CBF — Annual Report 2016

Jun 13, 2016

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Stock Code: 2820
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CHINA BILLS FINANCE CORPORATION

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Printed on March 25 ,2016

CONTENTS Annual I.Message to Shareholders 1 Report 2015 II.Company and Business Profile 9 A.Company Profile 9 B.Principal Activities 10 C.Organizational Structure 11 D.Board of Directors 12 E.The Management Team 13 III.Operations Overview 14 IV.Financial Statements 20

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I. Message to Shareholders One. Performance Report

I. 2015 Global and Taiwan Economy

In 2015, global economy experienced steady growth. However, the growth signal was weak and divergent country by country. The current global economy still faces many challenges and unknowns and should be closely monitored. Factors such as US monetary policy, the slowdown in growth in China and other emerging markets, geopolitical risk, international crude oil and commodity prices fluctuations, global financial market as well as stock and currency fluctuations all have impacts on global economy outlook. According to the IHS (Global Insight) forecast in October 2015, global economic growth was 2.5% in 2015, dropped by 0.2% from 2.7% in 2014.

The expectations of domestic and external demands are circumspect due to the weak global growth signal and growing competition from cross-strait industries and global brands. However, the price declines of crude oil and commodity help to sustain the domestic price index. The economic growth was predicted to be 1.06% in 2015, according to The Directorate-General of Budget, Accounting, and Statistics, Executive Yuan on November 27, 2015.

II. Change of the Organizational Structure

Nil.

III. Performance Report

(I) Primary Market Transactions

1. Commercial Paper Certification and Underwriting

The Company had 8,696 commercial papers certified and underwritten in 2015, an increase of 69 commercial papers (or 0.80%) over the year 2014. The total transaction amount was NT$1,451,793 million, an increase of NT$152,688 million (or 11.75%) over the year 2014. The outstanding balance of commercial paper certified and underwritten by the Company amounted to NT$181,191 million as of the end of 2015.

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	2015		2014 Comparison with 2014	2014 Comparison with 2014
Unit: NT$ million	Amount %		Amount %	Increase (decrease) % 152,688 11.75 (27) (12.92) (18,876) (7.39) (300) (100.00) 133,485 8.58
Commercial papers (CP2) 1,451,793 85.98 Commercial papers (CP1) 182 0.01 Bank negotiable certificates of deposit 236,604 14.01 Municipal TreasuryBills 0 ‐			1,299,105 83.54 209 0.01 255,480 16.43 300 0.02
Total 1,688,579 100.00			1,555,094 100.00

2. Outstanding Balance of Guarantee

As of December 31, 2015, the guaranteed balance of the Company’s commercial paper amounted to NT$86,831 million, an increase of NT$338 million (or 0.39%) over the year 2014.

3. The initial Purchase of Bills

In addition to the certifications and underwritings of commercial papers, the Company had the initial purchase of bills, other than CP2, of NT$236,786 million in 2015, a decrease of NT$19,203 million (or ‐7.50%) over the year 2014.

4. USD Commercial Papers

The cumulative certified and underwritten commercial papers in USD amounted to US$1,000 thousand in 2015, a decrease of US$10,500 thousand (or ‐91.30%) than the amount in 2014. In addition, the initial purchase of bills, other than commercial papers in USD, amounted to USD $210,000 thousand, an increase of USD $210,000 thousand (or 100%) over the year 2014.

The Company’s trading volumes of commercial paper certification and underwriting went up in the primary market due to the steady economic recovery in 2015 and the Company’s aggressive expansion of bills underwriting and syndicated loans.

(II) Secondary Market Transactions

The bills traded in the secondary market amounted to NT$4,480,244 million in 2015, representing an increase of NT$132,097 million (or 3.04%) over the year 2014. The USD bills traded in the secondary market, amounted to USD$210,100 thousand, representing an increase of USD $201,100 thousand (or 100%) over the year 2014.

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The Company’s bills trading volumes in the secondary market went up due to the steady global economic recovery in 2015 and the Company’s aggressive expansion of bills underwriting and syndicated loans.

	2015	2015	2014	2014	2014
Unit: NT$ million	Amount %		Amount %		Increase (decrease) %
Commercial papers 4,087,836 91.24 Bank negotiable certificates of deposit 392,408 8.76 Municipal TreasuryBills 0 -			4,009,641 92.22 338,436 7.78 70 -		78,195 1.95 53,972 15.95 (70) (100.00)
Total 4,480,244 8.76			4,348,147 100.00		132,097 3.04

(III) Government Bonds

The Company’s government bonds trading amounted to NT$1,402,974 million in 2015, an increase of NT$239,065 million (or 20.54%) over the year 2014. Regarding trading types, the Repo trading amounted to NT$1,279,021 million, accounting for 91.16% of the total trades and representing an increase of NT$235,872 million (or 22.61%) over the year 2014. The Outright purchases/sales amounted to NT$123,953 million, accounting for 8.84% of the total trades and representing an increase of NT$3,193 million (or 2.64%) over the year 2014.

