T.C.C.B. - Annual Report 2018 | FinancialReports.eu

Taichung Commercial Bank Co., Ltd.

Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Taichung Commercial Bank Co., Ltd.

Opinion

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

In our opinion, the accompanying parent company only 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 Banks.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements of Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

We draw attention to Note 3 of the parent company only financial statements, which describes Taichung Commercial Bank Co., Ltd. initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Public Banks, the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRIC (IFRIC), and Interpretations of SIC (SIC) endorsed and issued into effect by the FSC starting from 2018. The Bank elects not to restate prior reporting periods when applying the abovementioned standards, interpretations and interpretations endorsed and issued. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the parent company only financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The following are the descriptions of the key audit matters in the audit of the parent company only financial statements of the Bank for the year ended December 31, 2018:

Expected Credit Losses of Notes Discounted and Loans, Net

As described in Notes 13 and 30 to the parent company only financial statements, notes discounted and loans amounted to $451,728,578 thousand which accounted for 66% of total assets at December 31, 2018 and the expected credit losses of the notes discounted and loans and receivables amounted to $487,296 thousand which accounted for 5% of total net revenue for the year ended December 31, 2018. Due to the large amount, the account has a significant influence on the Bank. As discussed in Note 5, the measurement of expected credit losses of notes discounted and loans involves various financial factors, such as probability of default and loss given default. Therefore, the expected credit losses of notes discounted and loans were identified as one of the key audit matters.

The relevant accounting policies, estimations, assumptions and other information are referred to in Notes 4, 5, 13 and 30 to the parent company only financial statements.

The audit procedures performed for the expected credit losses of notes discounted and loans were as follows:

We understood and tested the internal controls for the expected credit losses of notes discounted and loans of Taichung Commercial Bank Co., Ltd.
We selected samples from schedule of expected credit losses of the notes discounted and loans assessed by Taichung Commercial Bank Co., Ltd., and evaluated collateral’s value and feasibility of the expected credit losses.
We understood and tested the key parameters for the expected credit losses of notes discounted and loans (such as probability of default and loss given default) assessed by Taichung Commercial Bank Co., Ltd. in assessing whether the expected credit losses were reasonable and met the current experience and the economic situation in Taiwan.

Interest Revenue Recognition on Notes Discounted and Loans

As described in Note 33 to the parent company only financial statements, interest revenue on notes discounted and loans of Taichung Commercial Bank Co., Ltd. amounted to $10,725,813 thousand which accounted for 100% of total net revenue for the year ended December 31, 2018, which was the main revenue for Taichung Commercial Bank Co., Ltd. The establishment of loans of Taichung Commercial Bank Co., Ltd. must be verified and reviewed by the supervisors who have been authorized. The input data done by person in-charge have to be reviewed by the division supervisors before loans are being disbursed. Taichung Commercial Bank Co., Ltd. use IT systems to compute monthly interest revenue on notes discounted and loans automatically. The computation of interest revenue on notes discounted and loans of Taichung Commercial Bank Co., Ltd. is highly dependent on the IT systems. The input data of loans and the operation logic are very important for the accuracy of the computation of interest revenue on notes discounted and loans. Therefore, interest revenue recognition on notes discounted and loans was identified as one of the key audit matters.

The relevant accounting policies, estimations and other information are referred to in Notes 4 and 30 to the parent company only financial statements.

The audit procedures performed for interest revenue recognition on notes discounted and loans were as follows:

We understood and tested the internal controls for accuracy of interest revenue of notes discounted and loans, included the understanding and testing of internal controls for IT system.
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We selected samples of interest revenue computed by IT system and cross-checked whether the samples agreed with the contracts. Subsequently, we recomputed interest revenue and verified that the amounts did not differ significantly from the reported amounts.

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

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

In preparing the parent company only 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 Parent Company Only Financial Statements

Our objectives are to obtain reasonable assurance about whether the parent company only 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 parent company only financial statements.

As part of an audit in accordance with the 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 the parent company only 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’s 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 parent company only 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.
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Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only 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 entities or business activities within the Bank to express an opinion on the parent company only 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 determine those matters that were of most significance in the audit of the parent company only financial statements for the year ended December 31, 2018 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 Wen-Yea Shyu and Kwan-Chung Lai.

