Stock Code ： 2834

TAIWAN BUSINESS BANK, LTD.

Financial Statements

with Independent Auditors’ Report For the Years Ended December 31, 2018 and 2017

Address: NO. 30, Ta-Cheng Street, Taipei, Taiwan, R.O.C. Telephone : 02-2559-7171

The independent auditors’ report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors’report and financial statements, the Chinese version shall prevail.

	Contents	Page
Cover Page		1
Table of Contents		2
Independent Auditors' Report		3
Balance Sheets		4
Statements of Comprehensive Income		5
Statements of Changes in Equity		6
Statements of Cash Flows		7
Notes to the Financial Statements
1.	Company history	8
2.	Approval date and procedures of the financial statements	8
3.	New standards, amendments and interpretations adopted	9`～`18
4.	Summary of significant accounting policies	19`～`37
5.	Significant accounting assumptions and judgments, and major sources of	38`～`39
	estimation uncertainty
6.	Explanation of significant accounts	39`～`139
7.	Related party transactions	139`～`144
8.	Pledged assets	144
9.	Commitments and contingencies	144`～`147
10.	Losses due to major disasters	147
11.	Subsequent events	147
12.	Other	147`～`148
13.	Other disclosures
	(A) Information on significant transactions	148`～`149
	(B) Information of investees	149`～`151
	(C) Information on investment in mainland China	151
14.	Segment information	152
Statement of significant accounts		153~179
Segment information of Securities Division		180~207

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Independent Auditors’ Report

To the Board of Directors of Taiwan Business Bank, Ltd.:

Opinion

We have audited the financial statements of Taiwan Business Bank, Ltd. (“the Bank”) which comprise the balance sheets as of December 31, 2018 and 2017, the statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Public Held Banks, and the Regulations Governing the Preparation of Financial Reports by Securities Firms.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Attestation of Financial Statements of Financial Industry by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditor’ s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The assessment of loans impairment

Please refer to Note(4) (E) "Financial Instruments" for related accounting policy, Note 5 (A) for accounting assumptions and estimates, and Note 6 (F) "Discount and loans– net" and Note 6 (AP) "Financial Risk Information" for details of loans impairment, respectively.

～ 3 ～

The management of the Bank assess its loans to determine the impairment in accordance with IFRS 9. For the credit impaired cases which impairment has occurred since initial recognition, the measurement is based on expected future cash flow. The amount of expected credit loss (ECL) for non-credit impaired cases is evaluated by identifying whether the credit risk has significantly increased at the reporting date. If the credit risk of non-credit impaired cases has not significantly increased, the 12-month expected credit loss should be adopted, if the credit risk of non-credit impaired cases has significantly increased, the lifetime credit loss evaluation should be adopted. Except for the methods mentioned above, the management of the Bank should inspect whether the amount of impairment provision is in compliance with the minimum level required by the authority. Both the future cash flows of credit impaired cases and the main parameters which are used in calculated the non-credit cases, such as probability of default (PD), loss given default (LGD), forwardlooking factors, and the judgments of whether the credit risk has significantly increased, all involved significant judgments and estimations. The movement of related parameters will have significant impact on the assessment of loans impairment. Therefore, the assessment on the impairment of loans has been identified as a key audit matters in our audit.

How the matter was addressed in our audit

Our principal audit procedures included: understanding the methodology used by the management to assess the impairment of loans, and performing the relevant control procedures. For the credit impaired assessment, we conducted sampling tests to evaluate the use of the original effective interest rate, the appropriateness of the recoverable amount of expected future cash flows and value of collateral. For non-credit impaired assessment, we assessed the impairment model adopted by the management and reviewed the appropriated of the calculation of the impairment parameters and verified the completeness of the loans portfolio via sampling. Meanwhile, we assessed the impaired amounts recognized by the management were in compliance with the related regulations issued by authority.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Held Banks, and the Regulations Governing the Preparation of Financial Reports by Securities Firms, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including the Audit Committee) are responsible for overseeing the Bank’ s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statement s

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

〜 3-1 〜

As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient and appropriate audit evidence regarding the financial information of the investment in other entities accounted for using the equity method to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors' report are CHUNG, TAN TAN and LEE, FENG HUI.

KPMG

Taipei, Taiwan (Republic of China) March 26, 2019

〜 3-2 〜

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Balance Sheets

December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars)

Assets 11000 Cash and cash equivalents (Notes 6(A) and 7) 11500 Due from the Central Bank and call loans to banks (Notes 6(B) and 7) 12000 Financial assets at fair value through profit or loss (Note 6(C)) 12100 Financial assets at fair value through other comprehensive income(Notes 6(G) and (Q)) 12200 Investment in debt instruments at amortized cost(Note 6(I)) 12500 Securities purchased under resell agreements (Notes 6(D)) 13000 Receivables`－`net (Note 6(E)) 13200 Current Income tax assets 13500 Discounts and loans`－`net (Notes 6(F) and 7) 14000 Available-for-sale financial assets`－`net (Notes 6(H) and (Q)) 14500 Held-to-maturity financial assets`－`net (Note 6(J)) 15000 Investments measured by equity method`－`net (Note 6(K)) 15500 Other financial assets`－`net (Note 6(L)) 18500 Premises and equipment`－`net (Note 6(M)) 19000 Intangible assets`－`net 19300 Deferred income tax assets`－`net (Note 6(Y)) 19500 Other assets`－`net (Note 6(N)) Total assets	December 31, 2018 Amount `％` $ 45,706,331 3 86,980,274 5 6,934,604 - 73,164,201 5 261,470,496 16 2,386,518 - 43,698,543 3 64,842 - 1,074,627,748 67 - - - - 2,684,501 - 17,971 - 14,298,525 1 284,944 - 1,623,371 - 5,222,172 - $ 1,619,165,041 100	December 31, 2017 Amount `％` 51,066,527 4 101,342,356 6 1,061,789 - - - - - 3,998,104 - 22,353,991 2 129,435 - 1,111,559,969 70 66,233,836 4 202,967,083 13 2,345,937 - 2,159,191 - 14,216,773 1 273,608 - 1,203,779 - 3,639,872 - 1,584,552,250 100 Liabilities and equity Liabilities 21000 Deposits from the Central Bank and other banks (Notes 6(O) and 7) 22000 Financial liabilities at fair value through profit or loss (Notes 6(P) and (T)) 22500 Securities sold under repurchase agreements (Note 6(Q)) 23000 Payables (Note 6(R)) 23200 Current income tax liabilities 23500 Deposits and remittances (Notes 6(S) and 7) 24000 Financial debentures (Note 6(T)) 25500 Other financial liabilities (Note 6(U)) 25600 Provision for liabilities (Note 6(V)) 29300 Deferred income tax liabilities (Note 6(Y)) 29500 Other liabilities (Note 6(W)) Total liabilities 31101 Common stock (Note 6(X)) Retained earnings: 32001 Legal reserve (Note 6(X)) 32003 Special reserve (Note 6(X)) 32005 Undistributed earnings (accumulated deficit) (Note 6(X)) 32500 Other items in equity Total equity Total liabilities and equity	December 31, 2018		December 31, 2017
			Amount % $ 91,314,543 6 9,339,273 1 1,657,706 - 58,620,227 4 952,293 - 1,311,937,545 81 47,450,000 3 7,507,715 - 3,565,727 - 880,738 - 1,086,255 - 1,534,312,022 95 63,938,802 4 10,020,013 1 516,555 - 7,470,985 - 2,906,664 - 84,853,019 5 $ 1,619,165,041 100		Amount % 93,529,770 6 3,732,481 - 1,105,596 - 36,591,457 2 - - 1,316,671,351 83 41,000,000 3 10,120,545 1 3,515,351 - 881,318 - 1,586,708 - 1,508,734,577 95 61,479,617 4 8,569,864 1 1,240,588 - 4,833,832 - (306,228) - 75,817,673 5 1,584,552,250 100

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

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(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars, except earnings per share)

41000 Interest revenue(Notes 6(AC) and 7) 51000 Less`：`Total interest expenses(Notes 6(AC) and 7) Net interest income Non-interest income 49100 Service fee and commision income(Notes 6(AD) and 13) 49200 Gains on financial assets or liabilities at fair value through profit or loss - net(Note 6(AE)) 49300 Realized gain on available-for-sale financial assets(Note 6(AG)) 49310 Realized gain on financial assets measured at other comprehensive income(Note 6(AF)) 49450 Gain on disposal of financial assets measured at amortized cost 49600 Foreign exchange gain 49700 (Impairment loss on asssts) reversal of impairment loss on aseets(Note 6(AH)) 49750 Share of profit of associates and joint ventures accounted for using equity method(Note 6(AI)) 49800 Net other non-interest income (Note 6(AJ)) 49805 Net profit on financial assets measured at cost 49831 Securities brokering income`－`net Net revenue 58200 Bad debt expenses, commitment and guarantee liability provision(Note 6(AK)) Operating expenses 58500 Employee benefits expenses(Notes 6(AL) and 12) 59000 Depreciation and amortization expense(Notes 6(AM) and 12) 59500 Other general and administrative expense(Note 6(AN)) Total operating expenses 61001 Income from continuing operations before income tax 61003 Income tax expenses (Note 6(Y)) Net income 65000 Other comprehensive income`：` 65200 Items that will not to be reclassified into profit or loss 65201 Remeasurements of defined benefit plans 65204 Revaluation gain from investments in equity instruments measured at fair value through other comprehensive income 65220 Income tax related to items that will not to be reclassified into profit or loss Total items that will not to be reclassified into profit or loss 65300 Items that are or may be reclassified subsequently to profit or loss 65301 Difference of foreign exchange in translating financial statements of foreign operating units 65302 Unrealized gains on available-for-sale financial assets-net 65309 Revaluation gains on investment in debt instrument measured at fair value through other comprehensive income 65310 (Impairment loss on) reversal of investments in debt instruments measured at fair value through other comprehensive income 65320 Income tax related to items that are or may be reclassified to profit or loss Total items that are or may be reclassified subsequently to profit or loss 65000 Other comprehensive income Total comprehensive income Earnings per share (in NT dollar)(Note 6 (AA)) Basic earnings per share (in NT dollar) Diluted earnings per share (in NT dollar)	For the year ended December 31, 2018 2017 Amount `％` Amount `％` $ 28,156,855 124 24,677,007 120 (11,082,469) (49) (9,357,801) (45) 17,074,386 75 15,319,206 75 3,012,942 13 3,139,092 15 1,029,180 5 1,036,512 5 - - 109,753 - 374,849 2 - - 130 - - - 478,887 2 376,072 2 (28,297) - - - 384,452 2 376,138 2 99,343 - (118,579) (1) - - 141,240 1 221,110 1 203,819 1 22,646,982 100 20,583,253 100 (745,770) (3) (3,009,551) (15) (8,176,618) (36) (7,351,794) (36) (468,765) (2) (413,696) (2) (4,169,000) (19) (4,020,203) (19) (12,814,383) (57) (11,785,693) (57) 9,086,829 40 5,788,009 28 (1,446,287) (6) (748,085) (4) 7,640,542 34 5,039,924 24 (174,907) (1) (249,419) (1) 226,956 1 - - 71,895 - 42,401 - 123,944 - (207,018) (1) 335,075 1 (980,585) (5) - - 1,540,838 8 156,183 1 - - 8,363 - - - (40,277) - 163,001 1 459,344 2 723,254 4 583,288 2 516,236 3 $ 8,223,830 36 5,556,160 27 $ 1.19 0.79 $ 1.18 0.78	For the year ended December 31, 2018 2017 Amount `％` Amount `％` $ 28,156,855 124 24,677,007 120 (11,082,469) (49) (9,357,801) (45) 17,074,386 75 15,319,206 75 3,012,942 13 3,139,092 15 1,029,180 5 1,036,512 5 - - 109,753 - 374,849 2 - - 130 - - - 478,887 2 376,072 2 (28,297) - - - 384,452 2 376,138 2 99,343 - (118,579) (1) - - 141,240 1 221,110 1 203,819 1 22,646,982 100 20,583,253 100 (745,770) (3) (3,009,551) (15) (8,176,618) (36) (7,351,794) (36) (468,765) (2) (413,696) (2) (4,169,000) (19) (4,020,203) (19) (12,814,383) (57) (11,785,693) (57) 9,086,829 40 5,788,009 28 (1,446,287) (6) (748,085) (4) 7,640,542 34 5,039,924 24 (174,907) (1) (249,419) (1) 226,956 1 - - 71,895 - 42,401 - 123,944 - (207,018) (1) 335,075 1 (980,585) (5) - - 1,540,838 8 156,183 1 - - 8,363 - - - (40,277) - 163,001 1 459,344 2 723,254 4 583,288 2 516,236 3 $ 8,223,830 36 5,556,160 27 $ 1.19 0.79 $ 1.18 0.78	Percent Change% 14 18 11 (4) (1) (100) - - 27 - 2 184 (100) 8 10 (75) 11 13 4 9 57 (93) 52 30 - 70 160 134 (100) - - (125) (36) 13 48
	2018	`％` 124 (49) 75 13 5 - 2 - 2 - 2 - - 1 100 (3) (36) (2) (19) (57) 40 (6) 34 (1) 1 - - 1 - 1 - - 2 2 36 1.19 1.18
	Amount $ 28,156,855 (11,082,469) 17,074,386 3,012,942 1,029,180 - 374,849 130 478,887 (28,297) 384,452 99,343 - 221,110 22,646,982 (745,770) (8,176,618) (468,765) (4,169,000) (12,814,383) 9,086,829 (1,446,287) 7,640,542 (174,907) 226,956 71,895 123,944 335,075 - 156,183 8,363 (40,277) 459,344 583,288 $ 8,223,830 $ $

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

～ 5 ～

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars)

Balance ─ January 1, 2017 Net Income for the year ended December 31, 2017 Other comprehensive income (losses) for the year ended December 31, 2017 Total comprehensive income for the year ended December 31, 2017 Earnings appropriation and distribution Legal reserve appropriated Special reserve appropriated Common cash dividend Common stock dividend Balance ─December 31, 2017 Effects of retrospective application of new standards Balance at January 1, 2018 after adjustments Net Income for the year ended December 31, 2018 Other comprehensive income (losses) for the year ended December 31, 2018 Total comprehensive income for the year ended December 31, 2018 Earnings appropriation and distribution Legal reserve appropriated Reversal of special reserve Common cash dividend Common stock dividend Disposal of investments in equity instruments designated at fair value through other comprehensive income Balance ─December 31, 2018	Common stock $ 59,688,949 - - - - - - 1,790,668 61,479,617 - 61,479,617 - - - - - - 2,459,185 - $ 63,938,802		Retained	earnings	Total 12,210,873 5,039,924 (207,018) 4,832,906 - - (608,827) (1,790,668) 14,644,284 (98,187) 14,546,097 7,640,542 (103,012) 7,537,530 - - (1,647,654) (2,459,185) 30,765 18,007,553	Other item in equity	Other item in equity	Unrealized gains and losses on available for sale financial assets Total (1,009,845) 70,870,340 - 5,039,924 1,538,957 516,236 1,538,957 5,556,160 - - - - - (608,827) - - 529,112 75,817,673 (529,112) 2,459,170 - 78,276,843 - 7,640,542 - 583,288 - 8,223,830 - - - - - (1,647,654) - - - - - 84,853,019
						Difference of foreign exchange in translating financial statements of foreign operating units (19,637) - (815,703) (815,703) - - - - (835,340) - (835,340) - 294,218 294,218 - - - - - (541,122)	Unrealized gains from financial assets measured at fair value through other comprehensive income - - - - - - - - - 3,086,469 3,086,469 - 392,082 392,082 - - - - (30,765) 3,447,786
		Legal reserve 7,088,772 - - - 1,481,092 - - - 8,569,864 - 8,569,864 - - - 1,450,149 - - - - 10,020,013	Special reserve 185,128 - - - - 1,055,460 - - 1,240,588 - 1,240,588 - - - - (724,033) - - - 516,555	Undistributed earnings 4,936,973 5,039,924 (207,018) 4,832,906 (1,481,092) (1,055,460) (608,827) (1,790,668) 4,833,832 (98,187) 4,735,645 7,640,542 (103,012) 7,537,530 (1,450,149) 724,033 (1,647,654) (2,459,185) 30,765 7,470,985

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

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(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars)

Cash flows from operating activities:
Net income before tax
Adjustments：
Income and expenses items:
Depreciation expenses
Amortization expenses
Provision of bad debt expenses
Net loss on financial assets and liabilities at fair value through profit or loss
Interest expenses
Interest revenues
Dividend revenues
Net change of provision for guarantee liabilities
Net change of other miscellaneous provision for liabilities
Share of profit of associates and joint ventures accounted for using equity method
Losses on disposal and retirement of premises and equipment
Impairment loss on financial assets
Other
Subtotal of income and expense items
Change in Operating Assets and Liabilities：
Net Changes in Operating Assets：
Decrease (increase) in due from the Central Bank and call loans to banks
(Increase) decrease in financial assets at fair value through profit or loss
Decrease (increase) in securities purchased under resell agreements
(Increase) decrease in receivables
Decrease (increase) in discounts and loans
Decrease (increase) in other financial assets
Increase in other assets
Net change in operating assets
Net Change in Operating Liabilities：
(Decrease) increase in deposits from the Central Bank and other banks
Increase in financial liabilities at fair value through profit or loss
Decrease in provisions for lawsuit
Increase (decrease) in securities sold under repurchase agreements
Increase in payables
(Decrease) increase in deposits and remittances
Decrease in other financial liabilities
(Decrease) increase in provision for employee benefits
Net Change in Operating Liabilities
Net Change in Operating Assets and Liabilities
Sum of adjustments
Cash provided by (used in) operating activities
Interest collected
Interest paid
Income tax paid
Net Cash Flow Provided By Operating Activities
Cash Flows from Investing Activities：
Purchase of financial assets measured at fair value through other comprehensive income
Purchase of investment in debt instruments at amortized cost
Disposal of available-for-sale financial assets
Purchase of hold-to-maturity financial assets
Acquisition of investment under equity method
Purchase of premises and equipment
Disposal of premises and equipment
(Increase) decrease in guarantee deposits paid
Purchase of intangible assets
Net Cash Flows Used in Investing Activities
Cash Flows from Financing Activities：
Issuance of financial debentures
Redemption of financial debentures
Increase in guarantee deposits received
Decrease in lease payable
Decrease in other liabilities
Cash dividends
Net Cash Provided by (Used in) Financing Activities
Foreign exchange effect
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, at the beginning of the period
Cash and cash equivalents, at the end of the period For the years ended December 31,
2018
2017
$ 9,086,829
5,788,009
370,604
334,299
98,161
79,397
660,423
3,000,265
179,390
120,502
11,082,469
9,357,801
(28,156,855)
(24,677,007)
355,800
143,672
58,710
9,286
26,637
109,273
(384,452)
(376,138)
1,155
1,972
28,297
-
-
(317,484)
(15,679,661)
(12,214,162)
14,352,507
(10,723,869)
(5,812,905)
284,263
1,611,586
(3,378,903)
(20,996,379)
487,561
36,317,199
(69,501,470)
102,084
(59,822)
(727,419)
(926,327)
24,846,673
(83,818,567)
(2,215,227)
17,711,913
5,367,493
3,495,360
-
(466,884)
552,110
(1,653,309)
21,240,603
1,034,371
(4,733,806)
62,447,121
(2,603,441)
(690,408)
(257,144)
39,039
17,350,588
81,917,203
42,197,261
(1,901,364)
26,517,600
(14,115,526)
35,604,429
(8,327,517)
27,816,690
24,709,329
(10,601,963)
(9,160,923)
(510,148)
(716,706)
52,309,008
6,504,183
(4,153,866)
-
(56,422,615)
-
-
8,635,810
-
(10,443,824)
(300,000)
(308,600)
(446,775)
(463,503)
195
66
(529,738)
314,791
(109,329)
(146,342)
(61,962,128)
(2,411,602)
6,450,000
5,300,000
-
(7,050,000)
51,804
166,122
(9,389)
(8,192)
(552,257)
(21,858)
(1,647,654)
(608,827)
4,292,504
(2,222,755)
420
(31,798)
(5,360,196)
1,838,028
51,066,527
49,228,499
$
45,706,331
51,066,527

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

～ 7 ～

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD. Notes to the Financial Statements For the years ended December 31, 2018 and 2017 (expressed in thousands of New Taiwan dollars unless otherwise specified)

1. COMPANY HISTORY

TAIWAN BUSINESS BANK, LTD. (the “Bank”) was formerly a general savings union known as “Taiwan Mutual Financing Bank” or “Tai-Shio Mutual Financing Bank” when it was established in 1915. After several mergers and acquisitions, it was renamed as Taiwan Business Bank, Ltd. in order to finance and provide banking assistance to small and medium-size businesses on July 1, 1976. The Bank’s major lines of business are the following:

(A) As prescribed by the Banking Law, provides professional services tailored to the needs of small and medium-size businesses;
(B) Trust and securities brokerage businesses as approved by the relevant authority;
(C) International banking business; and
(D) Other relevant businesses as authorized by the relevant authority in-charge.

As of December 31, 2018, the Bank not only sets up the banking dept., international dept., securities dept. and trust dept. under head office but also has 124 domestic branches, 1 offshore banking unit, 8 overseas branches, 1 oversea representative office and 17 securities brokerage locations.

The Bank became listed on the Taiwan Stock Exchange on January 3, 1998.

Under the "Statute for Privatization of State Enterprises" and upon the approval of Taiwan Province Government, the shares of the Bank owned by the provincial government were sold to the public. In line with privatization of the three other major Taiwan province government owned run commercial banks, the Bank had completed its own privatization on January 22, 1998.

2. APPROVAL DATE AND PROCEDURES OF THE FINANCIAL STATEMENTS

These financial statements were authorized for issuance by the Board of Directors on March 26, 2019.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

3. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED

(a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018.

are effective for annual periods beginning on or after January 1, 2018.
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Amendment to IFRS 2 “Clarifications of Classification and Measurement of	January 1, 2018
Share-based Payment Transactions”
Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4	January 1, 2018
Insurance Contracts”
IFRS 9 “Financial Instruments”	January 1, 2018
IFRS 15 “Revenue from Contracts with Customers”	January 1, 2018
Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative”	January 1, 2017
Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax Assets for	January 1, 2017
Unrealized Losses”
Amendments to IAS 40 “Transfers of Investment Property”	January 1, 2018
Annual Improvements to IFRS Standards 2014–2016 Cycle:
Amendments to IFRS 12	January 1, 2017
Amendments to IFRS 1 and Amendments to IAS 28	January 1, 2018
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”	January 1, 2018

Except for the following items, the Taiwan Business Bank, Ltd. believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of signification changes are as follows:

(i) IFRS 9 “Financial Instruments”

IFRS 9 replaces IAS 39 “ Financial Instruments: Recognition and Measurement” which contains classification and measurement of financial instruments, impairment and hedge accounting.

As a result of the adoption of IFRS 9, The Bank adopted the consequential amendments to IAS 1 “Presentation of Financial Statements”, which requires the impairment of debt investments at fair value through other comprehensive income and debt instruments measured at amortized cost to be recognized in impairment of assets, the impairment of loan commitment recognized in bad debt expenses and guarantee liability provisions. In addition, The Bank adopted the amendments to IFRS 7 “ Financial Instruments: Disclosures” , disclosure the information in 2018, but generally it has not been applied to the comparative information.

～ 9 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The Bank apply to IFRS 9, resulting the significant accounting policies changes are as follows:

1) Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale financial assets, financial assets carried at cost and debt instrument with no active market. Under IFRS 9, derivatives embedded in contracts where the host is a financial assets in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Bank classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please refer to Note 4(E).

The adoption of IFRS 9 didn't have any significant impact on the Bank accounting policies on financial liabilities.

2) Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model. The new impairment model will apply to financial assets measured at amortized cost or FVOCI, except for investments in equity instruments, lease receivables, contract assets and the financial guarantee contracts. Under IFRS 9, the credit loss are recognized earlier than they are under IAS 39. Please refer to Note 4 (E).

3) Transition

The adoption of IFRS 9 has been applied retrospectively, except as described below:

． Differences in the carrying amounts of financial assets resulting from the adoption of IFRS 9 are recognized in retained earnings and other equities as on 1 January 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements on IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.
． The following assessments have been made on the basis of the facts and circumstances that exist at the date of initial application.
－ The determination of the business model within which a financial asset is held.
－ The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.
－ The designation of certain investments in equity instruments not held for trading as at FVOCI.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

． If the debt securities had low credit risk at the date of initial application of IFRS 9, The Bank may assume that the credit risk on its assets has not increased significantly since its initial recognition.
4) Classification of financial assets on the date of initial application of IFRS 9

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Bank's financial assets as of January 1, 2018.

Financial Assets Cash and cash equivalents Due from the Central Bank and call loans to banks Financial assets at fair value through profit or loss Securities purchased under resell agreements Receivables–net Discounts and loans– net Available-for-sale financial assets`－` net Held-to-maturity financial assets`－` net Other financial assets `－`net Other assets`－`net	IAS 39		IFRS 9
	Measurement categories Amortized costs Amortized costs Fair value through profit or loss Amortized costs Amortized costs (Loans and Receivables) Amortized costs (Loans and Receivables) Fair value through other comprehensive income (Debt instrument) Fair value through other comprehensive income (Equity instruments) Amortized costs Amortized costs (Measured at cost) Amortized costs (Guarantee deposits paid )	Carrying Amount	Measurement categories Carrying Amount Amortized costs 51,066,527 Amortized costs 101,342,356 Fair value through profit or loss 1,061,789 Amortized costs 3,998,104 Amortized costs (Loans and Receivables) 22,350,535 Amortized costs (Loans and Receivables) 1,111,614,910 Fair value through other comprehensive income 58,426,093 Amortized costs 5,251,768 Fair value through other comprehensive income 2,625,558 Fair value through other comprehensive income 3,158,835 Amortized costs 199,816,594 Fair value through other comprehensive income 4,416,710 Amortized costs 286,554
		51,066,527 101,342,356 1,061,789 3,998,104 22,353,991 1,111,559,969 63,608,278 2,625,558 202,967,083 2,035,121 286,554

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Note1: The corporate debt securities categorized as available-for-sale under IAS 39 are held by The Bank treasury unit in a separate portfolio to provide interest income; however they may be sold to meet liquidity requirements arising in the normal course of business. The Bank considers that these securities are held within a business model whose objective is achieved both by collecting contractual cash flows and by selling securities. The corporate debt securities and the contractual terms of these financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These assets have therefore been classified as financial assets at FVOCI under IFRS 9. An allowance for impairment of $24,495 (effects of tax for $213) was recognized in opening retained earnings and other equity on transition to IFRS 9 on January 1, 2018.
Note2: The investment in debt instruments that were previously classified to availablefor-sale under IAS 39. The Bank evaluated that in the past these securities were held within a business model whose objective is achieved by collecting the contractual cash flows, and they will be possessed in the same purpose. Therefore, The Bank has classified the assets to debt investments measured at amortized costs. An increase of $1,559 in allowance for impairment and a decrease of $71,142 in valuation losses were recognized in retained earnings and other equity on January 1, 2018 respectively upon transition to IFRS 9.
Note3: These equity securities represent investments that The Bank intends to hold for the long term for strategic purposes. As permitted by IFRS 9, The Bank has designated these investments at the date of initial application as measured at FVOCI.
Note4: The investment in debt instruments that were previously classified as held-tomaturity are now classified as financial assets measured at fair value through other comprehensive income under IFRS 9. The Bank assesses that these securities are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling securities, and for which the contractual cash flows are fully be paid for the principal and interests incurred. An increase of $909 in allowance for impairment and $80,344 in valuation gains were recognized under retained earnings and other equity on January 1, 2018 respectively upon transition to IFRS 9.
Note5: The investment in debt instruments that were previously classified as held-tomaturity are now classified at amortized cost. The Bank assesses that these securities are held within a business model whose objective is achieved by collecting the contractual cash flows, and for which the contractual cash flows are fully be paid for the principal and interests incurred. An increase of $71,089 (effects of income tax for $144) in the allowance for impairment was recognized in opening retained earnings on January 1, 2018 upon transition to IFRS 9.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Note6: These equity securities represent investment that the Bank intends to hold for the long term for strategic purposes. As permitted by IFRS 9, the Bank has designated these investments at the date of initial application as measured at FVOCI. An increase of $2,381,589 in the valuation gains was recognized in other equity on January 1, 2018 upon transition to IFRS 9.

Note7: The allowance for bad debts of the financial assets were assessed in “incurred loss” model under IAS 39. It will be replaced with “expected credit loss” model under IFRS 9. Therefore, an increase of $494 (effects of income tax for $2) in the allowance for impairment was recognized in retained earnings on January 1, 2018 upon transition to IFRS 9.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Financial assets under IAS 39 have transferred to IFRS 9, the following table reconciles the carrying amounts of financial assets on January 1, 2018

Measured at fair value through profit or loss From measured at fair value through profit or loss (IAS39) Measured at fair value through other comprehensive income Additions`－`debt instruments: From available for sale (IAS39) From amortized cost (IAS39) Additions`－`equity instruments: From available for sale (IAS39) From measured at cost (IAS39) Deduction`－`debt and equity instruments: From available for sale (IAS39) to amortized cost (IFRS9) Total changes in fair value through other comprehensive income Amortized cost Additions: From held-to-maturity (IAS 39) From other financial assets-measured at cost (IAS 39) From available for sale (IAS 39) Deduction: To measured at fair value through other comprehensive income (IFRS9) Total changes of amortized cost assets The balance of financial assets, the total balance of reclassification and remeasurement on January 1, 2018	December 31, 2017 IAS39 Carrying amount $ 1,061,789 63,608,278 - 2,625,558 - - 66,233,836 202,967,083 2,035,121 - - 205,002,204 $ 272,297,829	Reclassifications - - 3,079,400 - 2,035,121 (5,253,327) (138,806) - - 5,253,327 (5,114,521) 138,806 -	Remeasurement		January 1, 2018 IFRS 9 Carrying amount 1,061,789 68,627,196 205,068,362 274,757,347	January 1, 2018 Retained earnings impacts - (24,495) (909) - - - (25,404) (71,089) - (1,559) - (72,648) (98,052)	January 1, 2018 Other equity impacts Note - 24,495 80,344 - 2,381,589 71,142 2,557,570 - - - - - 2,557,570
			-
			- 79,435 - 2,381,589 71,142
			2,532,166

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

For financial assets that have been reclassified to the investment in debt instruments that measured at amortized cost , the following table shows their fair value as of December 31, 2018 and the fair value gain or loss that would have been recognized if these financial assets had not been reclassified as part of the transition to IFRS 9.

Reclassify available-for-sale financial assets as investment in debt investment at amortized cost Fair value as of December 31, 2018 Other comprehensive income that should have been recognized if the financial assets had not been reclassified	For the year ended December 31, 2018
	5,267,055 98,448

The following table reconciles the allowance for impairments based on "incurred loss model" under IAS 39 to the allowance for impairment based on "expected loss model" (ECL) under IFRS 9 on 1 January, 2018.

Loans and receivables (IAS39) / Financial assets measured at amortized cost (IFRS9) Due from Central Bank and call loans to banks Receivables Discounts and loans Other financial assets-Non-accrual loans transferred from non-loan financial assets Other financial assets-Exchange bills negotiated Additional provision of impairment loss in accordance with "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans" Subtotal	The balance of allowance of impairment loss under IAS39 and the amount of provision under IAS37 $ 3,562 60,477 5,892,515 47,133 1 6,315,492 12,319,180	Reclassifications - - - - - - -	Remeasurements The balance of allowance of impairment loss under IFRS9 - 3,562 (27,619) 32,858 (259,138) 5,633,377 8,535 55,668 (1) - 231,452 6,546,944 (46,771) 12,272,409

～ 15 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Available-for-sale financial assets (IAS39) /Financial assets measured at fair value through other comprehensive income (IFRS9) Available-for-sale financial assets Available-for-sale financial assets (IAS39) / Financial assets measured at amortized cost (IFRS9) Available-for-sale financial assets Held-to-maturity (IAS39)/ Financial assets measured at fair value through other comprehensive income (IFRS9) Held-to-maturity financial assets Held-to-maturity (IAS39)/ Financial assets measured at amortized cost (IFRS9) Held-to-maturity financial assets Financing commitment and guarantee reserve Loans (Financing commitment) Credit cards (Financing commitment) Guarantee receivables / Letter of credit receivables Additional provision of impairment loss in accordance with"Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrual Loans" Subtotal Total	The balance of allowance of impairment loss under IAS39 and the amount of provision under IAS37 $ - - - - - - - 156,523 156,523 $ 12,475,703	Reclassifications - - - - - - - - - -	Remeasurements The balance of allowance of impairment loss under IFRS9 24,495 24,495 1,559 1,559 909 909 71,089 71,089 45,029 45,029 2,236 2,236 70,820 70,820 (70,820) 85,703 47,265 203,788 98,546 12,574,249

(b) The impact of IFRS endorsed by FSC but not yet effective

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018:

1070324857 issued by the FSC on July 17, 2018:
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
IFRS 16 “Leases”	January 1, 2019
IFRIC 23 “Uncertainty over Income Tax Treatments”	January 1, 2019
Amendments to IFRS 9 “Prepayment features with negative compensation”	January 1, 2019
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”	January 1, 2019
Amendments to IAS 28 “Long-term interests in associates and joint ventures”	January 1, 2019
Annual Improvements to IFRS Standards 2015–2017 Cycle	January 1, 2019

Except for the following items, the Bank believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of significant changes are as follows:

～ 16 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(i) IFRS 16“Leases”

IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of lowvalue items. The lessor accounting remains similar to the current standard – i.e. the lessors will continue to classify leases as finance or operating leases.

1) Determining whether an arrangement contains a lease

On transition to IFRS 16, The Bank can choose to apply either of the following:

‧ IFRS 16 definition of a lease to all its contracts; or
‧ a practical expedient that does not need any reassessment whether a contract is, or contains, a lease.

The Bank plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

2) Transition

As a lessee, The Bank can apply the standard using either of the following:

‧ retrospective approach; or
‧ modified retrospective approach with optional practical expedients.

～ 17 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The lessee applies the election consistently to all of its leases.

On January 1, 2019, The Bank plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance at January 1, 2019, with no restatement of comparative information.

When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Bank chooses to elect the following practical expedients:

－ Apply a single discount rate to a portfolio of leases with similar characteristics.
－ Apply the exemption not to recognize the right-of-use assets and liabilities to leases with lease term that ends within 12 months of the date of initial application.
－ Exclude the initial direct costs from measuring the right-of-use assets at the date of initial application.
－ Use hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
3) So far, the most significant impact identified is that the Bank will have to recognize the new assets and liabilities for the operating leases of its offices. The Bank estimated that the right-of-use assets and the lease liabilities to increase by 896,795 thousand and 876,278 thousand respectively, as well as the prepaid rents to decrease by 20,517 thousand on January 1, 2019. No significant impact is expected for the finance leases.

However, the estimated impacts of adopting the new standards above are subjected to changes in the future environment.

As of the date, the following IFRSs that have been issued by the IASB, but have yet to be endorsed by the FSC:

by the FSC:
	Effective date
New, Revised or Amended Standards and Interpretations	per IASB
Amendments to IFRS 3 “Definition of a Business”	January 1, 2020
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between	Effective date to
an Investor and Its Associate or Joint Venture”	be determined
	by IASB
IFRS 17 “Insurance Contracts”	January 1, 2021
Amendments to IAS 1 and IAS 8 “Definition of Material”	January 1, 2020

The Bank assessed that the above IFRSs may not be relevant.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies presented in the financial statements are summarized as follows. The following accounting policies were applied consistently throughout the periods presented in the financial statements..

(A) Statement of compliance

These financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks (hereinafter referred to as the Regulation) and the Regulations Governing the Preparation of Financial Reports by Securities Firms.

(B) Basis of preparation

(a) Basis of measurement

The financial statements have been prepared on a historical cost basis except for the following material items in the statement of financial position:

(1) Financial instruments measured at fair value through profit or loss (including derivative instruments);
(2) Financial instrument measured at fair value through other comprehensive income;
(3) Available-for-sale financial assets are measured at fair value (applicable before the year ended December 31, 2017 ) ; and
(4) The net defined benefit liability (asset) is recognized as fair value of plan assets, less present value of defined benefit obligation and the effect of the asset ceiling in Note 4(M).
(b) Consolidation of financial statement

The financial statements include the headquarter and all the domestic branches and foreign branches. The internal transactions within the headquarter, the domestic branches and the foreign branches are offset when preparing the financial statement.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(c) Functional and presentation currency

The functional currency of each entities is determined based on the primary economic environment in which the entities operate. The financial statements are presented in New Taiwan Dollar, which is the Bank's functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand.

(C) Foreign currency

(a) Foreign currency transaction

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate of Bank of Taiwan at 10 AM. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period adjusted for the effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for the equity instruments measured at fair value through other comprehensive income (Be identified as available-for-sale before the year ended December 31, 2017) which are recognized in other comprehensive income arising on the retranslation.

(b) Foreign operations

The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Bank functional currency(not the currency under highly inflation economy) by the following procedures:

(1) Assets and liabilities are translated at the date of the statement of financial position;

(2) Profit and loss are translated at the average rate (unless the exchange rate of the period fluctuates intensively, then it applies the exchange rate on the trade date);
(3) Foreign currency differences are recognized in other comprehensive income.

All the translation differences arising from above procedures are presented in the foreign currency translation reserve in equity. The exchange difference from translating net investments in foreign operations is recognized in other comprehensive income. When a

～ 20 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

foreign operation is wholly or partially disposed, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

(D) Cash and cash equivalent

Cash and cash equivalent comprise cash on hand, petty cash, foreign currency on hand and cash in banks, but excludes those items which are designated for specific purposes or restricted by contracts and law.

(E) Financial Instruments

All financial assets and liabilities of the Bank include derivative instruments, which are according to the international financial reporting standards approved and issued by the FSC. They are recognized on the balance sheet and are measured by the classification of the assets.

The routine transactions of financial assets are based on the trade-date accounting. The Bank shall reclassify all affected financial assets only when it changes its business model for managing their financial assets.