	2015 Amount % 1,279,021 91.16 123,953 8.84 1,402,974 100.00	2014 Amount % 1,043,149 89.62 120,760 10.38 1,163,909 100.00	Comparison with 2014
Unit: NT$ million	Amount %	Amount %	Increase (decrease) %
Repo trading Outright purchases/sales	1,279,021 91.16 123,953 8.84	1,043,149 89.62 120,760 10.38	235,872 22.61 3,193 2.64
Total	1,402,974 100.00	1,163,909 100.00	239,065 20.54

(IV) Bank Debentures

The Company’s bank debentures trading totaled to NT$277,757 million in 2015, an increase of NT$36,434 million (or 15.10%) over the year 2014. Regarding trading types, the Repo trading amounted to NT$272,357 million, accounting for 98.06% of the total trades and representing an increase of NT$33,384 million (or 13.97%) over the year 2014. The Outright purchases/sales amounted to NT$5,400 million, accounting for 1.94% of the total trades and representing a increase of NT$3,050 million (or 129.79%) over the year 2014.

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	2015		2014 Amount % 238,973 99.03 2,350 0.97 241,323 100.00	Comparison with 2014
Unit: NT$ million	Amount %		Amount %	Increase (decrease) %
Repo trading Outright purchases/sales	272,357 98.06 5,400 1.94		238,973 99.03 2,350 0.97	33,384 13.97 3,050 129.79
Total	277,757 100.00		241,323 100.00	36,434 15.10

(V) Corporate Bonds

The Company’s corporate bonds trades totaled NT$1,787,153 million in 2015, an increase of NT$165,269 million (or 10.19%) over the year 2014. In terms of trading types, the Repo trading amount was NT$1,756,554 million, accounting for 98.29% of the total trades and representing an increase of NT$170,930 million (or ‐10.78%) over the year 2014. The Outright purchases/sales amount was NT$30,599 million, accounting for 1.71% of the total trades and representing a decrease of NT$5,661 million (or ‐15.61%) over the year 2014.

	2015		2014 Amount % 1,585,624 97.76 36,260 2.24 1,621,884 100.00	Comparison with 2014
Unit: NT$ million	Amount %		Amount %	Increase (decrease) %
Repo trading Outright purchases/sales	1,756,554 98.29 30,599 1.71		1,585,624 97.76 36,260 2.24	170,930 10.78 (5,661) (15.61)
Total	1,787,153 100.00		1,621,884 100.00	165,269 10.19

(VI) Foreign Bonds

The Company’s foreign bonds trading total was US$291,600 thousand and RMB$107,960 thousand in 2015, representing increases of US$287,600 thousand and RMB$17,960 thousand in each respective bond over the year 2014.

A. RMB Bonds

A. RMB Bonds
	2015		2014 Amount % 70,000 77.78 20,000 22.22 90,000 100.00	Comparison with 2014
Unit: RMB thousand	Amount %		Amount %	Increase (decrease) %
Repo trading Outright purchases/sales	97,960 90.73 10,000 9.27		70,000 77.78 20,000 22.22	27,960 39.94 (10,000) (50.00)
Total	107,960 100.00		90,000 100.00	17,960 19.96

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B. USD Bonds

B. USD Bonds
	2015		2014 Amount % 0 ‐ 4,000 100.00 4,000 100.00	Comparison with 2014
Unit: USD thousand	Amount %		Amount %	Increase (decrease) %
Repo trading Outright purchases/sales	235,600 80.80 56,000 19.20		0 ‐ 4,000 100.00	235,600 100.00 52,000 1,300.00
Total	291,600 100.00		4,000 100.00	287,600 7,190.00

IV. Budget Implementation, Financial Income and Expenditures, and Profitability

Analysis

The 2015 net revenue was NT$2,224,672 thousand, a budget realization rate of 118.74%. Net interest income was NT$1,080,659 thousand, a budget realization rate of 133.57%. Commissions and fee revenues total was NT$802,463 thousand, a budget realization rate of 100.94%. Gain on financial assets and liabilities due to fair value adjustment within the net revenue was NT$231,342 thousand, a budget realization rate of 160%. Realized gain on available‐for‐sale financial assets was $87,761 thousand, a budget realization rate of 76.33%. Other net non‐interest gain was NT$22,447 thousand, a budget realization rate of 224.47%. The net revenue exceeded the budget mainly due to the Company’s aggressive expansion in bills underwriting and build positions in CB asset swap. In addition, as the market’s capital cost remained low and the yielding spread continued to increase, both net interest revenues and commissions exceeded the budget. However, the equity trading fell behind the budget target due to the weakened global economic recovery.

