial assets and liabilities at fair value through profit or loss including

disposal gain or loss were $2,025,242 and $4,116,320 for the years ended December 31, 2014 and 2013,

respectively. Related interest revenue and dividend income were $305,197 and $268,686 for the years

ended December 31, 2014 and 2013, respectively.

b. When the Bank designated financial instruments as at fair value through profit or loss, fair value change

in derivate instruments is included in “gains on financial assets and liabilities at fair value through profit

or loss”.

34. REALIZED GAINS ON AVAILABLE-FOR-SALE FINANCIAL ASSETS


2014 2013

Dividends income $ 13,573 $ 456

Gain from disposal of corporate bonds 943 7,855

Loss from disposal of commercial papers (3) (12)

Gain from disposal of stocks - 3,480

Loss from disposal of bank debentures - (682)

$ 14,513 $ 11,097

35. REVERSAL OF LOSSES ON IMPAIRMENT ASSETS


2014 2013

Gain on the reversal of losses (impairment loss) on other financial

assets $ 188,910 $ (64,759)

Gain on the reversal of loss on other assets 36,071 2,968

Gain on the reversal of losses (impairment loss) on held-to-maturity

financial assets 10,213 (10,198)

Gain on the reversal of loss on property and equipment - 1,691

$ 235,194 $ (70,298)

- 56 -

36. OTHER REVENUES AND OTHER NONINTEREST NET REVENUES


2014 2013

Gains on sales of derecognized SIV assets $ 292,023 $ -

Rental income 119,625 121,819

Gains from disposal of property 68,488 201,726

Net gains on unquoted equity instruments 59,586 51,384

Claim settlement income 5,334 49,276

Lawsuit compensation income - 46,453

Provision of complaint for money management - (15,810)

Loss on sales of collaterals, net (13,071) (1,272)

Loss on retirement of property (15,458) (6,586)

Others 38,152 (338)

$ 554,679 $ 446,652

Other revenues $ 3,390,116 $ -

The ending balance of loans of the Bank US$46,681 as of March 31, 2014 which is collateralized by the

convertible bonds provided by the subsidiary of borrower. According to the loan agreements with

collateral holder, the repayment net of tax and related expense from disposal of the convertible bond should

be distributed. The aforementioned has been disposed for the six months ended June 2014. And the

Bank received $3,390,116. The aforementioned loans and interest receivables are repaid, and SPCL are

also repaid $396,378 as other revenues.

37. EMPLOYEE BENEFITS EXPENSE


2014 2013

Salaries and wages $ 6,215,637 $ 6,063,399

Labor insurance and national health insurance 419,351 386,250

Pension costs 365,371 356,237

Share-base payment 66,102 -

Others 555,330 602,667

$ 7,621,791 $ 7,408,553

The agreement of share-based payment, please refer to Note 30.

38. DEPRECIATION AND AMORTIZATION EXPENSE


2014 2013

Depreciation expense

Buildings $ 150,984 $ 154,390

Computers and machines 151,130 147,047

(Continued)

- 57 -


2014 2013

Other equipment $ 54,750 $ 54,239

Leasehold improvement 81,429 89,111

438,293 444,787

Amortization expense 179,714 169,155

$ 618,007 $ 613,942

(Concluded)

39. OTHER OPERATING EXPENSES


2014 2013

Taxation and charge $ 946,317 $ 647,403

Marketing 796,070 612,199

Rent 627,083 609,926

Professional advisory 533,552 531,981

Location fee 387,425 379,583

Insurance 289,873 232,762

Automatized equipment 244,858 248,210

Communication expense 227,194 220,277

Donation 134,439 428,267

Others 400,733 377,002

$ 4,587,544 $ 4,287,610

40. EARNINGS PER SHARE

Basic earnings per share is calculated by gain or loss on the Bank’s stockholders divide by current common

stock weight-average shares outstanding.

The numerators and denominators used in computing earnings per shares (EPS) are summarized as follows:


2014 2013

Amounts

Shares in

Thousand EPS (NT$) Amounts

Shares in

Thousand EPS (NT$)

Basic EPS $ 11,354,875 $ 6,637,486 $ 1.71 $ 9,602,909 $ 6,637,486 $ 1.45

The EPS computation was retrospectively adjusted for the effects of adjustments resulting from bonus stock

issuance on December 10, 2014. The adjustment caused the basic EPS for 2013 to retrospectively

decrease from NT$1.61 to NT$1.45.

- 58 -

41. RELATED-PARTY TRANSACTIONS

In addition to the disclosure in other footnotes, transactions between the Bank and related party were

summarized as follows:

a. Related parties

Name Relationship with the Bank

SinoPac Financial Holdings Company Limited (SPH) Parent company of the Bank

SinoPac Securities Corporation (SinoPac Securities) Subsidiary of SPH

SinoPac Call Center Co., Ltd. (SinoPac Call Center) Subsidiary of SPH

SinoPac Leasing Corporation (SPL) Subsidiary of SPH

SinoPac Securities Investment Trust Co., Ltd. (SinoPac

Securities Investment Trust)

Subsidiary of SPH

SinoPac Property Insurance Agent Co., Ltd. (SPPIA) Subsidiary of the Bank

SinoPac Life Insurance Agent Co., Ltd. (SPLIA) Subsidiary of the Bank

Bank SinoPac (China) Ltd. Subsidiary of the Bank

SinoPac Capital Ltd. (SPCL) Overseas subsidiary of the Bank

Far East National Bank (FENB) Overseas affiliate of the Bank

SinoPac Futures Corporation (SinoPac Futures) Subsidiary of SinoPac Securities

SinoPac Capital (Asia) Ltd. Affiliate of SinoPac Securities

SinoPac Securities (Asia) Ltd. Affiliate of SinoPac Securities

Grand Capital International Limited (Grand Capital) Subsidiary of SPL

SinoPac International Leasing Corp. (SPIL) Subsidiary of SPL

E Ink Holdings Co., Ltd. (E Ink Holdings) Affiliate of the SPH’s chairman

Foundation of Fire Fighting Development Affiliate of the SPH’s chairman

YFY International BVI Corp. Affiliate of the SPH’s chairman

Yung An Leasing Corporation (Yung An Leasing) Affiliate of the SPH’s chairman

Taiwan Genome Sciences, Inc. (Taiwan Genome

Sciences)

Affiliate of the SPH’s chairman

Liver Disease Prevention & Treatment Research

Foundation

Affiliate of the SPH’s chairman

Taipei Foreign Exchange Inc. (Taipei Foreign Exchange) Affiliate of the SinoPac Property Insurance

Agent’s chairman

Taiwan Futures Exchange (TAIFEX) Affiliate of the SinoPac Securities’ chairman

MiCareo Taiwan Co., Ltd. (MiCareo Taiwan) Affiliate of the SinoPac Venture Capital’s

chairman

Financial Information Services Co., Ltd. (Financial

Information)

Affiliate of the general manager of the Bank

Adimmune Corporation Affiliate of the SPH’s chairman

Aero Win Technology Corporation (Aero Win) Related party

SiPix Technology Inc. (SiPix) Related party

Foongtone Technology Co., Ltd. (Foongtone

Technology)

Related party

BoardTek Electronics Corp. (BoardTek Electronics) Related party

Ho, Show Chung Chairman of SPH

Others The Bank’s directors, supervisors, managers

and their relatives, department chiefs, the

investees accounted for by the equity

method and their subsidiaries, and the

investees of SPH’s other subsidiaries, etc.

- 59 -

b. Significant transactions with related parties

1) Cash and cash equivalents

December 31

2014 2013

Due from banks - FENB $ 1,576,718 $ 21,445

2) Due from the Central Bank and call loans to other banks


Ending

Balance Interest (%)

Interest

Revenue

Call loans to banks - Bank SinoPac

(China) Ltd. $ - 0.3 $ 1

3) Derivative financial instruments

December 31, 2014

Contract

(Notional)

Amount

Contract

Period

Valuation

Gains or Losses Account Balance

Currency swap contracts E Ink Holdings $ 777,073 2014.10.27-

2015.3.26

$ (22,227 ) Financial liabilities at fair

value through profit or loss

$ 22,227

Interest rate swap contracts SinoPac Securities 10,400,000 2010.1.11-

2019.10.2

(30,484 ) Financial assets at fair value


27,898

SinoPac Securities 7,500,000 2010.1.13- 2017.5.18

28,170 Financial liabilities at fair value through profit or loss

22,815

Asset exchange contracts

SinoPac Securities 40,000 2013.7.17- 2015.7.17

(135 ) Financial assets at fair value through profit or loss

8

Forward contracts

YFY International BVI Corp.

2,686 2014.12.29- 2015.1.30

(10 ) Financial liabilities at fair value through profit or loss

10

December 31, 2013

Contract

(Notional)

Amount

Contract

Period

Valuation

Gains or Losses Account Balance

Currency swap contracts

SinoPac Securities $ 39,545 2013.12.11- 2014.1.13

$ (648 ) Financial liabilities at fair value through profit or loss

$ 648

E Ink Holdings 524,178 2013.11.25-

2014.3.6

(7,901 ) Financial liabilities at fair


7,901

Interest rate swap contracts

SinoPac Securities 13,100,000 2009.3.10-

2018.4.26

(32,617 ) Financial assets at fair value


64,008

SinoPac Securities 11,600,000 2009.1.21-

2016.12.7

45,326 Financial liabilities at fair


64,044

Asset exchange contracts SinoPac Securities 115,000 2012.7.31-

2016.8.9

(86 ) Financial assets at fair value


143

Forward contracts

YFY International BVI

Corp.

116,367 2013.12.27-

2014.1.29

46 Financial assets at fair value


46

- 60 -

4) Securities purchased under agreement to resell

2013

Balance, December 31

Year Ended

December 31,

2013

Face Amount Carrying

Amount

Interest

Revenue

SinoPac Capital (Asia) Ltd. $ - $ - $ 198

SinoPac Securities (Asia) Ltd. - - 138

5) Receivables

December 31

2014 2013

Others

Bank SinoPac (China) Ltd. $ 105,899 $ 322,281

SPLIA 70,625 118,986

FENB 3,275 2,864

SPPIA 2,980 3,022

Other relatives 8,842 6,675

6) Current income tax assets and liabilities

December 31

2014 2013

Receivables from adopting the linked-tax system $ 1,151,810 $ 1,256,073

Payables from adopting the linked-tax system $ 944,255 $ 700,560

7) Loans


Ending

Balance

Highest

Balance

Interest/

Fee Rates (%)

Interest

Revenue

Loans $ 4,402,073 $ 5,870,694 0-4.5 $ 81,441

- 61 -

Category

December 31, 2014

Account Volume or

Name of Related Party

Highest

Balance

Ending

Balance Normal Overdue Type of Collaterals

Is the

Transaction at

Arm’s Length

Commercial

Term

Employees’ consumer

loans

52 $ 18,841 $ 14,267 V - None Yes

Household mortgage

loans

280 1,995,484 1,768,367 V - Real estate Yes

Others:

SPL 1,654,000 1,514,000 V - Real estate and ships Yes

Grand Capital 984,974 621,375 V - Ships Yes

SinoPac Securities 535,000 - V - Certificates of deposit Yes

Adimmune Corporation 264,613 180,004 V - Real estate and

equipments

Yes

Yung An Leasing 193,800 187,800 V - Real estate Yes

Liver Disease Prevention

& Treatment Research

Foundation

100,000 - V - Real estate Yes

Taiwan Genome

Sciences Inc.

87,000 87,000 V - Real estate Yes

Aero Win 26,250 25,000 V - None Yes

Others 10,732 4,260 V - Vehicles and

certificates of deposit

Yes

Others subtotal 3,856,369 2,619,439

Total 5,870,694 4,402,073


Ending

Balance

Highest

Balance

Interest/

Fee Rates (%)

Interest

Revenue

Loans $ 4,697,453 $ 7,770,709 0-6.89 $ 115,907

Category

December 31, 2013

Account Volume or

Name of Related Party

Highest

Balance

Ending

Balance Normal Overdue Type of Collaterals

Is the

Transaction at

Arm’s Length

Commercial

Term

Employees’ consumer

loans

53 $ 20,359 $ 11,680 V - None Yes

Household mortgage

loans

282 1,972,200 1,676,344 V - Real estate Yes

Others:

SPL 2,522,000 1,654,000 V - Real estate and ships Yes

Grand Capital 2,315,180 973,970 V - Ships Yes

SiPix 499,996 - V - None Yes

Yung An Leasing 198,800 193,800 V - Real estate Yes

Liver Disease Prevention

& Treatment Research

Foundation


Taiwan Genome

Sciences


BoardTek Electronics 50,000 - V - Real estate Yes

Others 8,174 1,659 V - Vehicles and

certificates of deposit

Yes

Others subtotal 5,780,150 3,009,429

Total 7,772,709 4,697,453

Note: Debtor of related party loans are all normal credit ranking. The Bank estimated the

provision of doubtful debt periodically in accordance with the guidelines issued by the

authority and IFRS.