(a) Financial assets (applicable from January 1, 2018)
(1) Investment in debt instruments measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

‧ it is held within a business model whose objective is to hold assets to collect contractual cash flows;
‧ its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at initial recognition amount plus/minus accumulated amortization which is calculated using the effective interest method and the loss allowance measured at amortized cost. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(2) Financial assets at fair value through other comprehensive income (FVOCI)

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVPTL.

‧ it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
‧ its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an investment-byinvestment basis.

A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, derived from debt investments are recognized as income in profit or loss, whereas dividends derived from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss.

Dividend income derived from equity investments is recognized on the date that the Bank right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

(3) Financial assets at fair value through profit or loss (FVTPL)

All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivate financial assets. On initial recognition, the Bank may irrevocably designate a financial asset, which otherwise meets the requirements to be measured at amortized cost or at FVOCI, as at FVPTL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(4) Loans and advances

Loans and advances are recorded as initial fair value (including direct transaction cost), and the subsequent measurement recognizes interest income via effective interest rate method (if there is not much difference then it can adopt straight line method) and is booked as per amortized cost deducted by impairment loss. Interest accrual on loans and advances is suspended if either of the following occurs:

‧ Payment of principal or interest is very likely not to be redeemed as per contracts.
‧ Non-performing loans are categorized as overdue loans in six months after the settlement period ends.
(5) Impairment of financial assets

The Bank recognize loss allowances for expected credit losses on financial assets measured at amortized cost, debt investments measured at FVOCI and loan commitments and financial guarantee contracts. Equity instrument investment does not need to recognize expected credit losses.

The Bank measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL:

‧ debt securities that are determined to have low credit risk at the reporting date; and
‧ other debt securities, receivables, loan commitments and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date( or a shorter period if the expected life of the instruments is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Bank is exposed to credit risk.

～ 23 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

When determining whether the credit risk of financial asset has increased significantly since initial recognition and when estimating ECL, the Bank considers reasonable and supportable information that is relevant and available( without undue cost or effort). This includes both quantitative and qualitative information and analysis, based on the Bank historical experience, informed credit assessment and including forward-looking information.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls. The difference between the cash flows due to the Bank expect to receive. ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Bank assesses whether financial assets carried at amortized cost, debt securities at FVOCI, loan commitments and contracts of financial guarantee are credit-impaired. A financial asset is “credit-impaired” when one or move events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is creditimpaired includes the following observable data:

‧ significant financial difficulty of the borrower or issuer;
‧ a breach of contract such as a default or being past due;
‧ the restructuring of a loan or advance by the borrowers on terms that the borrowers would not consider otherwise;
‧ it is probable that the borrower will enter bankruptcy or other financial reorganization;
‧ the disappearance of an active market for a security because of financial difficulties; or
‧ to purchase or initiate financial assets at a substantial discount that reflects the credit losses that have occurred.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognized in other comprehensive income.

～ 24 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

In addition to estimate the allowance for bad debts and guarantee liability provisions as above, according to “ Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans ” , and considering the situation of their finance and the default of principal and interest payment, the credit assets are classified as below:

‧ 1% of the first class credit assets deducted by the amount of credit assets from the government.
‧ 2% of the second class credit assets.
‧ 10% of the third class credit assets.
‧ 50% of the fourth class credit assets.
‧ 100% of the fifth class credit assets.

The allowance for bad debts and guarantee liability provisions were assessed by the previously stated method shall not be less than the amount regulated by “ Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans.

Unrecoverable overdue loans and bad debts of the Bank, which are not able to be recovered after the overdue collection process, are written-off after deducting the recoverable portion. Upon approval by the board of directors and notification to supervisors, the excess amount of written off loans over such allowance or reserve is reflected as a current loss.

(b) Financial liabilities (applicable from January 1, 2018)

(1) Financial liability measured at fair value through profit or loss, if one of the following conditions is met
‧ Financial liabilities held for trading

A financial liability is held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profittaking. A derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument, is classified as instrument held for trading as well.

～ 25 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

‧ Financial liabilities designated at fair value through profit or loss

Financial liabilities falling under this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes are measured at fair value and recognized in profit or loss. While for financial liabilities designated at fair value through profit or loss, the changes in fair value generated from credit risk should be recognized under other comprehensive income, except for avoiding accounting mismatch that should be recognized in profit or loss.

The Bank only reclassified all affected financial assets in accordance with the regulations when changing the business model of managing financial assets. These changes are expected to be extremely infrequent. In addition, the Bank must not reclassify any financial assets and liabilities of equity instruments.

If the Bank reclassify financial assets in accordance with the aforesaid circumstances, the reclassification shall be postponed from the reclassification date, and any previously recognized gains, losses (including impairment losses or reversal of impairment loss) or interest shall not be restated.

(d) Financial assets and liabilities ( applicable before the years ended December 31, 2017)
(1) Financial assets and liabilities at fair value through profit or loss

Financial instruments in this category includes financial assets and liabilities classified as held-for-trading and financial assets and liabilities designated as at fair value through profit or loss on initial recognition. Financial instrument is classified in this category if acquired principally for the purpose of selling or repurchasing in the short term. This type of financial asset is measured at fair value at the time of initial recognition, and attributable transaction costs are recognized in profit or loss as incurred. A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade-date accounting. The derivative financial instruments held by the Bank, except for those designated as hedging instruments, are classified under this account. In addition, the Bank designates financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations:

A. A hybrid instrument contains one or more embedded derivatives;
B. Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; and

～ 26 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. In accordance with the Bank’s risk control policy or investment strategy, a set of financial assets or liabilities and its components managed are also designated at fair value.
(2) Available for sale financial assets

Financial assets are measured at fair value and unrealized gains and losses thereon are recognized as an adjustment item of equity. Financial instruments held by the Bank are recorded on the trade dates. Financial instruments are initially recognized at fair value plus transaction costs. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary. If the impairment loss in the following period is reduced, reversal of loss for equity investments is adjusted to equity, and reversal of loss for debt instrument is credited to current income if the reduction of impairment loss resulted from a subsequent event.

(3) Held-to-maturity financial assets

Financial assets are measured at amortized cost and its interest income via effective rate. Financial assets held by the Bank are recorded on the trade dates and are initially recognized at fair value plus transaction costs. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previous recognized impairment loss is reversed through the profit or loss. The carrying value after the reversal should not exceed the amortized balance of the assets assuming no impairment loss was recognized.

(4) Financial assets measured at cost

Equity instruments with no quoted market price and whose fair value cannot be reliably measured are stated at cost. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary, and the impairment loss is irreversible.

～ 27 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(5) Debt instrument with no active market

These are debt instruments with no active market quote and measured at amortized cost. The impairment loss is recognized if there is evidence indicating that a decline in the value of an investment is other than temporary. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previous recognized impairment loss is reversed through the profit or loss .The carrying value after the reverse should not exceed the amortized balance of the assets assuming no impairment loss was recognized.

(6) Loans and advances

Interest accrual on loans and advances is suspended if either of the following occurs:

A. Payment of principal or interest is very likely not to be redeemed as per contracts.
B. Non-performing loans are categorized as overdue loans in six months after the settlement period ends.
(7) Allowance for bad debts and provision for guarantee liabilities

Adequate allowance for bad debts is provided for loans and receivables by assessing whether there is evidence indicating that a single financial asset or a group of financial assets are impaired per the “ Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and NonAccrual Loans,” and the “Regulations Governing Institutions Engaging in Credit Card Business”.

For loans and receivables, the objective evidence should be identified first to reveal any impairment existing for financial assets that are individually significant, and individual or collective impairment for financial assets that are not individually significant. If no objective evidence of impairment exists in an individually assessed financial asset, it should be included in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment. For assets which have recognized impairment losses or continue to recognize impairment losses, the aforementioned assessment method is not required.

～ 28 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

If there is an objective evidence that an impairment loss on a financial asset has occurred, the amount of the loss is recognized and measured via the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset's original effective interest rate; the amount of the loss should be recognized as bad debt expenses in profit or loss of the current period. The estimate of future cash flows includes the recoverable amount of collaterals and related insurances when determining the amount of the loss.

Above evidences of impairment loss usually include the following:

A. Significant financial difficulty occurs to the issuer or the debtor.
B. There are already default circumstances occur to the issuer or debtor, for example: default or overdue payment of interest or principal.
C. The creditor give in to the debtor due to commercial or legal concern.
D. The debtor is likely to bankrupt or execute certain financial reorganization.
E. The issuer has financial difficulty and the financial assets cannot be traded in the active market.
F. The payment status of the debtor worsens.
G. The national and regional situation related to the default of the asset changes.

The Bank should recognize bad debt expenses when there is an impairment loss on the financial assets measured at amortized cost.

The impaired amount is the difference between the book value of the financial asset and the sum of estimated future cash flows discounted by the original effective rate. The book value of the financial assets is reduced by the allowance account and the amount of impairment losses shall be recognized as current gains and losses. When deciding the amount of the impairment loss, the estimate of future cash flows should include the collaterals and the recoverable amount of relevant insurances.

According to “ Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans ” , the Bank shall provide the sum of the following to be the allowance for bad debts:

‧ 1% of the first class credit assets deducted by the amount of credit assets from the government.
‧ 2% of the second class credit assets.

～ 29 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

‧ 10% of the third class credit assets.
‧ 50% of the fourth class credit assets.
‧ 100% of the fifth class credit assets.

The allowance for bad debts assessed by the previously stated method shall not be less than the amount regulated by “ Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans ”.

The Bank provide reserve for guarantee liabilities for off-balance-sheet non-credit assets taking into account the regulation of “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans”.

Unrecoverable overdue loans and bad debts, which are not able to be recovered after the overdue collection process, are written-off after deducting the recoverable portion. Upon approval by the board of directors and notification to supervisors, the excess amount of written off loans over such allowance or reserve is reflected as a current loss.

Above amounts provided are booked under the account of bad debt expenses.

(e) Derecognition of financial assets and liabilities

The Bank shall derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire or when the Bank transfer substantially all the risks and rewards of ownership of the financial assets. A financial liability should be removed from the balance sheet when, and only when, it is extinguished, that is, when the obligation specified in the contract is either discharged or cancelled or expires. If the bonds or stocks are taken as collateral, shall not be derecognized because the Bank have retained substantially all the risks and rewards of ownership. This is also applicable when the Bank conduct securitization transactions and still retain some of the risks.

(f) Financial instruments offsetting

A financial asset and a financial liability should be offset and the net amount reported when, and only when, an entity has a legally enforceable right to set off the amounts; and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

～ 30 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(F) Impairment loss on non-financial assets

The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value less costs to sell or its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss shall be recognized immediately in profit or loss.

An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount, as a reversal of a previously recognized impairment loss.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’ s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(G) Investment in associates

The Bank uses the equity method to evaluate an investee that it controls in preparing the financial statements. Under the equity method, the profit or loss and other comprehensive income are the same as the allocated amount of those attributable to owners of parent in the consolidated financial statements, and owners' equity are the same as the equity attributable to owners of parent in the consolidated financial statements. Changes in the Bank's ownership interest in a subsidiary that do not result in a loss of control of a subsidiary are equity transactions with owners.

(H) Property, Plant and Equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset.

S ubsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Bank. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance is expensed as incurred.

Land has an unlimited useful life and therefore is not depreciated. The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

～ 31 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(a) Buildings 35-50 years

(b) Equipment and machine 3-8 years
(c) Lease asset 5 years

The Bank reviews and adjusts the residual value and the useful lives of assets at the end of each fiscal year. Whenever there is evidence indicating that the carrying amount is unable to be recovered due to environmental activities or changes, the Bank evaluates the impairment loss of assets.

If the carrying amount is higher than the recoverable amount, the carrying amount is adjusted to the recoverable amount. The recoverable amount is the fair value or the use value deducted by the disposition expense.

The gain or loss on disposal is the difference between the carrying amount and net disposal proceeds, and gain or loss on disposal shall be recognized as net gain or loss on non-other interest of comprehensive income.

When purchasing machinery equipment and computer software, the education fee implied in the contract is not recognized as the cost of machinery equipment and is recognized as expense.

For the lease contracts which regulate the Bank to restore the property to the original status, the Bank reviews the terms of each contract and calculated the present value of the restoration expenses when signing the contracts. The decommissioning liability reserve is provided based on the calculation and the discount rate is determined based on the Bank’s policy.

(I) Leasehold

Leases contract can be divided into operating lease contracts and financing (capital) lease contracts. If a lease contract transfers almost all the risk and reward comes with the leasehold, the leasehold is considered financing (capital) lease. If a lease contract does not transfers almost all the risk and reward comes with the leasehold, the leasehold is considered operating lease.

Depreciation is calculated per the regulation of IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets”. If there is no reason to be sure that the lessee will obtain the ownership of the assets at the end of the lease period for financing leasehold, the assets shall be depreciated within the lease period or the durable service time, whichever is shorter. The lease contracts of the Bank include operating lease and financing lease.

～ 32 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(J) Deferred assets

The costs of installation for utilities, including electricity and water, as well as security facilities, are capitalized and amortized equally over 5 years.

(K) Collateral assumed

Collaterals assumed are stated at the lower of net book value or net realizable value; i.e., the amount the Bank receives when creditors cannot meet obligations and the collaterals and salvages are auctioned off. Under FSC Letter Ruling (2)0948010856 on July 11, 2005, collateral assumed must be disposed before December 31, 2005. If the Bank is unable to dispose the collateral assumed before December 31, 2005, it reserves a provision for loss equal to the carrying value of the collateral assumed. On disposition of collateral, the related provision is reversed. The selling price deducts the original book value of collateral assumed is recognized as gain on sale of collateral assumed.

(L) Provisions

A provision is recognized if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probably that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. Amortization of the discount is recognized as interest expense. Future operating loss cannot be recognized as liability reserve.

Contingent liability refers to the possible obligation results from past events. The existence of contingent liability can only be proved by whether one or more uncertain events which can not be controlled by the Bank occurs or not. Contingent liability also refers to the current obligation results from a past event, but not likely to cause outflow of economic resource to redeem the obligation or the amount of the obligation cannot be measured reliably. The Bank do not recognized contingent liability and disclose it per related regulations.

(M) Employee benefit

(a) Short term employee benefit

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

(b) Retirement benefit

The pension provision of the Bank includes defined contribution plan and defined benefit plan. For the personnel of foreign offices, the Bank provides pension fund per the regulations of the local authorities.

～ 33 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Defined contribution plan refers to the plan that the Bank annually provide certain amount of money to funds to fulfill the obligation. The Bank provide pension based on compulsory obligation, contracts or voluntary will to public or private managed pension funds. If certain pension fund fail to pay the employees the benefit which they deserve for the service they provided, the Bank do not hold legal or constructive obligation to pay additional provision. The Bank recognize the pension fund provided as current pension cost on accrual basis.

The Bank’ s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Bank’ s obligations and that are denominated in the same currency in which the benefits are expected to be paid.

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Bank, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Bank. An economic benefit is available to the Bank if it is realizable during the life of the plan, or on settlement of the plan liabilities.

If the benefits of a plan are improved, the pension cost incurred from the portion of the increased benefit relating to past service by employees is recognized immediately in profit or loss.

The remeasurements of net defined benefit liability (asset) include:

(1) Actuarial gains and losses;
(2) Return on plan assets, excluding net interest on the net defined benefit liability (asset); and
(3) The effect of the asset ceiling, excluding net interest on the net defined benefit liability (asset).

The remeasurements of defined benefit liability (asset) are recognized as other comprehensive income with a corresponding debit or credit to retained earnings in the period in which they occur.

～ 34 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Gains or losses on the curtailment or settlement of a defined benefit plan are recognized when the curtailment or settlement occurs. The gain or loss on curtailment arises from any changes in the fair value of plan assets, any changes in the present value of the defined benefit obligation, and any related actuarial gains or losses and past service cost which had not previously been recognized.

(c) Deposits with favorable rate

The Bank provides deposits with favorable rate to employees, which include current employee fix amount deposits with favorable rate and retired employee fix amount deposits with favorable rate. The rate difference between the favorable rate and the market rate belongs to the category of employee benefit.

According to article 28 of “Regulations Governing the Preparation of Financial Report by Public Banks”, the additional interests result from the difference between deposit with favorable rate and the deposits with market interest rate shall be calculated by actuary per the regulations related to defined benefit plan in IAS 19 . The parameters of actuarial assumptions shall follow the regulations of the competent authority.

In accordance with the regulation of “ Discussion of the employee benefit actuarial assumption related matter for adopting IAS 19 with respect to the additional interest of employee deposits with favorable rate” issued by the Banking Bureau, the difference between the actual payment and the estimated retirement benefit obligation is deemed as changes in accounting estimate and is recognized in profit or loss.

(d) Termination benefits

Termination benefits are recognized as an obligation when the Bank is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. The Bank recognize liabilities when a formal irrevocable termination project is undertaken or when benefit is provided for encouraging voluntary resignation. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

(N) Income tax

Income tax expenses refer to current and deferred income taxes. All current and deferred taxes shall be recognized in profit or loss except for the items related to business combinations or recognized directly in equity or other comprehensive income.

Current income tax includes tax payable or tax refundable on taxable income (loss) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years.

～ 35 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Deferred income tax is measured and recognized based on the temporary difference between the carrying amount of the assets and liabilities for financial reporting purpose and the amount served as the taxable basis. It is measured by the tax rate which the assets expected to be realized or liabilities to be settled and is based on tax rates that have been enacted or substantively enacted on the balance sheet date.

The land incremental tax results from the revaluation per relevant regulations is categorized as taxable temporary difference and is recognized as deferred tax liabilities.

Deferred tax assets and liabilities may be offset against each other if the following criteria are met:

(a) The entity has the legal right to settle tax assets and liabilities on a net basis; and
(b) The taxing of deferred tax assets and liabilities fulfills one of below scenarios:
(1) Levied by the same taxing authority; or
(2) Levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched.

A deferred tax asset is recognized for the carry forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences are also revaluated every year on the financial reporting date, and adjusted based on the probability that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized.

The surtax on undistributed earnings is recognized as current expense on the date when the stockholders decide not to distribute the earnings in the annual meetings.

～ 36 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(O) Revenue recognition

Interest is recognized according to interest method. Interest accrual is suspended from the date when the loan is reclassified to non-performing loan and only when the Bank receive cash, the revenue is recognized.

The revenue of handling fee is recognized when cash collected or when the process of the profit are mostly completed. In addition, for the individual loan which does not belong to labor service and the handling fee is over 1% of the principal, the interest rate shall be adjusted from the original agreed interest rate to the effective interest rate. For the individual loan which does not belong to the service and the handling fee is less than 1% of the principal, the recognition of the revenue should be deferred and be recognized as revenue during the loan period.

(P) Earnings per share (EPS)

EPS is based on the weighted-average number of shares outstanding. In the event of capital increase through capitalization of retained earnings, capital surplus, or employee bonuses, EPS is retroactively adjusted based on the percentage of capital increase, regardless of the period when the incremental shares are outstanding.

The employee bonuses of the Bank issued by stocks were dilutive potential common shares. If the potential common shares have a non-dilutive effect, the Bank should only disclose the basic earnings per share. On the contrary, if the potential common shares have a dilutive effect, the Bank should disclose both the basic and diluted earnings per share. In calculating the diluted earnings per share, it is based on the assumption that all dilutive potential common shares are outstanding, and therefore the net income and the shares outstanding shall be adjusted in accordance with the calculation.

(Q) Operating segments

Segment information is disclosed in the consolidated financial statements by the Bank and therefore not included in the financial statements.

～ 37 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

5. SIGNIFICANT ACCOUNTING ASSUMPTIONS AND JUDGMENTS, AND MAJOR SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the financial statements in conformity with the Regulations Governing the Preparation of Financial Reports by Public Held Banks and the Regulations Governing the Preparation of Financial Reports by Securities Firms requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The management inspects estimates and basic assumptions continuously, changes in accounting estimate will be recognized in the periods which the change occurred and future periods effected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is as following :

(A) Impairment losses on loans

The impairment of loans of the Bank was evaluated by identifying the credit risk of those financial assets have significantly increased or not at the reporting date if the credit risk has not significant incurred, the 12-month expected credit loss should be adopted to evaluate, or the lifetime credit loss evaluation should be adopted.

To evaluate the expected credit losses for 12-month and lifetime, the Bank considers the unfavorable changes of payment status or the economic conditions of the countries or areas related to the default loans. When analyzing expected cash flows, the estimates by the management are based on the pass losses experience from assets with similar credit risk characteristics. In order to reduce losses from the difference between estimated and actual amount, the Bank has considered historical experience, current economic conditions and forward-looking information at the reporting date to determine the assumptions to be used in calculating the impairments and the select inputs.

(B) Retirement benefit

The present value of the retirement benefit obligation is the actuarial result based on several assumptions. Any change of the assumptions may influence the carrying amount of the retirement benefit obligation.

～ 38 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The assumptions applied to determine net pension cost (revenue) include the discount rate. The Bank determine the appropriate discount rate at the end of each year and apply it to calculate the present value of the future cash outflows which are to be paid to the retirement benefit obligation. To determine the appropriate discount rate, the Bank should consider the interest rate of high quality corporate bonds and government bonds. The currency of the retirement benefit shall be the same as that of the high quality corporate bond or government bonds and the duration till maturity date shall comply with the duration of the related pension obligation. Other significant assumptions of retirement benefit obligation are based on the current market situation.

6. EXPLANATION OF SIGNIFICANT ACCOUNTS

(A) Cash and cash equivalents

Petty cash and revolving fund Foreign currencies on hand Checks for clearing Due from other banks Total	December 31, 2018 December 31, 2017 $ 9,463,583 9,129,143 1,001,582 944,558 12,965,443 13,350,478 22,275,723 27,642,348 $ 45,706,331 51,066,527

(B) Due from the Central Bank and call loans to banks

Due from the Central Bank Deposits transferred to the Central Bank Call loans to banks Trust fund indemnity reserve deposited Securities serving as trust fund indemnity reserve deposited Total	December 31, 2018 December 31, 2017 $ 50,348,172 56,328,785 74,869 76,720 36,557,233 44,936,851 80,000 70,000 (80,000) (70,000) $ 86,980,274 101,342,356

As of December 31, 2018 and 2017, in accordance with the Banking Law and the Central Bank Law, the required reserve deposited by the Bank with the Central Bank amounted to $50,137,774 and $56,131,096, of which $34,763,628 and $34,812,779 respectively, were restricted and such restriction may only be lifted when the required reserve is adjusted to a lower amount.

～ 39 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Effective December 2000, in accordance with the amended “Rules Governing Adjustments to and Review of Deposits in Financial Institutions and Reserve for Other Liabilities”, the Bank provides the required additional reserve on foreign currency deposits. As of December 31, 2018 and 2017, the required reserve with the Central Bank amounted to $210,398 and $197,689 respectively, and its use was unrestricted.

As of December 31, 2018 and 2017, deposits collected on behalf of the armed forces, prisons, and other national deposits were restricted.

Effective January 20, 2001, in accordance with the requirement of the Central Bank of China, the Bank complies with Clause 34 of the Trust Law to treat the discretionary trust of investments in overseas marketable securities as a default loss reserve. As of December 31, 2018 and 2017, the Bank deposited marketable securities of $80,000 and $70,000 as trust fund reserves.

Financial assets designated at fair value through profit or
loss：
Linked deposits
Overseas bonds
Financial assets at fair value through profit or
loss,mandatorily measured at fair value:
Derivative instruments not used for hedging:
Foreign exchange forward contracts
Currency swap contracts
Foreign currency options-call
Stock index futures
Non-derivative financial assets
Commercial paper
Listed and OTC stocks
Beneficiary certificates
Financial assets held for trading：
Derivative instruments not used for hedging:
Foreign exchange forward contracts
Currency swap contracts
Foreign currency options-call
Structured product options-call
Stock index futures
Non-derivative financial assets
Commercial paper
Beneficiary certificates
Total December 31, 2018
December 31, 2017
$ 1,506,135
-
403,572
237,652
5,687
287,665
3,886
30,452
4,581,217
48,910
67,080
63,784
241,588
8,621
81
454
499,459
10,150
$
6,934,604
1,061,789

Derivative financial instruments are used for hedging foreign exchange risk and interest rate risk arising from operating, financing and investing activities. The Bank held derivative financial instruments which did not apply to hedge accounting are as follows(financial assets reported as financial assets at fair value through profit or loss, mandatorily measured at fair

～ 40 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

value on December 31, 2018 and as financial assets held for trading on December 31, 2017) :

Foreign exchange forward contracts Foreign exchange forward contracts Foreign exchange forward contracts Foreign exchange forward contracts Foreign exchange forward contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Option contracts-call Option contracts-call Option contracts-call Option contracts-put Option contracts-put Option contracts-put Foreign exchange forward contracts Foreign exchange forward contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Currency swap contracts Option contracts-call Option contracts-call Option contracts-put Option contracts-put		December 31, 2018 Currency Matured duration EUR 2019/1/24~2019/1/24 JPY 2019/1/4~2019/4/22 TWD 2019/1/4~2019/9/12 USD 2019/1/31~2019/3/29 CNY 2019/1/21~2019/3/15 AUD 2019/1/2 CAD 2019/1/25~2019/3/22 CNY 2019/1/9~2019/11/1 EUR 2018/12/31~2019/10/11 GBP 2019/1/3~2019/2/25 HKD 2019/1/23 JPY 2019/1/7~2019/6/14 NZD 2019/1/18~2019/2/19 CHF 2019/2/15 TWD 2019/1/2~2019/10/9 USD 2019/1/2~2019/12/31 ZAR 2018/12/31~2019/3/5 AUD 2019/1/29~2019/3/25 EUR 2019/1/4~2019/3/20 USD 2019/1/11~2019/9/27 AUD 2019/1/29~2019/3/25 EUR 2019/1/4~2019/3/20 USD 2019/1/11~2019/9/27 December 31, 2017 Currency Matured duration JPY 2018/4/3~2018/6/5 TWD 2018/4/20~2018/8/17 AUD 2018/1/2~2018/1/22 CAD 2018/1/22~2018/3/16 CNY 2018/1/4~2018/2/27 EUR 2018/1/26~2018/12/31 GBP 2018/2/27 HKD 2018/1/3~2018/2/13 JPY 2018/1/18~2018/5/8 NZD 2018/1/4~2018/2/12 SGD 2018/1/5 TWD 2018/1/2~2018/12/28 USD 2018/1/2~2018/5/2 ZAR 2018/1/2~2018/2/26 AUD 2018/1/29 USD 2018/1/11~2018/11/1 AUD 2018/1/29 USD 2018/1/2~2018/12/31
	Amount of contracts (in thousands) $ 1,000 672,346 875,469 27,352 5,252 800 22,012 2,565,277 90,000 18,200 40,000 4,251,853 30,000 1,000 12,537,712 3,258,522 2,137,013 8,000 6,800 21,300 8,000 6,800 21,300
	Amount of contracts (in thousands) $ 6,656 1,742,481 10,760 27,285 1,430,000 139,000 1,000 151,000 13,222,385 33,250 5,000 14,893,793 2,557,353 1,963,112 2,000 45,000 2,000 45,000

～ 41 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(D) Securities purchased under resell agreements

Securities under resell agreements
Face amount
Resell period
Range of resell interest rate
Resell price
(E)
Receivables–net
Interest receivable
Acceptances receivable
Accrued incomes
Accounts receivable
Accounts receivable factoring without recourse
Spot exchange receivable-foreign currencies
Refinancing guaranty deposits
Guaranteed proceeds receivable from refinancing
Receivable from credit card
Receivable from security brokerage
Settlement fund
Receivable from fail derivative instrument contracts
Other receivables
Sub-total
Less: Allowance for bad debts
Net

December 31, 2018
December 31, 2017
$
2,386,518
3,998,104
2,388,800
4,000,000
2019.1.2~2019.1.3
2018.1.3~2018.1.12
0.62%~0.63%
0.38%~0.42%
$
2,386,828
3,998,530
December 31, 2018
December 31, 2017
$ 3,288,394
2,944,980
1,411,879
1,694,044
73,545
86,075
-
143,517
566,451
512,299
36,539,337
15,317,678
13,025
-
10,968
-
1,300,607
1,261,322
43,252
90,981
337,174
61,723
-
9,119
182,346
305,447
43,766,978
22,427,185
(68,435)
(73,194)
$
43,698,543
22,353,991

The outstanding contract amount of financial assets that have been written off and still have recourse as of December 31, 2018 and 2017 were $77,039,223 and $77,229,642, respectively.

～ 42 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The change in allowance for bad debts was as follows:

Beginning balance (according to IAS39) Adjustment of initial application of IFRS9 Beginning balance (according to IFRS 9) Provision Foreign exchange Ending balance	For theyears ended December 31,
	2018 2017 $ 73,194 72,421 3,456 - 76,650 72,421 (8,244) 1,083 29 (310) $ 68,435 73,194

(F) Discounts and loans–net

Import/export bills negotiated
Bills and notes discounted
Overdrafts
Secured overdrafts
Short-term loans
Short-term secured loans
Margin loans receivable
Medium-term loans
Medium-term secured loans
Long-term loans
Long-term secured loans
Overdue loans
Sub-total
Less: Adjustment of discount and premium
Less: Allowance for bad debts
Net

December 31, 2018
December 31, 2017
$ 502,839
251,330
1,709,185
1,831,622
36,758
8,401
2,877,536
1,433,386
172,635,763
266,520,172
196,148,277
183,379,076
1,845,664
2,341,425
135,528,776
118,666,041
151,382,900
151,462,973
15,495,441
14,229,721
407,310,715
380,822,519
2,449,090
3,029,112
1,087,922,944
1,123,975,778
(261,045)
(257,796)
(13,034,151)
(12,158,013)
$
1,074,627,748
1,111,559,969

The change in allowance for bad debts is as follows:

Beginning balance (according to IAS39) Adjustment of initial application of IFRS9 Beginning balance (according to IFRS 9) Provision Transfer out Write-off Write-off recovered Foreign exchange Ending balance	For the years ended December 31,
	2018 2017 $ 12,158,013 12,549,963 (54,941) - 12,103,072 12,549,963 704,605 3,549,074 (44,688) (584,242) (2,626,396) (3,906,067) 2,890,761 589,858 6,797 (40,573) $ 13,034,151 12,158,013

～ 43 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(G) Financial asset at fair value through other comprehensive income

Debt instruments measured at fair value through other comprehensive income`：` Government bonds Corporate bonds Overseas bonds Subtotal Equity instruments measured at fair value through other comprehensive income`：` Listed and OTC stocks Unlisted and non-OTC stocks Real estate investment trusts Subtotal Total	December 31, 2018
	$ 31,926,679 21,716,510 11,764,869 65,408,058 3,500,614 4,212,027 43,502 7,756,143 $ 73,164,201

Investment in debt instruments measured at fair value through other comprehensive income

The Bank assessed that the above bond investments were held within a business model whose objective was achieved by both collecting contractual cash flows and selling financial assets. The bond investments have been classified as the financial asset measured at fair value through other comprehensive income since January 1, 2018. Some of the investment in debt instruments measured at fair value through other comprehensive income are used as repurchasing condition. Please refer to Note 6 (Q) for more details.

Investment in equity instruments measured at fair value through other comprehensive income

On January 1, 2018, the Bank designated the investments shown above as equity securities as at fair value through other comprehensive income because these equity securities represent those investment intending to hold for long-term for strategic purpose. These investments were classified as available-for-sale financial assets on December 31, 2017. The unlisted and non-OTC securities have been classified as financial assets measured at fair value through other comprehensive income since January 1, 2018 and were recognized as other financial assets carried at cost on December 31, 2017.

The Bank designated the investments shown above as equity instruments as at fair value through other comprehensive income, therefore, The Bank recognized $276,340 and $16,587 as dividend revenue for the year ended December 31, 2018 of equity instruments and disposal equity instruments.

～ 44 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The Bank sells the investments which were designated as at fair value through other comprehensive income due to assets allocation. The fair value of disposed is $368,739 and gains on disposal is $30,765 for the year ended December 31, 2018. Thus, accumulated gains on disposal were transferred from other equity to retained earnings.

Please refer to Note 6(AP) for the credit risk (including the impairment in debt instruments) and market risk information.
The Bank assessed the impairment of financial assets measured at fair value through other comprehensive income as of December 31, 2018. The changes in allowance for credit losses attribute to the financial assets were as follows:

Beginning balance Adjustments of initial application of IFRS 9 Beginning balance (according to IFRS 9) Provision Foreign exchange Ending balance	For the year ended December 31, 2018 $ - 25,404 25,404 8,363 (2) $ 33,765

(H) Available-for-sale financial assets–net

Government bonds Corporate bonds Overseas bonds Listed and OTC stocks Total	December 31, 2017
	$ 37,660,906 18,500,141 7,447,231 2,625,558 $ 66,233,836

Please refer to Note 6(Q) for the information with regard to repurchase conditions for available-for-sale financial assets shown above.

～ 45 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(I) Investment in debt instruments at amortized cost

Certificates of deposit with the Central Bank Government bonds Corporate bonds Overseas bonds Negotiable certificates of deposit Subtotal Less: Accumulated impairment Total	December 31, 2018
	$ 165,150,000 34,922,034 19,229,940 41,889,974 371,676 261,563,624 (93,128 $ 261,470,496

The Bank assessed that these financial assets were held to maturity to collect the contractual cash flows, which consisted solely of payments of principal and interest on principal amount outstanding. Therefore, these investments were classified as financial assets measured at amortized cost on January 1, 2018.

Please refer to Note 6(AP) for credit risk.
The pledged assets provided by the above investment in debt instruments at amortized cost were shown as follows:

Reserve for provisional seizure by the court, international card payment reserve, trust claim reserve and operating guaranty funds Overseas branches required reserve of overdraft guarantee Daylight overdraft guarantee (Certificates of deposit with the Central Bank ) Guarantee for borrowing US dollars Guarantee for borrowing JPY dollars Total	December 31, 2018
	$ 869,100 64,544 2,000,000 23,000,000 200,000 $ 26,133,644

The Bank assessed the impairment of investment in debt instruments at amortized cost as December 31, 2018. The changes in allowance for credit losses attribute to these financial assets were as follows:

Beginning balance Adjustments of initial application of IFRS 9 Beginning balance (according to IFRS 9) Provision Foreign exchange Ending balance	For the year ended December 31, 2018
	$ - 72,648 72,648 19,934 546 $ 93,128

～ 46 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Disposal gain(loss) on disposal investment in assets at amortized cost:

Overseas bonds	For the year ended December 31, 2018
	The carrying amount at the date of derecognition Gain (Loss) on disposal $ 86,063 130

The Bank derecognized investment in financial assets measured at amortized cost due to the increase of credit risk and the prepayment of the investment in debt instruments at amortized cost.

(J) Held-to-maturity financial assets–net

Certificates of deposit with the Central Bank Government bonds Corporate bonds Overseas bonds Negotiable certificates of deposit Total	December 31, 2017
	$ 124,330,000 32,958,891 16,215,509 29,400,355 62,328 $ 202,967,083

As of December 31, 2017, held-to-maturity financial assets provided and deposited as reserve for provisional seizure by the court, international card payment reserve, trust claim reserve and operating guaranty funds amounted to $715,700. As of December 31, 2017, the overseas branches have provided $62,328 for the reserve of overdraft guarantee.

In order to comply with the immediate tax settlements mechanism of Central Bank and the interbank funds transfer system, the Bank provided time deposits with the Central Bank all amounting to $8,200,000 as overdraft guarantee as of December 31, 2017. The amount of the guarantee could be modified anytime and the remaining amount could be served as liquid reserves.

As of December 31, 2017, in compliance with the item 16 of "Guidelines Governing Financial Institution in Conducting Treasury Affairs Authorized by Central Bank", the Bank provided secured central bank certificates of deposit with face value of $1,505,000 to the Central Bank. When certain conditions are satisfied, the Bank will be returned the certificates without interest from Central Bank.

As of December 31, 2017, the Bank provided Central bank certificates of deposit with face value of $17,000,000 to serve as a guarantee for borrowing US dollars from Central bank.

～ 47 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(K) Investment measured by equity method – net

Subsidiary	December 31, 2018 Amount % $ 394,480 100.00 15,421 100.00 1,406,353 100.00 571,486 100.00 296,761 100.00 $ 2,684,501	December 31, 2017
	Amount $ 394,480 15,421 1,406,353 571,486 296,761 $ 2,684,501	Amount % 356,615 100.00 15,185 100.00 1,393,801 100.00 580,336 100.00 - - 2,345,937
Investment measured by equity method Taiwan Business Bank Insurance Agency Co., Ltd. `－`initial investment $2,000 thousands Taiwan Business Bank Property Insurance Agency Co., Ltd. `－`initial investment $3,000 thousands TBB International Leasing Co., Ltd. `－`initial investment $1,500,000 thousands TBB (Cambodia) Microfinance Institution Plc `－`initial investment $USD10,000 thousands TBB Venture Capital Co., Ltd. `－`initial investment $USD300,000 thousands Total

The Bank's share of profit of associates and joint ventures accounted for using equity method for the years ended December 31, 2018 and 2017are $384,452 and $376,138 respectively.

The Bank received cash dividends of $355,800 and $143,672 from the investee companies for the years ended December 31, 2018 and 2017 respectively.

On August 30, 2018, the Bank invested NTD $300,000 in 100% equity of TBB Venture Capital Co., Ltd., which was recognized as equity investment and completed the registration of establishment on September 7, 2018.

On February 17, 2017, the Bank increased its investment in TBB (Cambodia) Microfinance Institution Plc by US$10,000 (NTD $308,600), which was recognized as an equity investment after being certified by local authority.

The Bank has prepared financial statements for the years ended December 31, 2018 and 2017.