In terms of cost, due to a reverse in 2015 of NT$180,401 thousand, the provision was 383.83% of the budget, resultant from bad debt covery and proper asset quality controls. The operating expenses were NT$487,809 thousand, accounting for 98.67% of the budget.

In terms of income, the net income before tax amounted to NT$1,917,264 thousand in 2015, a budget realization rate of 134.43%. The net income after tax was NT$1,609,696 thousand, or the equivalent of $1.2 earnings per share, which had a budget realization rate of 134.05%.

V. Research and Development

In terms of business evolution, the Company actively participated in the initial offerings of “Foreign Currency Negotiable Certificate of Deposits(NCD)” and was one of the few bills companies that involved in the initial purchases of the commodity. The Company also aggressively expanded its foreign bonds business. The trading volumes were significantly increased than 2014.

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Regarding in‐house training and education, the Company invited not only scholars and specialists but also professionals from the industry to provide in‐house and business related trainings on a regular basis. The Company also has encouraged employees to obtain certified financial qualifications and to sharpen their technical skills and job efficiencies by attending courses from Taiwan Academy of Banking and Finance (TABF) and other professional organizations. At the end of 2015, the Company has a total of 144 employees and has sent 2,831 headcounts for training (6,170 hours), or an average of 20 training (42.8 hours) per employee, annually.

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Two. The 2016 Business Plan Outline

I. Business Policy

• Increase the portion of third‐party guarantee and guarantee‐free underwriting.

• Enhance daily average outstanding balance on the self‐guarantee.

• Enhance available‐for‐sale yielding of bond positions.

• Nourish clients’ relationship of secondary market through advertising.

II. Business Target

Operating targets of the main businesses in 2016 are based on domestic and foreign economic situation and industrial environment estimates:

• Daily average outstanding of guaranteed commercial papers issuance amounted to NT$88 billion.

• Annual average short‐term bills underwriting and initial purchase amounted to NT$201.3 billion.

• Capital adequacy ratio was 12.5%.

III. Significant Operating Policy and Future Development Strategies

Please refer to Page 17~19 of this annual report for the long‐term and short‐term business development plan.

Three.The Impact from Competition, Regulation, and Macro‐economics Environments

Taiwan’s economy performance has kept slumping mainly affected by the weakened global economic recovery in 2015. The prospect for 2016, we expect, according to the forecast from international think‐tanks, both domestic and external economies will continue experiencing steady recoveries. However, the growth signal has weakened and differs country by country. Both emerging markets and developing countries will continue facing the challenge of slowing growth. On the other hand, while the domestic economy is expected persistent uptrend, the fluctuation in global financial markets and the rise of non‐economic risks are adding more uncertainties and needing to be closely monitored. Therefore, we will continue cultivating core businesses, strengthening risk management, and utilizing capital effectively to lower the impact of external economic environments and further enhance competitiveness and profitability. For the evaluation of those impacts, please refer to page 16~ 17 of the annual report.

Four. The Updated Rating

Fitch Ratings, Ltd., Taiwan Branch affirmed on March 4, 2016 the Company’s ratings as follow: National long‐term rating “A+(twn)”, National short‐term rating “F1(twn)” and the long‐term outlook“Stable” .

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Last but not least, we look forward to your continued support and encouragement for CBF and its employees.

Sincerely yours,

Cheng-Ching Wu Chih-Ming Chien Chairman President

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II. Company and Business Profile

A. Company Profile

By the Corporation Law and the Regulations Governing Short Term Bills Dealers as promulgated by the Ministry of Finance (MOF), the Company was duly incorporated in October 1978 to assist the government in establishing a monetary market, helping businesses with short-term financing needs and facilitating the transactions of bills and bonds in the economy. The Company has operated since December 1, 1978, and listed on Taiwan Stock Exchange (TSE) since October 1994.

For more than 30 years, we have focused on corporate financing and fixed income commodities trading and have been the loyal partner for the developments of industrial and commercial enterprises. We will continue devoting ourselves to provide professional services to our client and creating the maximum value for our shareholders and employees.

The management of China Bills Finance Corporation is committed to “Appreciate, Cherish, and Excel.” Our goal is to actively create more values for our customers, shareholders and employees, cherish what we already have and enhance operating effectiveness and perpetual growth.

CBF’s management beliefs and core values are as follows: Appreciate customers and business with gratitude Cherish what we have

Excel through initiating innovation

We will strengthen knowledge management, increase business efficiency, create profitable value for customers, shareholders, and staff with the aims to create long-term leadership and market niche.