- 62 -

8) Guarantees

December 31, 2014

Related Party

The Highest

Balance in

Current Year

Ending

Balance Provision Rates Type of Collaterals Note

MiCareo Taiwan $ 11,980 $ - $ - 1.25% Certificates of deposit

SinoPac Securities 2,000 2,000 - 0.30% Certificates of deposit

and real estate

December 31, 2013

Related Party

The Highest

Balance in

Current Year

Ending

Balance Provision Rates Type of Collaterals Note

MiCareo Taiwan $ 11,980 $ 11,980 $ - 1.25% Certificates of deposit

SinoPac Securities 2,000 2,000 - 0.30% Certificates of deposit

and real estate

9) Other financial assets

December 31

2014 2013

Unquoted equity instruments

Financial Information $ 91,000 $ 91,000

TAIFEX 21,490 21,490

Taipei Foreign Exchange 6,800 6,800

Excess margin of futures and options

SinoPac Futures 29,948 29,903

SinoPac Securities (Asia) Ltd. 19,704 -

The Bank had interest revenue from excess margin of futures and options for the years ended

December 31, 2014 and 2013 were $56 and $52, respectively.

10) Property and equipment

In March 2014, the Bank sold property and equipment with book value of $34 and $157 in the price

of $34 and $141 to SPIL and Bank SinpPac (China) Ltd., respectively. The Bank deferred the

recognition of the related gains or losses.

In August 2014, the Bank sold property with book value of $6,357 in the price of $25,489 to other

relatives. The related gains were $19,132.

11) Other assets

December 31

2014 2013

Guarantee deposits

SPL $ 9,364 $ 7,984

The Bank signed an agreement with Foongtone Technology for the purchase of a debit card with a

second-generation chip. The Bank paid Foongtone Technology $35,434 in 2014 and $10,481 in

2013, which were recorded as prepayments (other assets) on the Bank’s acquisition of the debit

cards or as other operating expenses on the issuance of the debit cards to bank clients.

- 63 -

12) Deposits from the Central Bank and banks


Ending Balance Interest Rate Interest

Expense

Call loans from banks

Bank SinoPac (China) Ltd. $ - 0.07%-0.35% $ 142

Due to banks

FENB 9,219 0.05% 346


Ending Balance Interest Rate Interest

Expense

Due to banks

FENB $ 5,194 0.05% $ 2,189

13) Securities sold under agreement to repurchase

2014


Year Ended

December 31,

2014


Amount Interest

Expense

SPH $ 1,600,000 $ 1,600,606 $ 1,208

Ho, Shou Chuan 295,000 296,042 1,902

SinoPac Securities - - 4

2013


Year Ended

December 31,

2013


Amount Interest

Expense

Ho, Shou Chuan $ 337,000 $ 340,185 $ 2,373

SinoPac Securities - - 7

14) Payables

December 31

2014 2013

Dividend payables to SPH

SPH $ 1,435,025 $ 1,435,025

Other payables

Other relatives 21,400 17,352

- 64 -

15) Deposits

2014


Ending Balance Interest Rates

(%) Interest

Expense

$ 24,495,922 0-13 $ 200,230

Ending Balance Interest Rate

(%)

SPH $ 5,034,261 0-0.65

SinoPac Securities 4,739,832 0-1.35

SPCL 1,529,309 0-0.475

SPLIA 1,057,650 0.17

Foundations of Fire Fighting Development 760,890 0-1.39

Others 11,373,980 0-13

$ 24,495,922

2013


Ending Balance Interest Rates

(%) Interest

Expense

$ 17,995,480 0-13 $ 144,464

Ending Balance Interest Rate

(%)

SinoPac Securities $ 4,768,170 0-1.35

SPLIA 991,483 0.17

E Ink Holdings 778,542 0.01-1.35

Foundations of Fire Fighting Development 755,844 0-1.395

SinoPac Securities Investment Trust 715,704 0-1.4

Others 9,985,737 0-13

$ 17,995,480

16) Other liabilities

December 31

2014 2013

Guarantee deposits received $ 8,175 $ 8,091

Advance receipts 1 5

- 65 -

17) Revenues and expenses


2014 2013

Commissions and fee revenues (Note 1) $ 565,338 $ 511,016

Commissions and fee expenses 106,369 89,677

Gains from unquoted equity instruments 36,881 32,761

Other revenues 12,278 6,434

Other operating expense (Note 2) 280,032 275,735

Note 1: The Bank had entered into several co-sell insurance contracts with SPLIA and SPPIA.

The service fee revenue for the years ended December 31, 2014 and 2013 were $502,917

and $471,942, respectively; which were recorded as commission and fee revenues.

Note 2: Other operating expenses are mainly for professional advisory charges and marketing

expense. The Bank had entered into professional advisory contracts with SinoPac Call

Center. The professional advisory charges and other operating expenses paid for the

years ended December 31 2014 and 2013 were $155,484 and $161,455, respectively.

18) Lease

a) The Bank as a lessee

Other Operating Expense

Year Ended December 31 Lease Payment

Lessor 2014 2013 Term Frequency

SPL $ 125,048 $ 124,239 February 2020 Rentals paid

monthly

b) The Bank as a lessor

Rental Income

Year Ended December 31 Lease Receive

Lessee 2014 2013 Term Frequency

SinoPac Securities $ 24,718 $ 24,249 March 2017 Rentals received

monthly

SinoPac Securities

Investment

Trust

14,600 13,886 January 2017 Rentals received

monthly

SPL 5,965 5,964 July 2016 Rentals received

monthly

SPLIA 4,426 4,426 December 2015 Rentals received

monthly

SinoPac Call

Center

3,353 3,350 April 2017 Rentals received

monthly

SPPIA 888 888 December 2015 Rentals received

monthly

SinoPac Futures 336 - September 2017 Rentals received

monthly

Transactions between the Bank and the related parties are at arm’s length commercial terms

except for the preferential interest rates offered to employees for savings and loans up to

prescribed limits.

- 66 -

Under the Banking Law, except for government and consumer loans, credit extended by the

Bank to any related party should be fully secured, and the credit terms for related parties should

be similar to those for unrelated parties.

c. Compensation of directors, supervisors and management personnel


2014 2013

Other short-term employee benefits $ 176,236 $ 190,814

Retirement benefit 2,374 2,762

Share-based payment 346 -

$ 178,956 $ 193,576

The management personnel are composed of general manager, vice general manager and other

employee whose job grade is higher than the former.

42. PLEDGED OR MORTGAGED ASSETS

In addition to those disclosed in other Notes, pledged or restricted assets of the Bank is summarized as

follows:

December 31

Restricted Assets Object 2014 2013 Purposes

Financial assets at fair value through profit

or loss

Convertible bonds $ 1,046,194 $ 1,018,887 Note 1

Discounts and loans Loans 2,698,664 2,608,996 Note 2

Available-for-sale financial assets Government bonds 1,126,278 306,395 Note 3

Held-to-maturity investments Negotiable certificate of deposits 8,158,586 5,149,765 Note 4

Held-to-maturity investments Government bonds 1,085,508 484,408 Note 5

Other financial assets Certificate of deposits 2,041,960 - Note 6

Note 1: Pledged by LA branch of the Bank. The object is a part of corporate convertible bond asset

swap and designated as financial assets at fair value through profit or loss by the hybrid contracts.

Note 2: Pledged with the Federal Reserve Bank under the discount window program.

Note 3: Pledged to court as collaterals for filing provisional seizure, deposits for conducting of

discretionary investment business by SICE, reserve for payment of VISA international card, and

mortgage of derivative instrument outstanding.

Note 4: Pledged in accordance with requirements of the California Department of Financial Institutions,

with the Central Bank for foreign-exchange transactions, and with the Mega Bank for USD

foreign-exchange settlement.

Note 5: Guarantees of brokerage dealing and underwriting business, a trust reserve fund, guarantees of

bills financial service, reserve for payment of VISA international card, Hong Kong branch’s

clearing system of real - time gross settlement.

Note 6: Pledged with intraday overdraft of settlement banks.

- 67 -

43. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

a. In addition to those disclosed in other notes, significant unrecognized commitments of the Bank as of

December 31, 2014 and 2013 were as follows:

December 31

2014 2013

Trust assets $ 239,954,266 $ 209,327,463

Securities under custody 100,633,450 95,598,132

Agent for government bonds 55,863,400 25,761,200

Receipts under custody 45,827,720 49,395,283

Guarantee notes payable 13,224,616 6,741,267

Appointment of investment 6,109,103 4,614,028

Agent for marketable securities under custody 3,057,329 2,775,500

Goods under custody 1,217,168 1,201,298

Travelers’ checks consigned-in 339,138 372,311

Others 154,986 225,420

b. Equipment purchase contract

The Bank entered into contracts to buy computer equipment and office equipment for $419,507 of

which $210,368 had been paid as of December 31, 2014.

c. Contingencies

The Securities and Futures Investors Protection Center (SFIPC) filed a lawsuit against the Bank and

SinoPac Leasing Corporation’s (SPL) subsidiary, Grand Capital, on the ground that Procomp

Informatics Ltd. (“Procomp”) deposited US$10,000 in the Bank’s Shisung Branch (formally Sungshan

Branch) and placed a restriction on the use of this deposit as a condition for a short-term loan to Addie

International Limited granted by SPL and for allegedly helping Yeh, Sue-Fei and Procomp do irregular

trading but, at the same time, Procomp used the restricted deposit for fictitious sale transactions.

Later, when problems on Procomp’s account arose, the Bank and Grand Cathay demanded

compensation, which was taken from Procomp’s account, resulting in damage to Procomp. The Bank

was suspected of misleading investors by concealing the restricted status of Procomp’s deposit and

window dressing Procomp’s financial statements. On behalf of investors, the SFIPC filed a lawsuit

against the Bank, SPL and all other parties related to Procomp. On March 11, 2008, the Shihlin

District Court rejected the SFIPC’s lawsuit against the Bank and SPL. SFIPC then filed an appeal and

demanded compensation of $4,207,212. The Bank and SPL entered a plea on SFIPC’s charges; as of

December 31, 2014, this case was being tried in the Taiwan High Court. The preliminary proceeding

of this lawsuit ended on March 17, 2014. An oral argument supposed to be conducted before the

Taiwan High Court on August 12, 2014 did not push through because one appellee did not receive the

notice on the oral argument. Because the Court could not proceed with the oral argument without the

presence of the one appellee, the presiding judge postponed these proceedings.

The SFIPC filed a lawsuit against the Bank on the ground that the Bank’s Tunpei Branch provided

National Aerospace Fasteners Corporation (NAFC) with its accounts receivable factoring services.

NAFC recorded this significant-amount loan transaction as an accounts receivable financing to

window-dress its financial position in order to attract investments. The SFIPC filed a lawsuit against

the Bank and other parties and demanded compensation approximately $543,233 interest rate was

calculable at 5% from the next date of indictment delivered to the debt clearance. The lawsuit had

been declared conclusion of the debate by Taiwan Taipei District Court (the “Court”), and the Court

originally determined October 25, 2013 as the date of sentencing date. However, on the sentencing

date, the Court sentenced that there would be another debate in the future on the Court’s decision -

based on NAFC’s proposal - to have all the defendants be jointly liable for 22% of the damages

demanded by SFIPC, which did not agree with Court’s adjudication. On the other hand, the Bank

- 68 -

claimed that it was not negligent in its responsibilities on the NAFC account and was thus not liable for

damages. Because the opposing parties both rejected the settlement proposed by NAFC, the Court

conducted an oral argument on September 11, 2014 and on October 9, 2014, the Court reached a

conclusion that was in favor of the Bank. The Court declared that the Bank did not deliberately

exceed the bounds of decency accepted by society; thus, the Bank should not be considered as having

violated the Securities and Exchange Act and as being liable for damages due to misleading investors

by incorrect financial reporting. On November 4, 2014, the Bank received a notice that SFIPC had

appealed to a higher court. As of the report date, NAFC and SFIPC had reached a settlement. Under

this settlement, SFIPC will require NAFC to set the maximum amount of collaterals for paying

damages; the next court date is March 27, 2015.

d. The Bank abided by “Notice of the China Banking Regulatory Commission on Issuing the Guidelines

on the Corporate Governance of Commercial Banks” regulation, promising to keep Bank SinoPac

(China) Ltd. capital maintenance. If Bank SinoPac (China) Ltd.’s capital is not sufficient to maintain

the operation or request by the regulation. The Bank will promptly raise the proposal of expansion

capital to the board of directors, in order to satisfy the corporate governance and regulation.

e. In line with the subsidiary of SPCL, FENB, and Bank SinoPac (China) Ltd.’s financing needs, the Bank

issued letter of comfort to financial institutions, disclaiming that the Bank will actively support

companies’ operations.