(L) Other financial assets–net

Non-accrual loans transferred from non-loan financial assets Less: Allowance for bad debts Non-accrual loans transferred from non-loan financial assets`－` net Exchange bills negotiated Less: Allowance for bad debts exchange bills negotiated Exchange bills negotiated`－`net Financial assets carried at cost Total	December 31, 2018 December 31, 2017 $ 105,200 208,339 (87,249) (84,410) 17,951 123,929 20 142 - (1) 20 141 - 2,035,121 $ 17,971 2,159,191

～ 48 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(a) Financial assets carried at cost were as follows:

Investee	December 31, 2017 Amount % $ 11,427 - 58,294 0.30 17,440 3.12 29,000 4.84 7,000 3.53 45,500 1.14 500,000 4.95 198,012 0.95 20,000 1.00 750,000 5.68 50,000 2.94 9,245 4.12 4,639 0.08 460 0.77 6,000 1.00 328,104 0.80 $ 2,035,121
Taiwan Power Company Taiwan Sugar Corporation Sunsino Development Associated Inc. Taiwan Incubator SME Development Corporation Taipei Forex Inc. Financial Information Service Co., Ltd. CDIB & Partners Investment Holding Corp. Taiwan Stock Exchange Co. Taiwan Futures Exchange Co. Taiwan Asset Management Corporation Taiwan Financial Asset Service Corporation Financial eSolution Co., Ltd. Taiwan Depository & Cleansing Corporation Sunny Asset Management Corporation Taiwan Mobile Payment Co. Taipei Financial Center Co. Total

Investee

December 31, 2017
Amount
%
$ 11,427
-
58,294
0.30
17,440
3.12
29,000
4.84
7,000
3.53
45,500
1.14
500,000
4.95
198,012
0.95
20,000
1.00
750,000
5.68
50,000
2.94
9,245
4.12
4,639
0.08
460
0.77
6,000
1.00
328,104
0.80
$
2,035,121

Taiwan Power Company
Taiwan Sugar Corporation
Sunsino Development Associated Inc.
Taiwan Incubator SME Development Corporation
Taipei Forex Inc.
Financial Information Service Co., Ltd.
CDIB & Partners Investment Holding Corp.
Taiwan Stock Exchange Co.
Taiwan Futures Exchange Co.
Taiwan Asset Management Corporation
Taiwan Financial Asset Service Corporation
Financial eSolution Co., Ltd.
Taiwan Depository & Cleansing Corporation
Sunny Asset Management Corporation
Taiwan Mobile Payment Co.
Taipei Financial Center Co.
Total

(b) The change in allowance for bad debts was as follows:

Beginning balance (according to IAS39) Adjustments of initial application of IFRS 9 Beginning balance (according to IFRS 9) Reversal Transfer in Write-off Written-off recovered Ending balance	For the years ended December 31, 2018 2017 $ 84,411 60,202 4,714 - 89,125 60,202 (45,387) (550,888) 44,688 584,242 (26,368) (34,107) 25,191 24,962 $ 87,249 84,411

～ 49 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(M) Premises and equipment–net

December 31, 2018	Cost $ 6,737,960 7,824,415 2,088,578 277,590 576,240 125,422 31,065 171,807 75,518 $ 17,908,595 Cost $ 6,678,952 7,699,394 2,068,237 280,241 587,084 92,522 17,726 56,593 98,799 74,596 $ 17,654,144	Revaluation appreciation 2,986,161 31,184 - - - - - - - 3,017,345 Revaluation appreciation 2,986,161 31,184 - - - - - - - - 3,017,345	Accumulated depreciation - 4,027,738 1,736,082 242,631 489,708 49,020 - - 53,451 6,598,630 Accumulated depreciation - 3,849,763 1,757,858 243,801 502,442 29,222 - - - 42,845 6,425,931	Accumulated impairment Total 14,031 9,710,090 14,754 3,813,107 - 352,496 - 34,959 - 86,532 - 76,402 - 31,065 - 171,807 - 22,067 28,785 14,298,525 Accumulated impairment Total 14,031 9,651,082 14,754 3,866,061 - 310,379 - 36,440 - 84,642 - 63,300 - 17,726 - 56,593 - 98,799 - 31,751 28,785 14,216,773
Land Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Construction in progress Prepayment for equipment Leased assets Total December 31, 2017
Land Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Construction in progress Prepayment for equipment Prepayment for real estate Leased assets Total

～ 50 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Change of cost

Land Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Construction in progress Prepayment for equipment Prepayment for real estate Leased assets Total Land Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Construction in progress Prepayment for equipment Prepayment for real estate Leased assets Total	January 1, 2018 $ 9,665,113 7,730,578 2,068,237 280,241 587,084 92,522 17,726 56,593 98,799 74,596 $ 20,671,489 January 1, 2017 $ 9,665,113 7,518,038 1,963,300 286,052 577,518 64,913 150,163 62,933 - 72,495 $ 20,360,525	Increase 59,008 125,021 165,277 10,173 23,248 32,632 70,300 132,835 - 1,540 620,034 Increase - 212,540 183,141 8,084 35,534 33,694 32,147 26,271 98,799 2,101 632,311	Decrease - - 148,708 14,807 35,395 5,526 56,961 17,776 98,799 624 378,596 Decrease - - 82,939 14,213 25,304 3,799 164,584 31,107 - - 321,946	Foreign Exchange December 31, 2018 - 9,724,121 - 7,855,599 3,772 2,088,578 1,983 277,590 1,303 576,240 5,794 125,422 - 31,065 155 171,807 - - 6 75,518 13,013 20,925,940 Foreign Exchange December 31, 2017 - 9,665,113 - 7,730,578 4,735 2,068,237 318 280,241 (664) 587,084 (2,286) 92,522 - 17,726 (1,504) 56,593 - 98,799 - 74,596 599 20,671,489

Change of depreciation

Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Leased assets Total	January 1, 2018 $ 3,849,763 1,757,858 243,801 502,442 29,222 42,845 $ 6,425,931	Increase 177,975 125,273 13,393 22,183 21,178 11,226 371,228	Decrease - 148,018 14,555 35,088 5,425 624 203,710	Foreign Exchange December 31, 2018 - 4,027,738 969 1,736,082 (8) 242,631 171 489,708 4,045 49,020 4 53,451 5,181 6,598,630

～ 51 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Leased assets Total	January 1, 2017 $ 3,682,819 1,731,286 244,812 508,338 20,271 31,570 $ 6,219,096	Increase 166,944 109,425 13,300 20,129 13,165 11,336 334,299	Decrease - 79,299 14,146 25,204 3,799 - 122,448	Foreign Exchange December 31, 2017 - 3,849,763 (3,554) 1,757,858 (165) 243,801 (821) 502,442 (415) 29,222 (61) 42,845 (5,016) 6,425,931

Accumulated impairment

Land Buildings Total Land Buildings Total	January 1, 2018 $ 14,031 14,754 $ 28,785 January 1, 2017 $ 14,031 14,754 $ 28,785	Increase - - - Increase - - -	Decrease - - - Decrease - - -	Foreign Exchange December 31, 2018 - 14,031 - 14,754 - 28,785 Foreign Exchange December 31, 2017 - 14,031 - 14,754 - 28,785

When the Bank first adopted IFRSs, it elected to apply the revaluation amount calculated per the regulation of GAAP of R.O.C as the original cost on the transition date.

As of December 31, 2018 and 2017, the appreciation from revaluation of properties all amounted to $3,017,345. Reserve for land incremental tax all amounted to $879,056 (Recognized under deferred tax liabilities).

As of December 31, 2018 and 2017, land which was illegally occupied amounted to $5,496, respectively. Part of the illegally occupied land would be disposed after the Bank received the certificate of legal costs and the rest would be auctioned at appropriate time.

～ 52 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(N) Other assets-net

Office supplies Prepayments Operating guaranty deposits and settlement fund Guarantee deposits paid Deferred assets Temporary payments and suspense accounts Proceeds of settlement and credit transaction Total	December 31, 2018 December 31, 2017 $ 28,261 27,997 4,258,889 3,269,952 31,011 30,608 816,292 286,554 16 40 85,632 - 2,071 24,721 $ 5,222,172 3,639,872

(O) Deposits from the Central Bank and other banks

Deposits from the Central Bank Call loans from the Central Bank Deposits from banks Call loans from banks Overdrafts on banks Deposits transferred from Chunghwa Post Co., Ltd. Total	December 31, 2018 December 31, 2017 $ 251,673 304,431 15,367,500 16,234,960 64,602 100,305 18,991,607 18,439,863 812,952 1,680,993 55,826,209 56,769,218 $ 91,314,543 93,529,770

(P) Financial liabilities at fair value through profit or loss

Financial liabilities designated at fair value through profit or loss`：` Financial debentures Financial liabilities held for trading`：` Derivative instruments not used for hedging Foreign exchange forward contracts Currency swap contracts Foreign currency option-put Structured product option-put Total	December 31, 2018 December 31, 2017 $ 9,162,841 3,565,337 11,546 8,420 161,000 150,009 3,886 8,633 - 82 $ 9,339,273 3,732,481

Please refer to 6(T) for the information of financial liabilities designated at fair value through profit and loss.

Please refer to 6(C) for the nominal amount of unsettled financial derivatives instrument contracts of December 31, 2018 and 2017.

～ 53 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(Q) Securities sold under repurchase agreements

Assets	December 31, 2018	December 31, 2018	December 31, 2018	December 31, 2018
	Par value	Selling Price (Recognized in securities sold under repurchase agreements)	Designated repurchase amount	Designated repurchase date
Financial assets at fair value through other comprehensive income	$ 1,628,596	1,657,706	1,660,551	Prior to June 14, 2019

Assets	December 31, 2017
	Par value	Selling Price (Recognized in securities sold under repurchase agreements)	Designated repurchase amount	Designated repurchase date
Available-for-sale financial assets	$ 1,001,200	1,105,596	1,106,770	Prior to June 27, 2018

(R) Payables

Interest payable Accounts payable Acceptances Accrued expenses Collection payable Deposits received from securities borrowers Guaranteed price deposits received from securities borrowers Accounts payable factoring Spot exchange payable`－`foreign currencies Other payables Trusted security payable Others Total	December 31, 2018 December 31, 2017 $ 2,183,207 1,702,701 12,976,036 13,363,952 1,476,163 1,724,173 3,178,162 2,491,852 611,608 590,131 103,529 95,470 111,936 111,668 177,759 153,704 36,521,898 15,315,863 896,129 864,379 377,826 147,945 5,974 29,619 $ 58,620,227 36,591,457

～ 54 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(S) Deposits and remittances

Savings deposits Time deposits Demand deposits Checking account deposits Remittances Total	December 31, 2018 December 31, 2017 $ 617,461,408 607,119,560 341,748,092 329,874,713 323,897,070 350,716,566 28,257,596 28,358,099 573,379 602,413 $ 1,311,937,545 1,316,671,351

(T) Financial debentures

Bonds			Terms of Transactions		Bond Issued
	Issue date	Maturity date	Interest Rate & repayment	Type	Amount
2010-1P A 2010-1P B 2013-1 2013-2A 2013-2B 2015-1P 2015-2A 2015-2B 2016-1P	09/23/2010 09/23/2010 03/25/2013 11/25/2013 11/25/2013 06/18/2015 08/31/2015 08/31/2015 09/20/2016	None None 03/25/2020 11/25/2020 11/25/2020 None 08/31/2023 08/31/2025 None	The debentures bear annual interest rate which is the Chunghwa post's board average interest rate for 1-year time deposit plus 1.34% for the ten years after the issue date. The interest rate will be the Chunghwa post's board interest rate for 1-year time deposit plus 2.34% from the eleventh year. The debentures is redeemable per face value plus accrued interest at the interest payment date after ten years from the issue date under the consent of the competent authority. The debentures bear an interest rate of 3.05% for the first ten years after the issue date. The interest rate will be 4.05% from the eleventh year. The debentures is redeemable per face value plus accrued interest at the interest payment date after ten years from the issue date under the consent of the competent authority. The debentures bear an annual interest rate of 1.68%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. (A) The debentures bear annual interest rate, which is the index rate plus 0.52%. The index rate is the average offer of 90-days CP which is indicated in Reuter's page 6165 at 11 A.M Taipei time, 2 operation days prior to the interest commencement date. (B) Since January 1, 2015 according to various indicators of interest rate changes during the value date two business days before the pricing (FIXING) Bank of the Republic of China Business Association National Union RCAs website "Taipei fixing the financial sector call loan rate (TAIBOR)" three-month interest rate fixing. Simple interest rate is accrued four times a year and paid annually. The principal will be repaid in full at maturity. The debentures bear an annual interest rate of 1.92%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debenture bear an annual interest rate of 3.9%. Simple interest is accrued and paid annually. The debentures is redeemable per face value plus accrued interest at interest payment date after five years from the issued date under the consent of the competent authority. The debenture bear an annual interest rate of 2.05%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debenture bear an annual interest rate of 2.10%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debenture bear an annual interest rate of 3.2%. Simple interest is accrued and paid annually. The debentures is redeemable per face value plus accrued interest at interest payment date after five years and three months from the issued date under the consent of the competent authority	Perpetual non- accumulated subordinated financial debentures `〞` Unsecured subordinated long-term financial debentures `〞` `〞` Perpetual non- accumulated subordinated financial debentures Unsecured subordinated long-term financial debentures `〞` Perpetual non- accumulated subordinated financial debentures	December 31, 2018 December 31, 2017 $ 3,200,000 3,200,000 800,000 800,000 5,000,000 5,000,000 3,100,000 3,100,000 2,900,000 2,900,000 5,000,000 5,000,000 4,700,000 4,700,000 300,000 300,000 8,000,000 8,000,000

～ 55 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Bonds			Terms of Transactions		Bond Issued
	Issue date	Maturity date	Interest Rate & repayment	Type	Amount
2016-2 2017-1A 2017-1B 2017-1C 2017-2 2018-1 2018-2	12/20/2016 03/28/2017 03/28/2017 03/28/2017 05/23/2017 01/05/2018 08/20/2018	12/20/2023 03/28/2024 03/28/2025 03/28/2027 05/23/2027 01/05/2021 08/20/2028	The debentures bear an annual interest rate of 1.40%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debentures bear an annual interest rate of 1.50%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debentures bear an annual interest rate of 1.60%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debentures bear an annual interest rate of 1.85%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debentures bear an annual interest rate of 1.85%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debentures bear an annual interest rate of 0.7%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity. The debentures bear an annual interest rate of 1.45%. Simple interest is accrued and paid annually. The principal will be repaid in full at maturity.	Unsecured subordinated long-term financial debentures `〞` `〞` `〞` `〞` `〞` `〞`	December 31, 2018 December 31, 2017 $ 2,700,000 2,700,000 390,000 390,000 250,000 250,000 3,360,000 3,360,000 1,300,000 1,300,000 1,000,000 - 5,450,000 - $ 47,450,000 41,000,000

The Bank issued $120,000 thousands and $180,000 thousands dollar-denominated debentures with call option that can be executed on strike price after five years from the issued date. Without executing call options during the periods of debentures, the principal will be repaid in full at maturity. In order to avoid interest risk, the Bank buys interest rate swap contracts that are classified as financial assets at fair value through profit or loss. To eliminate the measurement or recognition inconsistency between IRSs and debentures, the Bank classified the debentures into financial liabilities at fair value through profit or loss. The debentures are as follows:

Bonds			Terms of Transactions		Bond Issued
	Issue date	Maturity date	Interest Rate & repayment	Type	Amount
2017-3 2018-3	10/27/2017 09/27/2018	10/27/2047 09/27/2048	The zero-coupon debentures with call options can be executed on strike price after five years from the issued date. Without executing call options during the periods of debentures, the principal will be repaid in full at maturity. The zero-coupon debentures with call options can be executed on strike price after five years from the issued date. Without executing call options during the periods of debentures, the principal will be repaid in full at maturity.	Unsecured dollar- denominated senior financial debentures `〞` Valuation adjustment	December 31, 2018 December 31, 2017 $ 3,688,200 3,561,600 5,532,300 - (57,659) 3,737 $ 9,162,841 3,565,337

～ 56 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(U) Other financial liabilities

Appropriated loans funds Lease payable Total	December 31, 2018 December 31, 2017 $ 7,486,694 10,090,135 21,021 30,410 $ 7,507,715 10,120,545

Cumulative earnings on appropriated loan fund is the project contract signed by National Development Council, Small and Medium Enterprise Administration, Ministry of Economic Affairs, and the Bank. The Bank appropriates the fund to the companies which meet the conditions for loans. The fund is classified as principal account, interest yielding account, loaned account and un-loaned account. The interests paid to the government are calculated respectively.

(V) Provision for liabilities

Provision for guarantee liabilities Provision for financing commitment Provision for employee benefit Total	December 31, 2018 December 31, 2017 $ 215,383 156,523 73,753 - 3,276,591 3,358,828 $ 3,565,727 3,515,351

Change of provision

		January 1,		IFRS 9				Foreign	December 31,
		2018		Adjustment	Increase	Decrease	Use	exchange	2018
Provision for guarantee	$	156,523		-	58,710	-	-	150	215,383
liabilities
Provision for financing		-		47,265	26,637	-	-	(149)	73,753
commitment
Provision for employee		3,358,828		-	444,090	453,021	73,306	-	3,276,591
benefit
Total	$	3,515,351		47,265	529,437	453,021	73,306	1	3,565,727
				January 1,				Foreign	December 31,
				2017	Increase	Decrease	Use	exchange	2017
Provision for guarantee	liabilities		$	147,491	9,286	-	-	(254)	156,523
Provision for lawsuit				346,491	109,273	-	466,884	11,120
Provision for employee	benefit			3,112,771	504,152	208,775	49,320	-	3,358,828
Total			$	3,606,753	622,711	208,775	516,204	10,866	3,515,351

Please refer to Note 6(Z) for the information with regard to provision for employee benefit shown above.

～ 57 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(W) Other liabilities

Advance interest receipts Unearned revenue Other advances receipts Guarantee deposits received Temporary receipts and suspense accounts Other Total	December 31, 2018 December 31, 2017 $ 10,717 10,284 154,386 109,386 150,376 101,006 766,567 714,763 - 648,164 4,209 3,105 $ 1,086,255 1,586,708

(X) Equity

(a) Common stock

As of December 31, 2018 and 2017, the Bank’s authorized capital were $80,000,000, and the paid-in capital for common shares of the Bank were $63,938,802 and $61,479,617, the face value of each share is NTD $10. The outstanding shares were 6,393,881 and 6,147,962 thousand shares, respectively.

Pursuant to the resolution approved by the stockholders’ meeting of the Bank on June 29, 2018, the Bank increased its capital from the unappropriated retained earnings by $2,459,185 and issued 245,919 thousand shares. The capital increase has been approved by the Financial Supervisory Commission and came into effect on August 10, 2018. The base date of the capital increase is set on September 12, 2018. The Bank has completed the registration of change in paid-in capital on September 21, 2018.

Pursuant to the resolution approved by the stockholders’ meeting of the Bank on June 16, 2017, the Bank increased its capital from the unappropriated retained earnings by $1,790,668 and issued 179,067 thousand shares. The capital increase has been approved by the Financial Supervisory Commission and came into effect on July 7, 2017. The base date of the capital increase is set on August 7, 2017. The Bank has completed the registration of change in paid-in capital on August 23, 2017.

(b) Capital surplus

Pursuant to the amendment of the Company Act which was published in January 2012, the Company can only transfer realized capital surplus into capital or distribute cash dividends after the capital surplus be used to offset a deficient. In compliance with the resolution, realized capital surplus includes the income derived from the issuance of new shares at a premium and the income from endowments received by the company. According to the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, the total amount of capital surplus to be used to increase capital shall not exceed 10% of total paid-in capital.

～ 58 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(c) Earnings distribution and dividend policy

Under the Bank’s Articles of Incorporation, earnings are used initially to pay for income taxes and restore cumulative losses, and 30% of the remaining earnings is set aside as legal reserve. Special reserve is appropriated from or reversed to earnings per other regulations. Add accumulated unappropriated retained earnings from previous years as distributable dividends and the amount of dividends is resolved by the annual stockholders’ meeting according to the proposal submitted by the Board of Directors.

In order to continuously expand scale and increase profitability, the Bank, based on the future capital budget plan, adopts residual dividend policy and primarily distributes stock dividend to ensure the capital is sufficient. When there is surplus of capital, the remaining capital can be distributed by cash dividend. Cash dividend shall not be lower than 10% of the total dividend distributed. If the cash dividend distributed per share is lower than NTD$0.1, except for otherwise resolved by the shareholder’s meeting, it is not distributed. If there is any situation conforms to that is regulated in article 44 item 1 of the Banking Act of The Republic of China, the Bank is not allowed to distribute earnings by cash or purchase shares outstanding. The maximum cash earning distribution is not allowed to be over 15% of the total paid in capital unless the legal reserve reaches the total paid-in capital.

In compliance with the amendment of Company Act published in January 2012, if the Company incurs no loss, under the consent of the shareholder’s meeting, the Company is allowed to distribute new shares or cash dividends from legal reserve to the extent that the legal reserve issued is the surplus exceeding 25% of the paid in capital.

Under the Ruling No. 1010012865 issued on April 6, 2012 by the FSC, special reserve is appropriated from retained earnings based on the equivalent amounts of the contra accounts in equity. This special reserve may not be distributed as dividends to stockholders until the balances of these contra accounts in equity are reversed.

The Bank resolved the earning distribution for the earnings of 2017 and 2016 in the shareholder’s meeting on June 29, 2018 and June 16, 2017, respectively. The dividends distributed were as follows:

Dividends to common share holders Share Cash Total		For the years ended December 31,	For the years ended December 31,
	2017 Distribution rate (NT dollar) Amount $ 0.40 2,459,185 0.268 1,647,654 4,106,839		2016
			Distribution rate (NT dollar) Amount 0.30 1,790,668 0.102 608,827 2,399,495

～ 59 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(d) Other equity items

January 1, 2018 Effects of retrospective application of new standards Balance at January 1, 2018 after adjustments Debt instruments measured at fair value through other comprehensive income -Valuation adjustment -Realized amount Foreign currency translation difference`－`Exchange difference Disposal of investments in equity instruments measured at fair value through other comprehensive income December 31, 2018 January 1, 2017 Available-for-sale financial assets -Valuation adjustment -Realized amount Foreign currency translation difference`－`Exchange difference December 31, 2017	Unrealized gains from financial assets measured at fair value through other comprehensive income $ - 3,086,469 3,086,469 490,591 (98,509) - (30,765) $ 3,447,786 $ - - - - $ -	Unrealized gains and losses on available-for-sale financial assets 529,112 (529,112) - - - - - - (1,009,845) 1,565,125 (26,168) - 529,112	exchange differences on translation of foreign financial statements Total (835,340) (306,228) - 2,557,357 (835,340) 2,251,129 - 490,591 - (98,509) 294,218 294,218 - (30,765) (541,122) 2,906,664 (19,637) (1,029,482) - 1,565,125 - (26,168) (815,703) (815,703) (835,340) (306,228)

～ 60 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(Y) Income taxes

According to the amendments to the "Income Tax Act" enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, an increase in the corporate income tax rate from 17% to 20% is applicable upon filing the corporate income tax return commencing year 2018.

(a) The income tax expenses were as follows:

		For the years ended	December 31,
		2018	2017
Current tax expense
Current period	$	1,798,982	716,706
Adjustment for prior periods		35,713	(191,621)
Additional surtax on undistributed retained		-	5
earnings
		1,834,695	525,090
Deferred tax expense
Origination and reversal of temporary		(388,408)	222,995
different
Income tax expenses	$	1,446,287	748,085

(b) The income tax (expenses) benefits recognized under other comprehensive income were as follows:

Items that will not reclassified subsequently to profit or loss:
Remeasurements of defined benefit plans

Items that may be reclassified subsequently to profit or loss:
Foreign exchange difference in translating financial statements of foreign
operations
Unrealized gains (losses) on valuation of available for sale financial assets
Unrealized gains on valuation of financial assets measured at fair value through
other comprehensive income

For the years ended December 31,

2018
2017
$
71,895
42,401
For the years ended December 31,

2018
2017
$ (40,857)
164,882
-
(1,881)
580
-
$
(40,277)
163,001

～ 61 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The reconciliation between the income tax expense (income) and net income before tax of the Bank for 2018 and 2017 is as follows:

Income tax computed on net income before tax
Cessation tax of gains derived from the securities transactions
Net income from offshore banking unit
Recognized (gain) loss from financial assets and liabilities measured at fair value
through profit or loss
Cash dividend
Share of profit or loss of associates & joint ventures accounted for using equity
method
Adjustment in tax rate
Overseas branch income tax expenses
Additional surtax on undistributed retained earnings
Underestimate (overestimate) prior income tax expense
Income tax expense

For the years ended December 31

2018
2017
$ 1,817,366
983,962
(5,131)
(3,818)
(212,852)
(193,088)
(14,420)
7,032
(56,743)
(38,311)
(76,890)
(63,943)
-
-
(147,326)
-
106,570
247,867
-
5
35,713
(191,621)
$
1,446,287
748,085

For the year ended December Beginning balance Recognized in profit or loss Recognized in other comprehensive income Temporary difference Deferred tax assets resulted from allowance for bad debts exceeding the limit regulated in Tax Law $ 380,249 346,606 - Loss on assets impairment 40,593 12,823 - Reserve for employee benefit liabilities 414,006 28,979 - Land value increment tax (879,056) - - Exchange differences from the translation of financial statements of foreign operations 159,750 - (40,857) Unrealized (gain) loss on valuation of financial assets measured at fair value through other comprehensive income (2,262) - 580 Actuarial gains and losses 209,181 - 71,895 Net deferred tax assets (liabilities) $ 322,461 388,408 31,618 The information stated on the balance sheet is as follows: Deferred tax assets $ 1,203,779 Deferred tax liabilities $ 881,318		For the year ended December	For the year ended December	31, 2018 Others Ending balance - 726,855 146 53,562 - 442,985 - (879,056) - 118,893 - (1,682) - 281,076 146 742,633 1,623,371 880,738
			Recognized in other comprehensive income - - - - (40,857) 580 71,895 31,618

～ 62 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

For the year ended December Beginning balance Recognized in profit or loss Recognized in other comprehensive income Temporary difference Deferred tax assets resulted from allowance for bad debts exceeding the limit regulated in Tax Law $ 539,899 (159,650) - Loss on assets impairment 40,593 - - Indemnity reserve 75,446 (75,446) - Reserve for employee benefit liabilities 401,905 12,101 - Land value increment tax (879,056) - - Exchange differences from the translation of financial statements of foreign operations (5,132) - 164,882 Unrealized valuation profit or loss on available for sale financial assets (381) - (1,881) Actuarial gains and losses 166,780 - 42,401 Net deferred tax assets (liabilities) $ 340,054 (222,995) 205,402 The information stated on the balance sheet is as follows: Deferred tax assets $ 1,224,623 Deferred tax liabilities $ 884,569		For the year ended December	For the year ended December	31, 2017 Others Ending balance - 380,249 - 40,593 - - - 414,006 - (879,056) - 159,750 - (2,262) - 209,181 - 322,461 1,203,779 881,318
			Recognized in other comprehensive income - - - - - 164,882 (1,881) 42,401 205,402

(d) The Bank’s income tax returns for years up to 2015 have been approved by the Tax Authority.

(Z) Provision for employee benefit

As of December 31, 2018 and 2017, the balance of provision for employee benefit of the Bank were as follows:

Defined benefit plan Employee deposit with favorable rate	December 31, 2018 December 31, 2017 $ 2,406,353 2,535,720 870,238 823,108 $ 3,276,591 3,358,828

～ 63 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(a) Defined benefit plan

The reconciliation between the present value of defined benefit obligation and the fair value of defined benefit plan assets of the Bank were as follows:

Present value of defined benefit obligation Less: Fair value of defined benefit plan assets	December 31, 2018 December 31, 2017 $ 7,385,323 7,260,197 (4,978,970) (4,724,477) $ 2,406,353 2,535,720

The Bank makes defined benefit plan contributions to the pension fund account at Bank of Taiwan that provides pensions for employees upon retirement. The plans (covered by the Labour Standards Law) entitle a retired employee to receive an annual payment based on years of service and average salary for the six months prior to retirement.

(1) Composition of plan assets

The Bank allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Labour Pension Fund Supervisory Committee. With regard to the utilization of the funds, minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with interest rates offered by local banks.

The Bank of Taiwan labour pension reserve account balance for the Bank amounted to $4,978,970 and $4,724,477 on December 31, 2018 and 2017. For information on the utilization of the labour pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Labour Pension Fund Supervisory Committee.

(2) Changes in the present value of defined benefit obligations

The changes in the present value of defined benefit obligations of the Bank were as follows:

Defined benefit obligation on January 1 Current service and interest cost Remeasurements of the net defined benefit liability `－`Actuarial gain and loss on experience adjustment `－`Actuarial gain and loss on financial assumptions changed Benefits paid by the plan Defined benefit obligation on December 31	For the years ended December 31 2018 2017 $ 7,260,197 7,241,938 268,958 289,790 261,683 111,821 61,966 126,516 (467,481) (509,868) $ 7,385,323 7,260,197

～ 64 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(3) Changes in the fair value of defined benefit plan assets

The changes in the fair value of defined benefit plan assets of the Bank were as follows:

Fair value of plan assets on January 1 Interest income Remeasurements of the net defined benefit liability `－`plan assets revenue (excluded of current interest) Contributions made Benefits paid by the plan Fair value of plan assets on December 31	For the years ended December 31
	2018 2017 $ 4,724,477 4,928,465 46,905 58,868 148,742 (11,082 526,327 258,094 (467,481) (509,868 $ 4,978,970 4,724,477

(4) Expenses recognized in profit or loss

The expenses recognized in profit or loss of the Bank were as follows :

Current service costs Net interest on the net defined benefit liability	For the years ended December 31
	2018 2017 $ 198,096 204,840 23,957 26,082 $ 222,053 230,922

(5) Remeasurements of the net defined benefit liability recognized in other comprehensive income

Accumulated remeasurements of the net defined benefit liability recognized in other comprehensive income for the years ended December 31, 2018 and 2017 were as follows ：

Amount on January 1 Recognized during the period Amount on December 31	For the years ended December 31
	2018 2017 $ 1,230,475 981,056 174,907 249,419 $ 1,405,382 1,230,475

(6) Actuarial assumptions

The material actuarial assumptions used to determine present value of a defined benefit obligation on the reporting date as follow :

Discount rate of defined benefit plan Future salary increase rate	December 31, 2018 December 31, 2017 % 0.90 % 1.00 % 1.50 % 1.50

～ 65 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The expected allocation payment made by the Bank to the defined benefit plans for the one year period after the reporting dates is $265,000.

The weighted average duration of defined benefit plans is 8.50 years.

(7) Sensitivity analysis

The effects of changes in major actuarial assumptions adopted in defined benefit obligation on December 31, 2018 and 2017 were as follows :

December 31, 2018 Discount rate(Change 0.25%) Future salary increase rate(Change 0.25%) December 31, 2017 Discount rate(Change 0.25%) Future salary increase rate(Change 0.25%)	Influence of defined benefit plan obligation
	Increase0.25% Decrease0.25% % (2.08) % 2.15 % 2.06 % (2.01) Influence of defined benefit plan obligation
	Increase0.25% Decrease0.25% % (2.17) % 2.25 % 2.16 % (2.10)

The above sensitivity analysis is based on the effects of changes in assumptions single analysis under other assumptions remain unchanged. In practice many changes in assumptions may be moving. Sensitivity analysis and the net defined benefit liability on the balance sheet date are determined by consistent method.

The methods and assumptions used in the preparation of the sensitivity analysis are consistent with those for the prior period.

(b) Defined contribution plan

The Bank allocates 6% of each employee’ s monthly wages to the labour pension personal account at the Bureau of the Labour Insurance in accordance with the provisions of the Labour Pension Act. Under this defined contribution plans, the Bank allocates a fixed amount to the Bureau of the Labour Insurance without additional legal or constructive obligations. Employees based abroad are contributed in accordance with the local government’s regulations.

～ 66 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The pension costs incurred from the contributions to the Bureau of the Labor Insurance amounted to $113,323 and $98,014 for the years ended December 31, 2018 and 2017, respectively.

Present value of defined benefit obligation Less: Fair value of defined benefit plan assets Net defined benefit liability	December 31, 2018 December 31, 2017 $ 870,238 823,108 - - $ 870,238 823,108

The Bank conducted the obligation of time deposit with favorable rate for retired and current employees based on the internal regulation “Saving Deposits for Employees”.

(1) Changes in the present value of defined benefit obligations

Changes in the present value of defined benefit obligations of the Bank for the years ended December 31, 2018 and 2017 were as follows:

Defined benefit obligation on January 1 Interest cost Remeasurements of the net defined benefit liability -current actuarial gains and losses Benefits paid by the plan Defined benefit obligation on December 31	For the years ended December 31 2018 2017 $ 823,108 799,298 31,128 30,214 199,223 172,756 (183,221) (179,160) $ 870,238 823,108

(2) Changes in fair value of defined benefit plan assets

Changes in the fair value of the defined plan assets of the Bank for the years ended December 31, 2018 and 2017 were as follows:

Fair value of plan assets on January 1 Contributions made Benefits paid by the plan Fair value of plan assets on December 31	For the years ended December 31 2018 2017 $ - - 183,221 179,160 (183,221) (179,160) $ - -

(3) Expenses recognized in profit or loss

The expenses recognized in profit or loss of the Bank were as follows :

Net interest on the net defined benefit liability	For the years ended December 31
	2018 2017 $ 230,351 202,970

～ 67 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(4) Actuarial assumption

The material actuarial assumptions used to determine present value of a defined benefit obligation on the reporting date as follow :

Discount rate of employee deposit with favorable rate Rate of return for capital deposited Annual Diminishing rate of account balance Possibility that employee deposit with favorable rate be modified	December 31, 2018 December 31, 2017 % 4.00 % 4.00 % 2.00 % 2.00 % 1.00 % 1.00 % 50.00 % 50.00

(AA) Earnings per share

Net income Weighted average number of common stock shares outstanding (in thousands) (Note 1) Basic earnings per shares (in dollars) Dilutive potential common shares (in thousands) (Note 1,2) Weighted average number of shares outstanding for diluted EPS (in thousands) (Note 1) Diluted earnings per shares (in dollars)	For the years ended December 31,
	2018 2017 $ 7,640,542 5,039,924 6,393,881 6,393,881 $ 1.19 0.79 56,400 33,759 6,450,281 6,427,640 $ 1.18 0.78

Note 1: The basic earnings per share for the year ended December 31, 2017 has applied retrospective adjustments.

Note 2: The shares were calculated based on the stock price on the balance sheet date.

(AB) Employees and directors' remuneration

According by the Bank’s Articles of Incorporation. If there is an annual profit, distributable earnings shall be aside to employees' remuneration from 1% to 6% and no more than 0.6% shall be aside to board of directors as remuneration. But when there are accumulated losses, the Bank shall first remain earning for the deficit.

For the years ended December 31, 2018 and 2017, the estimated employee remuneration were $583,736 and $272,350, and the estimated directors' remuneration were $58,374 and $36,582, the estimates are based on pre-tax net profit for the period, before deducting employee and director's remuneration, multiplied by the elaboration of the Bank's Articles of Association of employee and the directors remuneration ratio, and recognized as operating cost. If the board’s meeting decides to release stock dividends as employee’ s bonuses,the total number of employee bonus stocks to be issued shall be determined by the common stock closing price of the day before the meeting date.

～ 68 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

There is no difference with actual distribution in 2017. The information is available at the Market Observation Post System website.