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B. Principal Activities

1.Certifying and underwriting Short‐Term Bills;

2.Certifying and underwriting Bank Debentures;

3.Brokering and trading Short‐Term Bills;

4.Brokering and trading Bank Debentures;

5.Brokering and trading Government Bonds;

6.Guaranteeing and endorsing Short‐Term bills;

7.Providing financial consulting services to enterprises;

8.Dealing Inter‐bank call loan;

9.Proprietary trading of Corporate Bonds;

10.Equity Investment;

11.Fixed income securities trading;

12.Proprietary trading service of Foreign Bonds;

13.Investment of Foreign Currency Bonds;

14.Other business as authorized by the Competent Authority.

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C. Organizational Structure

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Organizational Structure
Shareholders’
Meeting
Audit Committee
Board of
Directors
Remuneration
Committee
Chairman of the
Board
Credit
Assessment
Committee
Corporate Social
Responsibility
Committee
President
Asset & Liability
Management
Committee
Investment
Committee
Executive Senior Executive Senior Executive
Chief Auditor
Vice President Vice President Vice President
Risk Corporate
Auditing Operations Taichung
Management Finance
Department Department Branch
Department Department
Fixed Income
Administration Tainan Banqiao
Products
Department Branch Branch
Department
Information Equity
Kaohsiung Taoyuan
Technology Products
Branch Branch
Department Department
Legal &
Compliance
Department
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D. Board of Directors

Title	Name	Job Responsibilities
Chairman	Cheng‐Ching Wu	Chairman of the Board , China Bills Finance Co., Ltd.
Directors	Vance Y.C. Chin	President,China Bills Finance Co., Ltd. (retiring on June 16, 2015)
	Chih‐Ming Chien	President,China Bills Finance Co., Ltd. (newly appointed on June 16, 2015)
	David C.C. Chang	Deputy President & Chief Administration Officer , Industrial Bank of Taiwan
	Jonathan C.H. Wei	Senior Executive Vice President & Chief Strategy Officer , Industrial Bank of Taiwan
	Tessie Y.H. Chen	Senior Executive Vice President & Chief Financial Markets Officer , Industrial Bank of Taiwan
	Roger Y.F. Lin	Senior Executive Vice President & Chief Corporate Banking Officer , Industrial Bank of Taiwan
	MONA I‐RU LO	Director, Ming Shan Investment Co., Ltd.
	Sekin Chen	Nil
Independent Directors	Herbert Chung	Independent Director, Fuburg Industrial Co.,Ltd
	Hung‐Mao Tien	President and Chairman of the Board, Institute for National Policy Research
	Hou‐Sheng Chan	Chairman,Cross‐Straits Common Market Foundation (The term of independent director concluded on June 2, 2015)
	Wayne W. Wu	Secretary General ,The Business Council for Sustainable Development of Taiwan (BCSD‐Taiwan) (The term of independent director started from June 2, 2015)

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E. The Management Team

Title	Name	Full‐time or Part‐time
President (retiringon June 16,2015)	Vance Y.C. Chin	Full‐time
President (newlyappointed on June 16,2015)	Chih‐Ming Chien	Full‐time
Senior Executive Vice President & Chief, Corporate Finance Department	Alex Tu	Full‐time
Senior Executive Vice President (retiringon February1,2016)	Chang‐Jung Hsiao	Full‐time
Senior Executive Vice President & Chief, KaohsiungBranch	Li‐Fei Chiu	Full‐time
Chief Auditor	Hsing‐Pang Wang	Full‐time
Executive Vice President (retiring on January 1, 2016)	Wen‐Hao Liao	Full‐time
Executive Vice President, Fixed Income Products Department	Yi‐Tien Chen	Full‐time
Vice President,Equity Products Department	I‐Chih Chou	Full‐time
Vice President,Risk Management Department	Hsiung‐Jung Chen	Full‐time
Vice President,Operation Department	Chao‐Ku Wang	Full‐time
Vice President, Information Technology Department	Su‐Tzu Hsu	Full‐time
Vice President, Administration Department	Hou‐Sheng YU	Full‐time
Vice President, Legal & Compliance Department	Chen‐Cheng Hsieh	Full‐time
Vice President, Tainan Branch	Cheng‐Sheng Hsu	Full‐time
Executive Vice President, Taichung Branch	Joe Chen	Full‐time
Vice President, Taoyuan Branch	Jen‐Chien Chen	Full‐time
Vice President & Chief, Banqiao Branch	Chuan Kuei Lin	Full‐time

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III. Operations Overview

• I. Each business assets and income as a proportion of total assets and income, and development and changes

1. Assets

	12/31/2015 Amount As a of total assets( %) 101,963,858 49.12 102,386,506 49.32 664,921 0.32 272,806 0.13 2,294,064 1.11 207,582,155 100.00 proportion	12/31/2014	Comparison with 12/31/2014 Increase (Decrease) % 19,094,716 23.04 18,578,410 22.17 (309,458) (31.76) 8,361 3.16 293,107 14.65 37,665,136 22.17
Unit: NT$ Thousand	Amount As a of total assets( %) proportion	Amount As a proportion of total assets( %)
Commerical papers Bonds Equity investment Derivative financial products Others	101,963,858 49.12 102,386,506 49.32 664,921 0.32 272,806 0.13 2,294,064 1.11	82,869,142 48.77 83,808,096 49.32 974,379 0.57 264,445 0.16 2,000,957 1.18
Total Assets	207,582,155 100.00	169,917,019 100.00