44. HIERARCHY AND FAIR VALUE INFORMATION OF FINANCIAL INSTRUMENTS

a. Fair value information of financial instruments

December 31, 2014

Items

Carrying

Amount Fair Value

Financial assets

Cash and cash equivalent $ 39,614,377 $ 39,614,377

Due from the Central Bank and call loans to other banks 79,649,683 79,649,683

Financial assets at fair value through profit or loss 47,418,153 47,418,153

Securities purchased under agreement to resell 12,894,149 12,894,149

Receivables, net 140,608,907 140,608,907

Discounts and loans, net 762,007,556 762,007,556

Available-for-sale financial assets 204,773,740 204,773,740

Held-to-maturity financial assets, net 43,501,740 43,600,557

Equity investment - equity method, net 21,822,134 -

Other financial assets - unquoted equity instruments 364,092 -

Other financial assets 5,875,348 5,875,348

Other assets - guarantee deposits 5,552,949 5,552,949

Financial liabilities

Deposits from the Central Bank and banks 67,209,325 67,209,325

Financial liabilities at fair value through profit or loss 21,597,828 21,597,828

Securities sold under agreement to repurchase 7,103,953 7,103,953

Payables 17,724,022 17,724,022

Deposits and remittances 1,094,663,361 1,094,663,361

Bank debentures 48,565,756 48,986,536

Other financial liabilities 15,198,214 15,198,214

Other liabilities - guarantee deposits received 293,036 293,036

- 69 -

December 31, 2013

Items

Carrying

Amount Fair Value

Financial assets

Cash and cash equivalent $ 23,545,074 $ 23,545,074

Due from the Central Bank and call loans to other banks 58,955,096 58,955,096

Financial assets at fair value through profit or loss 25,370,342 25,370,342

Receivables 118,432,710 118,432,710

Discounts and loans 781,918,923 781,918,923

Available-for-sale financial assets 56,309,091 56,309,091

Held-to-maturity financial assets, net 211,578,290 211,618,931

Equity investment - equity method, net 15,516,534 -

Unquoted equity instruments 6,493,254 -

Other financial assets 13,431,304 13,431,304

Other assets - guarantee deposits 561,953 561,953


Deposits from the Central Bank and banks 87,282,453 87,282,453

Financial liabilities at fair value through profit or loss 11,831,968 11,831,968

Hedging derivative financial liabilities 3,789 3,789

Securities sold under agreement to repurchase 451,771 451,771

Payables 16,631,252 16,631,252

Deposits and remittances 1,065,373,051 1,065,373,051

Bank debentures 45,087,336 45,588,389

Other financial liabilities 6,721,787 6,721,787

Other liabilities - guarantee deposits received 289,730 289,730

b. Fair value estimation of financial instruments not carried at fair value

Methods and assumptions applied in estimating the fair values of financial instruments not carried at

fair value are as follows:

1) The carrying amounts of financial instruments such as cash and cash equivalents, due from the

Central Bank and call loans to other banks, securities purchased under agreement to resell,

receivables, due to the Central Bank and other banks, securities sold under agreement to

repurchased and payables approximate its fair value because of the short maturity or the similarity

of the carrying amount and future price.

2) Discounts and loans (include nonperforming loans): The Bank usually use base rate (floating rate)

as loan rate because it can reflect market rate. Thus, using its carrying amount to consider the

probability of repossession and estimate its fair value is reasonable. Long-term loans with fixed

rate should estimate its fair value by its discounted value of expected cash flow. Because this kind

of loans is not significant in this item, using its carrying amount to consider the probability of

repossession and estimate its fair value should be reasonable.

3) Held-to-maturity financial assets: Held-to-maturity financial assets with quoted price in an active

market are using market price as fair value; held-to-maturity financial assets with no quoted price in

an active market are estimated by valuation methods or opponent’s price.

- 70 -

4) Deposits and remittances: Considering banking industry’s characteristic, since deposits have one

year maturity and measured by market rate (market value), using carrying value to assess fair value

is reasonable. Because deposits with three years maturity are measured by discounted cash flow,

using carrying value to assess fair value is reasonable.

5) Bank debentures: Bank debentures with quoted price in an active market are using market price as

fair value; bank debentures with no quoted price in an active market are estimated by valuation

methods.

6) Unquoted equity investments: The fair value of unquoted equity investments cannot be reliably

measured because it has no quoted price in an active market, the variability interval of fair value

measurements is significant or the probability of the estimations in the variability interval cannot be

reasonably assessed. Hence, the fair value is not disclosed.

c. Financial instruments measured at fair value

Financial instruments at fair value, available-for-sale financial assets and hedging derivative financial

instruments with quoted price in an active market are using market price as fair value; financial

instruments above with no quoted price in an active market are estimated by valuation methods. The

estimation and assumption of valuation method the Bank used is the same as market participants’. The

Bank can obtain this information.

The basis of fair value estimation used by the Bank is shown as follows:

The fair value of hedging derivative financial instruments, forward contract, interest rate swap contracts

and currency swap contracts is measured by the cash flow discount method; the fair value of option is

measured by Black & Scholes Model.

Fair values of forward contracts are estimated on the basis of the foreign exchange rates provided by

Reuters. Structured product is measured by opponents’ price based on match basis. This method

diminished market risk to zero. Fair value of interest rate swap contracts and cross currency swap

contracts are estimated on the basis of market quotation provided by Reuters.

Fair value are determined as follows: (a) listed stocks and GreTai Securities Market (GTSM) stocks -

closing prices as of the balance sheet date; (b) beneficial certificates (open-end funds), net asset values

as of the balance sheet date; (c) bonds - period-end reference prices published by the GTSM; (d) bank

debentures issued overseas and the overseas bonds-period-end reference prices published by

Bloomberg, calculated through an internal model or provided by a counter-party.

The Bank assessed the active level of market and the adequacy of fair value of investments original

included in unquoted financial asset in January 1 to December 31, 2013 and measured the investments

at fair value.

d. Hierarchy information of fair value of financial instruments

1) The definition of the hierarchy is listed below:

a) Level one

Level 1 financial instruments are traded in active market and have the identical price for the

same financial instruments. “Active market” should fit the following characteristics:

i. All financial instruments in the market are homogeneous;

ii. Willing buyers and sellers exist in the market all the time;

- 71 -

iii. The public can access the price information easily.

b) Level two

The products categorized in this level have the prices that can be inferred from either direct or

indirect observable inputs other than the active market’s prices. Examples of these inputs are:

i. Quoted prices from the similar products in the active market. This means the fair value

can be derived from the current trading prices of similar products. It is also noted that

whether they are similar products should be judged by the characteristics and trading rules.

The fair value valuation in this circumstance may make some adjustment due to time lags,

trading rule’s differences, related parties’ prices, and the correlation of price between itself

and the similar goods.

ii. Quoted prices for identical or similar financial instruments in inactive markets.

iii. When marking-to-model, the input of model in this level should be observable (such as

interest rates, yield curves and volatilities). The observable inputs mean that they can be

attained from market and can reflect the expectation of market participants.

iv. Inputs which can be derived from other observable prices or whose correlation can be

verified through other observable market data.

c) Level three

The fair prices of the products in this level are based on the inputs other than the direct market

data. For example, historical volatility used in valuing options is an unobservable input,

because it cannot represent the entire market participants’ expectation for future volatility.

2) Hierarchy information of fair value of financial instruments

Financial Instruments Measured at Fair Value December 31, 2014

Total Level 1 Level 2 Level 3

Non-derivative financial instruments

Assets

Financial assets at fair value through profit or loss

Held-to-trading financial assets

Stocks $ 252,537 $ 252,537 $ - $ -

Bonds 23,495,923 21,538,859 1,957,064 -

Financial assets designated at fair value through

profit or loss 2,033,091 - 2,033,091 -


Stocks 137,173 - - 137,173

Bonds 40,264,313 24,372,857 13,445,958 2,445,498

Certificate of deposit and others 164,372,254 51,972 164,320,282 -


Assets


Held-to-trading financial assets 21,636,602 1,812 13,804,289 7,830,501

Liabilities

Financial liabilities at fair value through profit or

loss

Held-to-trading financial liabilities 21,597,828 497 13,775,051 7,822,280

- 72 -

Financial Instruments Measured at Fair Value December 31, 2013

Total Level 1 Level 2 Level 3

Non-derivative financial instruments

Assets


Held-to-trading financial assets

Stocks $ 139,802 $ 139,802 $ - $ -

Bonds 9,961,842 5,637,038 4,226,682 98,122

Others 5,005 - 5,005 -

Financial assets designated at fair value through

profit or loss 3,417,385 - 3,417,385 -


Stocks 143,057 - - 143,057

Bonds 36,888,103 15,630,745 18,918,318 2,339,040

Certificate of deposit and others 19,277,931 - 19,277,931 -


Assets


Held-to-trading financial assets 11,846,308 1,592 10,606,822 1,237,894

Liabilities

Financial liabilities at fair value through profit or

loss

Held-to-trading financial liabilities 11,831,968 10,331 10,591,950 1,229,687

Hedging derivative financial liabilities 3,789 - 3,789 -

3) Reconciliation of Level 3 items of financial instruments

a) Reconciliation of Level 3 items of financial assets


Items Beginning

Balance

Gains (Losses) on Valuation Increase Decrease Effects of

Exchange Rate

Change

Ending Balance Profit and Loss

Other

Comprehensive

Income

Purchase/

Issued

Transfer to

Level 3 Disposed/Sold

Transfer Out of

Level 3

Non-derivative financial

instruments

Financial assets at fair value


Held-to-trading financial

assets $ 98,122 $ 1,730 $ - $ - $ - $ 103,119 $ - $ 3,267 $ -

Available-for-sale financial assets 2,482,097 8,270 26,951 1,166,853 510,490 1,438,185 255,245 81,440 2,582,671


Financial assets at fair value



assets 1,237,894 6,586,701 - 96,715 - 96,974 - 6,165 7,830,501


Items Beginning

Balance

Gains (Losses) on Valuation Increase Decrease Effects of

Exchange Rate

Change

Ending Balance Profit and Loss

Other

Comprehensive

Income

Purchase/

Issued

Transfer to


Transfer Out of

Level 3

Non-derivative financial

instruments



assets $ 365,340 $ 69,535 $ - $ - $ - $ 359,792 $ - $ 23,039 $ 98,122

Financial assets designated at

fair value through profit or

loss 177,005 206 - - - 182,176 - 4,965 -

Available-for-sale financial assets 2,852,356 (979 ) (55,537 ) 1,965,482 171,899 2,542,764 - 91,640 2,482,097




assets 828,747 763,273 - 13,209 - 10,064 357,261 (10 ) 1,237,894

For the years ended December 31, 2014 and 2013, the gains on valuation included in net income

with assets still held were $7,444,095 and $1,048,504, respectively.

- 73 -

For the years ended December 31, 2014 and 2013, the gains and losses on valuation included in

other comprehensive income with assets still held were gain $15,874 and loss $57,251,

respectively.

b) Reconciliation of level 3 items of financial liabilities


Items Beginning

Balance

Valuation

Gain/Loss

Reflected on

Profit or Loss

Increase Decrease Effects of

Changes in

Exchange Rate

Ending Balance Purchase/

Issued

Transfer to


Transfer Out of

Level 3



Held-to-trading financial liabilities $ 1,229,687 $ 6,549,478 $ 1,173,952 $ - $ 1,183,323 $ - $ 52,486 $ 7,822,280


Items Beginning

Balance

Valuation

Gain/Loss

Reflected on

Profit or Loss

Increase Decrease Effects of

Changes in

Exchange Rate

Ending Balance Purchase/

Issued

Transfer to


Transfer Out of

Level 3



Held-to-trading financial liabilities $ 828,747 $ 1,030,590 $ 542,840 $ - $ 810,477 $ 362,419 $ 406 $ 1,229,687

For the years ended December 31, 2014 and 2013, the gains and losses on valuation included in

net income with liabilities still held were loss $6,427,851 and $148,599, respectively.

4) Transfer between Level 1 and Level 2

The Bank transferred part of the NTD central government bonds, corporate bonds, bank debentures

and beneficial certificates from level 1 to level 2 because the Bank determined that these

investments were not in an active market.

45. FINANCIAL RISK MANAGEMENT

a. Overview

The Bank document the risk management policies, including overall operating strategies and risks

control philosophy. The Bank’s overall risk management policies are to minimize the possibility of

potential unfavorable factors. The board of directors approves the documentation of overall risk

management policies and specific risk management policies; including credit risk, liquidity risk, market

risk, operational risk, derivative instruments transactions and managements. The board of directors

reviews the policies regularly, and reviews the operation to make sure the Bank’s policies are executed

properly.

b. Risk management framework

The board of directors is the top risk supervisor of the Bank. The board not only reviewed risk

management policies and rules but also authorized management to be in charge of daily risk

management work. The Bank has set up a risk management committee to be responsible for the

services above; the Bank has also set up a credit committee to review the policies and supervise the

abnormal cases. The credit committee also helps the board of directors approve cases over general

manager’s authority under the board’s authorization.

The board of directors authorized the Bank’s management to supervise risk management activities,

evaluate the performance and confirm every risk management agent having essential code of ethic and

professional skills. Internal audit is responsible for the periodic review of risk management and the

control environment, then reports the results directly to the board of directors.

- 74 -

The Bank has set up a risk management department to control risk management policies, establish rules,

plan and set up risk management system. The risk management department executes these policies

based on the board’s approval, then reports the results and performance reviews to the authority or the

board.

c. Credit risk

1) Sources and definitions of credit risk

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under

a contract. It arises principally from lending, trade finance, treasury and credit derivatives. The

issuer’s credit risk should be considered as part of the market risk when the investment target is

securities in an active market.

2) Policies and strategies

The Bank established policies based on operating goals and strategies, business plans and risk

management goals authorized by the board of directors. These policies were established to lower

potential financial losses, minimize risks and rewards to raise the performance and protect

shareholders’ equity through appropriate managing policies and procedures based on

risk-diversification principle.