(AC) Net interest income

Interest revenue:
Loan
Secured loans
Bills negotiated
Bank overdraft
Discount
Time deposit from Central Bank
Due from the Central Bank
Call loans to banks
Bond
International credit card
Overdue loans
Bills
Due from other Banks
Other
Subtotal
Interest expense:
Deposits
Deposits from banks
Call loans from banks
Fund
Financial debentures
Bond sold under repurchase agreement
Imputed deposit interest and rent interest
Other
Subtotal
Total

For the years ended December 31,

2018
2017
$ 7,129,577
5,985,793
14,787,842
14,004,060
8,407
6,802
19,681
21,689
53,987
31,767
840,039
741,016
146,512
145,192
1,189,729
804,894
2,389,890
1,969,780
56,566
58,017
462,029
138,230
92,561
61,499
802,589
566,808
177,446
141,460
28,156,855
24,677,007
9,313,624
7,809,251
32
35
752,941
514,224
2,817
6,843
1,000,882
1,019,985
8,373
4,481
13
13
3,787
2,969
11,082,469
9,357,801
$
17,074,386
15,319,206

～ 69 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(AD) Service fee and commission income

Service charge income:
Remittance service fee
Import bills negotiated service fee
Export bills negotiated service fee
Letter of credit service fee
Certification service fee
Acceptance service fee
Trust service fee
Guarantee service fee
Agency service fee
Interbank service fee
Card service fee
Commission revenue of insurance premium
Custodian service fee
Foreign currency service fee
Commission of futures
Loan service fee
Miscellaneous fees
Subtotal
Service fee expense:
Foreign currency service fee
Interbank service fee
Trust service fee
Agency service fee
IC card service fee
Check clearing service fee
Remittance service fee
Custodian service fee
Call loans service fee
Miscellaneous fees
Subtotal
Total

For the years ended December 31,

2018
2017
$ 92,242
98,636
62,266
62,985
20,612
20,589
11,608
14,822
3,043
3,361
3,008
2,137
466,666
532,922
159,768
158,355
94,217
102,565
64,964
65,351
138,025
135,697
1,241,947
1,248,602
165,568
143,679
102,854
102,554
7,423
5,989
579,224
631,633
129,941
122,845
3,343,376
3,452,722
34,447
30,619
132,635
129,654
2,012
3,248
2,446
2,860
69,856
67,593
10,212
10,733
4,661
3,938
47,478
37,062
3,302
2,922
23,385
25,001
330,434
313,630
$
3,012,942
3,139,092

～ 70 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(AE) Gains (losses) on financial assets and liabilities at fair value through profit or loss-net

Valuation profit and loss:
Corporate bonds
Financial debentures
Stock of listed company
Beneficiary certificates
Commercial paper
Option contracts
Foreign exchange forward contracts
Linked deposits
Currency swap contracts
Subtotal
Disposition profit and loss:
Government bond
Stock of listed company
Beneficiary certificates
Option contracts
Interest swap contracts
Foreign exchange forward contracts
Currency swap contracts
Non-delivery forward contracts
Subtotal
Dividend revenue
Interest income
Total

For the years ended December 31,
2018
2017
$ 3,789
216
44,053
(30,258)
(1,353)
850
(3,970)
150
335
(54)
(632)
(4,309)
(62,276)
(15,834)
(194,422)
-
35,086
(71,263)
(179,390)
(120,502)
240
-
(36,698)
3,057
(40,638)
50,287
5,147
17,136
44,394
2,008
(41,276)
169,121
1,245,294
913,315
-
(1,932)
1,176,463
1,152,992
7,377
534
24,730
3,488
$
1,029,180
1,036,512

(AF) Realized gains on financial assets measured at fair value through other comprehensive income

Gains on disposal of government bond Gains on disposition of corporate bonds Gains on disposal of Financial debentures Dividend revenue Total	For the year ended December 31, 2018
	$ 96,020 2,224 265 276,340 $ 374,849

～ 71 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(AG) Realized (losses) gains on available-for-sale financial assets

		For the year
		ended
		December 31,
		2017
Losses on disposal of government bond	$	(7,703)
Gains on disposition of corporate bonds		24
Losses from disposition of financial debentures		(1,700)
Gains from disposal of beneficiary certificates		30,035
Gains from disposition of stock on listed company		5,512
Dividend revenue		83,585
Total	$	109,753

(AH) (Impairment loss on assets) reversal of impairment loss on assets

Debt instrument measured at fair value through other comprehensive income Debt instrument at amortized cost Total	For the year ended December 31, 2018
	$ (8,363) (19,934) $ (28,297)

(AI) Share of profit (loss) of associates and joint ventures accounted for using equity method

Investment income- Taiwan Business Bank Insurance Agency Co., Ltd. Investment income- Taiwan Business Bank Property Insurance Agency Co., Ltd. Investment income- TBB International Leasing Co., Ltd. Investment income- TBB (Cambodia) Microfinance Institution Plc Investment income- TBB Venture Capital Co., Ltd. Total	For the years ended December 31,
	2018 2017 $ 384,479 346,615 9,422 9,898 22,722 29,148 (28,932) (9,523) (3,239) - $ 384,452 376,138

(AJ) Net other non-interest income

Rental revenue of operating assets Rental expense of operating assets Loss on disposal and retirement of premises and equipment Loss of account error Gold deposit book Other operating expense Other miscellaneous income Total	For the years ended December 31,
	2018 2017 $ 12,622 12,670 (1,836) (1,856) (1,155) (1,972) (137) (133) 3,392 2,873 (37,432) (153,667) 123,889 23,506 $ 99,343 (118,579)

～ 72 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(AK) Bad debt expenses and guarantee liability provisions

Discounts, loans and overdue loans Call loans to banks Receivables and other financial assets Subtotal Provision for guarantee liabilities Provision for financing commitment Total	For the years ended December 31,
	2018 2017 $ 704,605 3,549,074 9,449 996 (53,631) (549,805) 660,423 3,000,265 58,710 9,286 26,637 - $ 745,770 3,009,551

(AL) Employee benefit expenses

Salary expense Labor and health insurance Pension expense Other employee benefit Total	For the years ended December 31,
	2018 2017 $ 6,202,741 5,800,078 441,846 420,982 335,376 328,936 1,196,655 801,798 $ 8,176,618 7,351,794

(AM)Depreciation and amortization expenses

Property and equipment depreciation Amortization Computer software Other deferred charges Total	For the years ended December 31,
	2018 2017 $ 370,604 334,299 98,141 79,324 20 73 $ 468,765 413,696

～ 73 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(AN) Other general and administrative management expenses

Compensation loss Water and electricity fee Postage and telecommunication Transportation fee Printing and advertisement fee Maintenance fee Insurance fee Professional service fee Materials and supplies Rental expenses Duties and levies Membership, donation and partaking Storage, packing and processing Cash transit Other Total	For the years ended December 31,
	2018 2017 $ 704 1,329 92,134 91,557 173,983 160,892 44,771 49,874 236,263 229,857 47,339 41,759 372,522 333,474 326,411 244,006 74,239 137,578 715,818 736,135 1,330,640 1,247,845 525,054 530,057 60,351 49,597 94,094 99,296 74,677 66,947 $ 4,169,000 4,020,203

(AO) Financial Instruments

(a) Fair value information
(1) General description

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The financial instruments are record as fair value when original recognizing, usually refer to the transaction price in many circumstances. Except some amortized cost financial instruments, the financial instruments are measured in fair value. A quoted market price in an active market provides the most reliable evidence of fair value. If financial instruments are without active market, the Bank adopted the value technique, refer to Bloomberg, Reuters or the price at which the asset could be bought or sold in a current transaction between willing parties.

～ 74 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(2) The definition of fair value hierarchy

A. First tier

The input of this tier is quoted prices in active markets for identical financial instruments. The active market is a market in which transactions for the homogenous assets or liabilities take place with sufficient frequency and volume to provide pricing information. The stock of listed company and the beneficiary certificates, government bonds and the derivative financial instruments with public quote inactive market processed by the Bank belong to the First tier.

B. Second tier

The input of this tier are other than quoted market prices included within First tier that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e. derived from prices). The government bonds with lower trade volume, corporate bonds, financial debentures, convertible corporate bonds and derivative instruments, including financial debentures the Bank issued are belong to second tier.

C. Third tier

The input are unobservable for the asset or liability in market or counterparty prices. Unobservable inputs like: Option pricing model using the historical volatility. Because the historical volatility cannot represent the future volatility expected value of whole market participants. The input parameter used to measure the fair value of this tier is not based on data that can be obtained in the market but using a combination of complex market prices to estimate their values. The assets have been categorized as a third tier 3, due to their fair market value cannot be directly calculated. The equity instruments with no active market which the Bank invested are third tier.

～ 75 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(3) Based on fair value measurement
A. The fair value hierarchy of information

The financial instruments which are record as fair value measure on an recurring basis, the fair value hierarchy of information were as follows:

Assets and Liabilities		December 31, 2018	December 31, 2018
	Total $ 48,910 4,648,297 1,909,707 7,712,641 65,408,058 43,502 9,162,841 $ 327,690 176,432	1st Tier 48,910 17,080 - 3,500,614 53,643,189 43,502 - - -	2nd Tier 3nd Tier - - 4,581,217 50,000 1,909,707 - - 4,212,027 11,764,869 - - - 9,162,841 - 327,690 - 176,432 -
Instruments measured at fair value on a recurring basis
Non-derivative financial assets and liabilities:
Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss, mandatorily measured at fair value Security Investment Other Financial assets designated at fair value through profit or loss Financial assets measured at fair value through other comprehensive income Security Investment Bond Investment Other Financial liabilities at fair value through profit or loss Financial liabilities designated at fair value through profit or loss Derivative financial assets and liabilities
Assets: Financial assets at fair value through profit or loss Liabilities: Financial liabilities at fair value through profit or loss

～ 76 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Assets and Liabilities Total Instruments measured at fair value on a recurring basis Non derivative financial assets and liabilities: Financial assets at fair value through profit or loss Financial assets held for trading Other $ 509,609 Financial assets designated at fair value through profit or loss on initial recognition 237,652 Available-for-sale financial assets Security Investment 2,625,558 Bond Investment 63,608,278 Financial liabilities at fair value through profit or loss Financial liabilities designated at fair value through profit or loss on initial recognition 3,565,337 Derivative financial assets and liabilities Assets: Financial assets at fair value through profit or loss $ 314,528 Liabilities: Financial liabilities at fair value through profit or loss 167,144	December	31, 2017
	1st Tier 10,150 - 2,625,558 56,161,047 - 454 -	2nd Tier 3nd Tier 499,459 - 237,652 - - - 7,447,231 - 3,565,337 - 314,074 - 167,144 -

～ 77 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Valuation techniques used in estimating the fair values of financial instruments

If the financial instruments has quoted price in an active market, the quoted price is regarded as its fair value.

If the financial instruments of quoted price, which are from the Stock Exchange, Brokers, Pricing service agencies or Government institutions, are timely and frequently, and reflects the actual price, then the financial instruments has a quoted price in an active market. If the above conditions are not fulfilled, the market is inactive.

Except for the above financial instruments of quoted price in an active market, there is no quoted price in an active market for the financial asset, its fair value is estimated on the basis of the result of a valuation technique that refers to quoted prices considered the identical financial instrument with same characteristics and essential terms of transaction, Discounted-Cash-Flow model and other valuation techniques including the model using market information to be made of the calculation at the balance sheet date(eg Taipei Exchange reference yield curve, Reuters quoted the average commercial paper rate, the Taipei Financial industry call loan rate fixing TAIBOR).

The financial asset's fair value is estimated on the basis of the result of a valuation technique, the Bank adopted that refers to quoted prices provided by financial institutions. Ask (bid) is used to evaluate the selling (buying) position by the Bank if the quoted price include ask and bid price. If there is not a quoted price for the financial asset, transaction price close to the balance sheet date is the fair value.

Fair value of financial derivatives are the amount of cash to be paid or to be received by the Bank, assuming that the contract will be terminated on the balance sheet date. The Bank adopts mark-to-model prices which are usually adopted among the banking industry, such as Discounted-Cash-Flow model and Black-Scholes model. The Bank adopts the price data from Reuters and Bloomberg to calculate the fair value of the holding position. The aforesaid price data is based upon the middle price and used consistently by the Bank. Furthermore, the fair value of the embedded financial derivatives are calculated based upon the quote from the counterparty, and separately calculated in accordance with the contracts.

～ 78 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. Adjustment for fair value
a. The restraint of evaluation model and uncertain inputs

The estimates of output-based value using the evaluation model, which may not reflect the Bank's all related factors. Therefore the estimated value of the evaluation model will be appropriately adjusted according to the extra parameters such as model risk or liquidity risk. Information and price parameters used in the evaluation process after careful assessment, and appropriately adjusted according to the current market situation.

b. Credit risk value adjustment

The Bank credit risk value adjustment of OTC transaction derivative instruments can be divided to Credit value adjustments (CVA) and debit value adjustments (DVA). To reflect the fair value of the counterparty or the default, and the Bank may not be received or paid full market value of trading possibilities.

The Bank would calculate credit valuation adjustment (CVA) by assessing probability of default (PD) and loss given default (LGD) of the counterparty before multiplying exposure at default (EAD) of the counterparty. On the contrary, debit valuation adjustment (DVA).

The Bank assess the probability of default on the assumption of 60%, but at the risk of the nature and circumstances of available data, we may use other loss given default assumptions.

D. Transfers between first tier and second tier

There were no transfers between second tier and first tier for the years ended December 31, 2018 and 2017.

E. Changes in financial assets which were classified to third tier based on fair value measurement

Changes of financial assets categorized in the third tier

Name		Fo	Fo	r the years ended	December 31, 2	018
	Beginning balance	Valuation profit and loss		Incr	ease	Decr	ease Transfer out of third tier Ending balance - 50,000 - 4,212,027
		Recognized in profit or loss	Recognized in other comprehensive income	Purchase or issue	Transfer in of third tier	Sale Disposition or Settlement
Financial assets at fair value through profit or loss Equity instruments measured at fair value through other comprehensive income (note)	$ - 4,416,710	- -	- (65,522)	50,000 38,139	- -	- 177,300

～ 79 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Note: The equity instruments amounted to $4,416,710 previously classified as other financial assets earned at cost were switched from IAS39 to IFRS 9.

F. Profit and loss information of third tier

Current gain (loss) and other comprehensive income of holding assets are as follow:

Realized on other comprehensive income (reported as unrealized gain (loss) from investments instruments measured at fair value through other comprehensive income)	For the year ended December 31, 2018 $ (65,522)

G. Quantified information of the fair value measurement of significant unobservable inputs (the third tier)

The financial instruments categorized in the third tier are most FVOCI. The quantified information of significant unobservable inputs regarding the fair value measurement as follow:

December 31, 2018

Financial asset at fair value through other comprehensive income Stock of non- listed company	fair value $ 4,212,027	valuation methods significant unobservable inputs inter- relationship between significant unobservable inputs and fair value measurement market approach assets approach liquidity discount The higher market liquidity discount ,the lower fair value. income approach sustainable growth rate and cost of equity The higher sustainable growth rate, the higher fair value. The higher growth rate of cost of equity, the lower fair value.

～ 80 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

H. Sensitivity analysis of reasonably possible alternative assumptions for fair value measurement in third tier.

Valuation techniques used by the Bank for fair value measurements of financial instruments are appropriate. However, the use of different valuation models or inputs could lead to different outcomes of fair value measurements. The following are the impact on the other comprehensive profit and loss if using different assumptions:

a. Asset approach/ Market approach

The evaluation methods of the third tier financial instruments of the Bank are mainly based on the market approach or the asset approach. If the liquidity discount changes by 5% upwards or downwards, the impact on the other comprehensive profit and loss is as follows:

December 31, 2018 Financial assets at fair value through other comprehensive income Unlisted and non-OTC stocks	the effects of changes in fair value to other comprehensive income Favorable changes(-5%) Unfavorable changes(5%) $ 240,675 (240,675)

b. Income approach

Adopting the income approach to evaluate the third tier financial instruments of the Bank. The evaluation parameters are divided into sustainable growth rate and cost of equity capital. The effects of the two evaluation parameters on the other comprehensive profit and loss are as follows:

1) sustainable growth rate

		the effects of changes	in fair value to
		other comprehensive income
		Favorable	Unfavorable
		changes(0.3%)	changes(-0.3%)
December 31, 2018
Financial assets at fair value through other
comprehensive income
Unlisted and non-OTC stocks	$	8,464	(7,720)

～ 81 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

2) cost of equity

		the effects of changes	in fair value to
		other comprehensive income
		Favorable	Unfavorable
		changes(-3%)	changes(3%)
December 31, 2018
Financial assets at fair value through other
comprehensive income
Unlisted and non-OTC stocks	$	196,452	(64,402)

The favorable and unfavorable effects represent the changes in fair value, and fair value is based on a variety of unobservable inputs calculated using a valuation technique. The analysis above only reflects the effects of changes in a single input, and it does not include the interrelationships with another input.

(4) Not based on fair value measurement

A. Fair value information

The following chart presents the financial instruments not based on fair value measurement of the Bank. Except those items, others' fair value are reasonably approximate value, the Bank does not disclosure their fair value.

Investment in debt instruments at amortized cost Held-to-maturity financial assets`－`net	December 31, 2018 Book value Fair value $ 261,470,496 261,756,260 December 31, 2017 Book value Fair value $ 202,967,083 203,113,313

B. The fair value hierarchy of information

Assets and Liabilities		December 31, 2018	December 31, 2018
	Total $ 261,756,260	1st Tier 54,658,948 December	2nd Tier 3rd Tier 207,097,312 - 31, 2017
Investment in debt instruments at amortized cost Assets and Liabilities
	Total $ 203,113,313	1st Tier 49,314,727	2nd Tier 3rd Tier 153,798,586 -
Held-to -maturity financial assets-net

～ 82 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. Valuation techniques

Methods and assumptions used by the Bank for evaluation of financial instruments not measured by fair value were as follows:

a. Cash and cash equivalents, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, non-accrual loans transferred from non-loan financial assets, exchange bills negotiated guarantee deposits paid, temporary payments and suspense accounts, proceeds of settlement and credit transaction, deposits from Central Bank and other banks, securities sold under repurchase agreements, payables, other financial liabilities , guarantee deposits received and temporary receipts and suspense accounts: since these instruments have short maturities, the book value is adopted as a reasonable basis in estimating the fair value.
b. Discounts and loans(including non-performing loans): the interest rate of bank loans, dependent on the benchmark interest rate which plus or minus the input value(i.e. motorized interest rate), said market rates, therefore, the book value of financial assets is equivalent to their fair value. Among the case of fixed interest rate, the estimated fair value of long-term loans using the discounted value of its expected cash flows, but this is minority, so the book value of financial assets is equivalent to their fair value.
c. Investment in debt instruments at amortized cost (applicable from January 1, 2018) and hold-to-maturity financial assets (applicable before the year ended December 31, 2017): the quoted price is regarded as its fair value. If there is no quoted price in an active market for the financial asset, its fair value is estimated on the basis of the result of a valuation technique.
1) Central Government Securities (NTD): using the comment of “Bonds a fair price for each of times” from Taipei Exchange.
2) Corporate bonds and financial bonds (NTD): the present value or fair price of Taipei Exchange determined using the future cash flow of yield curve discounting evaluation.
d. Deposits and remittance: to determine the fair value, considered Banking industry characteristics, the market interest rates (i.e. market price) is the fair value. And deposits are mostly due within one year, the carrying amounts is the fair value of reasonable basis. The fixed interest rate of long-term deposits should be estimated by the discounted value of its expected cash flows at fair value, and its maturity date no longer than three years, so its estimated fair value of the carrying amount is considered reasonable.

～ 83 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

e. Bank debentures payable: The bank debentures payable, issued by the Bank, whose stated rate was equal the effective rate, using discounted cash flow projections to estimate the fair value, equivalent to its book value.
f. Other financial assets– debt investment without active market (applicable before the year ended December 31, 2017): If there is some dealing price, using the price to evaluate the fair value. If there is not market value, using evaluation model to estimate the fair value.
g. Other financial assets– the financial assets using cost method (applicable before the year ended December 31, 2017): Because there is without active price and estimated fair value's variation material or the variation estimates cannot be reasonable assessment, the fair value cannot be reliably measured, the Bank does not disclose their fair value.

(AP) Financial Risk Information

(a) General description

The goal of the financial risk management of the Bank is to effectively diversify, transfer and avoid risks by taking customer service, financial business operating target, overall risk tolerance and external limitation of laws into consideration and provide benefit to customers, shareholders and employees.

The Bank's Financial Risk Management policy is to establish a risk management mechanism in terms of risk identification, risk measurement, risk monitoring, and risk control and to construct the overall risk management system. It is to facilitate the business model with appropriate risk management and to control the rationality between risks and rewards under the premise of legal capital ratio in order to achieve operating targets and increase the value of the Bank for the shareholders. The scope covers the management of credit risk, market risk, operation risk, banking book interest rate risk, capital liquidity risk, and capital adequacy.

～ 84 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(b) Risk management organization structure

==> picture [358 x 288] intentionally omitted <==

----- Start of picture text -----

Board of directors
President
Risk Management Committee
General manager
Assets and Liabilities Management
Committee
Vice president
Credit Examination Committee
Overdue Loans Clearing Committee
Risk management center
----- End of picture text -----

(1) Risk Management Committee

The chairperson of the Risk Management Committee is appointed by the president. The chairpersons include general manager, deputy general manager of the nonregulatory compliance in head office and department directors of head office (excluding the director of audit department in the Board). This Committee is set up for the purpose of establishing a sound risk management system, strengthening risk management and the implementation of the Bank's risk management and monitoring. The meeting will be held once a month in principle. The meeting can be held by the chairman of the Committee when it necessary. The duties are as follows:

A. Conduct Analysis and response project when significant domestic and foreign economic, financial and industrial risk management occur.
B. Risk management report of various risk exposure and agenda processing.
C. The processing of examination of the risk management relevant policy of the Bank and limitations, management indices and the response project when the risk exceeds the limitations.

～ 85 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

D. Supervise the Bank's capital adequacy management.
E. Conduct or supervise the issues that have to report to Risk Management Committee according to the regulations specified by the competent authority at home and abroad.
F. Conduct or supervise other risk management related issues.

Risk Management Department is the assistant unit of the Risk Management Committee. The responsibility of the Risk Management Department is to execute preparing sittings agenda, convening sittings, agenda processing, taking meeting minutes and tracking resolution and regularly report the important resolution and various risk exposure to the board of (executive) directors.

(2) Assets and Liabilities Management Committee

The chairperson of the Assets and Liabilities Management Committee is the general manager, and the members are formed by the vice assistant general manager and the department heads of deposit, loan, financial transaction, capital deployment and risk management units. The responsibility of the Assets and Liabilities Management Committee is to monitor and manage the banking book interest rate risk and capital liquidity risk and convenes meetings regularly, to approve the analyzing and measurement methods of the capital liquidity risk and banking book interest rate risk exposure, to examine the capital liquidity risk and banking book interest rate risk management policy as well as the relevant limitations and management indices, to receive interest rate risk and capital liquidity risk exposure reports and adjust the assets and liabilities interest rate duration structure and capital maturity structure.

(3) Credit Examination Committee

The convener of the Credit Examination Committee is the assistant general manager supervising Risk Management Center. The Committee in principle convenes weekly to examine the modification and establishment of the regulations (including main points, measures and procedures) for significant loans, foreign exchange and guarantee cases.

(4) Overdue Loans Clearing Committee

The convener of the Overdue Loans Clearing Committee is the supervising vice president and the executive secretary is the manager of the Creditor’ s Right Management Department. The convener holds meetings based on the necessity to clear the non-performing loans and non-accrual loans and bad debts in order to improve the quality of the credit assets of the Bank.

～ 86 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(c) Credit risk
(1) Source and definition of credit risk

Credit risk refers to the default risk resulted from the inability to fulfill the contract obligations due to deteriorating financial status of trade counterparties, pessimistic external economic situation or other factors. The primary source of the credit risk of the Bank is the loan business, such as loans of various terms, guarantees and letters of credit, loan commitments, etc., in addition, other sources of credit risk include call loans from banks, securities investments, derivative financial instrument transactions, etc.

(2) Credit risk management policy

In order to control the credit risk to a tolerable scope, the Bank continuously conduct below operations:

A. Fully understand the credit status and ratings of loan customers and trade counterparties as well as the purposes and payments of loans.
B. Prudently evaluates the credit risk status of loan customers and trade counterparties and consider the adequacy of collaterals and guarantees to assess risk and profit.
C. Establish credit rating mechanism for loan customers or apply the ratings from outside credit rating institutions as the reference for undertaking credit cases or interest rate determination.
D. Modify relevant regulations to control the credit risk to a tolerable extent for the Bank.

～ 87 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The credit risk management procedure and measurement methods of the Bank's major business are as follows:

A. Credit Business (Including loan commitments and guarantees)

The categorization and credit quality rating of credit assets are as follows:

a. Categorization of credit assets

The credit assets are classified into 5 categories. Except for normal credit assets which are classified as the first category, others are classified, based on the assurance status and the time overdue, as second category (need attention), third category (possible to recover), fourth category (difficult to retrieve) and the fifth category (unable to retrieve). In order to manage creditor's rights, the Bank established “ Regulations Governing the Procedures to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” , “ Regulations Governing the Reconciliation of Nonperforming/Non-accrual Loans” and its operating procedure “ Operating procedure Governing the Collection of Non-performing/Non-accrual Loans” and “Code of Conduct to Deal With Non-Performing Loans” to serve as the guidelines for dealing with non-performing credit and overdue loans collection.

b. Categorization of credit quality

Based on historical default data, the Bank established internal credit rating model and completed internal rating system to serve as a reference to credit risk control.

In order to develop an appropriate credit rating model for the Bank to evaluate the credit risk for corporate banking customers and private banking customers, it applied statistical methods, professional expert judgments and relevant customer information to fulfill the requirements. The Bank examined whether the internal credit rating model is in conformity with the actual scenario based on practical default data quarterly and adjusted all parameters to optimize the estimated results.

B. Due from other banks and call loans to banks

The Bank evaluates the credit status of counterparties before transaction and takes the rating information from domestic and foreign credit rating institutions into consideration to determine various credit risk facilities for the counterparties.

～ 88 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. Debt instrument investments and derivative financial instruments

The Bank manages credit risk of debt instruments through credit rating data of external institutions, credit quality of bonds, geographic situations and counterparties’ risk so as to identify credit risk.

The financial institutions which the Bank conducts derivative instruments are mostly investment quality and are controlled based on the trade amount (including loans at call). Counterparties which do not have credit rating or which are of low quality shall be examined individually. For counterparties which are general customers, the Bank controls the credit risk exposure based on the derivative instrument risk facilities and conditions approved by general credit procedures.

(3) Determining the credit risk has increased significantly since initial recognition

At each reporting date, the Bank shall assess the change in the risk of a default occurring over the expected life of the various credit assets and financial assets to determine whether the credit risk has increased significantly since initial recognition. To make that assessment, the Bank considers reasonable and supportable information ( including forward-looking information) that is indicative of significant increases in credit risk since initial recognition. The main considerations include:

A. credit assets
a. The borrowers failed to pay the principal and interest overdue for more than 30 days, less than 90 days;
b. When the Bank conducts review or follow-up review of the relevant management procedures after loan, it knows that the financial report of the borrowers have been issued by the accountant and it has issued opinions of the significant doubt on the ability to continue as a going concern;
c. The deposits and assets of borrowers are compulsorily executed, besides, the deposits are compulsorily executed because of tax arrears. However, the borrowers that have enough deposit to bear the cost that assessed by the Bank are except;
d. The Bank knows (if it has received the notice from court) that the collaterals are compulsory executed by other bank;
e. Borrowers were notified the refund by the Bank and did not conduct refund notice;

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

  - f. The letter of credit insurance fund notice due to the related company's overdue debt in other bank, the creditor to stop the delivery;

  - g. Because the borrowers have been involved in litigation and unfavorable judgments, their ability of credit performance is affected;

  - h. The customer is classified as an early warning account by the Bank or has bad credit that aware by others.

B. Debt instrument investments
- a. The latest credit rating on the report date was non-investment grade and fell more than two levels than the original rating, or;
- b. Investment target evaluation loss is up to 30% of investment cost.
(4) The credit risk has not increased significantly or judged as low credit risk on the report date

On each report date, the Bank assessed that there was no significant increase in the risk of default for any credit asset during the expected duration of existence or a low credit risk. The amount of expected credit losses was not taken as the change of credit risk, if the credit risk of the credit asset was low on the report date, It also assumes that the credit risk of the credit asset has not increased significantly since the initial recognition. The credit assets with low credit risk refer to the low default risk and the borrower’s ability to perform its contractual cash flow obligations in the near term. No significant increase in risk relates to the borrower. The absence of economic, operational, and adverse changes in financial conditions and other bad debt conditions did not affect their ability to fulfill their contractual cash flow obligations. Financial assets on investment-grade or not on investment-grade but the ratings are not significantly reduced are also considered to be low-risk areas.

(5) Definitions of default and credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired not only the borrower defaults the loan more than 90 days , it also includes observable data as follows:

A. Credit assets
a. Significant financial difficulty of the issuer or the borrower;
b. A breach of contract, such as a default or past due event ;

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

  - c. The lender(s) of the borrower, for economic or contractual reasons relating to the borrower’ s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

  - d. It is becoming probable that the borrower will enter bankruptcy or other financial reorganization;

  - e. The disappearance of an active market for that financial asset because of financial difficulties;

  - f. The purchase or origination of a financial asset at a considerable amount of discount that reflects the incurred credit losses;

B. Debt instrument investments
- a. Significant financial difficulty of the issuer;
- b. The disappearance of an active market for that financial asset because of financial difficulties;
- c. The purchase or origination of a financial asset at a considerable amount of discount that reflects the incurred credit losses.
- d. Counterparty defaulting on agreement of other financial instruments (e.g. transactions settlement failure, a bank decide to execute early termination of transactions, or loans originated from derivatives settlement failure).
(6) Write-off policy

The integral part or the portion of the credit assets that needs to be written-off should first be approved during the board of directors’ meeting; particularly, the portion that is deemed uncollectible.

The following are indicators that the financial assets are uncollectible:

A. The borrowers fail to recover all or part of the debt due to dissolution, escape, settlement, bankruptcy or other reasons.
B. After the collateral and the assets of the principal and subordinate debtors have been priced low or deducted from the first-order mortgage, they cannot be repaid, the execution costs are close or may exceed the Bank’s reimbursable amount, and the implementation is not beneficial.
C. The collateral and the property of the principal and subordinate debtors were auctioned off at no cost and were not bought by anyone, and there was no one have substantial benefits.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

D. Overdue loan and non-accrual loan have exceeded the liquidation period for two years.

The bank's written-off claims may still have ongoing recourse and continue to follow laws and regulations to pursue the proceedings.

(7) Modification of contractual cash flow of financial assets

The Bank may revise the contractual cash flow of the credit asset due to the borrower's financial difficulties in negotiating, increasing the recovery rate of the borrowers that have problems, or maintaining the customer relationship. The modification of the contractual terms of the credit asset may include extending the contract period, modifying the payment time of interest, and modifying agreement rate and so on. If the contractual cash flow modification of the credit asset is due to the financial difficulty of the borrower, it is deemed as a impairment of the financial asset. If the contractual cash flow modification is not due to the financial difficulties of the borrower, the existing or projected unfavorable changes in the operating, financial or economic conditions under the borrower's performance or the borrower's ability to make the borrower's ability to perform its debt obligations vary significantly. The cause of anomalies or other bad debts is supplemented by an assessment of whether the credit risk of financial assets has increased significantly.

(8) Measuring the expected credit losses
A. Adoption of methods and assumptions

After considering the attributes of financial assets and credit assets and the adequacy of default experience, internal historical data or the information from external credit rating agency is used to estimate the Probability of default (PD), Loss given default (LGD) , Exposure at default (EAD) and other credit risk components.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

In order to assess the expected credit losses of credit assets, the Bank are divided into the following combinations depending on the credit risk characteristics such as the identity of borrowers, products, and type of collateral:

In order to assess divided into the characteristics such	the expected credit losses of credit assets, the Bank are following combinations depending on the credit risk as the identity of borrowers, products, and type of collateral:	the expected credit losses of credit assets, the Bank are following combinations depending on the credit risk as the identity of borrowers, products, and type of collateral:
Corporate banking	Government and public institution
	Financial institution( including banks, ticket companies, securities finance companies)
	Large Enterprise	The guarantee of the credit guarantee mechanism
		Secured
		Non-secured
	Medium and small enterprises	The guarantee of the credit guarantee mechanism
		Secured
		Non-secured
Private banking	Mortgage
	Microcredit
	Other-Secured
	Other-Non-secured
Entrepreneurship	The guarantee of the credit guarantee mechanism
	Secured
	Non-secured

If the credit risk on a credit asset has not increased significantly since initial recognition or the credit asset has low credit risk at the reporting date, the Bank shall measure the allowance for impairment using the 12-month expected credit losses; if the credit risk on a financial instrument has increased significantly or credit-impaired since initial recognition, the Bank shall measure the allowance for impairment using the lifetime expected credit losses.

In order to measure expected credit losses, the Bank considers the default probability (Probability of default, "PD") of borrowers, and loss given default rate ("LGD") multiplying the exposure at default (“EAD”), taking into account the time value of money as well evaluate 12-month and lifetime loss.

Default probability is the default probability of the borrower (default and credit impairment of financial assets), and the loss given default rate is the rate of loss caused by default by the borrower. The default probability and default loss rate used in the impairment assessment of the credit business are based on internal historical information of each group, and adjusted based on current observable information and forward-looking general economic information.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

The Bank measures the EAD based on the book value of loans at reporting date. When estimating the 12-month and lifetime expected credit losses of the loan commitments and financial guarantee contracts, the definition of the credit risk increasing significantly and the credit-impaired assets are based on the rules mentioned above. Additionally, in order to determine the EAD used to calculate expected credit loss of off-balance sheet items, the Bank adopts the credit conversion factor(CCF) of standardized approach in credit risk which is legislated in the regulation of Proprietary Capital and Risk Capital of Banks.

B. Consideration of forward-looking information

The Bank obtains forward-looking information which it takes into consideration when determining whether the credit risk of financial instruments has increased significantly since initial recognition and assessing the expected credit losses. The Bank identified the relevant macroeconomic factors for credit risk of each portfolio by analyzing the historically data. These macroeconomic factors include Taiwan GDP (not seasonally adjusted), Taiwan's actual industrial production index, Taiwan's annual growth rate of retail sales, Taiwan's real sales price index, unemployment rate (seasonally adjusted), Cathay National Real Estate Index (national), Taiwan's real consumer price index (Not seasonally adjusted) and Taiwan's annual growth in retail sales or other factors. The various economic factors and their impacts on Probability of Default (“PD”) are different depending on the type of financial instruments.

In order to determine the credit risk of investment in debt instruments at amortized cost and at fair value through other comprehensive income has increased significantly, the Bank uses the changes of external ratings published by international credit rating agencies as the quantitative indicators, while the assessment of expected credit losses are calculated by using the external ratings, as well as PD and Loss Given Default(“LGD”), published by Moody’s. Since the international credit rating agencies have already considered the forwardlooking information while evaluating the credit ratings, which the Bank considered to be appropriate after its assessment, the credit ratings will be included in the Bank's assessment of related expected credit losses.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(9) Credit risk hedging or diminishing.
A. Collaterals

The Bank adopts a series of policies and procedures to mitigate credit risk and enhance credit risk tolerance. The method applied most is to request customers to provide collaterals. The Bank established collateral accreditation code of conduct in term of collateral management and total loan amount to regulate the scope of collaterals and the accreditation method and regularly inspects the collaterals. When the collaterals devaluate or the concern of devaluation occurs, the Bank shall increase collaterals or retrieve part of the loans to ensure the creditor’s right is intact.

B. Limit of credit risk and the control of credit risk concentration
a. In order to avoid the situation that the credit risk of single customer being too high, the credit limit of an individual, a related party or a related enterprise shall be in conformity with “ Authorization method for subsection 3 of Article 33 of the Banking Act of the Republic of China” and the credit limit authorization steps are regulated in the Key Points of Credit Engagement Authorization and the Key Points of Credit Engagement Authorization for Overseas Branches of the Bank.
b. To enhance the risk concentration management, the Bank established regulations in terms of countries, financial institutions, industries and group enterprises. The relevant limits are reviewed and approved annually and the usage of the credit is monitored on a daily basis. In addition, the results are reported regularly.
C. General agreement of net amount settlement

The transactions of the Bank are mostly settled with gross amount. Part of the transactions agreed on net amount settlement. When a default occurs, the Bank terminates all the transactions with the counterparty and settles by net amount to further lower credit risk.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

D. Enhancement of other credit

The assessment of credit business apply to credit 5P principles, credit risk is offset by dividing self-liquidating loan commitments as the main, and set the accounts to master the repayment of cash flow. Also in terms of the credit agreement stipulates the offset.(i.e. all kinds of deposits, except prohibition of low or the parties agreement, the Bank can set off all the debts), thus to reduce the loan amount, shorter loan repayment period or are considered part or all of expiration of acceleration clauses. To strengthen the protection of creditor and reduce credit risk, using qualified and effective enhancement, such as the requirement of real property, personal property, demand deposits, time deposits, securities and the guarantee of financial institution or the credit guarantee mechanism approved by government.(e.g., Small & Medium Enterprise Credit Guarantee Fund, Agricultural Credit Guarantee Fund, Overseas Credit Guarantee Fund)

(10)Information on the financial assets of the Bank that have been credit derogated and the collateral for mitigating potential losses are as follows:

				Exposure
		Carrying	Allowance	(measured at	Value of
December 31, 2018		amount	impairment	amortized cost)	collateral
Impairment financial
assets`：`
Receivables
Interest receivable		28,290	8,370	19,920	-
Discounts and loans		16,553,430	4,659,004	11,894,426	15,595,114
Non-accrual loans transferred		105,200	54,231	50,969	-
from non-loan financial
assets
Total impairment financial	$	16,686,920	4,721,605	11,965,315	15,595,114
assets

Note: The value of collateral is the real estate appraisal information and credit guarantee agency guarantee amount levied by the Bank's credit assets.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(11)Credit risk concentration

The Bank do not conduct significant transaction with single customer or single trade counterparty. The total amount of discounts and loans, overdue loans in terms of individual customer or individual trade counterparty is not significant. The information of credit risk concentration of the Bank’ s discounts and loans and overdue loans are divided by industries, geographic areas and collaterals and listed as follows:

A. By industry

Distribution of discounts and loans, overdue loans based on industries.

Industry	December 31,	2018 % % 62.58 % 3.67 % 3.93 % 0.30 % 26.54 % 1.17 % 1.81 % 100.00	December 31, 2017
	Amount $ 680,785,977 39,994,081 42,745,443 3,235,117 288,709,795 12,772,131 19,680,400 $ 1,087,922,944		Amount % 632,336,673 % 56.26 18,230,026 % 1.62 154,558,889 % 13.75 3,404,583 % 0.30 281,987,758 % 25.09 12,030,852 % 1.07 21,426,997 % 1.91 1,123,975,778 % 100.00
Private business Public business Government institution Nonprofit organization Individual Foreign financial institution Foreign non-financial institution Total

B. By geographic area

Distribution of discounts and loans, overdue loans based on geographic area.

Area	December 31,	2018 % % 97.02 % 2.98 % 100.00	December 31, 2017
	Amount $ 1,055,470,413 32,452,531 $ 1,087,922,944		Amount % 1,090,517,929 % 97.02 33,457,849 % 2.98 1,123,975,778 % 100.00
Domestic Foreign Total

C. By collateral

Distribution of discounts and loans, overdue loans based on collateral.

Collateral	December 31,	2018 % % 22.84 % 0.85 % 1.75 % 61.80 % 1.17 % 0.28 % 10.46 % 0.85 % 100.00	December 31, 2017
	Amount $ 248,476,152 9,232,197 19,051,511 672,375,170 12,702,253 3,100,812 113,770,575 9,214,274 $ 1,087,922,944		Amount % 336,350,132 % 29.92 8,941,574 % 0.80 15,024,111 % 1.34 626,803,813 % 55.77 12,456,604 % 1.11 3,834,168 % 0.34 110,879,350 % 9.86 9,686,026 % 0.86 1,123,975,778 % 100.00
Unsecured Stock Bond Real estate Chattel Notes receivable Guarantee Other Total

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Note: Secured credit are categorized in its respective item per the type of the collaterals. Non-secured credit (no collateral provided) is classified in fiduciary credit. If the credit amount is higher than the accreditation value, the credit amount within the accreditation is classified in the respective item, the credit amount exceeds the accreditation value is classified in fiduciary credit. The accreditation value is the value calculated per the accreditation regulations of the Bank, not the discounted value of the signed contract.