2. Revenue

	2015 Amount As a proportion of total revenue( %) 1,294,065 58.17 835,522 37.56 125,514 5.64 29,629 1.32 (60,058) (2.69) 2,224,672 100.00	2014 Amount As a proportion of total revenue( %) 1,127,344 60.12 707,946 37.75 73,498 3.92 13,114 0.69 (46,693) -2.48 1,875,209 100.00%	Comparison with 2014
Unit: NT$ Thousand	Amount As a proportion of total revenue( %)	Amount As a proportion of total revenue( %)	Increase (Decrease) %
Commercial papers Bonds Equity investment Derivative financial products Others	1,294,065 58.17 835,522 37.56 125,514 5.64 29,629 1.32 (60,058) (2.69)	1,127,344 60.12 707,946 37.75 73,498 3.92 13,114 0.69 (46,693) -2.48	166,721 14.79 127,576 18.02 52,016 70.77 16,515 125.93 (13,365) (28.62)
Total Revenue	2,224,672 100.00	1,875,209 100.00%	349,463 18.64

II. The 2015 Operating Plan

(I) Commercial Papers

1. Actively seek underwriting businesses of non-guaranteed bills and bank guaranteed bills from reputable private and public sectors. Purchase bank issued NCDs to expand the source of bills and maintain the market leader position.

2. Strengthen the utilization of capital and increase the trading of bills to gain the maximum profit without jeopardizing control risks.

3. Develop sales channels of bills to non-financial institutions to expand marketing channels, diversify risks and acquire stable source of funds.

4. Continue seeking the mid-term and long-term commercial paper (FRCP) syndicated underwriting businesses to increase the source of bills,

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improve the interest spreads, and secure the Company’s leader position in the industry.

1. Actively participate in the new bills commodity businesses to invent a new market in order to increase the profitability of bills.

2. Develop foreign currency financing channels through non‐financial institutions to secure and diversify the source of foreign currencies.

(II) Bonds

1. Strengthen the fundamental analysis of economy and commodity price, gauge the interest rate trend, and improve operating performance.

2. Master those key central banks’ monetary policies and analyze the impact of monetary policies on capital costs.

3. Enhance the maintenance of customer relationship to create a good margin of profit from the trade matching.

4. Seek combine trades of long‐term/short‐term bills and derivatives to expand trading tools and operating profits.

5. Expand the position in highly‐graded foreign bonds to increase the interest spread. Increase the variety of bonds to open up the source of profits.

6. Enhance staff education and training and strengthen their capabilities in market research and technical analysis.

(III) Equity Investment

• 1 Grasp the industry fluctuation, focus on the selection of individual stock, and conduct equity trades based on valuation.

• 2 Discuss the trend of the industry and analyze the wind of the market.

• 3 Actively interact with major domestic security brokerage firms and seek the resources of asset swap target.

• 4 Effectively control credit risk and carefully select asset swap targets.

• 5 Carefully select convertible bonds targets and expand the portfolios in the primary market.

(IV) Guarantee Business

• 1 Strictly control credit risk and ensure that claims are the top priority for guarantee business.

• 2 Carefully control guarantee business for real estate since the risk in real estate markets has increased due to uncertain future.

• 3 Encourage quality customers to increase the utilization of the granted credit to secure the sources of income from guaranteed fees.

• 4 Explore new cases and syndicated loans to replace existing clientele with low profit margin.

• 5 Continue conducting information system integration and simplification to strengthen the efficiency of credit management.

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III. Market Analysis

(I) Business Area

As of the end of 2015, the Company headquarters in Taipei and has five other branches located in Banqiao, Taoyuan, Taichung, Tainan, and Kaohsiung. Our business covers customers throughout the entire domestic market.

(II) Future Market Supply and Demand

1. Commercial Papers

The monetary market provides enterprises with much needed short‐term liquidity. In recent years, enterprises have been able to reduce the financing costs due to the falling short‐term interest rates. As the result, the trade volumes of bills in the primary market continue to grow. The market is expected to sustain its growing trend as the demand for operating capital from enterprises remains strong.

The monetary policies around the globe remain loose. As a result, excess capitals flooded the market and monetary products have good liquidity. It not only has attracted both private and institutional investors to consume the idled short‐term cash by utilizing those monetary products, but it also satisfies institutions such as banks, insurance companies, and mutual funds for their needs to allocate the assets. The trade volume of bills is expected to increase with the expansion of the primary market.