The Bank’s risk strategy is to strengthen the credit risk management framework, establish complete

credit verification system and procedure, develop and use efficient and scientific credit risk

managing instruments to identify, measure, manage and supervise credit risks. These strategies

transparentize, systematize, specialize and formalize credit risk management to manage loans,

nonperforming assets and every kind of assets’ credit risk.

The Bank has set up policies of main risks as prime direction based on legislations and operational

goals. These policies include risk appetite, management goals, organization structure of

responsibility and accountability, measurement, evaluation, supervision and report procedure of

risks. These policies are established to reach the purposes of consistency and centralized

management and are put into practice in corporate government.

Credit risk management procedures and measurements are as follows:

a) Loan business (includes loan commitment and guarantee)

Loan business classification and qualities are shown as follows:

i. Classification

Under the “Regulations Governing the Procedures for Banking Institutions to Evaluate

Assets and Deal with Nonperforming/Nonaccrual Loans” (the “Regulations”) issued by the

Banking Bureau, the Bank evaluates credit losses on the basis of the estimated collectability.

In accordance with the Regulations, credit assets are classified as normal assets, assets that

require special mentioned, assets with substandard, assets with doubtful collectability, and

assets on which there is loss.

ii. Credit quality level

The Bank set up credit quality level (ex. internal credit risk assessment model, credit

assessment rules) based on business characteristic and scale to manage risks.

- 75 -

In order to measure clients’ credit risks, the Bank established credit risk assessment model

for corporate banking, personal banking and consumer banking through statistic methods,

professional judgment and clients’ information. Every model should be reviewed regularly

to examine whether the calculations match to the actual conditions or not, then the Bank will

adjust parameters to optimize the results.

For personal banking and consumer banking customers, every case will be reviewed

individually to assess default risks except that micro-credit and credit card business should

be assessed by internal credit assessment model.

The Bank’s customers’ credit qualities are classified as excellent, good, acceptable, weak

and no ratings. Customers’ credit quality should be evaluated annually to make sure the

valuation results are accurate.

b) Debt investment and derivative financial instruments

The Bank manages and identifies credit risks of debt investment through credit ratings by

outsiders, credit qualities of the debt, regional conditions and counterparties’ risks.

The Bank carries out derivative instrument transactions with counterparties in financial industry

which are over the investment level. The Bank would control credit risks based on

counterparties’ credit lines; counterparties with no credit ratings or investment level should be

reviewed individually. Normal customers’ credit exposure positions should be controlled by

approved derivative instrument credit line and condition based on normal credit procedure.

The Bank classifies credit qualities of debt investment and derivative financial instruments as

excellent, good, acceptable, weak and no ratings.

3) Credit risk hedge or mitigation policies

a) Collateral

For credit exposures and collaterals requirements, the Bank has set up several standards such as

disposal of collateral, acceptance of real estate disposal, real estate appraisal and credit policies

for every commodity to regulate collaterals’ categories, appraisals, procedures, deduction

percentages, loan rate, loan-to-value and maturity, control, management and disposal to confirm

these standards can mitigate credit risks and maintain creditor’s right.

To maintain collateral’s effectiveness, the Bank supervises and manages it based on after-loan

management and review policies examines through examining the usage, custody and

maintenance of collaterals regularly and irregularly to avoid selling, leasing, pledging, moving

and disposing collaterals without authorization. Once the case is due and willing to extend the

contract, it should be seen as a new case and the collateral should be revalued.

b) Credit risk limits and credit risk concentration control

The Bank manages credit line and concentration of all credit assets through appropriate

information managing system to gather information, credit exposure centralized conditions and

large credit exposure of every credit assets combination, including national risk, large credit

exposure, credit line of single corporation, group and industry. For cases approaching credit

line, the Bank should report to related management and make control strategies; for cases over

credit line, the Bank should enhance authorization level based on credit review authority.

- 76 -

c) Agreement of net settlement

The Bank often makes gross settlement on transactions, sign net settlement contract with other

counterparties or cancel every transactions and make net settlement when default occurs to

mitigate credit risk.

4) The maximum credit exposure of the financial instruments held by the Bank

Maximum credit exposures of assets on balance sheet (excluding collaterals and other credit

enhancement instruments) are almost equivalent to its carrying value. The maximum credit

exposures (excluding collaterals, other credit enhancement instruments and undrawn maximum

exposure) off balance sheet are shown as follows:

Off-Balance Sheet Items

The Maximum Credit Exposure

December 31

2014 2013

Undrawn credit card commitments $ 220,989,910 $ 219,240,697

Undrawn loan commitments 13,325,686 17,788,146

Guarantees 17,124,775 17,630,846

Standby letter of credit 6,303,268 5,292,643

Total $ 257,743,639 $ 259,952,332

The Bank adopt a strict evaluate procedure and review the result regularly to control and minimize

off-balance sheet credit risk exposures continuously.

5) Credit risk concentration of the Bank

When financial instruments transactions concentrated on counter-party, which engaged in similar

business activities, had similar economic characteristics and abilities to execute contracts, the credit

risk concentration arises.

Credit risk concentrations can arise in the Bank’s assets, liabilities or off-balance sheet items

through the execution or processing of transactions (either product or service) or through a

combination of exposures across these broad categories. It includes credit, loan and deposits, call

loan to banks, investment, receivables and derivatives. The Bank maintains a diversified portfolio,

limits its exposure to any one geographic region, country or individual creditor and monitors its

exposures continually. The Bank’s most significant concentrations of credit risk is summarized by

industry, region and collateral as follows:

a) By industry

Industries

December 31

2014 2013

Amount % Amount %

Private enterprise $ 340,034,853 43.89 $ 350,654,548 44.35

Public enterprise 27,468,908 3.55 30,919,288 3.91

Nonprofit organization 213,159 0.03 920,323 0.12

Private 390,566,491 50.41 392,673,616 49.66

Financial institutions 16,435,386 2.12 15,538,053 1.96

Total $ 774,718,797 100.00 $ 790,705,828 100.00

- 77 -

b) By region

Regions

December 31

2014 2013

Amount % Amount %

Domestic $ 657,879,783 84.92 $ 672,676,716 85.07

Asia 65,321,018 8.43 65,013,542 8.22

North America 39,905,627 5.15 38,859,446 4.91

Others 11,612,369 1.50 14,156,124 1.80

Total $ 774,718,797 100.00 $ 790,705,828 100.00

c) By collateral

Collaterals

December 31

2014 2013

Amount % Amount %

Credit $ 232,449,586 30.00 $ 246,627,166 31.19

Secured

Stocks 1,404,937 0.18 1,545,233 0.20

Bonds 11,755,068 1.52 10,918,308 1.38

Real estate 441,324,475 56.97 445,799,410 56.38

Movable collaterals 24,164,495 3.12 26,801,680 3.39

Guarantees 30,210,058 3.90 22,984,854 2.91

Others 33,410,178 4.31 36,029,177 4.55

Total $ 774,718,797 100.00 $ 790,705,828 100.00

- 78 -

6) Credit quality and impairment assessment

Some financial assets such as cash and cash equivalents, due from Central Bank and call loan to banks, financial asset at fair value through profit or loss,

and securities purchased under agreement to resell are regarded as very low credit risk owing to the good credit rating of counterparties.

Except for the analysis above, other financial assets’ analyses are summarized as follows:

a) Discounts, loans and receivables

December 31, 2014

Neither Overdue Nor Impaired

Overdue But Not

Yet Impaired (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Loss Recognized (D)

Net Total

(A)+(B)+(C)-(D) Excellent Good Acceptable Weak No Ratings Subtotal (A)

With Objective

Evidence of

Impairment

With No

Objective

Evidence of

Impairment

Receivables

Account receivables - forfaiting $ 38,460,203 $ 19,999,889 $ 15,050,644 $ - $ 8,649,658 $ 82,160,394 $ - $ - $ 82,160,394 $ - $ 26,075 $ 82,134,319

Acceptances - forfaiting - 13,416,739 11,594,490 - 745,039 25,756,268 - - 25,756,268 - - 25,756,268

Credit card receivables 8,051,391 3,343,069 4,050,694 142,984 287,206 15,875,344 73,789 1,378,080 17,327,213 147,855 179,478 16,999,880

Account receivables - factoring 1,379,739 927,301 4,593,321 2,279,663 466,751 9,646,775 649,909 - 10,296,684 - 103,961 10,192,723

Others 944,372 726,863 2,136,335 263,388 1,420,115 5,491,073 19,092 259,795 5,769,960 222,668 21,575 5,525,717

Discounts and loans 141,025,165 146,458,711 398,560,490 68,081,097 5,831,647 759,957,110 6,379,580 8,382,107 774,718,797 1,286,964 11,182,723 762,249,110

Other financial asset - nonperforming

receivables transferred other than

loan - - - - - - - 6,933 6,933 6,933 - -

December 31, 2013

Neither Overdue Nor Impaired

Overdue But Not

Yet Impaired (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Loss Recognized (D)

Net Total


With Objective

Evidence of

Impairment

With No

Objective

Evidence of

Impairment

Receivables

Account receivables - forfaiting $ 38,876,969 $ 10,710,378 $ 15,700,339 $ - $ 3,945,217 $ 69,232,903 $ - $ - $ 69,232,903 $ - $ 40,452 $ 69,192,451

Acceptances - forfaiting - 12,111,496 2,273,556 - 1,036,951 15,422,003 - - 15,422,003 - - 15,422,003

Credit card receivables 9,625,713 1,158,517 3,759,027 408,459 507,646 15,459,362 85,490 1,571,043 17,115,895 181,480 145,376 16,789,039

Account receivables - factoring 1,842,324 1,338,961 6,993,720 360,487 548,845 11,084,337 683,060 1,929 11,769,326 1,081 57,586 11,710,659

Others 874,765 471,940 1,911,686 201,562 1,812,671 5,272,624 22,802 98,464 5,393,890 59,459 15,873 5,318,558

Discounts and loans 151,013,990 146,737,410 399,171,841 71,242,115 3,802,920 771,968,276 7,419,204 11,318,348 790,705,828 1,501,645 7,044,913 782,159,270

Other financial asset - nonperforming

receivables transferred other than

loan - - - - - - - 5,388 5,388 5,388 - -

- 79 -

b) Credit analysis for non-overdue nor non-impaired discounts and loans by consumer type and

corporate type are as follows:

December 31, 2014 Non-overdue Nor Non-impaired Amount

Excellent Good Acceptable Weak No Ratings Total

Consumer banking

Mortgage $ 108,707,206 $ 91,032,045 $ 132,185,921 $ 21,286,743 $ 3,223 $ 353,215,138

Cash card - - - - 73 73

Micro credit 3,918,988 4,265,474 5,006,657 355,701 59,825 13,606,645

Others 1,522,164 1,953,277 3,125,584 333,570 5,768,526 12,703,121

Corporate banking

Secured 929,018 6,506,975 135,734,432 21,464,273 - 164,634,698

Unsecured 25,947,789 42,700,940 122,507,896 24,640,810 - 215,797,435

Total 141,025,165 146,458,711 398,560,490 68,081,097 5,831,647 759,957,110

December 31, 2013 Non-overdue Nor Non-impaired Amount

Excellent Good Acceptable Weak No Ratings Total

Consumer banking

Mortgage $ 105,850,366 $ 92,082,167 $ 132,825,427 $ 21,866,599 $ 148 $ 352,624,707

Cash card - - - 162 - 162

Micro credit 8,085,605 3,610,962 2,127,003 271,160 - 14,094,730

Others 1,158,606 1,689,404 2,802,216 263,398 3,802,772 9,716,396

Corporate banking

Secured 1,025,288 7,667,794 133,719,590 23,572,690 - 165,985,362

Unsecured 34,894,125 41,687,083 127,697,605 25,268,106 - 229,546,919

Total $ 151,013,990 $ 146,737,410 $ 399,171,841 $ 71,242,115 $ 3,802,920 $ 771,968,276

- 80 -

c) Credit analysis for marketable securities

December 31, 2014

Neither Overdue Nor Impaired Overdue But Not

Yet Impaired (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Loss Recognized

(D)

Net Total



Investment in bonds $ 171,566,770 $ 23,414,471 $ 7,482,660 $ - $ 2,172,666 $ 204,636,567 $ - $ - $ 204,636,567 $ - $ 204,636,567

Investment in stocks - - - - 137,173 137,173 - - 137,173 - 137,173

Held-to-maturity financial assets

Investment in bonds 43,501,740 - - - - 43,501,740 - - 43,501,740 - 43,501,740

Other financial assets

Investment in stocks - - 81,499 - 282,593 364,092 - - 364,092 - 364,092

Others (Note) 3,573,430 - - - - 3,573,430 - 4,458,015 8,031,445 2,375,857 5,655,588

December 31, 2013 Neither Overdue Nor Impaired Overdue But Not

Yet Impaired (B)

Impaired

Amount (C)

Total

(A)+(B)+(C)

Loss Recognized

(D)

Net Total



Investment in bonds $ 34,216,098 $ 17,408,161 $ 3,464,010 $ - $ 1,077,765 $ 56,166,034 $ - $ - $ 56,166,034 $ - $ 56,166,034

Investment in stocks - - - - 143,057 143,057 - - 143,057 - 143,057

Held-to-maturity financial assets

Investment in bonds 211,562,879 - - - - 211,562,879 - 25,685 211,588,564 10,274 211,578,290

Other financial assets

Investment in stocks - - 173,496 - 276,593 450,089 - - 450,089 - 450,089

Others (Note) 11,468,108 - - - - 11,468,108 - 4,224,732 15,692,840 2,430,540 13,262,300

Note: Other financial assets include time deposits not belong to cash and cash equivalent and purchase of PEM instruments.