(12) Maximum credit risk exposure

A. The maximum credit exposure of the assets in the financial statement is approximately the book value when not considering collaterals or other credit enhancement instruments. The maximum credit exposure off the balance sheet (when not considering collaterals or other credit enhancement instruments and not revocable) was as follows:

Off balance sheet items Loan commitment signed and irrevocable Irrevocable credit card loan commitment Signed but not used L/C credit amount Various guarantee proceeds Total	Maximum credit risk exposure
	December 31, 2018 December 31, 2017 $ 104,313,061 100,285,316 29,329,058 29,541,077 8,830,536 10,243,024 18,362,275 15,067,259 $ 160,834,930 155,136,676

The Management of the Bank evaluated the credit risk exposure and believed that it is able to continuously control and minimize the off-balance-sheet credit risk exposure due to its strict appraisal process and regular subsequent examination.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. The credit quality analyses of the financial assets

a. Credit quality analysis of discounts and loans `、` receivables `、` guarantee and commitments

December 31, 2018	12-month ECL	12-month ECL	12-month ECL	12-month ECL	12-month ECL	12-month ECL	12-month ECL	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－` impaired
	Excellent	Good	Medium	Acceptable	Under standard	No rating	Subtotal	Excellent	Good	Medium	Acceptable	Under standard	No rating	Subtotal	High risk	Allowance impairment	Total
Receivable
Credit card	$ 546,365	130,485	268,846	39,017	8,732	298,288	1,291,733	1,972	613	3,183	1,026	2,080	-	8,874	-	3,439	1,297,168
Acceptances receivable	536,265	431,071	248,116	67,306	-	122,030	1,404,788	-	513	6,578	-	-	-	7,091	-	14,214	1,397,665
Accounts receivable factoring	-	-	-	-	-	566,451	566,451	-	-	-	-	-	-	-	-	5,665	560,786
Other receivables	293,606	470,863	311,620	53,250	9,029	1,926,119	3,064,487	351	491	1,727	1,515	2,404	19	6,507	28,290	45,117	3,054,167
Discounts and loans
Private banking	109,714,063	102,082,939	70,464,120	4,278,416	1,585,150	2,614,256	290,738,944	85,992	110,913	308,885	162,536	229,961	6,195	904,482	3,305,807	3,400,597	291,548,636
Corporate banking	173,049,850	271,957,972	191,589,607	49,334,606	4,071,360	88,236,547	778,239,942	13,919	37,688	172,299	336,415	925,825	-	1,486,146	13,247,623	9,633,554	783,340,157
Other financial assets
Exchange bills	-	-	-	-	-	20	20	-	-	-	-	-	-	-	-	-	20
Non-overdue loans	-	-	-	-	-	-	-	-	-	-	-	-	-	-	105,200	87,249	17,951
Total	$ 284,140,149	375,073,330	262,882,309	53,772,595	5,674,271	93,763,711	1,075,306,365	102,234	150,218	492,672	501,492	1,160,270	6,214	2,413,100	16,686,920	13,189,835	1,081,216,550
Guarantee and commitments	$ 24,354,317	10,928,309	10,963,731	1,610,303	365,707	112,194,037	160,416,404	44,469	18,621	88,434	23,137	47,438	-	222,099	196,427	289,136	160,545,794

b. Debt instrument

December 31, 2018	12-month ECL	12-month ECL	12-month ECL	12-month ECL	12-month ECL	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－`not impaired	Lifetime ECL`－` impaired
	Investment	Sub investment	High risk	No rating	Subtotal	Investment	Sub investment	High risk	No rating	Subtotal	High risk	Total	Accumulated impairment (Note)
Fair value through other comprehensive profit or loss-bonds
Overseas bonds	$ 11,764,869	-	-	-	11,764,869	-	-	-	-	-	-	11,764,869	1,910
NT bonds	53,643,189	-	-	-	53,643,189	-	-	-	-	-	-	53,643,189	31,855
Debts investment of measured at amortized cost
Overseas bonds	41,889,974	-	-	-	41,889,974	-	-	-	-	-	-	41,889,974	18,115
NT bonds	54,151,974	-	-	-	54,151,974	-	-	-	-	-	-	54,151,974	26,126
Certificates of deposit with the Central Bank	165,150,000	-	-	-	165,150,000	-	-	-	-	-	-	165,150,000	48,771
Negotiable certificates of deposit	371,676	-	-	-	371,676	-	-	-	-	-	-	371,676	116
Total	$ 326,971,682	-	-	-	326,971,682	-	-	-	-	-	-	326,971,682	126,893

Note ： The cumulative impairment of the bond which measured at fair value through other comprehensive profit or loss is recognized as other equity.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. The Maximum credit risk exposure for financial instruments are not subject to Impairment regulations are as follows:

December 31, 2018 Financial assets at fair value through profit or loss `－`Linked deposits `－`Debts investments `－`Commercial papers `－`Listed and OTC stocks `－`Beneficiary certificates `－`Derivative instrument	Maximum credit risk exposure $ 1,506,135 403,572 4,581,217 48,910 67,080 327,690	Collateral Enhancement of other credit - - - - - - - - - - 176,599 627,412

(13) Changes in the expected credit losses of the Bank

A. Receivables

Beginning balance Changes in financial instruments that have been identified at the beginning of the period`：` `－`Transfer to 12-months ECL `－`Transfer to lifetime ECL `－`Transfer to the credit- impaired financial assets `－`The financial assets that have been derecognized New financial assets originated or purchased Other changes Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans " Ending balance			For the year end	ed December 31,	2018 Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non- Performing and Non- Accrual Loans" Total 43,792 76,650 - - (160) (20,214) 10,116 2,581 (538) (538) 43,254 68,435
	12-month ECL $ 16,870 139 (1,958) (23) (8,859) 4,890 3,361 - $ 14,420	Lifetime ECL`－`not impaired 416 (114) 2,010 (43) (27) 127 22 - 2,391	Lifetime ECL`－` impaired 15,572 (25) (52) (94) (11,328) 5,099 (802) - 8,370	Impaired (IFRS9) 32,858 - - (160) (20,214) 10,116 2,581 - 25,181

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Discounts and loans

Beginning balance Changes in financial instruments that have been identified at the beginning of the period`：：` `－`Transfer to 12-months ECL `－`Transfer to lifetime ECL `－`Transfer to the credit- impaired financial assets `－`The financial assets that have been derecognized New financial assets originated or purchased Write-off Other changes Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans " Ending balance			For the year end	ed December 31,	2018 Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non- Performing and Non- Accrual Loans" Total 6,469,695 12,103,072 - - - (1,882,852) 2,625,403 (2,596,896) 3,720,765 (935,341) (935,341) 5,534,354 13,034,151
	12-month ECL $ 2,277,834 12,113 (2,330) (15,454) (1,319,687) 1,398,612 - 423,289 - $ 2,774,377	Lifetime ECL`－`not impaired 32,442 (2,007) 12,155 (12,239) (6,169) 4,163 - 38,071 - 66,416	Lifetime ECL`－` impaired 3,323,101 (10,106) (9,825) 27,693 (556,996) 1,222,628 (2,596,896) 3,259,405 - 4,659,004	Impaired (IFRS9) 5,633,377 - - - (1,882,852) 2,625,403 (2,596,896) 3,720,765 - 7,499,797

C. Other financial assets

Beginning balance Changes in financial instruments that have been identified at the beginning of the period`：` `－`Transfer to the credit- impaired financial assets `－`The financial assets that have been derecognized New financial assets originated or purchased Write-off Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans " Ending balance			For the year end	ed December 31,	2018 Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non- Performing and Non- Accrual Loans" Total 33,457 89,125 160 (13) 37,683 (39,267) (439) (439) 33,018 87,249
	12-month ECL $ - - - - - - $ -	Lifetime ECL`－`not impaired - - - - - - -	Lifetime ECL`－` impaired 55,668 160 (13) 37,683 (39,267) - 54,231	Impaired (IFRS9) 55,668 160 (13) 37,683 (39,267) - 54,231

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

D. Guarantee and commitments

Beginning balance Changes in financial instruments that have been identified at the beginning of the period`：` `－`Transfer to 12-months ECL `－`Transfer to lifetime ECL `－`Transfer to the credit- impaired financial assets `－`The financial assets that have been derecognized New financial assets originated or purchased Other changes Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrual Loans " Ending balance			For the years end	ed December 31, 2018 Impaired (IFRS9) Impairment difference of "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non- Performing and Non- Accrual Loans" Total 118,085 85,703 203,788 - - - - - - (26,024) (26,024) 47,521 47,521 (4,500) (4,500) - 68,351 68,351 135,082 154,054 289,136
	12-month ECL $ 80,439 36 (304) (20) (25,702) 46,732 4,960 - $ 106,141	Lifetime ECL`－`not impaired 105 (36) 304 (3) (39) 77 10 - 418	Lifetime ECL`－` impaired 37,541 - - 23 (283) 712 (9,470) - 28,523	Impaired (IFRS9) 118,085 - - - (26,024) 47,521 (4,500) - 135,082

E. Debts investment

Beginning balance Added Derecognition Other changes Ending balance	For	the year ended December 31, 2018 Lifetime ECL `－`not impaired Lifetime ECL `－`impaired Total - - 98,052 - - 84,844 - - (51,475) - - (4,528) - - 126,893
	12-month ECL $ 98,052 84,844 (51,475) (4,528) $ 126,893	Lifetime ECL `－`not impaired - - - - -

(14)Credit quality and overdue impairment loss of financial assets

Part of the financial assets, such as cash and cash equivalent, due from the Central Bank and call loans to banks, financial assets at fair value through profit or loss, bills and bonds purchased under resell agreement, guarantee deposits paid and operation guarantee deposits and settlement funds are considered of minimum credit risk due to the good credit ratings of the trade counterparties.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Except for the abovementioned items, the credit quality analyses of the rest of the financial assets were as follows:

A. Credit quality analysis of discounts and loans as well as receivables

December 31, 2017	Not overdue and not impairment amount	Not overdue and not impairment amount	Not overdue and not impairment amount	Not overdue and not impairment amount	Not overdue and not impairment amount	Not overdue and not impairment amount	Not overdue and not impairment amount	Overdue but not impaired (B)	Impaired amount (C)	Total (A)+(B)+ (C)	Loss provided (D)	Loss provided (D)	Net Amount (A)+(B)+(C)-(D)
	Excellent	Good	Medium	Acceptable	Under standard	No rating	Subtotal (A)				With objective evidence of impairment	Without objective evidence of impairment
Receivable
-Credit card	$ 360,165	257,699	224,566	107,764	7,744	290,598	1,248,536	12,786	-	1,261,322	-	2,906	1,258,416
-Other	646,560	760,170	251,796	1,941	-	3,880,632	5,541,099	-	68,307	5,609,406	38,564	31,724	5,539,118
Discounts and loans	242,043,773	348,959,420	260,885,564	60,456,908	12,037,651	180,421,547	1,104,804,863	5,254,606	13,916,309	1,123,975,778	3,014,849	9,143,164	1,111,817,765
Other financial assets	-	135	-	-	-	-	135	7	208,339	208,481	84,410	1	124,070
Total	$ 243,050,498	349,977,424	261,361,926	60,566,613	12,045,395	184,592,777	1,111,594,633	5,267,399	14,192,955	1,131,054,987	3,137,823	9,177,795	1,118,739,369

The abovementioned “Excellent” refers to the position which belongs to level 1 to level 4 of the Bank’s internal credit rating system, “Good” refers to the position belongs to level 5 to level 9, “Medium” refers to the position belongs to level 10 to level 17, “Acceptable” refers to the position belongs to level 18 to level 23, “under standard” refers to the position belongs to level 24 to level 26 and “No rating” refers to the position which possesses no credit rating in the Bank's internal rating system.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Credit quality analysis based on internal credit rating criteria of the not overdue and not impaired discounts and loans and expressed by customer types

December 31, 2017 Private banking Secured Non-secured Corporate banking Government and public institution Financial institution Margin loans receivable Large Enterprise- credit and guarantee fund Large Enterprise-secured Large Enterprise-unsecured Medium and small enterprises- credit and guarantee fund Medium and small enterprises- secured Medium and small enterprises- unsecured Total	Excellent $ 82,168,276 1,596,472 - 445,200 - 56,423 53,936,174 28,442,656 8,107,965 54,334,619 12,955,988 $ 242,043,773	Good 99,519,055 3,561,134 8,500,026 9,783,651 - 127,688 12,548,765 40,900,796 31,059,909 120,145,035 22,813,361 348,959,420	Medium 72,240,137 5,770,439 - 2,925,696 - 61,838 8,863,437 17,435,848 39,542,324 90,604,804 23,441,041 260,885,564	Acceptable 7,749,168 717,977 9,730,000 1,056,286 - 50,808 781,039 3,561,199 3,893,304 27,324,111 5,593,016 60,456,908	Under standard 3,910,144 259,144 - - - 1,465 1,124,643 - 701,471 4,943,616 1,097,168 12,037,651	No rating Total 949,765 266,536,545 33,840 11,939,006 154,546,400 172,776,426 - 14,210,833 2,341,425 2,341,425 - 298,222 13,400 77,267,458 2,648,212 92,988,711 125,077 83,430,050 6,323,051 303,675,236 13,440,377 79,340,951 180,421,547 1,104,804,863

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. Credit quality analysis of security investments

December 31, 2017 Financial assets at fair value through profit or loss -Overseas bonds Available-for-sale financial assets-net -Overseas bonds -'NT bonds Hold-to-maturity financial assets-net -Overseas bonds -'NT bonds		Not overd	ue and impaired position	ue and impaired position	Subtotal (A) 237,652 7,447,231 56,161,047 29,462,683 49,174,400	Overdue but not impaired position (B) - - - - -	Impairment position (C) - - - - -	Total (A)+(B)+(C) 237,652 7,447,231 56,161,047 29,462,683 49,174,400	Loss Net amount provided (D) (A)+(B)+(C)- (D) - 237,652 - 7,447,231 - 56,161,047 - 29,462,683 - 49,174,400
	Investment $ 148,483 7,447,231 56,161,047 29,462,683 49,174,400	Sub investment - - - - -	High risk - - - - -	No rating 89,169 - - - -

For the investment ratings of above tables, investment grade refers to AAA to BBB-, Sub investment grade refers to BB+ ~B-, high risk refers to CCC+ and below. No rating refers to the bonds not graded by credit rating institution.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(15)Aging analysis of financial assets which are overdue but not impaired

Operation process delay of loan borrowers and other administrative factors may cause financial assets to be overdue but not impaired. According to the internal risk management regulations of the Bank, financial assets overdue within 90 days are not considered impaired unless there are other evidence indicates otherwise.

Account receivables -Credit card Discounts and loans Private banking -Secured -Unsecured Corporate banking -Large enterprise unsecured -Medium and small enterprises- credit and guarantee fund -Medium and small enterprises- secured -Medium and small enterprises- unsecured Other financial assets - Exchange bills negotiated Total		December 31, 2017	December 31, 2017
	within 1 month $ 4,709 1,628,880 77,463 231,579 431,435 1,637,361 329,288 7 $ 4,340,722	1~3 months 8,009 755,624 12,041 - 109,536 41,399 - - 926,609	over 3 months Total 68 12,786 - 2,384,504 - 89,504 - 231,579 - 540,971 - 1,678,760 - 329,288 - 7 68 5,267,399

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(16)Impairment loss analysis of the financial assets

A. Discounts and loans

Item
With objective evidence of impairment
Individual assessment
Collective assessment
Government and public institution
Large enterprise- credit and guarantee fund
Medium and small enterprises-credit and
guarantee fund
Medium and small enterprises-secured
Medium and small enterprises-unsecured
Private banking-secured
Private banking-unsecured
Preliminary negotiation projects
Subtotal
Without objective evidence of impairment
Collective assessment
Government and public institution
Financial institution
Margin loans receivables
Large enterprise- credit and guarantee fund
Large enterprise secured
Large enterprise-unsecured
Medium and small enterprises-credit guarantee
fund
Medium and small enterprises-secured
Medium and small enterprises-unsecured
Private banking-secured
Private banking-unsecured
Subtotal
Total

December 31, 2017

Discounts and loans
Allowance for bad debts
$ 9,175,584
1,526,757
12,489
12,489
677
677
2,110,157
566,066
445,903
379,086
67,484
35,018
1,914,114
393,744
188,400
100,003
1,501
1,009
13,916,309
3,014,849
172,776,426
164,688
14,210,833
13,546
2,341,425
2,232
298,222
17,226
77,267,458
595,852
93,220,290
1,800,673
83,971,021
1,435,548
305,353,996
3,434,854
79,670,239
1,014,982
268,921,049
600,879
12,028,510
62,684
1,110,059,469
9,143,164
$
1,123,975,778
12,158,013

B. Receivables

Item With objective evidence of impairment Individual assessment Collective assessment Subtotal Without objective evidence of impairment Collective assessment Credit card proceeds receivable Accounts receivable Other receivables Acceptances receivable Accounts receivable factoring Interest receivable Subtotal Total	December 31, 2017
	Receivables Allowance for bad debts $ 44,212 29,175 24,095 9,389 68,307 38,564 1,261,322 2,906 143,517 - 246,259 1,745 1,694,044 16,940 512,299 5,123 2,944,980 7,916 6,802,421 34,630 $ 6,870,728 73,194

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. Other financial assets

Item	December 31, 2017
	Other financial assets Allowance for bad debts $ 147,423 1,250 12,081 63,670 48,835 19,490 208,339 84,410 142 1 $ 208,481 84,411
With objective evidence of impairment Individual assessment Collective assessment Guarantee, acceptance and other advances Credit card Subtotal Without objective evidence of impairment Collective assessment Exchange bills negotiated Total

(17)Collateral management policy
A. Collaterals are recognized under the account of other assets per the rules of “Regulations Governing the Preparation of Financial Reports by Public Banks”.
B. Details were as follows:

Collaterals refer to the collaterals provided by clients as guarantee which are undertaken through public auction when the debtor is not able to fulfill its obligation. The collaterals assumed are recognized using the prices undertaken per the rules of “Regulations Governing the Preparation of Financial Reports by Public Banks” and measured by the book value or the fair value deducted by cost of sale, whichever is lower, at the end of the period. Collaterals will be sold when they are available to be sold and the proceeds received will be used to reduce the book amount of collaterals.

(18)Disclosure required under “ Regulations Governing the Preparation of Financial Reports by Public Banks ”
A. Loan quality:

Unit ： In Thousands of New Taiwan Dollars, %

			Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %
Items	Month/Year		December 31, 2018
			Non-performing loans	Total loans	Non-performing loan ratio	Allowance for credit losses	Coverage ratio
Corporate finance	Secured		1,535,013	489,854,376	0.31 %	5,777,173	376.36 %
	Unsecured		507,030	312,809,178	0.16 %	3,856,381	760.58 %
Consumer finance	Residence mortgages(Note 4)		533,982	148,166,073	0.36 %	1,762,103	329.99 %
	Cash cards		-	30	- %	-	- %
	Microcredit(Note 5)		14,358	835,206	1.72 %	17,130	119.31 %
	Others (Note 6)	Secured	686,075	126,434,434	0.54 %	1,496,212	218.08 %
		Unsecured	31,053	9,823,647	0.32 %	125,152	403.03 %
total loan bu	siness		3,307,511	1,087,922,944	0.30 %	13,034,151	394.08 %
			Overdue loans	Total receivables	Overdue ratio	Allowance for doubtful accounts	Ratio of allowance to overdue loans
Credit cards	business		1,701	1,342,892	0.13 %	27,773	1,632.75 %
Account receivable factoring-without recourse (Note 7)			-	566,451	- %	5,665	- %

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Items	Month/Year	Month/Year	December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017
			Non-performing loans	Total loans	Non-performing loan ratio	Allowance for credit losses	Coverage ratio
Corporate finance	Secured		2,210,090	459,502,261	0.48 %	4,883,523	220.96 %
	Unsecured		502,548	386,586,608	0.13 %	4,280,256	851.71 %
Consumer finance	Residence mortgages(Note 4)		559,849	144,878,539	0.39 %	1,543,058	275.62 %
	Cash cards		-	83	- %	-	- %
	Microcredit(Note 5)		15,497	921,674	1.68 %	18,114	116.89 %
	Others (Note 6)	Secured	369,239	121,235,830	0.30 %	1,278,420	346.23 %
		Unsecured	54,400	10,850,783	0.50 %	154,642	284.27 %
total loan bu	siness		3,711,623	1,123,975,778	0.33 %	12,158,013	327.57 %
			Overdue loans	Total receivables	Overdue ratio	Allowance for doubtful accounts	Ratio of allowance to overdue loans
Credit cards	business		1,778	1,310,157	0.14 %	22,396	1,259.62 %
Account receivable factoring-without recourse (Note 7)			-	512,299	- %	5,123	- %

Note 1 Non-performing loans represent the amount of overdue loans as reported in accordance with the "Regulations on the Procedures for Banking Institutions to Evaluate Assets and Deal with Past Due/Nonperforming Loans". The credit card overdue loans represent the amount of overdue loans as reported in accordance with Jin-Kuan-Yin-(4)-Zi No. 0944000378, dated July 6, 2005.
Note 2 Non-performing loan ratio = Non-performing loans÷ total loans; Credit card delinquency ratio = Overdue receivables÷ balance of receivables
Note 3 Coverage ratio for loans = allowance for credit losses ÷ nonperforming loans; Coverage ratio for credit card business = allowance for credit losses ÷ overdue receivables.
Note 4 For residential mortgage loans, a borrower provides his/her (or spouse’ s or minor child’ s) house as collateral in full and pledges it to the financial institution for the purpose of obtaining funds to purchase property and to construct or repair a house.
Note 5 Microcredit loans are defined by Jin-Kuan-Yin-(4)-Zi No. 09440010950, dated December 19, 2005, and do not include credit cards or cash cards.
Note 6 Others in consumer finance are secured and unsecured consumer loans other than residential mortgage loans, cash card loans, and microcredit loans, and do not include credit cards.
Note 7 In accordance with Jin-Kuan-Yin-(5)-Zi No. 0944000494, dated July 19, 2005, the amounts of without-recourse factoring will be classified as overdue receivables within three months from the date that suppliers or insurance companies resolve not to compensate the loss.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Overdue loans and receivables exempted from reporting

Unit : In Thousands of New Taiwan Dollars

December 31, 2018 Loans may be exempted from reporting as a non- performing loan Receivables may be exempted from reporting as overdue receivables Pursuant to a contract under a debt negotiation plan $ 1,305 4,139 Pursuant to a contract under a debt liquidation plan and a debt relief plan 76,801 36,408 Total $ 78,106 40,547	December 31, 2018	December 31, 2018	December 31, 2017
	Loans may be exempted from reporting as a non- performing loan	Receivables may be exempted from reporting as overdue receivables	Loans may be exempted from reporting as a non- performing loan Receivables may be exempted from reporting as overdue receivables 2,016 5,636 83,319 41,422 85,335 47,058
		4,139 36,408 40,547

Note 1: In accordance with Jin-Kuan-Yin-(1)-Zi No. 09510001270, dated April 25, 2006, a bank is required to make supplemental disclosure of credit information which was approved under the debt coordination mechanism of unsecured consumer debts by the Bankers Association of the R.O.C.
Note 2: In accordance with Jin-Kuan-Yin-(1)-Zi No. 09700318940, dated September 15, 2008, a bank is required to make supplemental disclosure of credit information once debtors apply for pre-negotiation, relief and liquidation under the “Consumer Debt Clearance Act.”
C. Concentration of credit extensions

Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %
December 31, 2018
Ranking	Group enterprise	Credit amount	Credit amount to equity ratio (%)
1	A company. (Railway transportation)	26,900,374	% 31.70
2	B group. (Steel rolling and extruding )	8,830,249	% 10.41
3	C group. (Real estate for sale and rental with own or leased property)	8,327,022	% 9.81
4	D group. (Computer manufacturing)	6,796,732	% 8.01
5	E group. (Real estate development)	6,645,072	% 7.83
6	F group. (Other holding companies)	5,918,472	% 6.97
7	G group. (Chemical raw materials manufacturing)	5,379,013	% 6.34
8	H group. (Real estate development)	4,311,031	% 5.08
9	I group. (Real estate for sale and rental with own or leased property)	4,173,592	% 4.92
10	J group. (Steel smelting)	4,153,903	% 4.90

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Unit ： In Thousands of New Taiwan Dollars, %

Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %	Unit`：`In Thousands of New Taiwan Dollars, %
December 31, 2017
Ranking	Group enterprise	Credit amount	Credit amount to equity ratio (%)
1	A company. (Railway transportation)	27,877,573	% 36.77
2	B group. (Steel rolling and extruding)	8,677,737	% 11.45
3	C group. (Real estate for sale and rental with own or leased property)	7,457,330	% 9.84
4	E group. (Real estate development)	6,659,072	% 8.78
5	K group. (Integrated circuits manufacturing)	6,000,000	% 7.91
6	G group. (Chemical raw materials manufacturing)	5,750,724	% 7.58
7	D group. (Computer manufacturing)	4,990,052	% 6.58
8	J group. (Steel smelting)	4,989,104	% 6.58
9	F group. (Other holding companies)	4,349,153	% 5.74
10	I group. (Real estate for sale and rental with own or leased property)	3,904,010	% 5.15

Note 1 The top ten enterprise groups other than government or stated-owned enterprises are ranked according to their total outstanding credit amount. If the borrowers belong to an enterprise group, the aggregate credit balance of the enterprise should be calculated and disclosed as a code number for each such borrower together with an indication of the borrowers’ line of business. In addition, if the borrowers are enterprise groups, the enterprise group’ s industry sector with the maximum exposure to credit risk in its main industry sector should be disclosed, along with the “class” of the industry, in compliance with the Standard Industrial Classification System of the R.O.C. posted by the Directorate-General of Budget, Accounting and Statistics, Executive Yuan, R.O.C.
Note 2 Enterprise group is as defined in Article 6 of the “ Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings”.
Note 3 Consists of loans (foreign currency imports financing, foreign currency export financing, notes discounted, customer overdrafts, short-term unsecured loans, short-term secured loans, receivables from securities lending, medium-term unsecured loans, medium-term secured loans, long-term unsecured loans, long-term secured loans, non-performing loans), foreign currency long positions, accounts receivable factoringwithout recourse, bankers' acceptance receivable, guarantees receivable.
Note 4 In the calculation of Credit amount to equity ratio, the domestic bank should be calculated in the net value of head office. The Foreign bank should be calculated in the net value of Taiwan branch.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(d) Liquidity risk
(1) The origin and definition of liquidity risk

Liquidity risk refers to the potential financial loss results from the inability to liquidate assets or obtain finance to fulfill the financial obligation which is going to mature with sufficient fund, such as early rescind of time deposits, the channels and terms to call loan from other bank are deteriorated due to the influence of specific markets and the default of loan customers worsen and it is harder for the Bank to receive payments and liquidate financial instruments. The abovementioned situations may diminish the source of cash for the Bank to undertake loan business, trades and investment activities. Under some extreme circumstances, the lack of liquidity may increase the potential possibility of reduction of the overall position of financial statement, sale of assets and inability to fulfill loan obligation. Liquidity risk is an inherent risk of bank operations and is influenced by specific or overall events in various markets. Those events include but not limited to: Credit event, merger or buyout, systematic strike and natural disaster.

(2) The management policy, process and measurement of liquidity risk
A. Policy
- a. In accordance with the target and limit for liquidity risk management approved by the board of directors and monitor all liquidity risk positions.
- b. Established “Directions Governing the Capital Liquidity Risk Management of Taiwan Business Bank” and “Remarks Governing the Capital Liquidity Risk Management of Taiwan Business Bank” to serve as guidance to effectively control capital liquidity risk.
- c. Overseas branches shall regulate the code of conduct for liquidity risk management based on business characteristics and the regulations of local authorities. After being approved by the general manager, the Risk Management Department will be in charge of monitoring liquidity risk.
B. Process
- a. Finance Department is in charge of daily capital deployment to ensure that the capital is sufficient to cope with various demands for capital.
- b. Risk Management Department is in charge of the identification, measurement, supervision and control of capital liquidity risk to establish a firm operation process and structure.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

  - c. Risk Management Department reports the result of capital liquidity risk measurement to the Assets and Liabilities Management Committee on a monthly basis and reports the results of capital liquidity risk and pressure test to the board of directors quarterly.

C. Measurement
- a. Maturity gap: To place the inflows and outflows of capital into various time zones accordingly based on the remaining days to maturity and calculate the gap of capital of each time zone in order to measure the capital deficiency of each time zone.
- b. Loan-deposit ratio: To calculate the deposits the Bank received which are used to conduct loan business. In other words, the percentage of the total loan amount accounts for the total deposit amount.
- c. Capital concentration and stability: In order to prevent the Bank from overrelying on single trade counterparty, product or market, the Bank observes several aspects such as the changes in large time deposit customers, the percentage of demand deposits and the continuity of deposits.
- d. Pressure test: Except for monitoring the capital demand under normal circumstances, the Bank conducts pressure test regularly in order to evaluate the capital liquidity under abnormal circumstances and ensure that the Bank is equipped with sufficient capital.
(3) Financial assets possessed for managing liquidity risk and maturity analysis for nonderivative financial liability
A. Financial assets possessed for managing liquidity risk

The Bank possesses cash and other high liquidity interest yielding assets to cope with payment obligations and potential emergent capital demands in the market. The assets possessed for managing liquidity risk include cash and cash equivalent, due from the Central Bank and call loans to banks, financial assets at fair value through profit or loss, discounts and loans, financial assets at fair value through other comprehensive income (available-for-sale financial assets are applicable before the year ended December 31, 2017), Investment in debt instruments at amortized cost( held-to-maturity financial assets are applicable before the year ended December 31, 2017)

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Maturity analysis for non-derivative financial liabilities

The table below shows the cash outflows from the non-derivative financial liabilities which are possessed by the Bank based on the remaining days from the financial statement date to the contract maturity date. The amount disclosed is based on the cash flows of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the financial statement.

Major matured cash outflow Deposits from the Central Bank and banks Overdrafts on banks Call loans from the Central Bank and banks Financial liabilities designated at fair value through profit or loss Securities sold under repurchase agreement Interest payable Deposits transferred from Chunghwa Post Co., Ltd. Demand deposits Time deposits Remittance Financial debentures Appropriated loan fund Major matured cash outflow Deposits from the Central Bank and banks Overdrafts on banks Call loans from the Central Bank and banks Financial liabilities designated at fair value through profit or loss Securities sold under repurchase agreement Interest payable Deposits transferred from Chunghwa Post Co., Ltd. Demand deposits Time deposits Remittance Financial debentures Appropriated loan fund			December 31, 2018	December 31, 2018
	0-30 days $ 831,101,452 316,275 812,952 22,460,469 - 369,337 325,088 7,500,000 695,036,776 103,697,596 573,379 - 9,580	31-90 days 182,312,031 - - 11,591,288 - 626,644 638,988 15,108,258 - 154,339,193 - - 7,660	91 days-1 year 1-5 years 357,707,996 75,490,416 - - - - 307,350 - - - 661,725 - 1,155,732 63,348 33,217,951 - - - 322,145,818 36,124,148 - - - 36,400,000 219,420 2,902,920 December 31, 2017		Over 5 years Total 24,580,641 1,471,192,536 - 316,275 - 812,952 - 34,359,107 9,162,841 9,162,841 - 1,657,706 51 2,183,207 - 55,826,209 - 695,036,776 20,635 616,327,390 - 573,379 11,050,000 47,450,000 4,347,114 7,486,694
	0-30 days $ 842,561,385 404,736 1,680,993 24,404,249 - 211,737 345,792 7,647,014 713,443,368 93,815,333 602,413 - 5,750	31-90 days 172,478,804 - - 8,488,697 - 236,468 389,195 20,136,389 - 143,225,385 - - 2,670	91 days-1 year 362,847,204 - - 1,781,877 - 657,391 902,517 28,985,815 - 330,137,774 - - 381,830	1-5 years 67,392,259 - - - - - 65,169 - - 35,437,090 - 28,000,000 3,890,000	Over 5 years Total 22,385,238 1,467,664,890 - 404,736 - 1,680,993 - 34,674,823 3,565,337 3,565,337 - 1,105,596 28 1,702,701 - 56,769,218 - 713,443,368 9,988 602,625,570 - 602,413 13,000,000 41,000,000 5,809,885 10,090,135

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(4) Derivative financial liabilities maturity analysis
A. Derivative financial instruments settled by net amount

The derivative instruments of the Bank’s possession are settled by net amount include foreign derivative instruments, such as non-delivery forward contracts, foreign exchange options settled by net amount. After evaluation the Bank concluded that the maturity date is the basic element to comprehend all the derivative financial instruments listed in the financial statement. The amount disclosed is based on the cash flows of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the financial statement.

The maturity analysis of derivative financial liabilities settled by net amount is as follows:

Derivative financial liabilities at fair value through profit or loss Foreign exchange derivative instrument			December 31, 2017	December 31, 2017
	0-30 days $ -	31-90 days -	91-180 days 1,240	181 days to 1 year 1,140	Over 1 year Total - 2,380

B. Derivative financial instruments settled by gross amount

The derivative instruments of the Bank’s possession settled by gross amount include the following:

a. Foreign exchange derivative financial instrument: Foreign exchange options settled by gross amount, foreign exchange forward contracts and currency swap contracts.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

b. Interest rate derivative financial instruments: interest rate swap contracts.

The table below shows the derivative financial instruments of the Bank’s possession are settled by gross amount based on the remaining days from the financial statement date to the contract maturity date. The amount disclosed is based on the cash flow of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the financial statement. The maturity analysis for derivative financial liabilities settled by gross amount is as follows:

December 31, 2018 Derivative financial instruments at fair value through profit or loss Foreign exchange derivative instrument Cash outflow Cash inflow Total cash outflow Total cash inflow Net cash flow December 31, 2017 Derivative financial instruments at fair value through profit or loss Foreign exchange derivative instrument Cash outflow Cash inflow Total cash outflow Total cash inflow Net cash flow	0-30 days $ 26,416,112 26,087,200 26,416,112 26,087,200 $ 328,912 0-30 days $ 59,440,726 58,097,696 59,440,726 58,097,696 $ 1,343,030	31-90 days 36,190,587 36,209,231 36,190,587 36,209,231 (18,644) 31-90 days 20,530,843 20,442,073 20,530,843 20,442,073 88,770	91-180 days 2,891,375 2,865,909 2,891,375 2,865,909 25,466 91-180 days 5,330,127 5,346,372 5,330,127 5,346,372 (16,245)	181 days to 1 year 3,868,099 3,781,737 3,868,099 3,781,737 86,362 181 days to 1 year 4,499,139 4,451,488 4,499,139 4,451,488 47,651	Over 1 year Total - 69,366,173 - 68,944,077 - 69,366,173 - 68,944,077 - 422,096 Over 1 year Total - 89,800,835 - 88,337,629 - 89,800,835 - 88,337,629 - 1,463,206

(5) Maturity analysis of off balance sheet items

The table below shows the maturity analysis of the off-balance-sheet items of the Bank based on the remaining days from the financial statement date to the contract maturity date. For the financial guarantee contracts issued, the maximum amount of the guarantee is listed in the earliest time zone that the guarantee may be executed. The amount disclosed is based on the cash flows of the contracts and thus part of the amount disclosed may not correspond to the amount disclosed in the financial statement.

December 31, 2018 Issued and irrevocable loan commitment Irrevocable credit card loan commitment Issued but not yet executed letter of credit Miscellaneous guarantee Total	0-30 days $ 156,603 3,491 3,100,804 18,362,275 $ 21,623,173		31-90 days 5,403,482 8,674 4,493,508 - 9,905,664	91-180 days 40,354,160 15,695 754,936 - 41,124,791	181 days to 1 year 11,521,819 59,713 431,297 - 12,012,829	Over 1 year Total 46,876,997 104,313,061 29,241,485 29,329,058 49,991 8,830,536 - 18,362,275 76,168,473 160,834,930

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

December 31, 2017 Issued and irrevocable loan commitment Irrevocable credit card loan commitment Issued but not yet executed letter of credit Miscellaneous guarantee Total	0-30 days $ 224,055 3,098 3,662,841 15,067,259 $ 18,957,253		31-90 days		91-180 days		181 days to 1 year		Over 1 year Total 65,159,278 100,285,316 29,047,440 29,541,077 278,505 10,243,024 - 15,067,259 94,485,223 155,136,676
			1,095,821 234,098 5,462,286 - 6,792,205		1,132,840 203,981 698,346 - 2,035,167		32,673,322 52,460 141,046 - 32,866,828

(6) Maturity analysis of lease contract commitments

The Bank only has operating lease contract, operating lease commitment refers to, when the Bank is the lessor or lessee and under the irrevocable operating lease conditions, the minimum total future rent payment. Below tables show the maturity analysis of the Bank operating lease contract commitments:

December 31, 2018 Operating lease expense (lessee) Operating lease income (lessor) December 31, 2017 Operating lease expense (lessee) Operating lease income (lessor)	Below 1 year $ 320,061 1,312 Below 1 year $ 366,802 1,025	1-5 years 465,986 1,069 1-5 years 739,718 1,389	Over 5 years Total 65,366 851,413 - 2,381 Over 5 years Total 101,108 1,207,628 - 2,414

The capital expenditure commitment of the Bank refers to the contract signed to obtain buildings and equipment. The maturity analysis of the capital expenditure commitment of the Bank is as follows:

December 31, 2018 Machinery and equipment Communication and transportation equipment Lease property Miscellaneous equipment Total December 31, 2017 Machinery and equipment Communication and transportation equipment Lease property Miscellaneous equipment Total	Below 1 year $ 2,000,216 16 10,111 24 $ 2,010,367 Below 1 year $ 714,899 460 10,068 75 $ 725,502	1-5 years - - 10,910 - 10,910 1-5 years - - 20,342 - 20,342	Over 5 years Total - 2,000,216 - 16 - 21,021 - 24 - 2,021,277 Over 5 years Total - 714,899 - 460 - 30,410 - 75 - 745,844

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(7) Disclosures required by “ Regulations Governing the Preparation of Financial Reports by Public Banks”
A. Maturity analysis in New Taiwan dollars

Unit : In Thousands of New Taiwan Dollars

		Unit : In Thousands of New Taiwan Dollars	Unit : In Thousands of New Taiwan Dollars	Unit : In Thousands of New Taiwan Dollars	Unit : In Thousands of New Taiwan Dollars	Unit : In Thousands of New Taiwan Dollars	Unit : In Thousands of New Taiwan Dollars
		December 31, 2018
	Total	Amount during the maturity period from the balance sheet date to due date
		0-10days	11-30days	31-90days	91-180days	181days-1year	Over 1 year
Major maturity capital inflow	$ 1,386,992,267	142,043,052	117,357,985	158,442,815	154,433,257	103,970,117	710,745,041
Major maturity capital outflow	1,739,903,414	114,961,489	96,567,905	187,352,640	207,077,947	318,556,969	815,386,464
Gap	(352,911,147)	27,081,563	20,790,080	(28,909,825)	(52,644,690)	(214,586,852)	(104,641,423)

Note: Listed amounts are denominated in New Taiwan dollars (i.e., excluding foreign – currency amounts) of the head office and domestic branches, including commitment of credit agreement and estimates to outflow $344,259,726.