Deloitte & Touche Taipei, Taiwan Republic of China

March 14, 2019

Notice to Readers

The accompanying parent company only financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such parent company only financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying parent company only financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and parent company only financial statements shall prevail.

BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

TAICHUNG COMMERCIAL BANK CO., LTD.

ASSETS CASH AND CASH EQUIVALENTS (Notes 3, 4 and 6) DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS (Notes 3, 4 and 7) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 3, 4 and 8) FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (Notes 3, 4 and 9) INVESTMENTS IN DEBT INSTRUMENTS AT AMORTIZED COST (Notes 3, 4, 10 and 34) SECURITIES PURCHASED UNDER RESELL AGREEMENTS (Notes 3, 4 and 11) RECEIVABLES, NET (Notes 3, 4, 5, 12, 13 and 33) NOTES DISCOUNTED AND LOANS, NET (Notes 3, 4, 5, 13 and 33) AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET (Notes 3, 4 and 14) HELD-TO-MATURITY FINANCIAL ASSETS, NET (Notes 3, 4, 15 and 34) INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD, NET (Notes 3, 4 and 16) OTHER FINANCIAL ASSETS, NET (Notes 3, 4 and 17) PROPERTIES AND EQUIPMENT, NET (Notes 4 and 18) INVESTMENT PROPERTIES, NET (Notes 4 and 19) INTANGIBLE ASSETS, NET (Notes 4 and 20) DEFERRED TAX ASSETS (Notes 4 and 31) OTHER ASSETS (Notes 3, 21 and 34) TOTAL LIABILITIES AND EQUITY DUE TO THE CENTRAL BANK AND OTHER BANKS (Note 22) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4 and 8) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (Notes 4 and 23) PAYABLES (Note 24) CURRENT TAX LIABILITIES (Notes 4 and 31) DEPOSITS AND REMITTANCES (Notes 25 and 33) BANK DEBENTURES (Notes 26 and 33) OTHER FINANCIAL LIABILITIES PROVISIONS (Notes 4 and 27) DEFERRED TAX LIABILITIES (Notes 4 and 31) OTHER LIABILITIES (Notes 28 and 33) Total liabilities EQUITY (Note 29) Ordinary shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Other equity Total equity TOTAL		2018 Amount % $ 14,971,054 2 31,768,897 5 26,136,939 4 28,197,495 4 100,462,761 15 9,094,151 1 5,028,141 1 451,728,578 66 - - - - 5,224,701 1 1,111 - 9,368,329 1 22,660 - 125,025 - 732,826 - 1,295,939 - $ 684,158,607 100 $ 3,378,752 1 162,127 - 9,904,467 1 11,342,864 2 296,788 - 589,242,889 86 20,000,000 3 2,127 - 1,421,814 - 111,021 - 472,105 - 636,334,954 93 35,255,084 5 726,981 - 6,985,726 1 110,159 - 4,093,133 1 652,570 - 47,823,653 7 $ 684,158,607 100		2017
				Amount % $ 13,944,328 2 30,121,642 5 30,965,512 5 - - - - 11,283,082 2 6,329,074 1 429,656,232 65 31,192,871 5 85,542,095 13 4,735,107 1 1,067,625 - 9,296,259 1 22,750 - 115,605 - 635,955 - 1,581,823 - $ 656,489,960 100 $ 9,518,872 1 207,225 - 4,307,810 1 12,195,742 2 223,235 - 567,255,591 86 17,500,000 3 43,434 - 1,389,979 - 111,021 - 335,111 - 613,088,020 93 32,931,789 5 684,156 - 5,896,530 1 73,833 - 3,630,655 1 184,977 - 43,401,940 7 $ 656,489,960 100

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

(With Deloitte & Touche auditors’ report dated March 14, 2019)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