- 81 -

7) Aging analysis for overdue but not yet impaired financial assets

Delayed procedures by borrowers and other administrative reasons could result in financial assets

overdue but not yet impaired. According to the Bank’s internal risk management policies,

financial assets overdue within 90 days are not considered impairment loss (account receivables -

factoring if no prepayment) unless other evidences provided.

Aging analysis for overdue but not yet impaired financial assets is as follows:

Items

December 31, 2014

Overdue by Less

Than One Month

Overdue by One

to Three Months

Overdue by

More Than

Three Months

Total

Account receivable

Credit card $ 44,630 $ 29,159 $ - $ 73,789

Account receivables factoring 601,571 46,891 1,447 649,909

Others 16,716 2,376 - 19,092

Discounts and loans

Mortgage 5,474,882 245,255 - 5,720,137

Micro credit 400,571 25,976 - 426,547

Corporate banking 6,711 14,442 - 21,153

Others 208,191 3,552 - 211,743

Items

December 31, 2013

Overdue by Less

Than One Month

Overdue by One

to Three Months

Overdue by

More Than

Three Months

Total

Account receivable

Credit card $ 52,150 $ 33,340 $ - $ 85,490

Account receivables factoring 639,979 35,854 7,227 683,060

Others 18,278 4,524 - 22,802

Discounts and loans

Mortgage 6,561,212 123,909 - 6,685,121

Micro credit 456,994 18,250 - 475,244

Corporate banking 20,295 62,625 - 82,920

Others 173,839 2,080 - 175,919

8) Analysis of impairment for financial assets

Analysis of impairment for investment on bonds is summarized as Note 45 C (6) (c).

Analysis of impairment for discounts, loans and receivables is summarized as follows:

Items

Discounts and Loans Allowance for Credit Losses

December 31 December 31

2014 2013 2014 2013

With objective

evidence of

impairment

Individually

assessed $ 5,561,737 $ 8,700,008 $ 481,325 $ 682,331

Collectively

assessed 2,820,370 2,618,340 805,639 819,314

With no objective

evidence of

impairment

Collectively

assessed 766,336,690 779,387,480 11,182,723 7,044,913

- 82 -

Items

Receivables Allowance for Credit Losses

December 31 December 31

2014 2013 2014 2013

With objective

evidence of

impairment

(Note 2)

Individually

assessed $ 255,146 $ 92,598 $ 222,668 $ 59,459

Collectively

assessed 1,389,662 1,584,226 154,788 187,949

With no objective

evidence of

impairment

Collectively

assessed 139,672,644 117,262,581 331,089 259,287

Note 1: The loans and receivables exclude the amount of allowance for credit losses and

adjustments for discount (premium).

Note 2: Nonperforming receivables transferred other than loan is included.

9) Management policies of collaterals assumed

The Bank’s collaterals assumed were all real estate as of December 31, 2013 and had been disposed

in 2014. Related information are shown in Note 19.

Collaterals assumed are classified as other assets. According to regulations, the Bank should

dispose collaterals within four years.

10) Disclosures prepared in conformity with Regulations Governing the Preparation of Financial

Reports by Public Banks

a) Overdue loans and receivables

Date December 31, 2014

Items

Nonperforming

Loan (NPL)

(Note 1)

Total Loans NPL Ratio

(Note 2)

Loan Loss

Reserves

(LLR)

Coverage Ratio

(Note 3)

Corporate loan Secured $ 1,097,128 $ 170,629,428 0.64% $ 3,543,106 322.94%

Unsecured 358,444 217,244,462 0.16% 3,515,194 980.68%

Consumer loan

Mortgage (Note 4) 115,247 210,755,729 0.05% 3,181,632 2,760.71%

Cash card 85 19,015 0.45% 14,626 17,207.06%

Micro credit (Note 5) 62,557 14,578,748 0.43% 361,955 578.60%

Others (Note 6) Secured

229,315 161,491,415 0.14% 1,853,174 808.13% Unsecured

Total 1,862,776 774,718,797 0.24% 12,469,687 669.41%

Overdue

Receivables

Account

Receivables

Delinquency

Ratio

Allowance for

Credit Losses Coverage Ratio

Credit card 49,464 17,327,213 0.29% 327,333 661.76%

Account receivables - factoring with no recourse

(Notes 7 and 8) 7,106 10,303,616 0.07% 110,894 1,560.57%

Date December 31, 2013

Items

Nonperforming

Loan (NPL)

(Note 1)

Total Loans NPL Ratio

(Note 2)

Loan Loss

Reserves

(LLR)

Coverage Ratio

(Note 3)

Corporate loan Secured $ 1,985,058 $ 174,735,696 1.14% $ 2,508,269 126.36%

Unsecured 522,458 231,101,706 0.23% 2,229,759 426.78%

Consumer loan

Mortgage (Note 4) 162,225 205,031,583 0.08% 1,835,915 1,131.71%

Cash card 225 24,944 0.90% 15,185 6,748.89%

Micro credit (Note 5) 63,767 15,208,643 0.42% 456,222 715.45%

Others (Note 6) Secured

218,313 164,603,256 0.13% 1,501,208 687.64% Unsecured

Total 2,952,046 790,705,828 0.37% 8,546,558 289.51%

Overdue

Receivables

Account

Receivables

Delinquency

Ratio

Allowance for

Credit Losses Coverage Ratio

Credit card 55,102 17,115,895 0.32% 326,856 593.18%

Account receivables - factoring with no recourse

(Notes 7 and 8) 5,853 11,774,546 0.05% 63,887 1,091.53%

- 83 -

Note 1: For loan business: Overdue loans represent the amounts of overdue loans reported in

accordance with “Regulations Governing the Procedures for Banking Institutions to

Evaluate Assets and Deal with Nonperforming/Non-accrual Loans”.

For Credit card business: Overdue receivables are regulated by the Banking Bureau

letter dated July 6, 2005 (Ref. No. 0944000378).

Note 2: For loan business: NPL ratio = NPL/Total loans.

For credit card business: Delinquency ratio = Overdue receivable/Account

receivables.

Note 3: For loan business: Coverage ratio = LLR/NPL

For credit card business: Coverage ratio = Allowance for credit losses/Overdue

receivables.

Note 4: Household mortgage loan is a financing to be used by a borrower to buy, build, or fix

a dwelling, and the dwelling owned by the borrower, spouse, or children is used to

fully secure the loan.

Note 5: Micro credit is regulated by the Banking Bureau letter dated December 19, 2005 (Ref.

No. 09440010950).

Note 6: Others in consumer loans refers to secured or unsecured loans excluding mortgage,

cash card, micro credit, and credit cards.

Note 7: For account receivables - factoring with no recourse, as required by the Banking

Bureau letter dated July 19, 2005 (Ref. No. 094000494), and allowance for bad debts

is recognized once no compensation is made from factoring or insurance within three

months.

Note 8: Part of nonperforming receivables transferred from other than loans was included.

b) Excluded NPLs and excluded overdue receivables

Date December 31

2014 2013

Items Excluded

NPL

Excluded

Overdue

Receivables

Excluded

NPL

Excluded

Overdue

Receivables

As a result of debt negotiation

and loan agreements (Note 1) $ 6,011 $ 234,117 $ 8,067 $ 316,347

As a result of consumer debt

clearance (Note 2) 7,485 804,628 7,831 842,682

Total 13,496 1,038,745 15,898 1,159,029

Note 1: The disclosure of excluded NPLs and excluded overdue receivables resulting from

debt negotiations and loan agreements is based on the Banking Bureau letter dated

April 25, 2006 (Ref. No. 09510001270).

Note 2: The disclosure of excluded NPLs and excluded overdue receivables resulting from

consumer debt clearance is based on the Banking Bureau letter dated September 15,

2008 (Ref. No. 09700318940).

- 84 -

c) Concentration of credit extensions

Year December 31, 2014

Rank

(Note 1) Industry Category (Note 2)

Total Credit

Consists of

Loans (Note 3)

Percentage

of Net

Worth (%)

1 A Group (manufacture of liquid crystal panel and

components)

$ 10,861,857 10.90

2 B Group (manufacture of liquid crystal panel and

components)

8,779,007 8.81

3 C Group (manufacture of computers) 5,926,460 5.95

4 D Group (water transportation) 5,174,212 5.19

5 E Group (manufacture of computers) 4,546,967 4.56

6 F Group (manufacture of other computer peripheral

equipment)

4,408,609 4.42

7 G Group (manufacture of computers) 3,865,130 3.88

8 H Group (cable and other subscription programming) 3,801,431 3.81

9 I Group (manufacture of computers) 3,477,036 3.49

10 J Group (mechanics, telecommunications and

electricity facilities installation)

3,465,861 3.48

Year December 31, 2013

Rank

(Note 1) Industry Category (Note 2)

Total Credit

Consists of

Loans (Note 3)

Percentage

of Net

Worth (%)

1 A Group (manufacture of liquid crystal panel and

components)

$ 13,056,705 14.91

2 B Group (manufacture of liquid crystal panel and

components)

12,180,728 13.91

3 C Group (manufacture of plastics, sheets, pipes and

tubes)

9,771,377 11.16

4 D Group (manufacture of computers) 5,994,352 6.85

5 E Group (water transportation) 5,180,790 5.92

6 F Group (manufacture of computers) 5,059,135 5.78

7 G Group (manufacture of computers) 5,032,176 5.75

8 H Group (smelting and refining of iron and steel) 4,692,866 5.36

9 I Group (cable and other subscription programming) 4,134,775 4.72

10 J Group (mechanics, telecommunications and

electricity facilities installation)

3,936,514 4.50

Note 1: Ranking top ten groups (excluding government or state - owned utilities) whose total

credit consists of loans.

Note 2: Groups were those as defined in the Supplementary Provisions to the Taiwan Stock

Exchange Corporation Rules for Review of Securities Listings Law Article 6.

Note 3: Total credit is the sum of all loans (including import and export bills negotiated,

discounts, overdrafts, short-term loans, short-term secured loans, marginal receivables,

medium-term loans, medium-term secured loans, long-term loans, long-term secured

loans, and nonperforming loans), exchange bills negotiated, account receivables

factored without recourse, acceptances receivable, and grantees issued.

- 85 -

d. Liquidity risk management

1) Source and definition of liquidity risk

Liquidity is the ability that banks can provide sufficient funding for assets growth and matured

liabilities. Liquidity risk means banks cannot provide sufficient funding acquired on a reasonable

price for obligations, then cause earnings or capital losses.

To enhance cash liquidity, holding sufficient cash and self-liquidating securities, adjusting period

differences, absorbing deposits or accommodating borrowing channel are available.

a) Strategies

The Bank established a sound liquidity risk managing system to maintain sufficient liquidity

and confirm the Bank would have sufficient funding for obligations in regular or specific

stressful situation based on business’ scale and characteristic, assets and liabilities’ structure,

funding strategies and diversity of funding sources.

b) Risk measurement

The Bank adopted quantitative method to manage liquidity risk. Use cash flow deficit and

liquidity management goal as measure instrument to report the result to assets and liabilities

managing committee monthly.

Perform stress testing to confirm the Bank would have sufficient liquidity fundings for assets

growth and matured liabilities when there are internal operating problems or extremely changes

on financial environment.

c) Risk monitor

The Bank established liquidity deficit limit and early warnings of liquidity risk managing goal

to monitor the change of liquidity risk and take responses at the right time.

The Bank sets up “crisis management team” when liquidity crisis occurs. General manager is

the convener of the team, manager of financial obligation department and risk management

department should be the member of the team. General manager can also assign related

departments to join the team depends on the situation. Members’ rights and responsibilities

are listed in “The Bank Liquidity Risk Emergency Response Rule”.

2) Maturity analysis of financial liabilities held to manage liquidity risk

a) Maturity analysis of non-derivative financial liabilities

Cash out-flow analyses of non-derivative financial liabilities of the Bank is summarized as

follows. These tables are provided by contract cash flow basis so part of the amounts will not

match the amounts on consolidate balance sheet.

December 31, 2014 0-30 Days 31-90 Days 91-180 Days 181 Days to 1 Year Over 1 Year Total

Deposits from the Central Bank and banks $ 46,804,971 $ 16,726,306 $ 680,690 $ 3,136,946 $ - $ 67,348,913

Securities sold under agreement to

repurchase 6,815,448 290,277 - - - 7,105,725

Payables 7,956,375 1,757,789 331,677 60,941 1,768,413 11,875,195

Deposits and remittances 625,565,390 165,641,784 122,313,630 168,955,715 16,958,941 1,099,435,460

Bank debentures 140,384 5,119,442 123,592 2,751,178 43,778,981 51,913,577

Other financial liabilities - certificate of

deposit - 641,105 1,275,588 321,939 - 2,238,632

- 86 -


Deposits from the Central Bank and banks $ 58,455,328 $ 19,405,594 $ 1,952,824 $ 7,684,995 $ - $ 87,498,741

Securities sold under agreement to

repurchase 267,988 184,293 - - - 452,281

Payables 5,468,631 1,126,601 393,499 197,416 1,687,319 8,873,466

Deposits and remittances 580,871,826 157,370,375 146,856,326 169,933,205 14,818,733 1,069,850,465

Bank debentures 42,082 3,801,305 85,315 441,286 44,137,223 48,507,211

b) Maturity analysis of derivative financial liabilities

Since hedged derivative financial instrument is managed within the rest of the contract period, it

is disclosed as undiscounted cash flow based on the maturity. The Bank engages in derivative

financial liabilities at fair value through profit or loss transactions mainly to accommodate

customers’ needs and manage their own exposure positions an disclosed at fair value based on

recent demand period.