Unit : In Thousands of New Taiwan Dollars

		December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017
	Total	Amount during the maturity period from the balance sheet date to due date
		0-10days	11-30days	31-90days	91-180days	181days-1year	Over 1 year
Major maturity capital inflow	$ 1,364,209,249	125,241,132	130,619,593	128,736,427	176,150,942	169,428,890	634,032,265
Major maturity capital outflow	1,721,231,342	81,314,262	102,439,479	181,974,118	215,654,621	308,463,480	831,385,382
Gap	(357,022,093)	43,926,870	28,180,114	(53,237,691)	(39,503,679)	(139,034,590)	(197,353,117)

B. Maturity analysis in U.S. dollars

Unit : In Thousands of US Dollars

		Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars
		December 31, 2018
	Total	Amount during the maturity period from the balance sheet date to due date
		0-30days	31-90days	91-180days	181days-1year	Over 1 year
Major maturity capital inflow	$ 10,656,284	4,816,832	1,872,015	527,466	400,721	3,039,250
Major maturity capital outflow	11,623,232	3,692,617	2,791,061	1,010,782	1,107,184	3,021,588
Gap	(966,948)	1,124,215	(919,046)	(483,316)	(706,463)	17,662

Note: Including commitment of credit agreement and estimates to outflow US$1,152,522.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Unit : In Thousands of US Dollars

		Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars	Unit : In Thousands of US Dollars
		December 31, 2017
	Total	Amount during the maturity period from the balance sheet date to due date
		0-30days	31-90days	91-180days	181days-1year	Over 1 year
Major maturity capital inflow	$ 10,164,920	5,444,707	1,902,732	467,530	365,842	1,984,109
Major maturity capital outflow	11,212,632	3,524,706	2,276,744	938,951	996,588	3,475,643
Gap	(1,047,712)	1,920,001	(374,012)	(471,421)	(630,746)	(1,491,534)

Note: Including commitment of credit agreement and estimates to outflow US$1,080,947.

(e) Market risk
(1) Definition of market risk

Market risk refers to the possible loss of the Bank’s business in or off the balance sheet results from the disadvantageous fluctuation in market price in terms of interest rates, stock prices, foreign exchange rates and commodity prices.

(2) Policies and procedures of market risk management
A. Strategy
- a. To carry out market risk management, achieve operation target and maintain healthy capital adequacy by following “Directions Governing the Market Risk Management of Taiwan Business Bank” and other relevant regulations.
- b. Under the risk tolerance approved by the board of directors, the Bank applies various risk control mechanism to effectively deploy and manage capital in order to maintain the market risk exposure within the tolerable extent and achieve earning target.
B. Policies and procedures

In order to establish the market risk management mechanism and ensure that the market risk is within the tolerable extent, the Bank set up directions governing the market risk management, remarks governing the limit of market risk and financial product valuation procedures as the primary management guidance. Other than what is stated above, the Bank also establish limit control mechanism in terms of trade positions, stop-limit, suspensions and lines of alert based on the operation notices and procedures of different financial products (including fix income products, equity securities, foreign exchange transaction and derivative financial products).

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(3) Process for market risk management
A. Risk identification

In accordance with the rules of “ Directions Governing the Market Risk Management of Taiwan Business Bank” , the Bank shall conduct appropriate market risk evaluation and document the process for later review before financial products are promoted. The content of evaluation includes risk factors identification, evaluation methods, cost-benefit analysis, market liquidity, risk strategy, adequacy of risk management mechanism and the influence on the Bank for undertaking market risk.

B. Risk measurement
a. Annually based on the business development of transaction units and submit to the board of directors for approval. For the units which the positions and limits remain unchanged after evaluation, they can put the positions and limits into practice after receiving the approval from the general manager.
b. The risk measurements (or evaluations) of the financial products of the Bank are conducted through different information systems. For the market data and parameters of the models applied for evaluation, they shall be inspected regularly to determine the rationality.
C. Risk monitoring
a. Valuation reports of various financial products are prepared regularly for high rank supervisors to review and serve as the guidance for daily risk management operation.
b. All financial transactions are equipped with different regulations in terms of limit of loss and stop-limit. Provided that the valuation loss amount is over the limit, a stop-limit, suspension and subsequent risk control will be executed.
D. Risk report

Risk management department report current market risk management status of the Bank to directors (executive directors) and high rank management to facilitate the directors and management to control the risk exposure status and adjust management procedures properly.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(4) Scope and method of market risk management
A. Foreign exchange risk management
- a. Definition of foreign exchange risk management

Foreign exchange risk refers to the potential profit or loss of the foreign currency financial instruments which results from the transition among fluctuating currencies.

b. Applicable scope

All the financial instruments which apply to trading book position and banking book position and involve in foreign currencies.

c. Purpose for foreign exchange risk management

To avoid loss of earnings or deterioration of financial status due to intensive fluctuation of foreign exchange and to increase capital deployment efficiency and business operation integrity.

d. Procedures of foreign exchange risk management
1) In order to control foreign exchange transaction risk, the Bank established trade position authorization standard for financial transaction operations, trade units and traders in current regulations. In addition, for non-commercial business foreign exchange operation, all trade units submit the required amounts of position annually based on operation status. Risk management department will evaluated the requirement and submit to the board of directors’ (executive directors) for approval. The demand will be executed after the board of directors approved. For the units which the positions remain unchanged after evaluation, they can put the positions into practice after receiving the approval from the general manager.
2) The trade units conduct various foreign financial product business, they shall fully understand the content of commodities, the risk tolerance and trade purpose. Trade units shall establish financial products trading strategies based on market status in the meeting every morning and submit the risk-benefit evaluation in the meeting minutes for the department heads to review. The trading shall follow the relevant authorization rules of the Bank and the stop-limit of all trade positions shall be executed reliably.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

e. Process of foreign exchange risk management
1) Identification and measurement
- A) Risk Management department established risk factor chart based on different financial transactions to effectively identify risk factors and market risk resources. In addition, the financial transactions which the Bank conducts deal with simple type financial products. For complex financial products, the Bank conducts back-to-back hedge covering to effectively avoid market risk.
- B) Risk Management department has used Greek to measure the influence level of exchange rate for held-for-trading spot exchange and exchange rate derivative, also draft Greek's sensitivity allowance according to the yearly demand of trade units and the state of utilization, and monitor the load of fluctuation of exchange rate in an acceptable range each.
- C) Positions of the trading book shall be evaluated daily where the positions of the banking book shall be evaluated monthly. When there are public quotes for financial instruments, the quotes shall be the prior evaluation prices. If the financial instruments are evaluated by models, then they shall be evaluated by mathematic models prudently and the assumptions and parameters of the models shall be reviewed regularly.
2) Monitoring and report
- A) When the evaluation loss of non-commercial foreign exchange transactions is over the limit, the trade units shall execute a stoplimit per the regulations. If the loss amount reaches the suspension warning line or suspension limit of the financial transaction, risk management units shall report to the general manager. Provided that the loss amount reaches the annual suspension line, risk management department shall report to the board of directors (executive directors).
- B) Reports of operation results shall be prepared and submitted to the department heads for approval on a daily basis.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Equity security risk management
a. Definition of equity security risk

The market risks of the equity securities possessed by the Bank include the individual risk results from the market price fluctuation of individual equity security and the general market risk results from overall market price fluctuation.

b. Applicable scope

Financial instruments similar to equity security in all trading books.

c. Purpose of equity security risk management

To avoid loss of earnings or deterioration of financial status due to intensive fluctuation of equity securities and to increase capital deployment efficiency and business operation integrity.

d. Procedures of equity security risk management
1) All trade units submit the required amounts of position annually base on operation status. Risk management department will evaluate the requirement and submit to the board of directors (executive directors). The demand will be executed after approved by the board of directors.
2) The trade units shall predict the possible trend of domestic stock market based on the information of foreign and domestic security markets so as to set up the operation strategies and directions. The traders shall pay close attention to the market trend when the market opens so as to conduct security transactions and the operations as well as the meeting minutes shall be submitted to the department heads to review.
e. Process of equity security risk management
1) Identification and measurement
- A) The risk management department apply Value at Risk models to measure the market risk of equity security investment. Furthermore, based on the trade units' operation demand and the risk limit established by the Bank’ s risk tolerance, the risk management units effectively control the variation of risk factors under an acceptable extent.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

     - B) Trading book position shall be evaluated daily. When there is a public quote in the market, the quote shall be adopted as the prior evaluation price (If the transaction is in secondary market and the liquidity is high, the closing price can be adopted as the evaluation price); If the financial instruments are evaluated by models, then they shall be evaluated by mathematic models prudently and the assumptions and parameters of the models shall be reviewed regularly.

  - 2) Monitoring and report

     - A) When the evaluation loss of equity security investment is over the limit, the trade units shall execute a stop-limit per regulations. If the loss amount reaches the suspension warning line or suspension limit of the financial transaction, risk management units shall report to the general manager. Provided that the loss amount reaches the annual suspension line, risk management department shall report to the board of directors (executive directors).

     - B) Transaction reports shall be prepared and submitted to the department heads for approval on a daily basis. And the investment gains or losses shall report to the board of directors (executive directors) regularly for future reference.

C. Interest rate risk management
a. Definition of interest rate risk

Interest rate risk refers to the price decline of the Bank’s financial products which contain interest risk factors due to the disadvantageous changes in interest rate.

b. Applicable scope

Financial instruments which contain interest rate factors in all trading books.

c. Purpose of interest rate risk management

To avoid loss of earnings or deterioration of financial status due to intensive fluctuation of interest rate and to increase capital deployment efficiency and business operation integrity.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

d. Procedures of interest rate risk management
1) In order to control interest rate risk, the Bank established trade position authorization standard for financial transaction operations, trade units and trade counterparties in current regulations. In addition, for the positions held for trading, all trade units submit the required amounts of position annually based on operation status. Risk management department will evaluated the requirement and submit to the board of directors’ (executive directors) for approval. The demand will be executed after the board of directors approved.
2) The trade units shall consider safety, liquidity and profitability and gather market information to assess the potential risk and benefit. In additional, the trade units shall choose investment target prudently through analyzing the issuers’ credit, financial status, country risks and interest rate trends.
e. Process of interest rate risk management
1) Identification and measurement
- A) The risk management department establish risk factor charts base on different financial transaction to effectively identify risk factors and market risk resources. In addition, the financial transactions which the Bank conducts deal with simple type financial products. For complex financial products, the Bank conducts back-to-back hedge covering to effectively avoid market risk.
- B). Position of the trading book shall be evaluated daily. When there are public quotes for financial instruments, the quotes shall be the prior evaluation prices. If the financial instruments are evaluated by models, then they shall be evaluated by mathematic models prudently and the assumptions and parameters of the models shall be reviewed regularly.
2) Monitoring and report
- A) The risk management department apply DV01 to measure to what extent the trading book bond positions are influenced by the interest rate risk and set up interest rate sensitivity limit base on the requirements of the trade units and the risk tolerance of the Bank annually.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

     - B) The trade units shall prepare the income assessment tables of trade positions and traders for the department heads to review. In addition, when the evaluation loss of the position is over the limit, the trade units shall execute a stop-limit per the regulations. If the loss amount reaches the suspension warning line or suspension limit of the financial transaction, risk management department shall report to the general manager. Provided that the loss amount reaches the annual suspension line, risk management units shall report to the board of directors (executive directors).

D. Concentration management
- a. The trade counterparties of the Bank are mostly financial institutions. To avoid the risk being over concentrated and enhance credit risk management, the Bank established financial institution credit risk limit based on the world ranking of tier 1 capital and credit ratings from The Banker. The trade units shall also pay attention to the changes of the credit status of individual financial institution as well as the changes of the national credit rating to conduct the transaction prudently.
- b. For equity security investments, the Bank set up limits for single institution and single related party.
(5) Interest rate risk management of the banking book
A. The definition and management purpose for the interest rate risk of the banking book
- a. The interest rate risk of the banking book refers to the negative effect towards the future net interest income or economic value of equity results from the fluctuation of interest rate. Net Interest Income (hereafter NII) is the total amount of interest revenue deducted by the total amount of interest expense; Economic Value of Equity (hereafter EVE) is the total discounted future cash inflow from assets deducted by the total discounted future cash outflow from liabilities.
- b. The management purpose of the interest rate risk management of the banking book is to control the negative effect from the interest rate risk fluctuation towards NII or EVE within the approved limit extent.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. The process for the interest rate risk management of the banking book
a. Identification and measurement

When the Bank conducts interest rate related products, it identifies the reprising risk, yield curve risk, basis risk and option characteristic risk and measures the possible influence on the earnings and economic value results from interest rate fluctuation.

b. Monitoring and report

The Bank established limits of the ratio between interest-rate-sensitivity assets and interest-rate-sensitivity liabilities, the effect to NII in 1 year when the market interest rate parallel changes 1 BP and the effect to EVE when the market interest rate parallel changes 200 BP to control the banking book interest rate risk. The results of interest rate risk measurement are reported to the Assets and Liabilities Management Committee monthly and to the board of directors (executive directors) quarterly. When the measurement result is over the limit, relevant units shall be convened to establish responding plan and the plan shall be submitted to the Assets and Liabilities Management Committee for discussion. After the plan is approved by the general manager, it shall be executed by the relevant business units and report to the board of directors (executive directors).

(6) Value at Risk

A. Description of Value at Risk

Value at Risk (VaR) is a statistical amount used to evaluate the maximum possible loss of portfolio results from the changes of market risk factors within a certain period of time and a fixed confidence interval.

B. Value at Risk models and assumptions

In order to enhance the market risk control operation, the Bank established quantified indices of market risk for the equity security position of the trading book. Based on the historical information of the last 1 year and applies Historical Simulation Method (with the confidence interval being 99% and the duration of possession being 1 day), the Bank calculates and monitors the trend of Value at Risk.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

C. The limit of Value at Risk model

Value at Risk is a tool to measure market risk under normal circumstance. The limits of the model are listed below:

  - a. Value at Risk can not reflect the losses result from other type of risks, such as credit risk and liquidity risk.

  - b. Value at Risk measures the possible loss of the position on hand at the end of the transaction day, but it can not reflect the distribution of the part which actual loss exceeds Value at Risk.

  - c. Value at Risk model is based on historical data to evaluate the amount, and therefore it may not be able to predict the future changes of risk factors, especially for those exceptions result from significant market fluctuation.

(7) Foreign exchange risk disclosure and sensitivity analysis
A. Foreign exchange risk exposure
- a. Significant net positions of foreign currencies (Market risk)

Significant net positions of foreign currencies (Market risk) December 31, 2018

Currency USD JPY CNY AUD EUR Significant net positions of	Foreign currency amount NT$ amount $ 470,443 14,459,066 2,965,336 822,584 135,296 604,638 16,208 350,984 3,495 122,954 foreign currencies (Market risk)
December 31, 2017
Currency USD EUR JPY AUD CNY	Foreign currency amount NT$ amount $ 353,797 10,500,695 55,756 1,976,550 2,063,416 543,297 23,110 534,650 28,235 128,441

Note 1 Main foreign currencies are the top five foreign currencies ranked in NTD value.

Note 2 Net foreign currency is the absolute value of the net value of each foreign currency.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

b. Assets and liabilities of foreign currency

	December 31, 2018
Currency	Monetary Financial assets Foreign currency amount (in thousands) Spot rate NTD amount $ 10,364,989 30.7350 318,567,937 4,113,296 21.6550 89,073,425 8,709,563 4.4690 38,923,037 5,947,321 3.9230 23,331,340 41,701,989 0.2774 11,568,132 303,587 35.1800 10,680,191 4,782,950 2.1200 10,139,854 40,606 38.9000 1,579,573 61,409 20.6300 1,266,868 45,171 22.5800 1,019,961 6,529 31.1650 203,476 5,427 22.4400 121,782 - - 84,570 Non-monetary Financial assets 556 30.7350 17,089	Monetary Financial liabilities
		Foreign currency amount (in thousands) Spot rate NTD amount 9,815,797 30.7350 301,688,521 4,061,406 21.6550 87,949,747 8,716,012 4.4690 38,951,858 5,666,020 3.9230 22,227,796 40,269,290 0.2774 11,170,701 303,677 35.1800 10,683,357 4,784,213 2.1200 10,142,532 40,654 38.9000 1,581,441 62,555 20.6300 1,290,510 45,227 22.5800 1,021,226 6,595 31.1650 205,533 5,492 22.4400 123,240 - - 91,209 Non-monetary Financial liabilities
USD AUD CNY HKD JPY EUR ZAR GBP NZD CAD CHF SGD Other (Note) USD
		- - -

Note ： Consolidated disclosure is applied for other currencies not over $100,000.

	December 31, 2017	December 31, 2017	December 31, 2017
	Monetary Financial assets		NTD amount 289,912,934 89,103,203 31,558,028 23,938,039 10,888,733 18,438,006 10,117,996 911,362 1,411,332 1,359,954 229,037 137,744	Monetary Financial liabilities
Currency	Foreign currency amount (in thousands) $ 9,767,956 3,851,446 6,937,355 6,306,122 41,354,855 520,113 4,233,471 22,824 66,983 57,552 10,317 -	Spot rate 29.6800 23.1350 4.5490 3.7960 0.2633 35.4500 2.3900 39.9300 21.0700 23.6300 22.2000 -		Foreign currency amount (in thousands) 9,398,529 3,816,093 6,940,084 6,120,017 39,592,813 519,947 4,232,608 22,836 66,913 57,570 10,396 -	Spot rate NTD amount 29.6800 278,948,341 23.1350 88,285,312 4.5490 31,570,442 3.7960 23,231,585 0.2633 10,424,788 35.4500 18,432,121 2.3900 10,115,933 39.9300 911,841 21.0700 1,409,857 23.6300 1,360,379 22.2000 230,791 - 146,609
USD AUD CNY HKD JPY EUR ZAR GBP NZD CAD SGD Other (Note)

Note ： Consolidated disclosure is applied for other currencies not over $100,000.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Foreign exchange risk sensitivity analysis (Change by 1%)

Foreign exchange risk sensitivity analysis is the analysis that given other conditions remain the same, the influence on profit or loss and equity when each respective currency depreciate or appreciate by 1%.

Currency	December 31, 2018	December 31, 2018
	Depreciate by 1% Income Equity $ 23,357 (53,055) 7,318 (15,365) 3,050 (14,263) 5,690 (4,431) 100 - 14 - 24 - 22 - 21 - 40 - 44 - (153) - 229 - (1,334) - $ 38,422 (87,114)	Appreciate by 1%
	Income $ 23,357 7,318 3,050 5,690 100 14 24 22 21 40 44 (153) 229 (1,334) $ 38,422	Income Equity (23,357) 53,055 (7,318) 15,365 (3,050) 14,263 (5,690) 4,431 (100) - (14) - (24) - (22) - (21) - (40) - (44) - 153 - (229) - 1,334 - (38,422) 87,114
USD AUD HKD JPY GBP SGD ZAR SEK CHF CAD THB EUR NZD CNY Total

Currency	December 31, 2017	December 31, 2017
	Depreciate by 1% Income Equity $ 74,477 (47,576) 8,052 (12,677) 2,898 (10,011) 5,286 (4,984) 8 - 18 - (24) - 4 - 57 - 66 - 28 - (140) - (31) - (23,943) - $ 66,756 (75,248)	Appreciate by 1%
	Income $ 74,477 8,052 2,898 5,286 8 18 (24) 4 57 66 28 (140) (31) (23,943) $ 66,756	Income Equity (74,477) 47,576 (8,052) 12,677 (2,898) 10,011 (5,286) 4,984 (8) - (18) - 24 - (4) - (57) - (66) - (28) - 140 - 31 - 23,943 - (66,756) 75,248
USD AUD HKD JPY GBP SGD ZAR SEK CHF CAD THB EUR NZD CNY Total

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(8) Interest rate risk disclosure and sensitivity analysis

A. Interest rate sensitivity analysis

The assumption of interest rate sensitivity analysis is, under the circumstance that other conditions remain the same, the yield of the market increase or decrease by 1 basis point (1 bp).

Currency	December 31, 2018	December 31, 2018
	Interest rate increases by 1 bp Interest rate decreases by 1 bp Income Equity Income Equity $ - (4,175) - 4,175 - (50,411) - 50,411 34 (12,593) (34) 12,593 - (682) - 682 - (20) - 20 - (495) - 495 - (191) - 191 $ 34 (68,567) (34) 68,567 December 31, 2017	Interest rate decreases by 1 bp
	Income $ - - 34 - - - - $ 34
Trading book TWD Banking book TWD USD AUD HKD CNY ZAR Total Currency
		Interest rate decreases by 1 bp
		Income Equity (32) 9,936 - 56,530 (47) 4,058 - 192 - 16 - 95 - 277 (79) 71,104
Trading book TWD Banking book TWD USD AUD ZAR HKD CNY Total

B. Sensitivity analysis of expected net revenue/Sensitivity of equity in terms of interest rate fluctuation

Scenario	December 31, 2018	December 31, 2018
	Effect on NII in 1 year TWD USD 2,721,539 (17,175) (5,609,550) 6,550	Effect on EVE in 1 year
	TWD 2,721,539 (5,609,550)	TWD USD (1,309,829) (30,545) 1,726,999 34,423
Interest rate increases by 100 bp Interest rate decreases by 100 bp

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Scenario Interest rate increases by 100 bp Interest rate decreases by 100 bp		December 31, 2017 in 1 year Effect on EVE in 1 year USD TWD USD (16,652) (1,292,836) (11,892) (2,208) 2,104,453 12,402
	Effect on NII	in 1 year USD (16,652) (2,208)
	TWD 3,165,803 (5,986,102)

(9) Equity security risk disclosure and sensitivity analysis
A. Equity security sensitivity analysis (Changes by 1%)

The assumption of equity security sensitivity analysis is, under the circumstance that other conditions remain the same, the price of equity security increased or decreased by 1%.

Change Equity security price increases by 1 % Equity security price decreases by 1 % Change Equity security price increases by 1 % Equity security price decreases by 1 %	Currency TWD USD TWD USD Currency TWD TWD		December 31, 2018 Income Equity 489 - 6 - (489) - (6) - December 31, 2017 Income Equity 102 14,301 (102) (14,301)

B. Value at Risk of equity security

Value at Risk	For the year ended December 31, 2018	For the year ended December 31, 2018	For the year ended December 31, 2018
	Average	Maximum	Minimum
Equity security risk	13,763	5,130	25

Value at Risk	For the year ended December 31, 2017
	Average	Maximum	Minimum
Equity security risk	58,287	80,781	40,227

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(10)Disclosures required by “ Regulations Governing the Preparation of Financial Reports by Public Banks”
A. Analysis of interest rate-sensitive assets and liabilities (New Taiwan dollars)

Unit : In Thousands of New Taiwan dollars, %

Unit : In Thousands of New Taiwan dollars, %	Unit : In Thousands of New Taiwan dollars, %	Unit : In Thousands of New Taiwan dollars, %	Unit : In Thousands of New Taiwan dollars, %	Unit : In Thousands of New Taiwan dollars, %	Unit : In Thousands of New Taiwan dollars, %
December 31, 2018
Item	1~90 days	91~180 days	181days~1year	over 1 year	total
Interest rate-sensitive assets	$ 1,094,648,453	7,655,531	23,923,254	157,779,086	1,284,006,324
Interest rate-sensitive liabilities	980,971,467	64,335,404	89,739,637	47,342,431	1,182,388,939
Interest rate sensitivity gap	113,676,986	(56,679,873)	(65,816,383)	110,436,655	101,617,385
Net amount					84,853,019
Ratio of interest rate-sensitive assets to debt (%)					108.59
Ratio of interest rate-sensitive gap to net worth (%)					119.76

December 31, 2017
Item	1~90 days	91~180 days	181days~1year	over 1 year	total
Interest rate-sensitive assets	$ 1,123,566,515	13,243,882	11,024,511	121,866,618	1,269,701,526
Interest rate-sensitive liabilities	976,655,486	79,970,590	86,725,704	41,204,677	1,184,556,457
Interest rate sensitivity gap	146,911,029	(66,726,708)	(75,701,193)	80,661,941	85,145,069
Net amount					75,817,673
Ratio of interest rate-sensitive assets to debt (%)					107.19
Ratio of interest rate-sensitive gap to net worth (%)					112.30

Note 1 The banking component refers to the Bank's amount of N.T. dollars and does not include contingent assets or liabilities.
Note 2 Interest rate-sensitive assets and liabilities refer to revenue or cost of interest– yielding assets and interest– bearing liabilities, which are affected by interest rate fluctuations.
Note 3 Interest rate-sensitivity gap = Interest rate-sensitive assets - Interestrate-sensitive liabilities.
Note 4 Ratio of interest rate-sensitive assets to liabilities=Interest ratesensitive assets÷ Interest rate-sensitive liabilities (New Taiwan dollars interest-rate-sensitive assets and New Taiwan dollars interest-ratesensitive liabilities).

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Analysis of the interest-sensitive assets and liabilities (U.S. dollars)

Unit : In Thousands of US Dollars, %

Unit : In Thousands of US Dollars, %	Unit : In Thousands of US Dollars, %	Unit : In Thousands of US Dollars, %	Unit : In Thousands of US Dollars, %	Unit : In Thousands of US Dollars, %	Unit : In Thousands of US Dollars, %
December 31, 2018
Item	1~90 days	91~180 days	181days~1year	over 1 year	total
Interest rate-sensitive assets	$ 3,871,699	444,219	174,371	724,152	5,214,441
Interest rate-sensitive liabilities	5,091,691	569,099	421,251	-	6,082,041
Interest rate sensitivity gap	(1,219,992)	(124,880)	(246,880)	724,152	(867,600)
Net amount					2,760,795
Ratio of interest rate-sensitive assets to debt (%)					85.74
Ratio of interest rate-sensitive gap to net worth (%)					(31.43)

December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017
Item	1~90 days	91~180 days	181days~1year	over 1 year	total
Interest rate-sensitive assets	$ 4,469,367	374,144	88,227	410,338	5,342,076
Interest rate-sensitive liabilities	5,495,210	456,356	318,865	300	6,270,731
Interest rate sensitivity gap	(1,025,843)	(82,212)	(230,638)	410,038	(928,655)
Net amount					2,554,504
Ratio of interest rate-sensitive assets to debt (%)					85.19
Ratio of interest rate-sensitive gap to net worth (%)					(36.35)

Note 1 The banking component refers to the Bank's amount of U.S. dollars and does not include contingent assets or liabilities.
Note 2 Interest rate-sensitive assets and interest rate-sensitive liabilities refer to the interest yielding assets and interest paying liabilities which the revenue and cost are affected by interest rate fluctuation.
Note 3 Interest rate sensitivity gap=interest rate-sensitive assets-interest ratesensitive liabilities.
Note 4 Ratio of interest rate-sensitive assets to liabilities=Interest ratesensitive assets÷ Interest rate-sensitive liabilities (U.S. dollars interestrate-sensitive assets and U.S. dollars interest-rate-sensitive liabilities).
(f) Transferred financial assets that are not fully derecognized

The transactions, relating to transferred financial assets not qualifying for full derecognition, the Bank conduct during daily operation mostly involve securities lending in accordance to repurchase agreements. Since the right to receive contractual cash flow has been transferred to others and the Bank’s obligation to repurchase the transferred assets for a fixed price at a future date is recognized under liability, for these transactions, the Bank can not use, sell or pledge those transferred financial assets in availability period, the Bank have interest rate risk and credit risk, the said transferred assets are not fully derecognized.

～ 134 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

As of December 31, 2018 and 2017, there were not any financial assets of the Bank that are not fully derecognized.

(g) Offsetting financial assets and financial liabilities

The Bank has an exercisable master netting arrangement or similar agreement in place with counterparties. When both parties reach a consensus regarding net settlement, the aforesaid exercisable master netting arrangement or similar agreement can be net settled by offsetting financial assets and financial liabilities. If not, the transaction can be settled at total amount. In the event of default involving one of the parties, the other party can have the transaction net settled.

The following tables present the aforementioned offsetting financial assets and financial liabilities:

December 31, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 121,120 - 121,120 627,412 176,599 (682,891) December 31, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 95,769 - 95,769 - 608,768 (512,999)	December 31, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 121,120 - 121,120 627,412 176,599 (682,891) December 31, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 95,769 - 95,769 - 608,768 (512,999)	December 31, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 121,120 - 121,120 627,412 176,599 (682,891) December 31, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 95,769 - 95,769 - 608,768 (512,999)	December 31, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 121,120 - 121,120 627,412 176,599 (682,891) December 31, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 95,769 - 95,769 - 608,768 (512,999)	December 31, 2018 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 121,120 - 121,120 627,412 176,599 (682,891) December 31, 2018 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 95,769 - 95,769 - 608,768 (512,999)
Item	Gross amounts of recognized financial assets (a)	Gross amounts of financial liabilities offset in the balance sheet (b)	Net amount of financial assets presented in the balance sheet (c)=(a)-(b)
				Financial instruments (Note)
Derivative financial instruments	$ 121,120			627,412
Financial liabilities that ar
Item	Gross amounts of recognized financial liabilities (a)	Gross amounts of financial assets offset in the balance sheet (b)	Net amount of financial liabilities presented in the balance sheet (c)=(a)-(b)
				Financial instruments (Note)
Derivative financial instruments	$ 95,769	-	95,769	-

December 31, 2017 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 109,740 - 109,740 - 169,736 (59,996) December 31, 2017 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 63,552 - 63,552 - 76,266 (12,714)	December 31, 2017 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 109,740 - 109,740 - 169,736 (59,996) December 31, 2017 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 63,552 - 63,552 - 76,266 (12,714)	December 31, 2017 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 109,740 - 109,740 - 169,736 (59,996) December 31, 2017 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 63,552 - 63,552 - 76,266 (12,714)	December 31, 2017 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 109,740 - 109,740 - 169,736 (59,996) December 31, 2017 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 63,552 - 63,552 - 76,266 (12,714)	December 31, 2017 Financial assets that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts Gross amounts of financial liabilities offset Net amount of financial assets Amounts not set off in the balance sheet(d) Item of recognized financial assets (a) in the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral received Net amount (e)=(c)-(d) Derivative financial instruments $ 109,740 - 109,740 - 169,736 (59,996) December 31, 2017 Financial liabilities that are offset, have an exercisable master netting arrangement or similar agreement Gross amounts of recognized Gross amounts of financial assets offset in Net amount of financial liabilities Amounts not set off in the balance sheet(d) Item financial liabilities (a) the balance sheet (b) presented in the balance sheet (c)=(a)-(b) Financial instruments (Note) Cash collateral pledged Net amount (e)=(c)-(d) Derivative financial instruments $ 63,552 - 63,552 - 76,266 (12,714)
Item	Gross amounts of recognized financial assets (a)	Gross amounts of financial liabilities offset in the balance sheet (b)	Net amount of financial assets presented in the balance sheet (c)=(a)-(b)
				Financial instruments (Note)
Derivative financial instruments	$ 109,740			-
Financial liabilities that ar
Item	Gross amounts of recognized financial liabilities (a)	Gross amounts of financial assets offset in the balance sheet (b)	Net amount of financial liabilities presented in the balance sheet (c)=(a)-(b)
				Financial instruments (Note)
Derivative financial instruments	$ 63,552	-	63,552	-

～ 135 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Note ： Master netting arrangements and non-cash financial collaterals are included.

(AQ) Capital Management

(a) The Bank takes business development and risk control into consideration and calculates capital adequacy per “Regulations Governing the Capital Adequacy Ratio and Capital Category of Banks” and “Calculation Methods and Forms of Proprietary Capital and Risk Capital of Banks” . The ratio between proprietary capital and risk capital shall remain above the regulated minimum ratio.
(b) In order to maintain adequate capital and reach a balance between risk control and business development, the Bank established “Directions Governing Capital Adequacy” as the guidance for controlling capital adequacy. The scope of the directions include, except for the least capital requirements for credit risk, market risk and operation risk, significant risk such as banking book interest rate risk, liquidity risk and concentration risk. In addition, in order to link business strategies, capital and risk management, the Bank sets up capital management plan annually for the president’s approval and reports to Risk Management Committee and the board of directors quarterly about relevant risks and capital control status.
(c) The Bank identifies, measures, monitors and reports various risks based on the directions, notices and relevant rules of competent authority regarding credit risk, market risk, operation risk, legal and compliance risk, interest rate risk of the banking book, liquidity risk and concentration risk so as to be familiar with current business environment and monitors and adjusts capital adequacy effectively.
(d) To cope with the implementation of new Basel Accord, the Bank set up complete risk management system, risk management operation tracking procedures to provide the management with appropriate risk management information for making decisions. Therefore, the Bank is able to maintain adequate capital within the tolerable extent and to ensure the provision of proprietary capital of the Bank corresponds with the overall operating risk characteristics of the Bank.

(1) Tier 1 capital

A. Common stock equity: The item includes common stock deducted by treasury stock, goodwill and other intangible assets, deferred tax assets based on future profit status of the Bank, unrealized gain on financial assets measured at fair value through other comprehensive income (unrealized gain on available-forsale financial assets are applicable before the year ended December 31, 2017), operating reserve and deficiency of allowance for bad debts, real estate retained earning increment arising from applying the fair value or the revaluation reserve as the deemed cost when first adopting IFRSs, and 25% of the investment on financial related business which is classified in banking book.

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TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

B. Other tier 1 capital: Twenty-five percent of the perpetual non-accumulated subordinated financial debentures deducted by the investment on financial related business which is classified in banking book.
(2) Tier 2 capital

The item includes perpetual accumulated subordinated financial debentures, long term subordinated debenture, real estate retained earning increment arising from applying the fair value or the revaluation reserve as the deemed cost when first adopting IFRSs, 45% of unrealized gain on financial assets measured at fair value through other comprehensive income (unrealized gain on available-for-sale financial assets are applicable before the year ended December 31, 2017), and 50% of the investment on financial related business which is classified in banking book.

Item			December 31, 2018	December 31, 2017
Eligible capital	Common stock equity		78,947,036	73,448,764
	Other tier 1 capital		13,386,998	14,140,802
	Tier 2 capital		29,797,442	25,396,643
	Eligible Capital		122,131,476	112,986,209
Risk- weighted assets	Credit risk	Standardized approach	912,764,211	871,996,666
		Internal ratings-based approach	-	-
		Securitization	-	-
	Operational risk	Basic indicator approach	-	-
		Standardized approach/selective standardized approach	36,971,711	35,136,391
		Advanced measurement approach	-	-
	Market risk	Standardized approach	11,844,063	13,786,563
		Internal model approach	-	-
	Total risk-weighted assets		961,579,985	920,919,620
Capital adequacy ratio			% 12.70	% 12.27
Common stock equity/ Risk-weighted assets ratio			% 8.21	% 7.98
Tier 1 capital / Risk-weighted assets ratio			% 9.60	% 9.51
Leverage ratio			% 5.40	% 5.26

The formulas of the table are listed as follows:

A. The eligible capital, risk-weighted assets and exposure are calculated per “Regulations Governing the Capital Adequacy and Capital Category of Banks” and “The Calculation and Forms of Eligible Capital and Risk Assets of Banks”.
B. The Bank shall fill out the capital adequacy of this period and last period. For the semi-annual report, the Bank shall disclose the capital adequacy of this period and last period and additionally disclose the capital adequacy of the previous period ended December 31.

～ 137 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

  - C. Note 1. Eligible Capital = Common stock equity `＋` Other Tier 1 Capital `＋` Tier 2 Capital

     - Note 2. Total risk-weighted assets = Credit risk weighted asset `＋` (operational risk charge `＋` market risk charge) × 12.5

     - Note 3. Capital adequacy ratio= Eligible Capital ÷ Risk weighted asset.

     - Note 4. Common stock equity / Risk-weighted assets ratio= Common stock equity / total risk weighted assets

     - Note 5. Tier 1 capital / Risk-weighted assets ratio = (Common stock equity `＋` other tier 1 capital)/ Risk-weighted assets

     - Note 6. Leverage ratio = Net Tier 1 capital / Total risk exposure.

  - D. Above table is not required to be disclosed when preparing the financial reports of the first quarter and third quarter.

(AR) Structured entities that not included in financial reports
(a) The table below presents the types of structured entities that the Bank do not include in financial reports but in which they hold an interest:

The types of Interests held by the Bank and its structured entities Nature and purpose subsidiaries Private fund Investing in funds that Investing in units or limited partnership cannot be freely traded on interests issued by these funds. the open market Asset backed securities Investing in commercial real Investing in asset-backed securities estate investment trusts issued by entities.

(b) The scales of structured entities not included in financial reports were as follow:

Private fund Asset backed securities Total	December 31, 2018 December 31, 2017 $ 50,000 - 43,502 - $ 93,502 -

～ 138 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Assets held by the Bank and its subsidiaries	December 31, 2018 December 31, 2017 $ 50,000 - 43,502 - $ 93,502 -
Financial assets at fair value through profit and loss Financial assets at fair value through other comprehensive income Total

The maximum amount of risk exposure the Bank endures to a loss incurred from structured entity equities that are not included in financial statements is the carrying amount of interests held by the Bank.

(d) As of December 31, 2018 the Bank has not provided any financial support to their structured entity equities that are not included in financial statements.

7. RELATED PARTY TRANSACTIONS

(A) Names of related parties and relationship with the Bank

Name of related party Relationship with the Bank and its subsidiaries Bank of Taiwan Corporate director of the Bank Ministry of Finance, R.O.C Corporate director of the Bank Land Bank of Taiwan Corporate director of the Bank Taiwan Business Bank Insurance Investee company of the Bank Agency Co., Ltd. Taiwan Business Bank Property Investee company of the bank Insurance Agency Co., Ltd. TBB International Leasing Co., Ltd. Investee company of the bank TBB (Cambodia) Microfinance Investee company of the bank Institution Plc TBB Venture Capital Co., Ltd. Investee company of the bank Taiwan Business Bank International Investee company accounted for using equity method Leasing Co., Ltd. Other Major shareholders, directors (includes independent directors), president, executive vice president, managers and their second tier of kinship

～ 139 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(B) Significant related party transactions

(a) Due from other Banks

Bank of Taiwan Land Bank of Taiwan Total Bank of Taiwan Land Bank of Taiwan Total	December 31, 2018
	Amount % $ 129,756 0.58 6,036 0.03 $ 135,792 0.61 December 31, 2017

Interest rates are the same as those with regular clients.

(b) Deposits from other banks

Land Bank of Taiwan Land Bank of Taiwan	December 31, 2018
	Amount % $ 732 1.13 December 31, 2017

Interest rates are the same as those with regular clients.