INTEREST REVENUE (Notes 4, 30 and 33) INTEREST EXPENSE (Notes 30 and 33) NET INTEREST NET INCOME AND LOSS OTHER THAN INTEREST Service fee income, net (Notes 4, 30 and 33) Gains on financial assets and liabilities at fair value through profit or loss (Notes 4 and 30) Realized gains on available-for-sale financial assets (Notes 4 and 30) Realized gains on financial assets at fair value through other comprehensive income (Notes 4 and 30) Foreign exchange gains (losses), net (Note 4) Impairment losses on assets (Notes 4, 9, 10, 17 and 30) Share of profit of associates and joint venture for using the equity method (Notes 4 and 16) Net (loss) gain on disposal of property (Notes 4 and 19) Other non-interest (losses) gains, net (Notes 27 and 30) TOTAL NET REVENUE BAD-DEBT EXPENSES AND PROVISION FOR LOSSES ON COMMITMENTS AND GUARANTEES (Notes 4, 12, 13, 27 and 30)		2018 Amount % $ 12,453,151 117 (4,462,015) (42) 7,991,136 75 1,792,954 17 146,351 1 - - 54,017 1 254,894 2 (17,488) - 435,743 4 (2,689) - 20,105 - 10,675,023 100 (410,947) (4)		2017 Amount % $ 11,591,419 112 (3,768,078) (36) 7,823,341 76 1,553,501 15 472,898 5 27,608 - - - (91,229) (1) (50,533) - 252,540 2 348,277 3 11,676 - 10,348,079 100 (946,897) (9)	Percentage Increase (Decrease)
					% 7 18 2 15 (69) (100) - 379 (65) 73 (101) 72 3 (57) (Continued)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING EXPENSES Employee benefits (Notes 4, 27 and 30) Depreciation and amortization (Notes 4 and 30) Other selling and administrative expenses (Notes 30 and 33) Total operating expenses PROFIT BEFORE INCOME TAX FROM CONTINUING OPERATIONS INCOME TAX EXPENSE (Notes 4 and 31) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Notes 4 and 27) Unrealized gains on investments in equity instruments at fair value through other comprehensive income (Note 4) Share of the other comprehensive income of associates and joint venture accounted for using the equity method Income tax relating to items that will not be reclassified subsequently to profit or loss (Notes 4 and 31) Items that will not be reclassified subsequently to profit or loss, net of income tax		2018 Amount % $ (3,343,879) (31) (235,924) (2) (2,046,101) (19) (5,625,904) (52) 4,638,172 44 (629,803) (6) 4,008,369 38 (69,552) (1) 50,761 1 36,287 - 29,425 - 46,921 -		2017 Amount % $ (3,001,210) (29) (258,431) (3) (1,871,903) (18) (5,131,544) (50) 4,269,638 41 (637,096) (6) 3,632,542 35 (3,687) - - - 53 - 626 - (3,008) -	Percentage Increase (Decrease)
					% 11 (9) 9 10 9 (1) 10 1,786 - 68,366 4,600 1,660 (Continued)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange differences on the translation of financial statements of foreign operations (Note 4) Unrealized gains on available-for-sale financial assets Share of the other comprehensive loss of associates accounted and joint venture for using the equity method Unrealized losses on investments in debt instruments designated as at fair value through other comprehensive income (Note 4) Income tax relating to items that may be reclassified subsequently to profit or loss (Notes 4 and 31) Items that may be reclassified subsequently to profit or loss, net of income tax Other comprehensive income for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE (Note 32) Basic Diluted		2018 Amount % $ 13,818 - - - (13,638) - (13,948) - - - (13,768) - 33,153 - $ 4,041,522 38 $1.18 $1.18		2017 Amount % $ (2,856) - 196,642 2 (15,029) - - - (7,414) - 171,343 2 168,335 2 $ 3,800,877 37 $1.08 $1.08	Percentage Increase (Decrease)
					% 584 (100) (9) - 100 (108) (80) 6

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

(With Deloitte & Touche auditors’ report dated March 14, 2019)