Derivative financial liabilities at fair value

through profit or loss $ 21,597,828 $ - $ - $ - $ - $ 21,597,828


Derivative financial liabilities at fair value

through profit or loss $ 11,831,968 $ - $ - $ - $ - $ 11,831,968

Derivative financial liabilities - hedging

Derivative interest rate instrument 5,192 3,420 - - - 8,612

Note: Derivative interest rate instrument is settled at net amount.

3) Maturity analysis of operating lease commitments

Operating lease commitment is the minimum lease payment when the Bank is lessee or lessor with

non-cancelling condition.

Maturity analysis of operating lease commitments is summarized as follows:

December 31, 2014 Less Than 1 Year 1-5 Years Over 5 Years Total

Operating lease commitments

Operating lease expense (lessee) $ 447,919 $ 825,100 $ 115,415 $ 1,388,434

Operating lease income (lessor) 88,307 123,793 2,970 215,070

December 31, 2013 Less Than 1 Year 1-5 Years Over 5 Years Total

Operating lease commitments

Operating lease expense (lessee) $ 464,023 $ 981,188 $ 165,176 $ 1,610,387

Operating lease income (lessor) 82,517 152,434 3,870 238,821

4) Disclosures prepared in conformity with Criteria Governing the Preparation of Financial Reports by

Public Banks

a) Maturity analysis of assets and liabilities of the Bank (New Taiwan dollars)

December 31, 2014

Total 0-10 Days 11-30 Days 31-90 Days 91-180 Days 181 Days to 1

Year Over 1 Year

Main capital inflow on

maturity $ 1,171,776,759 $ 155,175,170 $ 197,806,145 $ 159,019,830 $ 52,149,074 $ 58,085,004 $ 549,541,536

Main capital outflow on

maturity 1,481,720,003 100,219,300 111,749,964 210,011,661 210,815,401 290,286,814 558,636,863

Gap (309,943,244 ) 54,955,870 86,056,181 (50,991,831 ) (158,666,327 ) (232,201,810 ) (9,095,327 )

December 31, 2013

Total 0-10 Days 11-30 Days 31-90 Days 91-180 Days 181 Days to 1

Year Over 1 Year


maturity $ 1,138,430,937 $ 159,392,343 $ 164,582,733 $ 150,124,686 $ 75,343,460 $ 51,137,216 $ 537,850,499


maturity 1,163,571,737 100,499,003 79,811,758 191,432,702 152,583,971 172,541,674 466,702,629

Gap (25,140,800 ) 58,893,340 84,770,975 (41,308,016 ) (77,240,511 ) (121,404,458 ) 71,147,870

Note: This table is shown as New Taiwan dollars.

- 87 -

b) Maturity analysis of assets and liabilities of the Bank (U.S. dollars)

December 31, 2014

Total 1-30 Days 31-90 Days 91-180 Days 181 Days to 1 Year Over 1 Year


maturity $ 26,577,199 $ 7,997,941 $ 6,735,637 $ 5,412,706 $ 4,031,297 $ 2,399,618


maturity 27,535,884 8,086,120 7,770,959 4,822,905 4,212,197 2,643,703

Gap (958,685 ) (88,179 ) (1,035,322 ) 589,801 (180,900 ) (244,085 )

(In Thousands of U.S. Dollars)

December 31, 2013

Total 1-30 Days 31-90 Days 91-180 Days 181 Days to 1 Year Over 1 Year


maturity $ 20,448,656 $ 5,974,241 $ 5,378,145 $ 3,837,444 $ 2,828,106 $ 2,430,720


maturity 19,908,591 7,047,923 5,688,301 2,939,046 2,800,751 1,432,570

Gap 540,065 (1,073,682 ) (310,156 ) 898,398 27,355 998,150

Note: This table is shown as U.S. dollars.

e. Market risk

1) Source and definition of market risk

Market risk is defined as the change in market prices (such as interest rate, exchange rate, equity

securities and commodity prices) which may cause the fluctuation of financial instrument’s fair

value or future cash flow. The Bank’s net revenue and investment portfolio value may fluctuate

when risk factors above change.

Main market risks the Bank should conquer are interest rate, exchange rate and equity securities.

Interest rate risks primarily include: Bonds and derivative interest rate financial commodity such

as fixed and fluctuate interest rate swap and bonds option; exchange rate risk is foreign currency

investment the Bank holds such as derivative financial commodity at foreign currency and foreign

currency bonds; equity securities risk includes listed stocks and derivative financial commodity -

stocks.

2) Management strategies and procedures

To follow “Market Risk Management Rule” and other regulations, the Bank established standards

about identification, measurement, supervision and reporting to set up appropriate risk management

framework for every kind of market risk.

In accordance with risk management limit approved by the board of directors, the Bank supervised

every risk component and loss limit such as interest rate, exchange rate, equity security, spot trading

and forward contract, option, future, swap, related sensitivity information derived from spot trading

to confirm that market risk exposure can be accepted by the Bank.

The Bank separates its transactions into hedged and non-hedged based on trading purposes. For

hedged transactions, the Bank should measure hedge relations, risk management goals and hedge

strategies. The Bank should also perform hedge testing, evaluate related effectiveness between

hedge instruments and hedged items.

3) Organization and framework

The board of directors is the top supervision and determination level of the Bank; it determines

every risk management procedure and limit based on operating strategy and business environment.

The Bank set up risk management department under general manager to regulate risk managing

policies, establish principles, set up and plan risk management system.

- 88 -

Following internal control and separation of duties principles, the Bank separated related

departments of market risk into three independent departments: Trading, risk control and

settlement departments, usually called front office, middle office and back office. The risk

management department is in charge of market risk control, it is responsible for identifying

measuring, controlling and reporting market risk.

4) The procedure of market risk control

a) Identification and measurement

The scope of risk measurement includes exposures originated from change in market price of

interest rate, exchange rate, equity security, spot trading and forward, option, future, swap or

other related combined transactions derived from spot trading. The Bank set up appropriate

market risk limit target based on commodities’ category, characteristic and complexity. The

limit targets are nominal amount exposure, risk factor sensitivity measure value

Delta/Vega/DVO1 and loss control limit. Targets above are calculated by risk control

department through measurements (ex. Option Black & Scholes Model) provided by transaction

systems (ex. Murex, Bloomberg) based on market prices.

b) Supervision and reporting

The Bank’s market risk management department offers measured profit or loss of market price,

risk value and limit control reports every day. If the risk is over limit, the department should

report to transaction department and appropriate managers in risk management department.

The department should also collect and organize bank market risk exposure information, risk

value, risk limit rules, over limit information and analyze security investments regularly to the

board of directors.

5) Trading book risk management policies

a) Definitions

Trading book is financial instruments and physical commodities held for trading or hedging by

the Bank. Held-for-trading position means revenues earned from practical or impractical

trading differences. Positions not belong to trading book above are banking book.

b) Strategies

The Bank earns revenues from trading differences or fixed arbitrage through properly control

short-term fluctuation of market risk factors (interest rate, exchange rate and stock price). The

Bank will execute hedge transaction if necessary.

c) Policies and procedures

The Bank carried out “Market Risk Management Policy” to control the market risk.

Traders can autonomously operate and manage positions in the range of authorized limit and

trading strategy; market risk management department supervises trading positions (including

limit, liquidity, the ability to establish hedge position and investment portfolio risk) based on

market information and evaluates market information’ quality, acquirability, liquidity and scale

which are calculated into pricing model.

- 89 -

d) Valuation policies

The Bank assesses financial instruments by accessible information from independent sources

once a day if market prices are acquirable; if the Bank assesses financial instruments by pricing

model, the Bank should carefully use mathematic method and review pricing model’s

assumptions and parameters regularly.

e) Measurements

i. Assumptions and calculation methods of risk value are shown in Note 45, (e), (10).

ii. Calculate nominal amount exposure and risk factors sensitivity value Delta/Vega/DVO1

through trading systems.

iii. The Bank performs stress test through light situation (change in interest rate ± 100bp,

change in securities ± 15% and change in exchange rate ± 3%) and serious situation (change

in interest rate ± 200bp, change in securities ± 30% and change in exchange rate ± 6%) and

report to the board of directors.

6) Trading book interest rate risk management

a) Definitions

Interest rate risk is the risk to earnings and value of financial instruments caused by fluctuations

in interest risk. Major contracts includes interest rate related securities and derivative

instruments.

b) Procedures

The Bank sets trading limit and stop-loss limit (including dealing room, dealers, trading

instruments) by management strategy and market condition, and the limits are approved by the

board of directors.

c) Measurements


ii. Daily using DV01 to measure impact of investment portfolio value due from interest rate

changes.

7) Trading book exchange rate risk management

a) Definitions

Exchange rate risk is the income or loss arisen from exchange two currencies during different

time. The Bank’s exchange rate risk is major caused from financial instruments of spot

contract, forward contracts, and FX option.

b) Policies and procedures

For controlling the exchange rate risk, the Bank sets trading limit and stop-loss limit for dealing

room, and dealers, etc., hold the loss to be acceptable.

- 90 -

c) Measurements


ii. Daily using exposure positions to measure impact of investment portfolio value due from

exchange rate risk.

8) Trading book equity risk management

a) Definitions

Market risk of equity securities includes specific risk by individual securities price volatility and

general market risk from all market securities price volatility.

b) Procedures

For controlling the equity risk, the Bank sets investment positions limit and stop-loss limit.

The limits are approved by the board of directors. Within the limit of authority, the Bank sets

investment positions limit and stop-loss limit for each dealer.

c) Measurements


ii. Daily using exposure positions to measure impact of investment portfolio value due from

equity risk.

9) Banking book interest rate risk management

Banking book interest rate risk means the value of banking book portfolio shocked by un-favored

interest rate changes. Banking book interest rate risk is not from interest rate position of trading

book.

Banking book interest rate risk management let the Bank can measure and manage the risk to

earnings and financial position caused by fluctuations in interest risk.

a) Strategies

Reduce negative effect and adjust position within authority to increase positive effect of interest

rate fluctuations for net interest revenue or economic value. The Bank reviews the interest rate

sensitivity regularly for creating maximum profit and attending to interest rate risk.

b) Risk measurement

Risk measurement includes interest rate risk of assets, liabilities, and off-balance-sheet position.

The Bank makes periodic report of interest rate sensitivity position and measures interest rate

fluctuations impact to interest-rate sensitive gap.

c) Risk monitor

Risk management sector reports risk measurement result monthly to authority, for examining

and monitoring interest rate risk exposure condition.

- 91 -

If risk exposure condition exceed the limit or target value, risk management sector should

analysis the reason and notice executive division. Executive division should call relevant

divisions to make solution way. The solution way should approve by authority and let relevant

divisions execute.

10) Market risk measurement technique

a) Value at Risk, “VaR”

The Bank uses Risk Manager system and stress-testing to measure the investment portfolio risk

of the Bank and uses several hypotheses of market conditions to measure market risk and

maximum expect loss of holding positions. The Bank’s board of directors sets limit to VaR.

The VaR is daily controlled by market risk management sector.

VaR is the statistics estimates of holding positions potential loss from un-favored market

condition changes. It’s the evaluation of one-day worst loss on holding positions, with a 99%

confidence level. The Bank uses the value-at-risk approach and Monte Carlo Simulation

Method to derive quantitative measures for the holding positions market risks under normal

condition. The calculated result is used to monitor and test the validity of parameters and

hypotheses periodically. Using the approach above can’t prevent loss from huge un-favored

market condition changes.

The Bank considers maximum expect loss, budget profit goal, and operating strategy to set the

limit of VaR, which is proposed by market risk management sector and approved by the board

of directors.

The Bank’s trading book VaR overview


Average Maximum Minimum

Exchange rate risk $ 8,971 $ 29,348 $ 3,536

Interest rate risk 17,042 30,221 7,621

Equity risk 5,079 7,162 1,929

Total VaR 20,717 35,002 9,879

Note 1: Estimated VaR: Prediction interval = 1 day, Confidence level = 99%, Decay factor =

0.94.

Note 2: Historical data period: 2014.01.02 - 2014.12.31.


Average Maximum Minimum

Exchange rate risk $ 11,593 $ 33,795 $ 1,628

Interest rate risk 13,931 27,135 7,473

Equity risk 2,801 4,376 1,346

Total VaR 18,141 46,435 9,409

Note 1: Estimated VaR: Prediction interval = 1 day, Confidence level = 99%, Decay factor =

0.94.

Note 2: Historical data period: 2013.01.02 - 2013.12.31.