2. Bonds

On the supply side, the issuances of 2015 government bonds and corporate bonds are expected to be commensurate with the scale of recent years. On the demand side, the purchasing power of domestic bonds mainly comes from those end users such as insurance companies, Chunghwa Post, and banks. The demand is mainly derived from their asset allocations. The trading from security brokers and bills companies are mainly due to their needs for transactions and yielding.

From the perspective of supply and demand trends, both Japan and Euro‐zone adapt negative interest rate policies. Taiwan’s central bank also implemented a loose monetary policy. In recent years, the government has opened up the RMB business, encouraged foreign companies to raise funds in Taiwan, offered licenses to security brokers so they can trade foreign securities, permitted insurance companies with conditional investments in real estate and exclude the life insurance companies’ investment in international bonds from the off‐shore investment limit. Therefore, the finance industry not only has more diverse investment targets but also has more options to consume capitals.

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3. Equity Investment

Looking forward to the 2016 stock market, the US has started to raise its interest rate; however, the global economic recovery was not as good as expected. The repercussion originated from the loose monetary policy will start to surface. The future of global economy will be less than optimistic. Due to the volatile market this year, the challenges of equity trading rose. A more prudent trading strategy will be implemented to control risks.

4. Guarantee Business

Since the central bank lowered the interest rate, excess capitals flooded the market. The competition in the finance industry is still fierce. Therefore, in 2015, the Company issued credits on a steady and perpetual approach, securing the sources of profit by replacing low‐profit margin clientele with new clients as well as increasing outstanding guarantee balance and credit spread.

IV. Long‐term and Short‐term Business Development Plan

(I) Short‐term Business Development Plan

1. Commerical Papers

• (1) Adjust bills portfolio and duration based on the capital market status to reduce liquidity risk and increase the profits of bills.

• (2) Increase the trade ratio of non‐financial institution clients in the secondary market, adjust the structure of the underwriting customers, reduce capital costs, and expand sources of funds.

• (3) Actively develop the primary market and seek third‐party guaranteed and non‐guaranteed bills underwriting businesses to expand the sources of bills and improve the profits of bills.

2. Bonds

• (1) Control the portfolio of bond yielding and DV01 and avoid assuming too much interest rate risk when interest rates are relatively low.

• (2) Continue to seek quality corporate bond and bank debentures with relatively high margins.

• (3) Master the market development in the foreign bond market and expand foreign bonds investments and proprietary business.

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3. Equity Investment

• (1) Analyze individual stocks thoroughly and prudently select stocks.

• (2) Grasp the trend of each industry, track individual stocks, and exercise teamwork.

4. Guarantee Business

• (1) Improve self‐guaranteed credit renewal ratio and stabilize the sources of income from handling fees.

• (2) Simultaneously develop new clients and grant additional quota to existing quality clients.

• (3) Timely reflect capital costs and cooperate with the competent.

• (4) authorities to raise the spread.

• (5) Carefully select the liquidity of collaterals and take into account income and guarantee.

• (6) Direct the arrangement of syndicated loans through the advantage of interest rate.

(II) Long‐term Business Development Plan

1. Commercial Papers and Bonds

• (1) Strictly control risk and flexibly adjust financial assets and liabilities operational direction and hedging strategies in response to the significant changes in the economy.

• (2) Study new kinds of interest rate businesses and actively seek opportunities to participate in the market in response to the open policy of the competent authorities.

• (3) Strengthen employees’ multi‐trading technical skills and become a professional trader in the fixed‐income products market.

2. Equity Investment

• (1) Help researchers to accumulate their capabilities to select stocks and enhance their abilities to master the trend of individual stock so they can select ideal stocks among various choices.

• (2) Integrate research result into operation to ensure the investment team has prolonged and steady investment profits.

3. Guarantee Business

• (1) Segment target customers and develop potential clients to broaden the depth and width of the Company’s clientele.

• (2) Reduce non‐productive management costs and improve ROA through customer restructuring.

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• (3) Continue to improve the quality of credit assets and obtain excess escrow reserve to provide the foundation of future business promotion.

• (4) Train a vast amount of new employees in credit business to strengthen the marketing force.

19

IV. Financial Statements

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders China Bills Finance Corporation

We have audited the accompanying balance sheets of China Bills Finance Corporation (the “Company”) as of December 31, 2014 and 2013, and the related statements of comprehensive income, changes in equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’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 China Bills Finance Corporation as of December 31, 2014 and 2013 and its financial performance and cash flows for the years then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Public Bills Finance Firms and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China.