For the years ended December 31, 2018 Bank of Taiwan Land Bank of Taiwan Total For the years ended December 31, 2017 Bank of Taiwan Land Bank of Taiwan Total	Maximum Balance $ 11,800,740 4,948,798 $ 16,749,538 Maximum Balance $ 8,620,470 2,884,226 $ 11,504,696	December 31, 2018 153,675 - 153,675 December 31, 2017 - 1,929,200 1,929,200	Interest Expense Annual interest rate 8,507 0.17%~3% 6,037 1.45%~2.77% 14,544 Interest Expense Annual interest rate 2,360 0.17%~3.4% 3,789 0.80%~2.62% 6,149

Interest rates are the same as those with regular clients.

～ 140 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(d) Call loans from banks

For the years ended December 31, 2018 Bank of Taiwan Land Bank of Taiwan Total For the years ended December 31, 2017 Bank of Taiwan Land Bank of Taiwan Total	Maximum Balance $ 5,210,241 10,067,317 $ 15,277,558 Maximum Balance $ 9,228,701 13,580,150 $ 22,808,851	December 31, 2018 - - - December 31, 2017 - 1,484,000 1,484,000	Interest Expense Annual interest rate 2,978 0.05%~3.3% 19,615 0.18%~3.9% 22,593 Interest Expense Annual interest rate 5,177 0.32%~4.5% 18,690 0.03%~12% 23,867

Interest rates are the same as those with regular clients.

(e) Account Receivables

Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Property Insurance Agency Co., Ltd. Total Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Property Insurance Agency Co., Ltd. Total	December 31, 2018
	Amount % $ 64,344 0.15 4,137 0.01 $ 68,481 0.16 December 31, 2017

～ 141 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(f) Deposits

Taiwan Business Bank Insurance Agency Co.,
Ltd.
Taiwan Business Bank Property Insurance
Agency Co., Ltd.
TBB International Leasing Co., Ltd.
Taiwan Business Bank International Leasing
Co., Ltd.
TBB Venture Capital Co., Ltd.
Others
Total
Taiwan Business Bank Insurance Agency Co.,
Ltd.
Taiwan Business Bank Property Insurance
Agency Co., Ltd.
TBB International Leasing Co., Ltd.
Taiwan Business Bank International Leasing
Co., Ltd..
Other.
Total

December 31, 2018

Amount
%
$ 448,863
0.03
15,337
-
153,548
0.01
82,732
0.01
195,962
0.02
1,149,229
0.09
$
2,045,671
0.16
December 31, 2017

Interest rates are the same as those with regular clients.

～ 142 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(g) Credit

Decemb	Decemb	Decemb	Decemb	er 31, 2018	er 31, 2018	er 31, 2018	er 31, 2018
Category	Number of clients or name of related party	Maximum balance	Ending balance	Performing situations		Collaterals	Difference from transaction terms of non-related parties
				Performing loan	Non-performing Loans
Employee consumer loans	151	808,222	384,533	384,533	-	none/real estate	none
Self-use residence collateral loans	123	1,141,682	461,328	461,328	-	real estate	none
Others	Si○ ○	726	726	726	-	real estate	none
	Du○ ○	7,792	7,705	7,705	-	real estate	none
	Wu○ ○	7,179	7,179	7,179	-	real estate	none
	Cho○ ○	1,246	1,246	1,246	-	real estate	none
	Chang○ ○	1,168	1,142	1,142	-	real estate	none
	Chuang○ ○	1,565	1,565	1,565	-	real estate	none
	Huang○ ○	5,699	5,699	5,699	-	real estate	none

Decemb	Decemb	Decemb	Decemb	er 31, 2017	er 31, 2017	er 31, 2017	er 31, 2017
Category	Number of clients or name of related party	Maximum balance	Ending balance	Performing situations		Collaterals	Difference from transaction terms of non-related parties
				Performing loan	Non-performing Loans
Employee consumer loans	129	344,249	320,358	320,358	-	none/real estate	none
Self-use residence collateral loans	118	473,764	394,610	394,610	-	real estate	none
Others	Si○ ○	294	294	294	-	real estate	none
	Du○ ○	7,345	7,345	7,345	-	real estate	none
	Chiang○ ○	2,397	1,751	1,751	-	real estate	none
	Liu○ ○	1,562	1,326	1,326	-	real estate	none
	Cho○ ○	899	768	768	-	real estate	none
	Chang○ ○	944	944	944	-	real estate	none
	Lu○ ○	1,304	1,207	1,207	-	real estate	none
	Huang○ ○	4,472	4,472	4,472	-	real estate	none
	Simpro ○ ○	1,883	967	967	-	non-physical collaterals	none

(h) Guarantees of credit: None.

(i) Service fees:

The Bank received from Taiwan Business Bank Insurance Agency Co., Ltd. cross-selling service fees of $1,208,460,000 and $1,212,949,000 for the years ended December 31, 2018 and 2017, respectively; The Bank received from Taiwan Business Bank Property Insurance Agency Co., Ltd. service fees of $34,101 and $33,848 for the years ended December 31, 2018 and 2017, respectively.

(j) Rental revenue:

Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Property Insurance Agency Co., Ltd. TBB International Leasing Co., Ltd. TBB Venture Capital Co., Ltd. Total	For the years ended December 31,
	2018 2017 $ 2,203 2,203 245 245 691 691 59 - $ 3,198 3,139

(k) Derivatives financial instrument transactions: None.

～ 143 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(l) Sales of Non–Performing Loans Transactions: None.

(C) Major management salary information

Salary and other short-term employee benefit Retirement Benefit Total	For the years ended December 31,
	2018 2017 $ 125,337 100,012 1,675 1,652 $ 127,012 101,664

8. PLEDGED ASSETS : Please refer to notes 6(I) and (J) for more details.

9. COMMITMENTS AND CONTINGENCIES

(A) Significant commitments and contingencies were as follows:

Marketable securities held for custody Bills collected for others Bills lent for others Guarantees and letters of credit Collaterals received Trust liabilities Travelers’ check in custody for sale Items held for custody Registered government bonds for sale Registered short-term bills for sale Guarantee notes payable	December 31, 2018 December 31, 2017 $ 14,045,346 13,357,412 47,768,037 51,172,708 28,686,169 27,951,849 27,192,811 25,310,283 426 426 152,551,326 135,476,558 59,725 66,423 4,433,125 4,103,319 65,842,800 68,651,600 1,471,796 1,323,800 26,069,360 27,915,700

(B) Unrecognized contractual commitments:

As of December 31, 2018 and 2017, major constructions in progress and purchases amounted to $1,095,465 and $559,663 respectively, of which $851,250 and $416,267 respectively, remained unpaid.

～ 144 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(C) The Bank’s trust department plans, manages, and operates trust services in accordance with the Banking Law and Trust Law. Special purpose funds are used to invest in marketable securities and the Bank also manages trust funds. The trust information as of December 31, 2018 and 2017 is as follows:

Trust Balance Sheet

Trust Assets	December 31, 2018 December 31, 2017 $ 3,469,268 2,697,388 169,514 177,799 54,862,191 55,582,025 233,392 - 14,044,203 13,850,725 79,136,066 62,576,450 636,692 592,171 $ 152,551,326 135,476,558 December 31, 2018 December 31, 2017 $ 62 113 79,136,066 62,576,450 73,366,293 72,858,128 (1,775,757) (1,933,370) 1,824,662 1,975,237 $ 152,551,326 135,476,558
Cash in Bank Stocks Funds Bonds Real estate Securities custody Other assets Total trust assets Trust Liabilities
Payables Securities held for custody Trust capital Reserves and accumulated loss Net income Total trust liabilities

Trust Property Accounts

Investment in	December 31, 2018 December 31, 2017 $ 3,469,268 2,697,388 169,514 177,799 54,862,191 55,582,025 233,392 - 10,601,163 11,417,841 49,612 51,154 3,393,428 2,381,730 79,136,066 62,576,450 636,692 592,171 $ 152,551,326 135,476,558
Cash in bank Stocks Funds Bonds Real estate Land Buildings Construction in progress Securities in custody Other assets Total

Note ： As of December 31, 2018 and 2017, the amounts above included OBU transaction on “foreign currency designated trust funds investment in foreign negotiable securities business” amounting to $945,302 and $748,020, respectively.

～ 145 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Trust Income Statement

Investment in
Trust Revenue
Interest income
Realized capital gain-fund
Realized capital gain-stock
Cash dividend income of common stock
Gains on property transaction
Other revenue
Sub-total
Trust Expense
Administrative expenses
Postage and phone/fax expense
Duties
Realized capital loss-bonds
Losses on property transaction
Other expense
Sub-total
Net income before tax
Income tax expense
Net income after tax

For the years ended December 31,
2018
2017
$ 6,164
4,759
-
21
2,520
1,686
2,174,988
1,865,260
945,568
1,155,050
220
202
3,129,460
3,026,978
54,540
68,913
9
3
36
-
316
-
1,249,737
982,719
135
85
1,304,773
1,051,720
1,824,687
1,975,258
(25)
(21)
$
1,824,662
1,975,237

(D) In 1996, the Bank’ s World Trade Center Branch was sued for handling a letter of credit export collection from Chin Seen Industrial Co., which allegedly used a forged export document and failed to ship the goods to the importer, the Internationale Compagnie de Commercialisation et d’ Investissement SPRL (I.C.C.I.) of the Republic of Zaire, suffered a loss thereon. In November 1998, I.C.C.I. initiated a case with the Court of Commerce of Brussels in Belgium, requested the L/C opening bank (Banque Bruxelles Lambert, or BBL) and the Bank to jointly pay compensation of US$7,830 thousands plus interest, losses, and expenses for the L/C. On August 31, 2005, the Court of Commerce of Brussels rendered its judgment which the Bank has to make compensation of US$7,674 thousands plus interest to I.C.C.I.. The Bank has engaged a local attorney in Belgium to formally file an appeal. In February 2011, Court of Appeal in Brussels had made an intermediate adjudication which I.C.C.I and the Bank are both responsible for the offense. Furthermore, on November 16, 2011, the judgment of the court indicated that the Bank should be responsible for 90% of the negligence proportion. In terms of the judgment of the court of the second instance, the Bank has filed an appeal on November 3, 2011. On February 6, 2013, the court overruled the Bank’ s appeal and the Bank lost the case. In October 2016, I.C.C.I initiated a case with the Court of Frankfurt in Germany, applied for seizing the bank account in Germany, and the bank lodged guaranty money of EUR $13,200 thousands to the court to rescind the order for attachment. In July 2017, I.C.C.I applied for compulsory execution to the guaranty money, the court has transferred the guaranty money to I.C.C.I. The Bank filed the lawsuit objecting to the debt but the court of Frankfurt in Germany overruled the appeal in November 2018. The Bank is filing an appeal. As of December 31, 2018, the Bank has accrued the compensation of $183,923 and EUR$8,000 thousands.

～ 146 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(E) Among the private equity fund contracts signed by the Bank, the maximum amount of committed investment that has not been invested is

New Taiwan Dollar	December 31, 2018 December 31, 2017 $ 50,000 -

Note: The committed investment amount that has been promised does not include the portion of the notified transaction that has not yet been delivered.

10. LOSSES DUE TO MAJOR DISASTERS: None.

11. SUBSEQUENT EVENTS: None.

12. OTHER

(A) Employee benefits, depreciation, depletion and amortization expenses were as follows:

Nature Employee benefit expenses Salary expense Labor and health insurance expenses Pension expenses Directors remuneration Other employee benefit Total employee benefit Depreciation expenses Amortization expenses Total	For the years ended December 31,
	2018 2017 Operating expense Operating expense $ 6,202,741 5,800,078 441,846 420,982 335,376 328,936 66,655 45,196 1,130,000 756,602 8,176,618 7,351,794 370,604 334,299 98,161 79,397 $ 8,645,383 7,765,490

The employee numbers amounted to 5,188 and 5,048 people as of December 31, 2018 and 2017, respectively. The number of directors who are not employees amounted to 12 people.

The average employee benefit expense of the Bank for the years ended December 31, 2018 and 2017 were $ 1,567 and $ 1,451 respectively.

The average salary expense of the Bank for the years ended December 31, 2018 and 2017 were $ 1,198 and $ 1,152 respectively.

～ 147 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(B) Profitability

Unit: %	Unit: %	Unit: %	Unit: %
Item		December 31, 2018	December 31, 2017
The ratio of return on assets	Before income tax	0.57	0.38
	After income tax	0.48	0.33
The ratio of return on equity	Before income tax	11.31	7.89
	After income tax	9.51	6.87
Net income ratio		33.74	24.49

Note 1 The ratio of return on assets = Income before (after) income tax expense÷ average assets.
Note 2 The ratio of return on equity = Income before (after) income tax expense ÷ average equity.

Note 3 Net income ratio = Gain or loss after income tax expense ÷ Net revenue.

Note 4 Income before (after) income tax expense refers to income accumulated from January of the current year to the current period.

13. OTHER DISCLOSURES

(A) Information on significant transactions:

(a) Cumulative purchase or sale of the same investee’s capital stock up to $300,000 or 10% of paid-in capital: None.
(b) Acquisition of real estate amounting to over $300,000 or 10% of paid-in capital: None.
(c) Disposition of real estate amounting to over $300,000 or 10% of paid-in capital: None.
(d) Discount of commissions and handling fees with related parties amounting to over $5,000: None.
(e) Receivables from related parties amounting to over $300,000 or 10% of paid-in capital: None.
(f) Sale of non-performing loans information: None.
(g) Types of securitization goods and related information approved by financial assets securitization rules or real estate securitization rules: None.

～ 148 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(h) Other significant transactions that might have influence over the decision making process of the financial statements users: None.
(B) Information of investees:
(a) The following is the information on investees (excluding investment in mainland China):

(Unit : In Thousands of New Taiwan Dollars ； thousand shares)

Name of investee	Location	Main business scope	Shareholding ratio	Book value	Investment gain (loss)	The cross holding of the	The cross holding of the	Bank and its related parties	Bank and its related parties
						Number of shares	Number of proposed shares	Total
								Number of shares	Shareholding ratio
Taiwan Business Bank Insurance Agency Co., Ltd.	2F, No.158, Songjiang Rd Taipei City	Agent of personal insurance	100.00 %	394,480	384,479	500	-	500	100.00 %
Taiwan Business Bank Property Insurance Agency Co., Ltd.	2F, No.158, Songjiang Rd Taipei City	Agent of property insurance	100.00 %	15,421	9,422	300	-	300	100.00 %
TBB International Leasing Co., Ltd.	5F., No.151, Sec. 4, Nanjing E. Rd.,Taipei City	Leasing business	100.00 %	1,406,353	22,722	150,000	-	150,000	100.00 %
TBB (Cambodia) Microfinance Institution Plc	Cambodia	SMEs and personal finance business	100.00 %	571,486	(28,932)	20	-	20	100.00 %
TBB Venture Capital Co., Ltd.	11F, No.30, Ta-Chang Street, Taipei, Taiwan, R.O.C.	Investing business	100.00 %	296,761	(3,239)	30,000	-	30,000	100.00 %

(b) Loans to others:

(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)	(Unit : In Thousands of New Taiwan Dollars)
NO.	Loan from	Loan to	Main Account	Related party	Maximum Amount	Ending balance	Actual amount	Range of interest rate	Main loan nature	Dealing amount	The necessary reason for short-term loans	Allowance for bad debts	Guarantee		Limited amount for individual object	Total limited amount for loan
													Name	Value
1	Taiwan Business Bank International Leasing Co., Ltd.	Shanghal- Buynow Electronic- Informatio- nCo., Ltd.	Entrusted loan	No	63,204	53,666	80,442	6.5%~6.8%	1	80,442	None	471	land, building 1~4F, underground parking lot B1~B2	853,579	351,588	1,406,353
2	TBB International Leasing Co., Ltd.	Chao Yang- Internatio- nal Co., Ltd.	Financial receivables	No	10,000	4,230	10,000	5.5%~7%	2	-	To the lender for buying goods	56	None	-	351,588	1,406,353
2	TBB International Leasing Co., Ltd.	Argosy seafoods corporatio- n	Financial receivables	No	30,000	25,112	30,000	5.7%-7.3%	2	-	To the lender for buying goods	336	None	-	351,588	1,406,353

～ 149 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

Note1 ： The meaning of the number is as follows.

(1)Zero stands for issuer.
(2)Investee companies are coded from NO 1 per respective companies.

Note2 ： The quota / amount is still valid up to now.

Note3 ： The meaning of the loan nature is as follows.

(1)1 stands for business dealing.
(2)2 stands for the necessary for short-term loans.

Note4 ： Limited amount for individual object ： 25% net value of parent company.

Note5 ： Total limited amount for loan ： 100% net value of parent company.

(c) Endorsements and guarantee for others: None
(d) Acquisition of securities:

(Unit : In Thousands of New Taiwan Dollars)

Company acquired	Type and name of the security	Relationship with the security issuer	Account	At the end of the period	At the end of the period	At the end of the period	At the end of the period	Note
				Number of shares	Carrying amount	Share proportion (Note 2)	Market price (Note 1)
Taiwan Business Bank International Leasing Co., Ltd.	Not public	The investee under the equity method of the subsidiary Taiwan Business Bank International Leasing Co., Ltd.	Investment under equity method	-	848,843	100.00 %	848,843

Note 1: Listed companies apply the market price to calculate the net amount of the shares possessed. Not listed companies and companies that are not in the over-the-counter market apply the share proportion to calculate the net amount of the shares possessed. The net amount of preferred stock is calculated based on the settlement.

Note 2: The share proportion of the preferred stock is calculated based on the shares the Company possessed divided by the shares issued.

(e) Accumulative purchases or sales of the same investee companies amounting to over $300,000 or 10% of paid-in capital: None.
(f) Acquisition of real estate amounting to over $300,000 or 10% of paid-in capital: None.
(g) Disposition of real estate amounting to over $300,000 or 10% of paid-in capital: None.
(h) Discount of commissions and handling fees with related parties amounting to over $5,000: None.
(i) Receivables from related parties amounting to over $300,000 or 10% of paid-in capital: None.
(j) Transactions of financial derivatives: None.
(k) Sale of non-performing loans information: None.
(l) Types of securitization goods and related information approved by financial assets securitization rules or real estate securitization rules: None.

～ 150 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(m) Other significant transactions that might have influence over the decision making process of the financial statements users: None.
(C) Information on investment in mainland China ：
(a) Name and major business item of the investee in China ：

(Unit : In Thousands of New Taiwan Dollars)

Name of investee company in Mainland China	Major business	Paid-in capital	Investment method	Accumulated amount transferred from Taiwan, beginning of the period	Investment transferred out or recovered	Investment transferred out or recovered	Accumulated amount transferred from Taiwan, end of the period	The current profit or loss of the investee	Shares directly or indirectly possessed by the Bank	Profit or loss recognized	Ending book value of investment	Investment profit transferred in
					Transferred out	Recovered
Taiwan Business Bank , Ltd. Shanghai branch	Banking business	3,910,537 (CNY800 million) (Operating capital)	( e )	3,910,537 (CNY800 million))	-	-	3,910,537 (CNY800 million)	-	Shanghai branch of the Bank, not an investee company	-	4,107,869	None
Taiwan Business Bank , Ltd. Wuhan branch	Banking business	3,942,815 (CNY800 million) (Operating capital)	( e )	3,942,815 (CNY800 million)	-	-	3,942,815 (CNY800 million)	-	Wuhan branch of the Bank, not an investee company	-	3,904,453	"
Taiwan Business Bank International Leasing Co., Ltd.	Leasing business	838,305 (CNY170 million) (Operating capital)	( d )	838,305 (CNY170 million)	-	-	838,305 (CNY170 million)	37,195	100%	37,195	848,843	"

Investment method is divided into five categories and are listed as follows:

(a) Invest in a Chinese Company through remittance from the third party.
(b) Establish a company in the third party and use the company to invest in a Chinese Company.
(c) Reinvest in the existing company in the third party and use the company to invest in a Chinese company.
(d) Directly invest in a Chinese company.
(e) Other: establish a foreign branch.
(b) Limit of investment in China ：

(Unit : In Thousands of New Taiwan Dollars)

Name of Company	Accumulated outflow of investment from Taiwan to Mainland China, end of the period	Investment amount authorized by Investment Commission, MOFA	Upper limit on investment authorized by Investment Commission, MOEA
Taiwan Business Bank Co., Ltd.(Note)	8,691,657 (CNY 1,770 million)	8,691,657 (CNY 1,770 million)	50,911,811

Note: The investment amount in China of the subsidiary TBB International Leasing Co., Ltd. is included.

～ 151 ～

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

14. SEGMENT INFORMATION

Please refer to the consolidated financial statements for the year ended December 31, 2018.

～ 152 ～

TAIWAN BUSINESS BANK, LTD.

Statement of Cash and Cash Equivalents

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item

Summary
Amount
NTD
$ 9,463,583
USD
10,926 , spot rate 30.7350
335,815
HKD
28,708 , spot rate 3.9230
112,620
JPY
987,733 , spot rate 0.2774
273,997
EUR
4,816 , spot rate 35.1800
169,425
CNY
24,553 , spot rate 4.4690
109,725
Subtotal
10,465,165
12,965,443
NTD
150,808
USD
358,146 , spot rate 30.7350
11,007,631
HKD
360,522 , spot rate 3.9230
1,414,327
AUD
106,172 , spot rate 21.6550
2,299,165
JPY
5,519,027 , spot rate 0.2774
1,530,978
CNY
1,239,355 , spot rate 4.4690
5,538,678
Other
334,136
Subtotal
22,275,723
$
45,706,331

Cash on hand, revolving funds and
foreign currencies
Checks for clearing
Due from other banks
Total

〜 153 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value

through Profit or Loss

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item Financial assets at fair value through profit or loss, mandatorily measured at fair value Financial assets designated at fair value through profit or loss Total	Summary Foreign exchange forward contracts Currency swap contracts Foreign currency options-call Stock index futures Commercial paper Listed and OTC stocks Beneficiary certificates Subtotal Overseas bonds Linked deposits	Amount Note $ 5,687 287,665 3,886 30,452 4,581,217 48,910 Table 1 67,080 Table 2 5,024,897 403,572 Table 3 1,506,135 $ 6,934,604

〜 154 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value through Profit or Loss - Listed and OTC

Stocks

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 1

			Table 1
Financial instrument	Number of shares	Acquisition cost	Fair value
			Unit price Total 210.50 22,313 229.50 14,688 30.15 11,909 48,910
Advantech Co., MediaTek Inc. E Ink Holdings Incorporated Total	106 64 395	$ 23,118 14,724 12,420 $ 50,262

Statement of Financial Assets at Fair Value through Profit or Loss - Beneficiary Certificates

Table 2

			Table 2
Financial instrument	Unit	Acquisition cost	Fair value
			Unit price Total 482.23 17,080 50,000 67,080
Mega China A Share Equity Fund USD Taiwania Capital Buffalo II Bioventures, LP Total	35.42 50,000	$ 20,900 50,000 $ 70,900

〜 155 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value through Profit or Loss

- Overseas Bonds December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Financial product Summary ENNOCONN CORPORATION ECB Expires on 2022.11.06 UNITED MICROELECTRONICS CORPORATION ECB Expires on 2020.05.18 HON HAI PRECISION INDUDTRY CO., LTD ECB Expires on 2022.11.06 Total	Total par value (Note1) Coupon rate $ 92,205 3MLIBOR+1.7%(IRS) 245,880 3MLIBOR+1.2%(IRS) 61,470 3MLIBOR+1.1%(IRS) $ 399,555	Acquisition cost 92,205 245,880 61,470 399,555	Fair value 94,948 246,970 61,654 403,572	Table 3 Changes in fair value attributed to changes in credit risk Note - - - -

Note 1 ： The total par value is expressed in thousands of New Taiwan dollars.

〜 156 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Accounts Receivable

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item
Interests receivable
Less: allowance for bad debts
Net
Acceptances receivable
Less: allowance for bad debts
Net
Accrued incomes
Accounts receivable factoring without
recourse
Less: allowance for bad debts
Net
Spot exchange receivable, foreign
currencies
Refinancing guaranty deposits
Guaranteed proceeds receivable from
refinancing
Receivable from credit card
Less: allowance for bad debts
Net
Receivable from security brokerage
Settlement fund
Other receivables
Less: allowance for bad debts
Net
Total

Summary
Amount
$ 3,288,394
(13,092)
3,275,302
1,411,879
(14,214)
1,397,665
73,545
566,451
(5,665)
560,786
36,539,337
13,025
10,968
1,300,607
(3,439)
1,297,168
43,252
337,174
Domestic credits
95,465
Advance payment
61,069
International debit card payment
11,222
Other
14,590
Subtotal
182,346
(32,025)
150,321
$
43,698,543

〜 157 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value through Other Comprehensive Income

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item Debt instrument at fair value through other comprehensive income Government bonds Corporate bonds Overseas bonds Subtotal Equity instrument at fair value through other comprehensive income Listed and OTC stocks Non-Listed and OTC stocks Property investment trust Subtotal	Summary	Amount Note $ 31,926,679 Table 1 21,716,510 Table 2 11,764,869 Table 3 65,408,058 3,500,614 Table 4 4,212,027 Table 5 43,502 7,756,143 $ 73,164,201

〜 158 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value through Other

Comprehensive Income - Government Bonds

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 1

Number of shares	Cost	Fair value Unit price Total Note 109.84 4,338,775 109.10 3,054,851 104.94 2,885,974 103.89 2,025,843 104.82 3,721,255 104.72 2,303,796 13,596,185 31,926,679
		Unit price 109.84 109.10 104.94 103.89 104.82 104.72
39,500 28,000 27,500 19,500 35,500 22,000 129,171	4,307,643 3,035,460 2,877,654 2,022,608 3,715,669 2,308,999 13,522,820
	31,790,853

Note ： none of the other items exceeds 5% of the account balance.

〜 159 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair value through Other Comprehensive Income - Corporate Bonds

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

==> picture [37 x 9] intentionally omitted <==

----- Start of picture text -----

Table 2
----- End of picture text -----

Item Summary B71869 Annual interest payment 6/11, maturity date 2022.6.11 Other (Note) Total	Number of shares	Total par value $ 1,100,000 20,385,000 $ 21,485,000	Coupon rate 1.49% 0.63%~2.59%		Cost 1,123,066 20,584,109 21,707,175	Accumulated impairment (515) (21,952) (22,467)	Valuation adjustment (209) 9,544 9,335	Fair value Unit price Total Note 102.08 1,122,857 20,593,653 21,716,510
								Unit price 102.08
	11,000 203,850

Note ： none of the other items exceeds 5% of the account balance.

〜 160 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value through Other

Comprehensive Income - Overseas Bonds

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 3

Financial instrument	Summary	Number of shares	Total par value (in thousands)	Coupon rate	Cost		Accumulated impairment		Valuation adjustment	Fair value Unit price Total Note 100.82 2,478,969 3,043,397 5,522,366 435,004 435,004 99.82 861,506 871,640 1,733,146 4,074,353 - 4,074,353 11,764,869
										Unit price
OBU`－` US TREASURY Other (Note) Subtotal LA Branch`－` Other (Note) Subtotal HK Branch`－` HK GOVT BOND PROGRA Other (Note) Subtotal SY branch`－` Other (Note) Subtotal Total	Maturity date 2028.08.15 Maturity date 2019.02.20	- - - - - -	$ 2,458,800 3,054,023 5,512,823 430,290 430,290 863,060 872,003 1,735,063 3,962,324 3,962,324 $ 11,640,500	2.88% 1.47%	$ 2,411,194 3,041,003 5,452,197 432,726 432,726 863,060 872,776 1,735,836 4,065,533 4,065,533 11,686,292		- (1,058) (1,058) (150) (150) - (293) (293) (409) (409) (1,910)		67,775 2,394 70,169 2,278 2,278 (1,554) (1,136) (2,690) 8,820 8,820 78,577	100.82 99.82 -

Note ： none of the other items exceeds 5% of the account balance.

〜 161 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value through Other Comprehensive Income - Listed and OTC stocks

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 4

Item TCC LTC DELTA TSMC WEC ASUSTEK QCI CHICONY CHT TRANSCEND CHB WATERLAND WT TWM FAR EASTONE RUENTEX DEVELOP. APT THSRC Total	Summary	Number of shares 995 1,593 331 85 580 277 1,390 1,246 195 493 58,028 36,873 1,281 970 1,186 312 15,000 44,500	Acquisition cost $ 35,655 61,057 37,079 18,889 7,387 74,130 74,464 88,099 20,923 41,666 888,684 437,940 56,955 106,266 91,416 16,015 90,000 445,000 $ 2,591,625	Valuation Adjustment (1,657) 3,619 5,786 279 472 (18,315) (1,211) (10,128) 1,112 (8,734) 109,400 (86,537) (7,252) (2,961) (806) (2,053) 13,500 914,475 908,989	Fair value Unit price Total Note 34.17 33,998 40.60 64,676 129.50 42,865 225.50 19,168 13.55 7,859 201.50 55,815 52.70 73,253 62.58 77,971 113.00 22,035 66.80 32,932 17.20 998,084 9.53 351,403 38.80 49,703 106.50 103,305 76.40 90,610 44.75 13,962 6.90 103,500 30.55 1,359,475 3,500,614
					Unit price 34.17 40.60 129.50 225.50 13.55 201.50 52.70 62.58 113.00 66.80 17.20 9.53 38.80 106.50 76.40 44.75 6.90 30.55

〜 162 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Financial Assets at Fair Value through Other

Comprehensive Income - Non-listed and OTC stocks

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 5

Item Financial Information Service Co., Ltd. Sunny Asset Management Corporation Taiwan Sugar Corporation Taiwan Mobile Payment Co. Taiwan Power Company Taiwan Financial Asset Service Corporation Taipei Financial Center Co. Taiwan Stock Exchange Co. Taiwan Depository & Cleansing Corporation Taiwan Futures Exchange Co. Taiwan Asset Management Corporation Taipei Forex Inc. Financial eSolution Co., Ltd. CDIB & Partners Investment Holding Corp. Sunsino Development Associated Inc. Taiwan Incubator SME Development Corporation Taiwan Urban Regeneration & Financial Services Co., Ltd. Chaofu Real Estate Management Co., Ltd. Total	Summary	Number of shares 6,117 46 16,832 600 1,452 5,000 11,760 6,589 307 3,341 60,000 700 905 54,000 1,480 3,417 2,500 150	Acquisition cost $ 50,041 460 58,294 6,000 11,427 50,000 328,104 198,012 4,639 20,000 600,000 7,000 9,245 500,000 17,440 29,000 25,000 8,598 $ 1,923,260	Valuation adjustment 262,654 559 1,491,722 (3,312) (787) (8,900) (88,200) 513,175 25,157 303,433 (54,000) 38,549 (1,766) (161,960) (10,171) (16,800) (2,400) 1,814 2,288,767	Fair value Unit price Total Note 51.12 312,695 22.11 1,019 92.09 1,550,016 4.48 2,688 7.33 10,640 8.22 41,100 20.40 239,904 107.94 711,187 96.96 29,796 96.81 323,433 9.10 546,000 65.07 45,549 8.26 7,479 6.26 338,040 4.91 7,269 3.57 12,200 9.04 22,600 69.41 10,412 4,212,027
					Unit price 51.12 22.11 92.09 4.48 7.33 8.22 20.40 107.94 96.96 96.81 9.10 65.07 8.26 6.26 4.91 3.57 9.04 69.41

〜 163 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Investment in Debt Instruments at Amortized Cost

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item Certificates of deposits with the central Bank Government bonds Corporate bonds Overseas bonds Negotiable certificate of deposits Total	Summary	Amortized balance $ 165,150,000 34,922,034 19,229,940 41,889,974 371,676 $ 261,563,624		Accumulated impairment (48,771) (10,313) (15,813) (18,115) (116) (93,128)	Carrying Amount Note 165,101,229 Note 34,911,721 Table 1 19,214,127 Table 2 41,871,859 Table 3 371,560 Table 4 261,470,496

Note:In order to comply with the immediate tax settlements mechanism of Central Bank and the interbank funds transfer system, the Bank provided time deposits with the Central Bank amounting to $2,000,000 as overdraft guarantee. The amount of the guarantee could be modified anytime and the remaining amount could be served as liquid reserves.

As of December 31, 2018, the Bank provided Central bank with certificates of deposit with face value of $23,000,000 and $200,000 respectively to serve as a guarantee for borrowing US and Japanese dollars from Central bank.

〜 164 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Debt Instruments at Amortized Cost - Government

Bonds

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 1

Financial instrument	Summary Annual interest payment 2/14. Maturity date 2027.02.14 Annual interest payment 8/10. Maturity date 2032.08.10 Annual interest payment 3/3. Maturity date 2024.03.03 Annual interest payment 9/11. Maturity date 2025.09.11	Number of shares	Total par value $ 5,950,000 1,870,000 1,850,000 2,200,000 21,303,400 $ 33,173,400	Coupon rate % 2.000 % 1.500 % 1.500 % 1.130 0.6250%-6.25%	Accumulated Impairment (1,903) (570) (563) (662) (6,615) (10,313)	Unamortized (discount) price 493,055 59,647 57,308 42,599 1,096,025 1,748,634	Carrying amount Note 6,441,152 1,929,077 1,906,745 2,241,937 22,392,810 34,911,721
A96102 A01107 A03106 A04112 Other (Note) Total		59,500 18,700 18,500 22,000 213,034

Note ： None of the other items exceeds 5% of the account balance.

〜 165 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Debt Instruments at Amortized Cost - Corporate

Bonds

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Financial instrument	Summary	Unit	Total par value	Coupon rate	Accumulated impairment	Accumulated impairment	Unamortized (discount) price	Unamortized (discount) price	Table 2 Carrying amount Note 1,198,789 18,015,338 19,214,127
B801AF Other (Note) Total	Annual interest payment 1/23. Maturity date 2021.1.23	12,000 179,000	$ 1,200,000 17,900,000 $ 19,100,000	% 1.75 0.78%~2.59%		(1,018) (14,795) (15,813)		(193) 130,133 129,940

Note ： None of the other items exceeds 5% of the account balance.

〜 166 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Debt Instruments at Amortized Cost - Overseas

Bonds

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 3

								Table 3
Financial instrument	Summary	Total par value	Coupon rate	Accumulated impairment			Unamortized (discount) price	Carrying amount Note 41,871,859
Other (Note)		$ 41,861,990			(18,115)		27,984

Note ： none of the other items exceeds 5% of the account balance.

〜 167 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Debt Instruments at Amortized Cost - Negotiable

Certificate of Deposits

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Table 4

Issuer MUFG UNION BANK AGRICULTURAL BANK OF CHINA Total	Par value $ 64,544 307,218 $ 371,762	Interest rate % 2.11 % -	Loss allowance (20) (96) (116)	Unamortized (discount) price - (86) (86)	Carrying amount Note 64,524 Pledged 307,036 371,560

〜 168 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Changes in Investments accounted for using Equity Method

For the year ended December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Company Taiwan Business Bank Insurance Agency Co., Ltd. Taiwan Business Bank Property Insurance Agency Co., Ltd. TBB International Leasing Co., Ltd. TBB (Cambodia) Microfinance Institution Plc TBB Venture Capital Co., Ltd. Total	Beginning balance Number of shares Amount 500 $ 356,615 300 15,185 150,000 1,393,801 20 580,336 - - $ 2,345,937	Increase Number of shares Amount - 384,479 - 9,422 - 22,722 - 20,082 30,000 300,000 736,705	Decrease Number of shares Amount - 346,614 - 9,186 - 10,170 - 28,932 - 3,239 398,141	Ending balance	Ending balance	Amount 394,480 15,421 1,406,353 571,486 296,761 2,684,501	Market	value Total 394,480 15,421 1,406,353 571,486 296,761 2,684,501	Guaranteed or pledged Note None The increase is the investment gains accounted for using equity method; the decrease is the cash dividends received. `〞` `〞` `〞` The increase is the investment gains accounted for using equity method; the decrease is the cumulative translation adjustment accounted for using equity method. `〞` The increase is the cumulated translation adjustment accounted for using equity method; the decrease is the investment losses accounted for using equity method `〞` The increase is the registration of establishment; the decrease is the investment losses accounted for using equity method
	Number of shares 500 300 150,000 20 -	Number of shares - - - - 30,000	Number of shares - - - - -	Number of shares 500 300 150,000 20 30,000	Shareholding ratio% 100.00 100.00 100.00 100.00 100.00		Unit Price 788.96 51.41 9.38 929.70 9.89

〜 169 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Changes in Property and Equipment

For the year ended December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item	Beginning	Beginning	balance		Increase	Increase	Increase		Decrease	Decrease	Decrease		Foreign exchange		Ending balance Cost Revaluation appreciation Guaranteed or pledged 6,737,960 2,986,161 None 7,824,415 31,184 `〞` 2,088,578 - `〞` 277,590 - `〞` 576,240 - `〞` 125,422 - `〞` 31,065 - `〞` 171,807 - `〞` - - `〞` 75,518 - `〞` 17,908,595 3,017,345
	Cost		Revaluation appreciation		Cost (Note 1)		Revaluation appreciation		Cost (Note 2)		Revaluation appreciation				Cost
Land Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Construction in progress Prepayment for equipment Prepayment for real estate Leased assets Total	$ 6,678,952 7,699,394 2,068,237 280,241 587,084 92,522 17,726 56,593 98,799 74,596 $ 17,654,144		2,986,161 31,184 - - - - - - - - 3,017,345		59,008 125,021 165,277 10,173 23,248 32,632 70,300 132,835 - 1,540 620,034		- - - - - - - - - - -		- - 148,708 14,807 35,395 5,526 56,961 17,776 98,799 624 378,596		- - - - - - - - - - -		- - 3,772 1,983 1,303 5,794 - 155 - 6 13,013		6,737,960 7,824,415 2,088,578 277,590 576,240 125,422 31,065 171,807 - 75,518 17,908,595

Note 1 ： An increase of $620,034 includes purchases of $446,775, prepayments of $59,008 for real estate transferred to land, construction in progress and prepayments of $96,752 for real estate transferred to property and equipment, prepayments of $16,875 for business facilities transferred to machinery and equipment and $624 of leased assets transferred to transportation and equipment.