- 92 -

11) Information of exchange rate risks

Information about exchange rate risks of holding net positions of foreign currencies are shown as

below:

December 31, 2014

Original

Currency

(In Thousands) Exchange Rate

Converted to

TWD

Financial assets

Monetary items

USD $ 8,807,278 31.71727 $ 279,342,812

CNY 20,727,535 5.1049 105,811,993

Non-monetary items

USD 696,824 31.71727 22,101,355


Monetary items

USD 8,673,549 31.71727 275,101,303

CNY 19,365,161 5.1049 98,857,210

December 31, 2013

Original

Currency

(In Thousands) Exchange Rate

Converted to

TWD

Financial assets

Monetary items

USD $ 8,936,157 29.953 $ 267,664,703

CNY 12,644,981 4.94315 62,506,038

Non-monetary items

USD 741,077 29.953 22,399,809


Monetary items

USD 8,081,092 29.953 242,052,958

CNY 14,267,485 4.94315 70,526,318

12) Disclosures of Regulations Governing the Preparation of Financial Reports by Public Banks

a) Interest rate sensitivity information (New Taiwan dollars)

December 31, 2014

Items 1 to 90 Days 91 to 180 Days 181 Days to One

Year Over One Year Total

Interest rate-sensitive assets $ 774,388,594 $ 7,178,344 $ 39,894,851 $ 106,724,929 $ 928,186,718

Interest rate-sensitive liabilities 307,718,512 416,496,375 75,421,867 47,522,248 847,159,002

Interest rate-sensitive gap 466,670,082 (409,318,031 ) (35,527,016 ) 59,202,681 81,027,716

Net worth 99,320,822

Ratio of interest rate-sensitive assets to liabilities (%) 109.56%

Ratio of interest rate-sensitive gap to net worth (%) 81.58%

- 93 -

December 31, 2013



Interest rate-sensitive assets $ 792,396,642 $ 32,045,089 $ 35,633,090 $ 71,458,579 $ 931,533,400

Interest rate-sensitive liabilities 331,533,253 425,124,578 81,508,986 41,946,658 880,113,475

Interest rate-sensitive gap 460,863,389 (393,079,489 ) (45,875,896 ) 29,511,921 51,419,925

Net worth 88,423,172



Note 1: The above amounts include only New Taiwan dollars held by the Bank, and exclude

contingent assets and contingent liabilities.

Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of

interest-earning assets and interest-bearing liabilities are affected by interest rate

changes.

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 (in New Taiwan dollars).

b) Interest rate sensitivity information (U.S. dollars)

December 31, 2014



Interest rate-sensitive assets $ 6,524,081 $ 807,297 $ 362,979 $ 266,170 $ 7,960,527

Interest rate-sensitive liabilities 3,201,944 4,086,851 384,051 26,622 7,699,468

Interest rate-sensitive gap 3,322,137 (3,279,554 ) (21,072 ) 239,548 261,059

Net worth 109,431



December 31, 2013



Interest rate-sensitive assets $ 6,711,757 $ 1,130,861 $ 532,117 $ 144,570 $ 8,519,305

Interest rate-sensitive liabilities 3,369,441 3,708,122 360,448 - 7,438,011

Interest rate-sensitive gap 3,342,316 (2,577,261 ) 171,669 144,570 1,081,294

Net worth 105,591


Ratio of interest rate-sensitive gap to net worth (%) 1,024.04%

Note 1: The above amounts include only USD held by the Bank and exclude contingent assets

and contingent liabilities.

Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of

interest-earnings assets and interest-bearing liabilities are affected by interest-rate

changes.

Note 3: Interest rate-sensitive 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 (in U.S. dollars)

- 94 -

46. CAPITAL MANAGEMENT

a. Overview

The Bank’s capital management goals are as follows:

As a basic target, the Bank’s eligible capital should be sufficient to meet their operation need, and

higher than minimum requirements of the capital adequacy ratio. Eligible capital and legal capital are

calculated under the regulations announced by the authority.

The Bank should have adequacy capital to bear the risks, measure capital demand according to risk

combination and risk characteristics, fulfill the optimization of resource and capital allocation by risk

management.

b. Capital management procedure

The Bank’s capital adequacy ratio should meet the regulations announced by the authority. Also, the

Bank’s should maintain capital adequacy ratio by considering the Bank’s business scale, major

operating strategy, risk condition, eligible capital structure, and future capital increase plan, etc. The

Bank reported to the authority regularly. Overseas subsidiaries’ capital management is in accordance

with local regulations.

The Bank’s capital maintenance is in accordance with “Regulations Governing the Capital Adequacy

and Capital Category of Banks”, etc., and is managed by the Bank’s risk management and accounting

divisions.

c. Statement of capital adequacy

Year

Analysis Items

December 31

2014 2013

Standalone Consolidation Standalone Consolidation

Eligible capital

Ordinary shares equity $ 81,825,690 $ 91,108,497 $ 70,204,331 $ 79,348,426

Other Tier 1 capital - - - -

Tier 2 capital 20,581,520 31,995,842 19,446,441 30,585,284

Eligible capital 102,407,210 123,104,339 89,650,772 109,933,710

Risk-weighted

assets

Credit risk

Standardized approach 811,352,567 860,205,273 782,726,199 816,744,157

Internal rating - based approach - - - -

Securitization - - - -

Operational

risk

Basic indicator approach 47,477,488 49,866,188 39,463,613 42,938,563

Standardized

approach/alternative

standardized approach

- - - -

Advanced measurement

approach - - - -

Market risk Standardized approach 20,230,650 23,718,500 20,158,638 23,287,575

Internal model approach - - - -

Total risk-weighted assets 879,060,705 933,789,961 842,348,450 882,970,295

Capital adequacy ratio 11.65% 13.18% 10.64% 12.45%

Ordinary shares equity risk - based capital ratio 9.31% 9.76% 8.33% 8.99%

Tier 1 risk - based capital ratio 9.31% 9.76% 8.33% 8.99%

Leverage ratio 4.54% 4.95% 3.74% 4.14%

Note 1: These tables were filled according to “Regulations Governing the Capital Adequacy Ratio of

Banks” and related calculation tables.

Note 2: The Bank shall disclose the capital adequacy ratio for the current and previous period in

annual financial reports. For semiannual financial report, the Bank shall disclose the capital

adequacy ratio for the current period, previous period, and previous year end.

- 95 -

Note 3: The formula is as follows:

1) Eligible capital = Common shares equity + Other Tier 1 capital + Tier 2 capital.

2) Total risk - weighted assets = Risk-weighted assets for credit risk + (Capital requirements

for operational risk + Capital requirement for market risk) x 12.5.

3) Ratio of capital adequacy = Eligible capital/Total risk - weighted assets.

4) Common shares equity risk - based capital ratio = Common shares equity/Total risk -

weighted assets.

5) Tier 1 risk - based capital ratio = (Common shares equity + Other Tier 1 capital)/Total risk

- weighted assets.

6) Leverage ratio = Tier 1 capital/Total exposure risk.

Note 4: Based on the Financial Supervisory Commission’s Statement No. 09900146911, gains from

the sale of idle assets should not be included in Bank SinoPac’s capital adequacy ratio

calculation.

47. RECLASSIFICATION

Financial assets have been reclassified on September 25, 2013. The fair value on the reclassification day

were as follows:

Before

Reclassification

After

Reclassification

Available-for-sale securities $ 10,164,016 $ -

Held-to-maturity securities - 10,164,016

$ 10,164,016 $ 10,164,016

The effective interest rate of reclassified financial assets on the reclassification day was between 0.9795%

and 2.0696%, and the estimated recoverable cash flow was $10,879,405.

The book value and fair value of financial assets reclassified:

December 31

2014 2013

Held-to-maturity securities

Book value $ 10,109,702 $ 10,152,801

Fair value 10,174,314 10,190,705

- 96 -

The gains or losses recorded for the reclassified financial assets (excluding those that had been

derecognized) for the year ended December 31, 2014 and September 26, 2013 to December 31, 2013 and

the pro forma gains or losses assuming no reclassifications had been made were as follows:

For the Year

Ended

December 31,

2014

September 26,

2013 to

December 31,

2013

Held-to-maturity securities

Recognition in profit (included in interest revenue) $ 112,326 $ 30,048

Assumed equity adjustment without such reclassification 72,252 39,542

48. CROSS-SELLING INFORMATION

For the years ended December 31, 2014 and 2013, the Bank charged SinoPac Securities for $2,378 and

$2,223, respectively, as marketing and opening accounts. The rental fee the Bank has charged SinoPac

Securities for the years ended December 31, 2014 and 2013 were $3,526 and $3,488, respectively.

The rental fee the Bank paid to SinoPac Securities were $678 and $656, respectively for the years ended

December 31, 2014 and 2013. The Bank has paid to SinoPac Securities $4,076 and $4,901 for the years

ended December 31, 2014 and 2013 for bonus as part of the cross-selling agreement.

For other transactions between SPH and its subsidiaries, please refer to Note 41.

49. PROFITABILITY

Items December 31

2014 2013

Return on total assets Before income tax 0.93% 0.83%

After income tax 0.84% 0.75%

Return on net worth Before income tax 13.48% 12.90%

After income tax 12.13% 11.58%

Profit margin 38.71% 38.27%

Note 1: Return on total assets = Income before (after) income tax/Average total assets.

Note 2: Return on net worth = Income before (after) income tax/Average net worth.

Note 3: Profit margin = Income after income tax/Total net revenues.

Note 4: Income before (after) income tax represents income for the years ended December 31, 2014 and

2013.

- 97 -

50. TRUST BUSINESS UNDER THE TRUST LAW

a. Balance sheets, income statement and trust properties of trust accounts

These statements were managed by the Bank’s Trust Department. However, these items were not

included in the Bank’s financial statements.

Balance Sheets of Trust Accounts

December 31, 2014 and 2013

December 31, 2014

Other Trust

Business

Financial Assets

and Real Estate

Trust Plan Total

Trust assets

Bank deposits $ 4,444,321 $ - $ 4,444,321

Bonds 3,198,721 - 3,198,721

Stocks 13,133,923 - 13,133,923

Funds 125,610,804 - 125,610,804

Securities lent 1,428,662 - 1,428,662

Receivables 23,107 - 23,107

Prepayments 12,742 - 12,742

Real estate

Land 6,235,568 - 6,235,568

Buildings 109,261 - 109,261

Construction in process 2,626,574 - 2,626,574

Securities under custody 83,133,775 - 83,133,775

Total trust assets $ 239,957,458 $ - $ 239,957,458

Trust liabilities

Payables $ 3,191 $ - $ 3,191

Payable on securities under custody 83,133,775 - 83,133,775

Trust capital 153,976,004 - 153,976,004

Reserves and cumulative earnings

Net income (loss) 1,602,062 - 1,602,062

Cumulative earnings 1,688,248 - 1,688,248

Deferred amount (445,822) - (445,822)

Total trust liabilities $ 239,957,458 $ - $ 239,957,458

- 98 -

December 31, 2013

Other Trust

Business

Financial Assets

and Real Estate

Trust Plan Total

Trust assets

Bank deposits $ 5,746,758 $ - $ 5,746,758

Bonds 2,575,463 - 2,575,463

Stocks 9,016,125 - 9,016,125

Funds 113,915,842 - 113,915,842

Securities lent 5,136,399 - 5,136,399

Receivables 14,037 - 14,037

Prepayments 6,988 - 6,988

Real estate

Land 6,304,443 - 6,304,443

Buildings 95,968 - 95,968

Construction in process 4,769,334 - 4,769,334

Securities under custody 61,748,781 - 61,748,781

Total trust assets $ 209,330,138 $ - $ 209,330,138

Trust liabilities

Payables $ 2,675 $ - $ 2,675

Payable on securities under custody 61,748,781 - 61,748,781

Trust capital 145,890,434 - 145,890,434

Reserves and cumulative earnings

Net income (loss) 1,759,832 - 1,759,832

Cumulative earnings 445,603 - 445,603

Deferred amount (517,187) - (517,187)

Total trust liabilities $ 209,330,138 $ - $ 209,330,138

Trust Properties of Trust Accounts

December 31, 2014 and 2013

December 31

Investment Portfolio 2014 2013

Bank deposits $ 4,444,321 $ 5,746,758

Bonds 3,198,721 2,575,463

Stocks 13,133,923 9,016,125

Funds 125,610,804 113,915,842

Securities lent 1,428,662 5,136,399

Real estate

Land 6,235,568 6,304,443

Buildings 109,261 95,968

Construction in process 2,626,574 4,769,334

Securities under custody 83,133,775 61,748,781

$ 239,921,609 $ 209,309,113

- 99 -

Income Statement of Trust Account

Years Ended December 31, 2014 and 2013


Other Trust

Business

Financial Assets

and Real Estate

Trust Plan Total

Trust income

Interest income $ 19,564 $ - $ 19,564

Borrowed Securities income 45,703 - 45,703

Cash dividends 464,605 - 464,605

Gains from beneficial certificates 4,162 - 4,162

Realized investment income 99,165 - 99,165

Unrealized investment income 2,007,434 - 2,007,434

Total trust income 2,640,633 - 2,640,633

Trust expense

Trust administrative expenses 11,357 - 11,357

Tax expenses 6 - 6

Realized investment loss 21,916 - 21,916

Unrealized investment loss 1,004,020 - 1,004,020

Others 1,272 - 1,272

Total trust expense 1,038,571 - 1,038,571

Income before income tax 1,602,062 - 1,602,062

Income tax expense - - -

Net income $ 1,602,062 $ - $ 1,602,062


Other Trust

Business

Financial Assets

and Real Estate

Trust Plan Total

Trust income

Interest income $ 22,551 $ - $ 22,551

Borrowed Securities income 128,630 - 128,630

Cash dividends 147,935 - 147,935

Gains from beneficial certificates 2,987 - 2,987

Realized investment income 218,283 - 218,283

Unrealized investment income 1,308,848 - 1,308,848

Total trust income 1,829,234 - 1,829,234

Trust expense

Trust administrative expenses 27,589 - 27,589

Tax expenses 204 - 204

Realized investment loss 38,416 - 38,416

Others 3,193 - 3,193

Total trust expense 69,402 - 69,402

Income before income tax 1,759,832 - 1,759,832

Income tax expense - - -

Net income $ 1,759,832 $ - $ 1,759,832

b. The operations of the Bank’s Trust Department consist of planning, managing and operating of trust

business and affiliated business. These operations are governed by the Banking Law and the Trust

Law.