February 16, 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 accepted and 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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CHINA BILLS FINANCE CORPORATION

BALANCE SHEETS

DECEMBER 31, 2015 AND 2014

(In Thousands of New Taiwan Dollars)

ASSETS CASH AND CASH EQUIVALENTS (Notes 4 and 6) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 5, 7 and 30) SECURITIES PURCHASED UNDER RESELL AGREEMENTS (Notes 4, 8 and 29) RECEIVABLES, NET (Notes 4, 5 and 9) CURRENT TAX ASSETS (Notes 4 and 27) AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 4, 5 and 10) HELD-TO-MATURITY FINANCIAL ASSETS (Notes 4 and 11) OTHER FINANCIAL ASSETS, NET (Notes 4 and 12) PROPERTY AND EQUIPMENT, NET (Notes 4 and 13) DEFERRED TAX ASSETS (Notes 4 and 27) OTHER ASSETS, NET (Notes 4, 14 and 30) TOTAL LIABILITIES AND EQUITY CALL LOANS FROM BANKS AND OVERDRAFTS ON BANKS (Note 15) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 5 and 7) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (Notes 4, 16 and 29) ACCOUNTS PAYABLE (Notes 4 and 17) PROVISIONS (Notes 4, 5 and 18) DEFERRED TAX LIABILITIES (Notes 4 and 27) OTHER LIABILITIES Total liabilities EQUITY (Notes 4 and 20) Ordinary share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Total equity TOTAL		2015		2014
		Amount % $ 294,198 - 116,358,172 56 4,100,000 2 1,221,950 1 155,041 - 83,810,345 40 - - 178,805 - 157,921 - 113,228 - 1,192,495 1 $ 207,582,155 100 $ 11,010,000 5 7,284 - 171,238,096 82 1,381,783 1 1,469,907 1 13,970 - 75,778 - 185,196,818 89 13,429,600 7 2,474 - 5,908,315 3 769,120 - 1,600,243 1 8,277,678 4 675,585 - 22,385,337 11 $ 207,582,155 100		Amount % $ 292,419 - 93,589,437 55 1,750,739 1 1,012,275 1 176,543 - 71,347,272 42 385,208 - 178,798 - 163,367 - 108,664 - 912,297 1 $ 169,917,019 100 $ 12,240,000 7 153,196 - 134,133,003 79 385,646 - 1,448,181 1 6,027 - 83,935 - 148,449,988 87 13,429,600 8 2,474 - 5,492,712 3 769,120 1 1,385,718 1 7,647,550 5 387,407 - 21,467,031 13 $ 169,917,019 100

21

CHINA BILLS FINANCE CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

NET INTEREST Interest revenues (Notes 4 and 21) Deduct: Interest expenses (Notes 4, 21 and 29) Net interest NET REVENUES OTHER THAN INTEREST Commissions and fee revenues, net (Notes 4, 22 and 29) Gain on financial assets and liabilities at fair value through profit or loss (Notes 4, 7, 23 and 29) Realized gain on available-for-sale financial assets (Notes 4, 20 and 24) Foreign exchange gain, net (Note 4) Other non-interest gain, net (Note 4) TOTAL NET REVENUES PROVISIONS (Notes 4 and 9) OPERATING EXPENSES (Notes 19, 20, 25, 26 and 29) Personnel expenses Depreciation and amortization Others Total operating expenses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 27) NET INCOME FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Notes 4, 5 and 19) Income tax relating to items that will not be reclassified subsequently to profit or loss (Notes 4, 19 and 20)		2015 Amount % $ 1,981,815 89 (901,156) (40) 1,080,659 49 802,463 36 231,342 10 87,761 4 8,955 - 13,492 1 2,224,672 100 180,401 8 (317,937) (14) (11,953) (1) (157,919) (7) (487,809) (22) 1,917,264 86 (307,568) (14) 1,609,696 72 (15,226) - 2,589 - (12,637) -		2014
				Amount % $ 1,914,862 102 (947,189) (50) 967,673 52 664,712 35 151,921 8 63,143 3 14,993 1 12,767 1 1,875,209 100 234,907 12 (293,898) (16) (12,488) - (145,530) (8) (451,916) (24) 1,658,200 88 (272,857) (14) 1,385,343 74 (3,785) - 644 - (3,141) - (Continued)

22

CHINA BILLS FINANCE CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Unrealized gain on available-for-sale financial assets (Notes 4 and 20) Other comprehensive income for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE (NEW TAIWAN DOLLARS; Note 28) Basic		2015 Amount % $ 288,178 13 275,541 13 $ 1,885,237 85 $1.20		2014
				Amount % $ 76,575 4 73,434 4 $ 1,458,777 78 $1.03

(Concluded)