(Concluded)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

Ordinary Shares Capital Surplus BALANCE AT JANUARY 1, 2017 $ 32,381,307 $ 684,156 Appropriation of 2016 earnings Legal reserve - - Special reserve - - Cash dividends - - Share dividends 550,482 - Net profit for the year ended December 31, 2017 - - Other comprehensive (loss) income for the year ended December 31, 2017, net of income tax - - Total comprehensive income (loss) for the year ended December 31, 2017 - - BALANCE AT DECEMBER 31, 2017 32,931,789 684,156 Effect of retrospective application and retrospective restatement (Notes 3) - - BALANCE AT JANUARY 1, 2018 AS RETROSPECTIVE 32,931,789 684,156 Appropriation of 2017 earnings Legal reserve - - Special reserve - - Cash dividends - - Share dividends 823,295 - Net profit for the year ended December 31, 2018 - - Other comprehensive (loss) income for the year ended December 31, 2018, net of income tax - - Total comprehensive income for the year ended December 31, 2018 - - Issuance of ordinary shares for cash 1,500,000 30,000 Compensation costs of employee share options - 12,825 Disposals of investments in equity instruments designated as at fair value through other comprehensive income - - BALANCE AT DECEMBER 31, 2018 $ 35,255,084 $ 726,981	Retained Earnings Unappropriated Legal Reserve Special Reserve Earnings $ 4,881,792 $ 38,685 $ 3,382,461 1,014,738 - (1,014,738) - 35,148 (35,148) - - (1,780,972) - - (550,482) - - 3,632,542 - - (3,008) - - 3,629,534 5,896,530 73,833 3,630,655 - - (80,676) 5,896,530 73,833 3,549,979 1,089,196 - (1,089,196) - 36,326 (36,326) - - (1,481,931) - - (823,295) - - 4,008,369 - - (29,117) - - 3,979,252 - - - - - - - - (5,350) $ 6,985,726 $ 110,159 $ 4,093,133	Other Equity Exchange Differences on the Translation of Financial Unrealized Gain on Financial Assets at Fair Value Through Other Unrealized Gain on Statements of Comprehensive Available-for-sale Foreign Operations Income Financial Assets $ (23,183) $ - $ 36,817 - - - - - - - - - - - - - - - (15,324) - 186,667 (15,324) - 186,667 (38,507) - 223,484 - 623,457 (223,484) (38,507) 623,457 - - - - - - - - - - - - - - - - 180 62,090 - 180 62,090 - - - - - - - - 5,350 - $ (38,327) $ 690,897 $ -	Total Equity $ 41,382,035 - - (1,780,972) - 3,632,542 168,335 3,800,877 43,401,940 319,297 43,721,237 - - (1,481,931) - 4,008,369 33,153 4,041,522 1,530,000 12,825 - $ 47,823,653

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

(With Deloitte & Touche auditors’ report dated March 14, 2019)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expenses Amortization expenses Expected credit losses/bad-debt expenses Gains on financial assets and liabilities at fair value through profit or loss Losses on disposal of properties and equipment Gains on disposal of investment properties Interest expense Interest revenue Dividend income Provision for losses on others Compensation costs of employee share options Share of profit of associates Gains on disposal of investments Impairment loss on financial assets Unrealized (gain) loss on foreign currency exchange Total adjustment Net changes in operating assets and liabilities Due from the central bank and call loans to other banks Financial assets at fair value through profit or loss Receivables Notes discounted and loans Other financial assets Other assets Due to the central Bank and other banks Financial liabilities at fair value through profit or loss Securities sold under repurchase agreements Payables Deposits and remittances Other financial liabilities Provision for employee benefits Other liabilities Changes in operating assets and liabilities Cash generated from operations Interest received Dividend received Interest paid Income tax paid Net cash generated from operating activities	2018 $ 4,638,172 189,733 46,191 410,947 (146,351) 2,689 - 4,462,015 (12,453,151) (27,230) (2,437) 12,825 (435,743) (26,787) 17,488 (356,756) (8,306,567) (746,918) 5,834,931 1,491,373 (22,586,332) 38,085 (24,203) (6,140,120) (4,770) 5,596,657 (954,873) 21,987,298 (41,307) (45,369) 136,994 4,541,446 873,051 12,515,028 28,096 (4,360,020) (623,696) 8,432,459	2017 $ 4,269,638 197,125 61,306 946,897 (472,898) 395 (348,672) 3,768,078 (11,591,419) (21,619) 26,000 - (252,540) (27,608) 50,533 850,912 (6,813,510) (609,388) (7,418,639) (2,189,611) (6,492,597) (35,342) 8,780 (2,098,856) (813,642) 85,552 2,939,543 26,012,882 (30,062) (24,423) 45,134 9,379,331 6,835,459 11,676,535 22,230 (3,637,226) (410,195) 14,486,803 (Continued)