- 100 -

c. IBT, a trustee acting in behalf of its corporate customers, purchased CDOs (collateralized debt

obligations) issued by Lehman Brothers for US$20 million in 2005. Later, a civil case was brought

against the CDO issuer, custodians and bond holders (the Bank based on trust deed) by the insolvency

administrator of Lehman Brothers Special Financing Inc. “Lehman Brothers”) before the United States

Bankruptcy Court in New York. On November 4, 2014, the plaintiff, Lehman Brothers, signed a

settlement agreement with the Bank, which paid US$7,500 as settlement. The plaintiff thus withdrew

all litigation and claims against the Bank and no longer filed related lawsuits.

51. ADDITIONAL DISCLOSURES

a. Related information of the Bank and material transaction:

1) Marketable securities acquired and disposed at costs or prices of at least NT$300 million or 10% of

the issued capital: Table 1

2) Acquisition of individual real estates at costs of at least NT$300 million or 10% of the issued

capital: None

3) Disposal of individual real estates at prices of at least NT$300 million or 10% of the issued capital:

None

4) Allowance for service fee to related parties amounting to at least NT$5 million: None

5) Receivables from related parties amounting to at least NT$300 million or 10% of the issued capital:

Table 2

6) Trading information - sale of nonperforming loans: Table 3

7) Financial asset securitization: None

8) Other significant transactions which may affect the decisions of users of financial reports: None

b. Financing provided, endorsements/guarantees provided, marketable securities held, acquisition and

disposal of marketable securities at costs or prices of at least NT$300 million or 10% of the issued

capital, and derivative transactions of the subsidiary: Table 1 and Table 4

c. The related information and proportionate share in investees: Table 5

d. Information on investment in Mainland China: Table 6

- 101 -

TABLE 1

BANK SINOPAC AND INVESTEES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED AT COSTS OR PRICES OF AT LEAST $300 MILLION OR 10% OF THE ISSUED CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars or Shares)

Company Name

Type and Name of

Marketable

Securities

Financial Statement

Account Counterparty Relationship

Beginning Balance Acquisition Disposal Ending Balance

Shares Amount Shares Amount Shares Amount Carrying

Amount

Gain (Loss) on

Disposal Shares Amount

Bank SinoPac Common stock

SinoPac Bancorp

(Note 3)

Equity investment -

equity method

- The subsidiary of the Bank 20 US$ 162,306 48 US$ 195,000 - $ - US$ 50,000 $ - 68 US$ 307,306

Preferred stock

SinoPac Bancorp

(Note 3)

Unquoted equity

investment

- The subsidiary of the Bank 7,800 US$ 195,000 - - 7,800 - US$ 195,000 - - -

SinoPac Bancorp Investment in stocks

Far East National

Bank (Note 4)

Equity investment -

equity method

- The subsidiary of the

SinoPac Bancorp

8,070 US$ 358,893 515 US$ 178,205 7,840 - US$ 246,000 - 745 US$ 291,098

Note 1: Excluded the adjustment of original investing cost for the equity method investment.

Note 2: Foreign currency were translated to New Taiwan dollars with spot rate of the date of balance sheet.

Note 3: The change in SinoPac Bancorp’s common stock and preferred stock please refer to Notes 15 and 16.

Note 4: The board of directors of Far East National Bank approved capital returns to its parent, SinoPac Bancorp, of US$17,795 in June 2014 and US$50,000 in October 2014. Also in October 2014, SinoPac Bancorp.’s board of directors approved a capital increase of US$178,205 and the

redemption of preferred shares amounting to US$178,205. All of these shares were subscribed for by SinoPac Bancorp.

- 102 -

TABLE 2


RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE ISSUED CAPITAL

DECEMBER 31, 2014


Company Name Related Party Relationship Ending Balance Turnover

Rate

Overdue Amounts Received

in Subsequent

Period

Allowance for

Bad Debts Amount Action Taken

Bank SinoPac SinoPac Financial Holdings

Company Limited

The parent company of the Bank $ 1,151,983

(Note)

- $ - - $ - $ -

Note: Most of receivables resulted from the use of the linked-tax system (recognized in current tax assets) and related parties.

- 103 -

TABLE 3


TRADING INFORMATION - SALE OF NONPERFORMING LOANS



Date Counter-parties Loans Carrying Amount

(Note)

Selling Price

(Note)

Gain or (Loss) on

Disposal Attachment Relation

Bank SinoPac

December 11, 2014 Cross Asia Fund Ltd. Unsecured $ - $ 63,435 $ 63,435 - None

Note 1: Carrying amount of Bank SinoPac is original credit amount net of doubtful account.

Note 2: The loan had been written off, disposal gain is recognized as allowance for doubtful accounts (recovery of written-off credits).

- 104 -

TABLE 4


MARKETABLE SECURITIES HELD

DECEMBER 31, 2014


Name of Holding Company Type and Name of Marketable Securities Relationship Financial Statement Account

December 31, 2014

Note Shares/Units/

Face Amount

Carrying

Amount

(Note 1)

Percentage of

Ownership

Market Value or

Net Asset Value

(Note 1)

SinoPac Bancorp Auction-rate securities

HSBC AUCTION PASS THRU 06-1A (ML)

DRD-FVO

- Financial assets designated as at

FVTPL

0.05 $ 294,449 - $ 294,449 Note 2

GOLDMAN SACHS AUC PASS 06-8 (ML)

DRD-FVO


FVTPL

0.05 123,691 - 123,691 Note 2

BANK OF AMERICA AUC PASS (ML)

DRD-FVO


FVTPL

0.05 129,787 - 129,787 Note 2

SinoPac Capital Limited (H.K.) Stock

MeiTa Industrial Co., Ltd. - Unquoted equity investments 212 13,601 0.49 13,601 Note 2

Fund

China Enterprise Capital Ltd. - Available-for-sale financial assets 0.02 28,444 0.85 28,444 Note 3

SinoPac Property Insurance Agent Co., Ltd. Bond

Government bond 88-3 - Held-to-maturity financial assets 600 617 - 699 Pledge

SinoPac Life Insurance Agent Co., Ltd. Bond

Government bond 88-3 - Held-to-maturity financial assets 600 617 - 699 Pledge

Note 1: Foreign-currency amounts were translated to New Taiwan dollars at the exchange rate as of the balance sheet date.

Note 2: Fair values or net asset values were based on the carrying amounts.

Note 3: Fair values were based on the closing prices of the underlying assets of the beneficial certificates as of December 31, 2014.

- 105 -

TABLE 5


INFORMATION ON INVESTED ENTERPRISES

YEAR ENDED DECEMBER 31, 2014


Investee Company Location Main Businesses and Products Percentage of

Ownership

Carrying

Amount

Investment

Gains

Consolidated Investment

Note Shares

Imitated

Shares

Total

Shares Percentage of

Ownership

Financial related enterprise

Bank SinoPac (China) Ltd. China Commercial Bank 100.00 $ 10,439,047 $ 98,357 - - $ - 100.00 Subsidiary,

Notes 1 and 2

SinoPac Bancorp The United

States

Holding company 100.00 8,613,964 257,724 68 - 68 100.00 Subsidiary and

Note 2

SinoPac Capital Limited (H.K.) Hong Kong Credit and investment service 100.00 1,803,395 354,507 229,998 - 229,998 100.00 Subsidiary and

Note 2

SinoPac Life Insurance Agent Co., Ltd. Taiwan Life insurance agent 100.00 929,469 913,032 300 - 300 100.00 Subsidiary

SinoPac Property Insurance Agent Co., Ltd. Taiwan Property insurance agent 100.00 36,259 29,992 300 - 300 100.00 Subsidiary

Global Securities Finance Corporation Taiwan Securities financing 2.63 81,499 3,839 11,494 - 11,494 2.87 Note 3

Taipei Foreign Exchange Inc. Taiwan Foreign exchange market maker 3.43 6,800 2,720 680 - 680 3.43 Note 3

Taiwan Futures Exchange Taiwan Futures exchange and settlement 1.07 21,490 5,496 5,984 - 5,984 2.06 Note 3

Fuh Hwa Securities Investment Trust Co.,

Ltd.

Taiwan Securities investment trust and consultant 4.63 15,000 15,000 1,500 - 1,500 4.63 Note 3

Financial Information Service Co., Ltd. Taiwan Planning and developing the information system of

across banking institution and managing the

information web system

2.28 91,000 28,665 10,238 - 10,238 2.28 Note 3

Taiwan Asset Management Corporation Taiwan Evaluating, auctioning, and managing for financial

institutions’ loan

0.28 37,500 3,237 3,750 - 3,750 0.28 Note 3

Taiwan Financial Asset Service Co. Taiwan Auction 5.88 100,000 - 10,000 - 10,000 5.88 Note 3

Sunny Asset Management Corp. Taiwan Purchasing for financial institutions’ loan assets 1.42 164 132 85 - 85 1.42 Note 3

Taiwan Depository and Clearing Co. Taiwan Computerizing book-entry operation for securities 0.08 4,639 340 3,087 - 3,087 0.92 Note 3

Taiwan Mobile Payment Corporation Taiwan Promoting E-commerce and developing E-billing 1.10 6,000 - 600 - 600 1.10 Note 3

Nonfinancial related enterprise

Taiwan Television Enterprise, Ltd. Taiwan Wireless television Company 4.84 137,173 13,573 13,947 - 13,947 4.97 Note 3

Victor Taichung Machinery Works Co., Ltd. Taiwan Manufacturer and seller of tool machine, plastic

machine and other precise equipment

0.14 - 157 157 - 157 0.14 Note 3

Note 1: For the information of Bank SinoPac (China) Ltd. Please refer to Note 15.

Note 2: Foreign-currency amounts were translated at the exchange rate as of the balance sheet date, except for foreign-currency-denominated income and expenses, which were translated to New Taiwan dollars at the average exchange rate for the

year ended December 31, 2014.

Note 3: Investment gains are dividends income.

Note 4: Above the number of shares held is thousands of shares.

- 106 -

TABLE 6

BANK SINOPAC

INFORMATION ON INVESTMENT IN MAINLAND CHINA



Investee Company Main Businesses

and Products

Total Amount of

Paid-in Capital Method of Investment

Accumulated

Outflow of

Investment from

Taiwan as of

January 1, 2014

Investment Flows Accumulated

Outflow of

Investment from

Taiwan as of

December 31, 2014

Earnings (Losses)

of Investee

(Notes 2, 3 and 4)

Percentage

of

Ownership

Equity in the

Earnings (Losses)

(Notes 2, 3 and 4)

Carrying Value

(Notes 2 and 3)

Accumulated

Inward Remittance

of Earnings Outflow Inflow

Bank SinoPac (China) Ltd. Commercial Bank $ 10,272,301 Investment in Mainland China directly $ 10,272,301 $ - $ - $ 10,272,301 $ 158,945 100.00 $ 98,357

$ 10,439,047 $ -

Accumulated Investment in Mainland China as of

December 31, 2014

Investment Amounts Authorized by

Investment Commission, MOEA Limit on Investment

$10,272,301 $10,272,301 $59,797,627

Note 1: The accumulated investment amounts in Mainland China as of December 31, 2014 are US$323,871 thousand and had been authorized by the Investment Commission, MOEA are US$323,871 thousand.

Note 2: The gain on investment recognized and the value of investment presented for the year ended December 31, 2014 have been reviewed by independent certified public accountants.

Note 3: Foreign currencies are translated to N.T. dollars with current rate of the date of balance sheet, only the gains or losses investments are translated with current period average rate.

Note 4: Bank SinoPac (China) Ltd. received local operating license in January 2014 and started accounting trading activities of the firm. Belowing earnings (losses) of investee include revenue generating in the undertaking period from August 2013 to December 2013, amounted to US$1,995

thousand through the Bank had recognized and prepared consolidated statement in 2013. For the information about Bank SinPac (China) Ltd., please refer to Note 15.

Documents

Bank SinoPac · 2015-04-30 · - 5 - BANK SINOPAC STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars) Other Equity