23

				Total Equity	$ 20,948,326	-	(940,072)	1,385,343	73,434	73,434	1,458,777	1,458,777	21,467,031	-	(966,931)	1,609,696	275,541	275,541	1,885,237	1,885,237	$22,385,337
Unrealized Gain	(Loss) on	Available-for-sale	Financial Assets	(Notes 4 and 20)	$ 310,832	-	-	-	76,575		76,575		387,407	-	-	-	288,178		288,178		$ 675,585
		Retained Earnings (Notes 4 and 20)	Unappropriated	Legal Reserve Special Reserve Earnings	$ 5,088,317 $ 769,120 $ 1,347,983	404,395 - (404,395)	- - (940,072)	- - 1,385,343	- - (3,141)		- - 1,382,202		5,492,712 769,120 1,385,718	415,603 - (415,603)	- - (966,931)	- - 1,609,696	- - (12,637)		- - 1,597,059		$ 5,908,315 $ 769,120 $ 1,600,243
			Capital Surplus	(Notes 4 and 20)	$ 2,474	-	-	-	-		-		2,474	-	-	-	-		-		$ 2,474
		Ordinary Share	Capital (Notes 4	and 20)	$ 13,429,600	-	-	-	-		-		13,429,600	-	-	-	-		-		$ 13,429,600
					BALANCE AT JANUARY 1, 2014	Legal reserve	Cash dividends distributed	Net income for the year ended December 31, 2014	Other comprehensive income for the year ended December 31, 2014		Total comprehensive income for the year ended December 31, 2014		BALANCE AT DECEMBER 31, 2014	Legal reserve	Cash dividends distributed	Net income for the year ended December 31, 2015	Other comprehensive income for the year ended December 31, 2015		Total comprehensive income for the year ended December 31, 2015		BALANCE AT DECEMBER 31, 2015	.

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CHINA BILLS FINANCE CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Recognition of provisions and bad-debt expenses Net gain on valuation of financial assets and liabilities at fair value through profit or loss Depreciation expenses Amortization expenses Interest revenues Interest expenses Loss on disposal of property and equipment Changes in operating assets and liabilities Decrease (increase) in financial assets at fair value through profit or loss Increase in securities purchased under resell agreements Decrease (increase) in interest and bond receivables Increase in available-for-sale financial assets Decrease in held-to-maturity financial assets Increase in other financial assets Increase in other assets Decrease (increase) in financial liabilities at fair value through profit or loss Increase (decrease) in securities sold under repurchase agreements Increase (decrease) in accounts payable Decrease in other liabilities Interest received Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in other assets Payments for property and equipment Proceeds from disposal of property and equipment Net cash generated from (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Decrease in call loans from banks and overdrafts on banks Dividends paid Net cash used in financing activities	2015 $ 1,917,264 15,000 (61,968) 7,967 3,986 (1,981,815) 901,156 468 (22,701,522) (2,349,261) (41,994) (12,174,317) 385,208 (7) (13,615) (151,166) 37,105,093 995,790 (8,157) 1,805,634 (900,809) (280,098) 2,472,837 (271,138) (3,034) 45 (274,127) (1,230,000) (966,931) (2,196,931)	2014 $ 1,658,200 140,900 (35,824) 8,256 4,232 (1,914,862) 947,189 337 18,050,444 (391,939) 429,874 (1,074,885) 1,459,471 (6) (2,892) 149,595 (16,571,133) (654,077) (27,340) 1,984,622 (954,732) (362,932) 2,842,498 7,491 (6,190) 294 1,595 (1,980,000) (940,072) (2,920,072) (Continued)

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CHINA BILLS FINANCE CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2015 $ 1,779 292,419 $ 294,198	2014 $ (75,979) 368,398 $ 292,419

(Concluded)

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Headquarters 4F., No.99, Sec. 2, Tiding Blvd., Neihu Dist., Taipei City 114, Taiwan

TEL ： (02)2799-1177 FAX ： (02)2659-3267 www.cbf.com.tw Banqiao Branch 3F., No.51, Sec. 1, Wenhua Rd., Banqiao City, Taipei County 22050, Taiwan TEL ： (02)2965-2611 (5 lines) FAX ： (02)2965-2577 Taoyuan Branch 17F., No.110, Fuxing Rd., Taoyuan City, Taoyuan County 33066, Taiwan TEL ： (03)338-4501 (5 lines) FAX ： (03)338-5833 Taichung Branch 19F., No.101, Sec. 1, Ziyou Rd., West Dist., Taichung City 40342, Taiwan TEL ： (04)2224-6633 (6 lines) FAX ： (04)2224-6685 Tainan Branch 6F., No.14, Sec. 2, Zhongyi Rd., West Central Dist., Tainan City 70041, Taiwan TEL ： (06)226-0101 (5 lines) FAX ： (06)228-2608 Kaohsiung Branch 3F.-2, No.235, Zhongzheng 4th Rd., Qianjin Dist., Kaohsiung City 80147, Taiwan TEL ： (07)211-5311 (10 lines) FAX ： (07)251-2212

CHINA BILLS FINANCE CORPORATION

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4F., No.99, Sec. 2, Tiding Blvd., Neihu Dist., Taipei City 114, Taiwan (R.O.C.)

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TEL: (02)2799-1177 FAX: (02)2659-3267 Website: www.cbf.com.tw

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