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TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of financial assets at fair value through other comprehensive income Purchase of financial assets at amortized cost Proceeds from sale of financial assets at amortized cost Proceeds from repayments sale of financial assets at amortized cost Purchase of available-for-sale financial assets Proceeds from sale of available-for-sale financial assets Purchase of held-to-maturity financial assets Proceeds from sale of held-to-maturity financial assets Proceeds from repayments sale of held-to-maturity financial assets Payments for properties and equipment Proceeds from disposal of properties and equipment Decrease in refundable deposits Payments for intangible assets Proceeds from disposal of investment properties Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of bank debentures Repayments of bank debentures Cash dividends paid to owners of the Bank Proceeds from issuance of ordinary shares Net cash generated from financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH AND CASH EQUIVALENTS HELD IN FOREIGN CURRENCIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT THE END OF YEAR	2018 $ 4,297,417 (761,952,805) 45,650 746,586,250 - - - - - (265,369) 967 87,287 (55,611) - (11,256,214) 2,500,000 - (1,481,931) 1,530,000 2,548,069 13,818 (261,868) 38,811,338 $ 38,549,470	2017 $ - - - - (1,050,000) 7,319,614 (748,721,306) 258,565 676,269,904 (122,022) - 63,679 (52,367) 403,950 (65,629,983) 6,000,000 (1,500,000) (1,780,972) - 2,719,028 (2,856) (48,427,008) 87,238,346 $ 38,811,338 (Continued)

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TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

RECONCILIATIONS OF THE AMOUNTS IN THE STATEMENTS OF CASH FLOWS WITH THE EQUIVALENT ITEMS REPORTED IN THE BALANCE SHEETS AT DECEMBER 31, 2018 AND 2017 Cash and cash equivalents in the balance sheets Due from the central bank and call loans to other banks in accordance with cash and cash equivalents under IAS 7 “Statement of Cash Flows” Securities purchased under resell agreements in accordance with cash and cash equivalents under IAS 7 “Statement of Cash Flows” Cash and cash equivalents at the end of the year The notes are an integral part of the financial statements. (With Deloitte & Touche auditors’ report dated March 14, 2019)		December 31	December 31
		2018 $ 14,971,054 14,484,265 9,094,151 $ 38,549,470	2017 $ 13,944,328 13,583,928 11,283,082 $ 38,811,338 (Concluded)

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NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

TAICHUNG COMMERCIAL BANK CO., LTD.

1. GENERAL INFORMATION

Taichung Commercial Bank Co., Ltd. (the “Bank”), formerly known as Taichung District Association Saving Co., Ltd. (Taichung District Association) was established on September 27, 1952 by the Taiwan Provincial Government. It was incorporated in April of 1953 and opened in August of the same year. In July of 1975, the Banking Law was revised and implemented. On January 1, 1978, the Taichung District Association Saving Co., Ltd. (Taichung District Association) was restructured into Taichung SME Bank Co., Ltd. (Taichung SME Bank) and the share was listed on May 15, 1984.

In line with the national financial policy to provide public social financial services and support the economic construction as well as the development of industrial and commercial, Taichung SME Bank was renamed as Taichung Commercial Bank Co., Ltd. in December 1998. As of December 31, 2018, the Bank had a business department, a trust department, a foreign exchange transaction department, 80 domestic branches, a Labuan branch and an offshore banking unit (OBU). The operations of the Bank consist of planning, managing, operating a trust business and overseas financial business. These operations are regulated under the Bank Law of the Republic of China (“ROC”).

At the time of the Bank establishment, the capital was $500 thousand. In order to improve the capital structure and cooperate with the government decree, the Bank has successively applied for increase and decrease of capital. As of December 31, 2018, the Bank’s capital amount was $35,255,084 thousand.

The parent company only financial statements are presented in the Bank’s functional currency, the New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The parent company only financial statements were approved by the Bank’s board of directors on March 14, 2019.

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

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Public Banks, and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRIC (IFRIC), and Interpretations of SIC (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC).

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Public Banks and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Bank’s accounting policies:

IFRS 9 “Financial Instruments” and related amendments

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.

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Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed as of January 1, 2018, the Bank has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods.