Note 2 ： An decrease of $378,596 includes a depletion of $204,436, prepayments of $56,961 for construction in progress transferred to property and equipment, prepayments of $901 and $16,875 respectively for business facilities transferred to computer software and machinery & equipment, prepayments of $59,008 and $39,791 respectively for real estate transferred to land and buildings, and $624 of leased assets transferred to transportation and equipment.

〜 170 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Changes in Accumulated Depreciations of Property and Equipment

For the year ended December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item	Beginning	Beginning	balance		Increase	Increase	Increase		Decrease	Decrease	Decrease		Other (exchange difference)	Other (exchange difference)	Other (exchange difference)		Ending balance Cost Revaluation appreciation Guaranteed or pledged 4,011,121 16,617 None 1,736,082 - `〞` 242,631 - `〞` 489,708 - `〞` 49,020 - `〞` 53,451 - `〞` 6,582,013 16,617
	Cost		Revaluation appreciation		Cost (Note 1)		Revaluation appreciation		Cost (Note 2)		Revaluation appreciation		Cost		Revaluation appreciation		Cost
Buildings Machinery Transportation equipment Miscellaneous equipment Leasehold improvement Leased assets Total	$ 3,833,146 1,757,858 243,801 502,442 29,222 42,845 $ 6,409,314		16,617 - - - - - 16,617		177,975 125,273 13,393 22,183 21,178 11,226 371,228		- - - - - - -		- 148,018 14,555 35,088 5,425 624 203,710		- - - - - - -		- 969 (8) 171 4,045 4 5,181		- - - - - - -		4,011,121 1,736,082 242,631 489,708 49,020 53,451 6,582,013

Note 1 ： An increase of $371,228 includes depreciations of $370,604 and $624 of leased assets transferred to transportation equipment.

Note 2 ： A decrease of $203,710 includes depletions of $203,086 and $624 of leased assets transferred to transportation equipment.

〜 171 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Changes in Intangible Assets

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item	Beginning balance $ 273,608	Increase 110,230	Decrease (98,141)	Other (exchange differences) (753)	Ending balance Note 284,944
Computer software

item Unearned revenue Advance interest receipts Other advances receipts Guarantee deposits received Other Total	Summary Amount Advance receipt for service fee revenue, guarantee $ 89,156 Other 65,230 Subtotal 154,386 10,717 Credit card prepayments 86,683 Other 63,693 Subtotal 150,376 Mortgage deposit 183,039 Letter of Credit for domestic and international deposit 126,909 Performance bond 193,603 Other 263,016 Subtotal 766,567 Margin trading, deferred revenue 4,209 $ 1,086,255

〜 177 〜

TAIWAN BUSINESS BANK, LTD.

Statement of Derecognition of Investment Gains in Debt Instruments at Amortized

Cost

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item Overseas bonds	Amount Note $ 130

Statement of Foreign Exchange Gains

Item USD AUD CAD HKD GBP SGD ZAR SEK CHF JPY THB EUR NZD CNY	Amount Note $ 181,140 25,629 (3,389) 18,818 (741) 1,673 27,440 367 1,077 83,361 4,785 . 75,178 743 62,806 $ 478,887

〜 178 〜

TAIWAN BUSINESS BANK, LTD.

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Please refer to the notes below for information on statements of other significant accounts:

(1) Statement of securities purchased under resell agreements and bond investments, Note 6(D)
(2) Statement of discounts and loans, Note 6(F)
(3) Statement of other financial assets, Note 6(L)
(4) Statement of changes in accumulated depreciation of property and equipment, Note 6(M)
(5) Statement of deferred tax assets, Note 6(Y)
(6) Statement of financial liabilities at fair value through profit or loss, Notes 6(P) and (T)
(7) Statement of securities purchased under repurchase agreements and bond investments, Note 6(Q)
(8) Statement of financial debentures, Note 6(T)
。
(9) Statement of other financial liabilities, Note 6(U)
(10) Statement of provision for liabilities, Note 6(V)
(11) Statement of deferred income tax liabilities, Note 6(Y)
(12) Statement of interest revenue, Note 6(AC)
(13) Statement of interest expenses, Note 6(AC)
(14) Statement of service fee and commission income, Note 6(AD)
(15) Statement of gain (loss) on financial assets or liabilities measured at fair value through profit or loss, Note 6(AE)
(16) Statement of realized gain (loss) on financial assets at fair value through other comprehensive income, Note 6(AF)
(17) Statement of impairment losses and reversal of impairment losses on assets, Note 6(AH)
(18) Statement of share of profit (loss) of associates and joint ventures accounted for using equity method, Note 6(AI)
(19) Statement of net other non-interest income (loss), Note 6(AJ)
(20) Statement of bad debts expense and guarantee liability provision, Note 6(AK)
(21) Statement of employee benefit expenses, Note 12(A)
(22) Statement of depreciation and amortization expense, Note 6(AM)
(23) Statement of other general and administrative expense, Note 6(AN)

〜 179 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION DISCLOSURE

For the Years Ended December 31, 2018 and 2017

〜 180 〜

	Contents	Page
Cover Page		180
Table of Contents		181
Balance Sheets of Securities Division		182
Statements of Comprehensive Income of Securities Division		183
Notes to the Securities Division Financial Statements
1.	Company history	184
2.	Approval date and procedures of the financial statements	184
3.	New standards, amendments and interpretations adopted	184
4.	Summary of significant accounting policies	184`～`185
5.	Significant accounting judgments, estimations, assumptions, and sources	185
	of estimation uncertainty
6.	Explanation of significant accounts	186`～`195
7.	Related party transactions	195
8.	Pledged assets	195
9.	Commitments and contingencies	195
10.	Losses due to major disasters	195
11.	Subsequent Events	195
12.	Other	196
13.	Supplementary disclosures
	(A) Information on significant transactions	196
	(B) Information of investees	196
	(C) Information on investment in mainland China	196
14.	Segment information	196
Statement of significant accounts		197~207

〜 181 〜

TAIWAN BUSINESS BANK, LTD.

Balance Sheets of Securities Division

December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars)

			December 31,	2018	December 31,	2017				December 31,	2018	December 31,	2017
	Assets		Amount	`％`	Amount	`％`		Liabilities and equity		Amount	%	Amount	%
	Current Assets`：`							Current Liabilities
113200	Financial assets at fair value through other comprehensive income`－`current (Note 6(A))		2,210,085	17	-	-	214010	Liabilities for securities sold under repurchase agreements (Note 6(H))	$	1,225,074	9	1,105,596	7
113400	Available-for-sale financial assets`－`current (Note 6(B))		-	-	1,732,843	12	214040	Deposits received from securities borrowers (Notes 4 and 6(C))		103,529	1	95,470	1
114030	Margin loans receivable (Notes 4 and 6(C))		1,827,207	14	2,318,011	15	214050	Guaranteed price deposits received from securities borrowers (Notes 4 and 6(C))		111,936	1	111,668	1
114040	Refinancing margin		13,025	-	-	-	214130	Accounts payable (Note 6(I))		378,366	3	148,453	1
114050	Guaranteed proceeds receivable from refinancing		10,968	-	-	-	219000	Other current liabilities		40,875	-	67,222	-
114130	Accounts receivable (Note 6(D))		479,307	4	263,544	2		Total current liabilities		1,859,780	14	1,528,409	10
119000	Other current assets		13,649	-	42,841	-	229030	Guaranteed deposits received		20	-	20	-
	Total current assets		4,554,241	35	4,357,239	29	229110	Inter-department accounts		8,566,518	66	10,990,732	73
	Non-current Asssets`：`							Total non current liabilities		8,566,538	66	10,990,752	73
123200	Financial assets at fair value through other comprehensive income`－`non current (Note		8,082,821	62	-	-		Total liabilities		10,426,318	80	12,519,161	83
	6(A))						301110	Assigned working capital		2,200,000	17	2,200,000	15
123300	Investment in debt instruments at amortized cost`－`non current (Note 6(E))		328,631	3	-	-	304020	Special reserve		185,127	2	185,127	1
123400	Available-for-sale financial assets`－`non current (Note 6(B))		-	-	10,353,332	69	304040	Unappropriated retained earnings		144,510	1	142,568	1
123500	Held-to-maturity financial assets`－`non current (Note 6(F))		-	-	330,653	2	305290	Other equity interest`－`other		52,778	-	40,597	-
125000	Premises and equipment`－`net (Note 6(G))		8,121	-	9,301	-		Total equity		2,582,415	20	2,568,292	17
127000	Intangible assets`－`net		3,207	-	5,604	-
129020	Operating guaranty deposits and settlement fund		31,011	-	30,608	-
129030	Guarantee deposits paid		698	-	713	-
129040	Deferred charges		3	-	3	-
	Total non current assets		8,454,492	65	10,730,214	71
	Total assets	$	13,008,733	100	15,087,453	100		Total liabilities and equity	$	13,008,733	100	15,087,453	100

〜 182 〜

TAIWAN BUSINESS BANK, LTD.

Statements of Comprehensive Income of Securities Division

For the years ended December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars)

Revenues`：` 401000 Brokerage handling fee revenue (Note 6(J)) 401110 Handling fees from securities financing 421200 Interest revenue (Note 6(K)) 421750 Realized gains on financial assets measured at fair value through other comprehensive income- debt instruments (Note 6(L)) 424100 Future commission revenue 425300 Impairment loss (expected credit loss and reversal of impairment loss) 428000 Other operating revenue (Note 6(M)) Expenses`：` 501000 Brokerage handling fee expenses (Note 6(N)) 503000 Refinancing processing fee expenses 521200 Finance costs (Note 6(O)) 528000 Other operating expenses (Note 6(P)) 530000 Operating expenses (Note 6(Q)) 602000 Other gains and losses (Note 6(R)) Net income 805000 Other comprehensive income`：` 805615 Unrealized gains from investments in debt instruments at fair value through other comprehensive income 805620 Unrealized gains on available-for-sale financial assets 805699 Income tax related to components of other comprehensive income 805000 Other comprehensive income (net amount after tax) Total comprehensive income	For the year ended December 31,	For the year ended December 31,	For the year ended December 31,
	2018	`％` 51 - 47 - 2 - - 100 3 - 1 - 52 13 69 31 1 - - 1 32	2017
	Amount $ 241,566 1,346 222,559 93 7,423 877 255 474,119 15,595 83 3,636 1,155 248,463 60,677 329,609 144,510 6,356 - - 6,356 $ 150,866		Amount `％` 222,066 47 973 - 241,322 52 - - 5,989 1 - - 251 - 470,601 100 13,748 3 152 - 4,770 1 1,559 - 239,337 51 68,467 15 328,033 70 142,568 30 - - 87,224 19 - - 87,224 19 229,792 49

〜 183 〜

TAIWAN BUSINESS BANK, LTD. Notes to the Securities Division Financial Statements

December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars, unless otherwise stated)

1. Company history

The securities division of Taiwan Business Bank, Ltd. was approved by the Securities Regulatory Commission, Ministry of Finance on May 8, 1976 to concurrently operate in proprietary securities and brokerage businesses and began its operation in the same year.

2. Approval date and procedures of the financial statements

The approval date and procedures of the financial statements of the securities division are consistent with those of the Bank. Please refer to the Bank’s financial statements.

3. New standards, amendments and interpretations adopted

The new standards, amendments, and interpretations adopted by the securities division are consistent with those of the Bank. Please refer to the Bank’s financial statements.

4. Summary of significant accounting policies

The financial statements for the securities division have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Firms.

Except for the following items, the significant accounting policies of the securities division are consistent with those of the Bank. Please refer to the Bank’s financial statements.

(A) Classification of current and non-current assets and liabilities

Current assets are those expected to be converted to cash, sold or consumed within 12 months from the balance sheet date. Current liabilities are obligations due on demand within 12 months from the balance sheet date. Assets and liabilities that are not classified as current are classified as non-current assets and liabilities, respectively.

(B) Margin loan, short sale, rediscount, and refinancing

When conducting margin purchase operations in securities trading, the securities division recognizes financing funds from securities investors purchasing stocks as margin loans receivable. All stocks purchased by the margin buyer are used as collaterals, which are to be returned when repayment from the buyer is settled.

〜 184 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

When conducting short sale operations in securities trading, the securities division recognizes deposits from short sellers as refundable deposits and charges short sale proceeds (deducting securities transaction tax, handling fee from brokered trading and handling fee from securities financing) as collateral, recognizing it as deposits payable for securities financing. Both deposits and short sale proceeds are to be returned when repayment from short sellers is settled.

When conducting margin purchase and short sale operations in securities trading, the securities division with insufficient fund shall recognize refinancing from securities finance company as refinancing borrowings and all shares purchased are to be used as collaterals. The securities division may borrow securities from securities finance company via refinancing borrowings, and refundable deposits paid are recognized as refinancing margin. The short sale proceeds paid by short sellers as refinancing collateral to the security finance company are recognized as deposits payable for securities financing and refinancing collateral receivable respectively.

According to the former No.82416 of Taiwan Financial Certificate issued by the Securities and Futures Commission, Ministry of Finance, when the overall collateral maintenance ratio of the customer margin account falls below the required number, and the account fails to cover the deficiency within deadline, the margin balance receivable is recognized as overdue receivable. If the securities in customer margin account cannot be disposed of, the securities margin balance receivable is recognized as other receivables or overdue receivable, and assessed by its impairment amount in accordance with the IFRS 39. It is then recognized correspondingly as allowance for bad debts.

(C) Assigned working capital

The working capital refers to the amount allocated to the securities division as the Bank concurrently operates in securities business.

5. Significant accounting judgments, estimations, assumptions, and sources of estimation uncertainty

The securities division's significant accounting judgments, estimations, assumptions, and sources of estimation uncertainty is consistent with those of the Bank. Please refer to the Bank's financial statements.

〜 185 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

6. Explanation of significant accounts

(A) Financial assets at fair value through other comprehensive income

Current: Government bonds Corporate bonds Valuation adjustment on securities held for operations-proprietary Total Non-current: Government bonds Corporate bonds Valuation adjustment on securities held for operations-proprietary Total	December 31, 2018 $ 99,964 2,103,125 6,996 $ 2,210,085 $ 4,285,417 3,756,570 40,834 $ 8,082,821

Investment in debt instruments measured at fair value through other comprehensive income

The Bank assessed that the above bond investments were held within a business model whose objective was achieved by both collecting contractual cash flows and selling financial assets. The bond investments have been classified as the financial asset measured at fair value through other comprehensive income since January 1, 2018. Some of the investment in debt instruments measured at fair value through other comprehensive income are held for reverse repurchase agreement. Please refer to Note 6 (H) for further details.

Please refer to the financial statements for information on credit risk (including the impairment in debt instruments) and market risk.
The Bank conducted an impairment assessment for the year ended December 31, 2018. Financial assets measured at fair value through other comprehensive income and recognized as impairment loss (reversal of impairment loss) were as follows:

Beginning balance Adjustments of initial application of IFRS 9 Beginning balance (according to IFRS 9) Reversal Ending balance	For the year ended December 31, 2018
	$ - 5,825 5,825 (877) $ 4,948

〜 186 〜

TAIWAN BUSINESS BANK, LTD.

NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

(B) Available-for-sale financial assets

Current: Government bonds Corporate bonds Subtotal Valuation adjustment on securities held for operations-proprietary Total Non-current: Government bonds Corporate bonds Subtotal Valuation adjustment on securities held for operations-proprietary Total	December 31, 2017
	$ 528,044 1,200,241 1,728,285 4,558 $ 1,732,843 $ 3,943,955 6,373,338 10,317,293 36,039 $ 10,353,332

Please refer to Note 6(H) for the information regarding the repurchase conditions for available-for-sale financial assets shown above.

(C) Margin loans receivable

The securities financing transactions for the years ended December 31, 2018 and 2017 were as follows:

Margin loans receivable Less: allowance for bad debts Net The change in allowance for bad debts was as follows:	December 31, 2018 December 31, 2017 $ 1,845,664 2,341,425 (18,457) (23,414) $ 1,827,207 2,318,011

Beginning balance (Reversal) provision Transfer in Ending balance	For the years ended December 31,
	2018 2017 $ 23,414 17,087 (4,957) 6,235 - 92 $ 18,457 23,414

The guaranteed deposits received from securities trading of the securities division for the years ended December 31, 2018 and 2017 are $103,529 and $95,470, respectively; the deposits payable for securities financing are $111,936 and $111,668, respectively.

〜 187 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

The collateral securities provided by clients and the securities information on short sales for the years ended December 31, 2018 and 2017 were as follows:

Financing-backed securities Margin lending securities	December 31, 2018 Number of shares (Note) Par value 99,428 $ 994,276 2,178 $ 21,780	December 31, 2017
	Number of shares (Note) 99,428 2,178	Number of shares (Note) Par value 117,605 1,176,046 1,951 19,510

Note: the unit is in thousands.

(D) Accounts receivable

Receivable price of securities purchased for customers Settlement price Interests receivable Less: allowance for bad debts Total	December 31, 2018 December 31, 2017 $ 43,252 90,981 337,174 61,723 98,914 110,840 (33) - $ 479,307 263,544

Change in allowance for bad debts:

Beginning balance Adjustment of initial application of IFRS 9 Beginning balance (according to IFRS 9) Reversal Ending balance Investment in debt instruments at amortized cost—non current Non-current: Government bonds Less: accumulated impairment Total	For the year ended December 31, 2018 $ - 40 40 (7) $ 33 December 31, 2018 $ 328,729 (98) $ 328,631

(E) Investment in debt instruments at amortized cost—non current

Please refer to the independent auditor's audit report in the financial statements for credit risk information.

〜 188 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

The pledged assets provided by the above investment in debt instruments at amortized cost were shown follows:

Operating guaranty funds	December 31, 2018
	$ 280,000

The securities division of the Bank assessed the impairment of investment in debt instruments at amortized cost as of December 31, 2018. The impairment losses (reversal of impairment losses) were as follow:

Beginning balance Adjustment of initial application of IFRS 9 Beginning balance (according to IFRS 9) Provision Ending balance Held-to-maturity financial assets Non-current`：` Government bonds	For the year ended December 31, 2018
	$ - 98 98 - $ 98 December 31, 2017 $ 330,653

(F) Held-to-maturity financial assets

According to the Regulations Governing Securities Firms, the securities division of the Bank shall lodge an operation guarantee with a bank designated by the FSC. On December 31, 2017, the operation guarantee was paid by the securities division in government bond with a par value of $280,000.

(G) Premises and equipment—net

The statement of changes in the securities division's premises and equipment cost, depreciation and impairment loss were as follows:

The beginning and ending book values and accumulated depreciation of the premises and equipment

December 31, 2018	Cost $ 79,338 2,530 $ 81,868	Accumulated depreciation Total (71,960) 7,378 (1,787) 743 (73,747) 8,121
Equipment Leased assets Total

〜 189 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

December 31, 2017	Cost $ 81,441 2,530 $ 83,971	Accumulated depreciation Total (73,246) 8,195 (1,424) 1,106 (74,670) 9,301
Equipment Leased assets Total

Statement of changes in premises and equipment costs

Equipment Leased assets Total Equipment Leased assets Total	January 1, 2018 $ 81,441 2,530 $ 83,971 January 1, 2017 $ 85,434 2,530 $ 87,964	Increase 2,522 - 2,522 Increase 760 - 760	Decrease December 31, 2018 (4,625) 79,338 - 2,530 (4,625) 81,868 Decrease December 31, 2017 (4,753) 81,441 - 2,530 (4,753) 83,971

Statement of changes in accumulated depreciation of property and equipment.

Equipment Leased assets Total Equipment Leased assets Total	January 1, 2018 $ 73,246 1,424 $ 74,670 January 1, 2017 $ 73,931 1,061 $ 74,992	Increase 3,328 363 3,691 Increase 4,057 363 4,420	Decrease December 31, 2018 (4,614) 71,960 - 1,787 (4,614) 73,747 Decrease December 31, 2017 (4,742) 73,246 - 1,424 (4,742) 74,670

(H) Liabilities for securities sold under repurchase agreements

Assets	December 31, 2018	December 31, 2018	December 31, 2018	December 31, 2018
	Par value	Selling Price (recognized in securities sold under repurchase agreements)	Designated repurchase amount	Designated repurchase date
Financial assets at fair value through other comprehensive income	1,126,200	1,225,074	1,226,326	Prior to June 14, 2019

〜 190 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

Assets	December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017
	Par value	Selling Price (recognized in securities sold under repurchase agreements)	Designated repurchase amount	Designated repurchase date
Available-for-sale financial assets	1,001,200	1,105,596	1,106,770	Prior to June 28, 2018

(I) Accounts payable

Prices payable of securities sold for customers Interest payable Total

	December 31,	December 31,
	2018	2017
$	377,826	147,945
	540	508
$	378,366	148,453

(J) Brokerage handling fee revenue

Settlement from brokered trading-TWSE Settlement from brokered trading-OTC Front-end load Total	For the years ended December 31,
	2018 2017 $ 181,870 162,632 58,927 58,589 769 845 $ 241,566 222,066

(K) Interest revenue

Financing and securities refinancing interest Bond interest Total	For the years ended December 31,
	2018 2017 $ 96,604 81,337 125,955 159,985 $ 222,559 241,322

(L) Realized gains (losses) on investment in debt instruments measured at fair value through other comprehensive income

Gains on disposal of bonds

		For the years ended	December 31,
		2018	2017
	$	93	-

(M) Other operating revenue

Clearing and settlement interest Miscellaneous income Total	For the years ended December 31,
	2018 2017 $ 195 206 60 45 $ 255 251

〜 191 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

(N) Brokerage handling fee expense

Brokerage handling fee expense
Proprietary handling fee expense
Total
(O)
Finance costs
Securities financing interest expense
Securities sold under repurchase agreements interest expense
Total
(P)
Other operating expenditure
Processing fee expenses
(Q)
Operating expenses
Salary expense
Overtime premium
Stationery printing
Traveling expense
Postage expenses
Repairs and maintenance expense
Employee benefits
Utilities expense
Insurance expense
Miscellaneous purchases
Professional service fees
Meal expense
Subscription, magazine and periodicals
Taxes
Commissions expense
Depreciations
Amortizations
Information technology expense
Membership fee
Loss on error trading
Transportation expense
Pension expense
Depository service expense
Investor protection expense
Other
Total

For the years ended December 31,

2018
2017
$ 15,562
13,686
33
62
$
15,595
13,748
For the years ended December 31,

〜 192 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

(R) Other gains and losses

Financial income Gains on disposals of investments Gains (losses) on reversal of bad debts Other income Financial expenses Assets retirement losses Total	For the years ended December 31,
	2018 2017 $ 100,913 100,390 - 21,305 5,024 (6,235) 674 1,463 (167,277) (185,379) (11) (11) $ (60,677) (68,467)

(S) Financial instrument disclosure
Fair value information

The fair value information of the securities division is consistent with that of the Bank. Please refer to the Bank's financial statements.

Based on fair value measurement
(1) The fair value hierarchy of information

The financial instruments which are recorded as fair value measure on an ongoing basis, the fair value hierarchy of information were as follows:

Assets and Liabilities Total Instruments measured at fair value on a recurring basis Non-derivative financial assets: Financial assets at fair value through other comprehensive income - current $ 2,210,085 Financial assets at fair value through other comprehensive income - non current 8,082,821		December 31, 2018	December 31, 2018
		1st Tier 2,210,085 8,082,821	2nd Tier 3rd Tier - - - -

〜 193 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

Assets and Liabilities Total Instruments measured at fair value on a recurring basis Non-derivative financial assets: Available-for-sale financial assets - current $ 1,732,843 Available-for-sale financial assets - non current 10,353,332		December 31, 2017	December 31, 2017
		1st Tier 1,732,843 10,353,332	2nd Tier 3rd Tier - - - -

(2) Valuation techniques used in estimating the fair values of financial instrument

The valuation techniques used in estimating the fair values of financial instruments by the securities division is consistent with those of the Bank. Please refer to the Bank's financial statements.

Not based on fair value measurement
(1) Fair value information

The following chart presents the financial instruments not based on fair value measurement of the Bank's securities division. Except those items, other's fair value are reasonably approximate value, the securities division does not disclose their fair value.

December 31, 2018 Book value Fair value Investment in debt instruments at amortized cost - non current $ 328,631 336,631 December 31, 2017 Book value Fair value Held-to-maturity financial assets - non current $ 330,653 341,356 The fair value hierarchy of information December 31, 2018 Assets and Liabilities Total 1st Tier 2nd Tier 3rd Tier Investment in debt instruments at amortized cost - non current 336,631 336,631 - -	December 31, 2018 Book value Fair value Investment in debt instruments at amortized cost - non current $ 328,631 336,631 December 31, 2017 Book value Fair value Held-to-maturity financial assets - non current $ 330,653 341,356 The fair value hierarchy of information December 31, 2018 Assets and Liabilities Total 1st Tier 2nd Tier 3rd Tier Investment in debt instruments at amortized cost - non current 336,631 336,631 - -	December 31, 2018 Book value Fair value Investment in debt instruments at amortized cost - non current $ 328,631 336,631 December 31, 2017 Book value Fair value Held-to-maturity financial assets - non current $ 330,653 341,356 The fair value hierarchy of information December 31, 2018 Assets and Liabilities Total 1st Tier 2nd Tier 3rd Tier Investment in debt instruments at amortized cost - non current 336,631 336,631 - -	December 31, 2018 Book value Fair value $ 328,631 336,631 December 31, 2017 Book value Fair value $ 330,653 341,356 December 31, 2018	December 31, 2018 Book value Fair value $ 328,631 336,631 December 31, 2017 Book value Fair value $ 330,653 341,356 December 31, 2018
	Total 336,631	1st Tier 336,631		2nd Tier 3rd Tier - -

(2) The fair value hierarchy of information

〜 194 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

Assets and Liabilities Held-to-maturity financial assets - non current		December 31, 2017	December 31, 2017
	Total 341,356	1st Tier 341,356	2nd Tier 3rd Tier - -

(3) Valuation techniques

The valuation techniques used by the securities division for fair value evaluation of financial instruments are consistent with those of the Bank. Please refer to the Bank's financial statements.

(T) Financial risk information

In order to achieve its risk management goals, the Bank develops risk control strategies corresponding to different types of risks. Please refer to the Bank's financial statements for relevant financial risk information on credit risk, market risk, liquidity risk and cash flow risk resulted from changes in the interest rate.

7. Related party transactions: None.

8. Pledged assets: Please refer to notes 6(E) and (F) for more details.

9. Commitments and contingencies: None.

10. Losses due to major disasters: None.

11. Subsequent Events: None.

〜 195 〜

TAIWAN BUSINESS BANK, LTD. NOTES TO SECURITIES DIVISION FINANCIAL STATEMENTS (CONT'D)

12. Other

(A) Employee benefits, depreciation, depletion and amortization expense categorized by function ：

Category Employee benefits expense Salary expense Labor and health insurance expense Pension expense Other employee benefits expense Subtotal Depreciation expense Amortization expense Total	For the years ended December 31 2018 2017 Operating expenses Operating expenses $ 152,681 145,410 14,747 14,083 8,586 8,034 7,332 7,421 183,346 174,948 3,691 4,420 2,682 2,425 $ 189,719 181,793

The employee numbers amounted to 237 and 238 people as of December 31, 2018 and 2017, respectively.

13. Supplementary disclosures

(A) Information on significant transactions: None.
(B) Information of investees: None.
(C) Information on investment in mainland China: None.

14. Segment information: None.

〜 196 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Financial Assets at Fair Value through Other

Comprehensive Income - Current

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Financial Instrument Summary Government bonds`－` Other(Note) Subtotal Corporate bonds`－` B903UT Annual interest payment 04/23`，` maturity date 2019/04/23 B618B1 Annual interest payment 08/02`，` maturity date 2019/08/02 B401CY Annual interest payment 09/07`，` maturity date 2019/09/07 B71879 Annual interest payment 09/12`，` maturity date 2019/09/12 B903V2 Annual interest payment 11/30`，` maturity date 2019/11/30 Other (Note) Subtotal Total	Number of shares	Par value		Total amount - - - - - - - - - -	Interest rate 1.13~1.38% % 1.370 % 1.400 % 1.370 % 1.410 % 1.270	Acquisition cost 99,964 99,964 400,612 300,036 149,978 300,740 301,226 650,533 2,103,125 2,203,089	Accumulated impairment - - - - - - -	Valuation adjustment 359 359 440 1,442 730 1,018 639 2,368 6,637 6,996	Fair value Unit price Total amount Note 100.32 100,323 100,323 100.26 401,052 100.49 301,478 100.47 150,708 100.59 301,758 100.62 301,865 652,901 2,109,762 2,210,085
									Unit price 100.32 100.26 100.49 100.47 100.59 100.62
	1,000,000 4,000,000 3,000,000 1,500,000 3,000,000 3,000,000 6,500,000	$ 100,000 100,000 400,000 300,000 150,000 300,000 300,000 650,000 2,100,000 $ 2,200,000

The financial assets at fair value through other comprehensive income shown above are held for resale agreement.

Note ： none of the securities balance exceeds 5% of the total amount.

〜 197 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Accounts Receivable for

Securities Financing

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Bond	Number of shares	Amount Note $ 1,845,664 Note (18,457) $ 1,827,207
Other Less: allowance for bad debts Total	100,157,000

Note ： None of the securities balance exceeds 5% of the total amount.

Statement of Other Assets - current

Item	Summary	Amount Note $ 11,578 844 1,227 $ 13,649
Prepayments Amounts held for settlement Margin trading Total	Other prepaid taxes

〜 198 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Financial Assets at Fair value through Other Comprehensive Income

- Non-current

For the year ended December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Financial instrument Government bonds`－` A95107 A04112 A05104 A05111 A07107 Other (Note) Subtotal Corporate bonds`－` Other (Note) Total	Beginning balance Number of shares Fair value $ 4,000,000 441,170 9,000,000 912,358 10,500,000 1,037,643 7,500,000 729,804 - - 7,860,000 813,053 38,860,000 3,934,028 63,100,000 6,419,304 $ 101,960,000 10,353,332	Increase Number of shares Amount - - - 1,904 - 8,091 - 4,948 4,500,000 448,492 - - 4,500,000 463,435 - - 4,500,000 463,435	Decrease Number of shares Amount - (1,801) - - - - - - - - (1,000,000) (99,949) (1,000,000) (101,750) (26,000,000) (2,632,196) (27,000,000) (2,733,946)	Ending balance Number of shares Fair value 4,000,000 439,369 9,000,000 914,262 10,500,000 1,045,734 7,500,000 734,752 4,500,000 448,492 6,860,000 713,104 42,360,000 4,295,713 37,100,000 3,787,108 79,460,000 8,082,821	Accumulated impairment - - - - - - - - -	Guaranteed or pledged Note
	Number of shares $ 4,000,000 9,000,000 10,500,000 7,500,000 - 7,860,000 38,860,000 63,100,000 $ 101,960,000	Number of shares - - - - 4,500,000 - 4,500,000 - 4,500,000	Number of shares - - - - - (1,000,000) (1,000,000) (26,000,000) (27,000,000)	Number of shares 4,000,000 9,000,000 10,500,000 7,500,000 4,500,000 6,860,000 42,360,000 37,100,000 79,460,000

Note ： None of the other items exceeds 5% of the account balance.

〜 199 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Changes in Financial Assets at Amortized Cost - Non-Current

For the year ended December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Financial instrument Government bonds`－` A90201 A01109 Other (Note) Total	Beginning balance Number of shares Carrying amount $ 196,000 19,534 3,000,000 299,734 114,000 11,385 $ 3,310,000 330,653	Increase Number of shares Amount - 16 - 54 - - - 70	Decrease Number of shares Amount - - - - (20,000) (1,994) (20,000) (1,994)	Ending balance Number of shares Carrying amount 196,000 19,550 3,000,000 299,788 94,000 9,391 3,290,000 328,729	Accumulated impairment 6 89 3 98	Guaranteed or pledged Note 280,000 thousands pledged
	Number of shares $ 196,000 3,000,000 114,000 $ 3,310,000	Number of shares - - - -	Number of shares - - (20,000) (20,000)	Number of shares 196,000 3,000,000 94,000 3,290,000

Note ： None of the other items exceeds 5% of the account balance.

〜 200 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Changes in Property and Equipment

For the year ended December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item	Beginning balance $ 81,441 2,530 $ 83,971		Increase 2,522 - 2,522		Decrease (4,625) - (4,625)	Ending balance 79,338 2,530 81,868	Guaranteed or pledged Note None `〞`
Equipment Leased assets Total

Statement of Changes in Accumulated Depreciation of Property and Equipment

Item	Beginning balance $ 73,246 1,424 $ 74,670		Increase 3,328 363 3,691		Decrease (4,614) - (4,614)	Ending balance Note 71,960 1,787 73,747
Equipment Leased assets Total

Note: The securities division uses straight line depreciation with the same estimated useful lives of equipments as the Bank. Please refer to the Notes 4(H) and (I).

〜 201 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Securities Sold under Repurchase Agreement

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Client	Terms of Transactions	Terms of Transactions	Terms of Transactions	Amount	Amount	Turnover Note 329,678 119,688 10,722 75,754 109,000 200,000 380,232 Note 1,225,074
	Issue date	Maturity date	Interest rate	Type	Par value
Yang○○Hua Yang○Jung Chen○Lang Fu○○Shou Other	2018.11.09 2018.11.09 2018.11.09 2018.07.31 2018.12.17 2018.12.18	2019.05.10 2019.05.10 2019.05.10 2019.04.30 2019.01.25 2019.01.25	0.30% 0.30% 0.30% 0.30% 0.45% 0.55%	A05111 A05111 A05104 A05111 A05104 B903UT	$ 297,100 108,000 9,700 68,400 98,100 200,000 344,900 $ 1,126,200

Note ： None of the securities balance exceeds 5% of the total amount.

〜 202 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Securities Financing Refundable Deposits

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Securities	Number of shares	Amount	Note
Other	2,202,000 $	103,529	Note
Note`：`None of the securities balance exceeds 5% of the total amount.

Statement of Guaranteed Price Deposits Received from Securities Borrowers

Securities	Number of shares	Amount	Note
Other	2,202,000 $	111,936	Note
Note`：`None of the securities balance exceeds 5% of the total amount.

Statement of Accounts payable

Client	Summary	Amount Note $ 377,826 540 $ 378,366
Client	Prices payable of securities sold for customers Interest payable

〜 203 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Other Liabilities - Current

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Item	Summary	Amount Note $ 7,519 9,381 2,007 954 15,729 3,975 752 558 $ 40,875
Advance receipts Receipts under custody Accrued expenses Lease payable Other payables Total	Labor and health insurance expense and pension Business tax`、`welfare fund and stamp tax Bonus for unused vocation`、`year- end and group bonus Handling fee expense`、`group premiums and investor protection expense Telephone switchboard lease Other

〜 204 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Brokerage Handling Fee Revenue

December 31, 2018

(Expressed in thousands of New Taiwan dollars)

Handling fee revenues from brokered trading

Month	Brokered trading-TWSE		Brokered trading-OTC		Handling fees from securities financing	Other fee income Note 132 27 73 57 42 68 80 47 49 38 48 110 771
January February March April May June July August September October November December	$ 19,226 11,109 16,891 14,142 18,329 18,753 16,569 15,936 11,911 14,163 13,451 11,389 $ 181,869		6,530 3,297 5,870 4,939 6,790 6,697 5,648 4,776 3,327 3,249 3,852 3,951 58,926		129 84 116 99 108 65 123 138 121 144 134 85 1,346

〜 205 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

Statement of Employees benefits, Depreciation, Amorization and Other Operating Expenses

For the year ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan dollars)

Item	Amount Current period Prior period Note $ 152,681 145,410 14,747 14,083 8,586 8,034 7,332 7,421 3,691 4,420 2,682 2,425 58,744 57,544 $ 248,463 239,337
	Current period
Employee benefits expenses Salary expense Labor and health insurance expense Pension expense Other employee benefits expense Depreciation expense Amortization expense Other operating expense Total	$ 152,681 14,747 8,586 7,332 3,691 2,682 58,744 $ 248,463

Note ：

(1)As of December 31, 2018 and 2017, the employee numbers amounted to 237 and 238 people respectively; the average employee benefit expenses are $774 and $735 respectively.

(2)As of December 31, 2018 and 2017, the number of employees who are not supervisors amounted to 198 and 199 people respectively ； the average employee benefit expenses are $750 and $703 respectively.

〜 206 〜

TAIWAN BUSINESS BANK, LTD. SECURITIES DIVISION

December 31, 2018

Please refer to the notes below for information on statements of other significant accounts:

(1) Statement of accounts receivable, Note 6(D).

(2) Statement of interest revenue, Note 6(K).

(3) Statement of finance costs, Note 6(O).

〜 207 〜

AI assistant

TBB — Annual Report 2018

52201_rns_2018-11-09_a77ad27d-b004-4ae6-9309-87923c84f537.pdf

TAIWAN BUSINESS BANK, LTD.

Financial Statements

Table of Contents

Independent Auditors’ Report

Opinion

Basis for Opinion

Key Audit Matters

How the matter was addressed in our audit

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Auditors’ Responsibilities for the Audit of the Financial Statement s

KPMG

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Balance Sheets

December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars)

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars, except earnings per share)

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD.

Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(expressed in thousands of New Taiwan dollars)

(English Translation of Financial Statements Originally Issued in Chinese) TAIWAN BUSINESS BANK, LTD. Notes to the Financial Statements For the years ended December 31, 2018 and 2017 (expressed in thousands of New Taiwan dollars unless otherwise specified)

1. COMPANY HISTORY

2. APPROVAL DATE AND PROCEDURES OF THE FINANCIAL STATEMENTS

3. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED

(i) IFRS 9 “Financial Instruments”

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Statement of compliance

(B) Basis of preparation

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(c) Functional and presentation currency

(C) Foreign currency

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(D) Cash and cash equivalent

(E) Financial Instruments

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(3) Held-to-maturity financial assets

(4) Financial assets measured at cost

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(F) Impairment loss on non-financial assets

(G) Investment in associates

(H) Property, Plant and Equipment

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(I) Leasehold

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(J) Deferred assets

(K) Collateral assumed

(L) Provisions

(M) Employee benefit

(a) Short term employee benefit

(b) Retirement benefit

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

TAIWAN BUSINESS BANK, LTD. NOTES TO THE FINANCIAL STATEMENTS (CONT'D)

(c) Deposits with favorable rate

(d) Termination benefits

(N) Income tax

TBB Annual Report 2018