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

Financial Assets Category Financial assets Cash and cash equivalents Due from the central bank and call loans to other banks Financial assets at fair value through profit or loss Securities purchased under resell agreements Receivables, net Notes discounted and loans, net Available-for-sale financial assets, net Held-to-maturity financial assets, net Other financial assets, net Other assets, net	MeasurementCategory IAS 39 IFRS 9 Loans and receivables Amortized cost Loans and receivables Amortized cost Fair value through profit or loss (i.e. FVTPL) FVTPL Loans and receivables Amortized cost Loans and receivables Amortized cost Loans and receivables Amortized cost Available-for-sale Fair value through other comprehensive income (i.e. FVTOCI) Held-to-maturity Amortized cost FVTOCI Financial assets carried at cost FVTOCI Loans and receivables FVTPL Loans and receivables Amortized cost	Carrying Amount IAS 39 IFRS 9 Remark $ 13,944,328 $ 13,944,328 30,121,642 30,121,642 30,965,512 30,965,512 11,283,082 11,283,082 6,329,074 6,328,849 8) 429,656,232 429,656,232 31,192,871 31,192,871 2), 3), 4) 85,542,095 84,752,656 5) - 785,439 6) 145,684 493,910 7) 900,335 900,335 1) 1,512,798 1,512,798

b) The following table shows the reconciliation of financial assets from measurement categories under IAS 39 to IFRS 9.

FVTPL Add: Reclassification from other financial assets (IAS 39) FVTOCI Debt instruments Add: Reclassification from available-for-sale (IAS 39) Add: Reclassification and remeasurement from held-to-maturity (IAS 39) Equity instruments Add: Reclassification from available-for-sale (IAS 39) Add: Reclassification and remeasurement from financial assets carried at cost (IAS 39) Amortized cost Add: Reclassification from available-for-sale (IAS 39) Add: Reclassification and remeasurement from held-to-maturity (IAS 39) Add: Reclassification and remeasurement from loans and receivables (IAS 39) Investments accounted for using the equity method	IAS 39 Carrying Amount as of January 1, 2018 $ 30,965,512 - 30,965,512 - - - - - - - - - - $ 30,965,512 $ 4,735,107	Reclassifications $ - 900,335 900,335 - 31,034,046 780,262 158,825 145,684 32,118,817 - 84,761,833 492,847,156 577,608,989 $ 610,628,141 $ -	Remeasurements $ - - - - - 5,177 - 348,226 353,403 - (9,177 ) (225 ) (9,402) $ 344,001 $ 32,069	IFRS 9 Carrying Amount as of January 1, 2018 $ 30,965,512 900,335 31,865,847 - 31,034,046 785,439 158,825 493,910 32,472,220 - 84,752,656 492,846,931 577,599,587 $ 641,937,654 $ 4,767,176	Retained Earnings Effect on January 1, 2018 $ - - - - (19,079 ) (256 ) 5,195 - (14,140) - (9,177 ) (225 ) (9,402) $ (23,542) $ (361)	Other Equity Effect on January 1, 2018 Remark $ - - 1) - - 19,079 2) 5,433 6) (5,195 ) 3) 348,226 7) 367,543 - 4) - 5) - 8) - $ 367,543 $ 32,430 9)

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c) The following table shows the reconciliation of allowance for impairment loss from measurement categories under IAS 39 to IFRS 9.

	Balance of	Balance of
	Allowance for						Balance of
	Impairment						Allowance for
Allowance for Impairment	Under IAS 39		Reclassifi-		Remeasure-		Impairment
Reconciliation	and IAS 37		cations			ments	Under IFRS 9		Remark
Loans and receivables (IAS 39)/
amortized cost (IFRS 9)
Receivables	$	187,472	$	-	$	225	$	187,697	8)
Notes discounted and loans		6,344,810		-		-		6,344,810
Available-for-sale (IAS		-		-		19,335		19,335	2), 6)
39)/FVTOCI (IFRS 9)
Held-to-maturity (IAS		-		-		9,177		9,177	5)
39)/amortized cost (IFRS 9)
Provision for losses on
guarantees and financing
commitments
Provision		269,937		-		56,773		326,710	8)

1) Other financial assets of $900,335 thousand previously classified as loans and receivables under IAS 39 were classified as at FVTPL under IFRS 9, because the contractual cash flows were not solely payments of principal and interest on the principal outstanding.
2) Debt instruments of $31,034,046 thousand previously classified as available-for-sale financial assets under IAS 39 were classified as at FVTOCI with an assessment of expected credit losses under IFRS 9, because the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. As a result of retrospective application, the related adjustments comprised a decrease in retained earnings of $19,079 thousand and an increase in other equity of $19,079 thousand on January 1, 2018.
3) Investments in listed shares and mutual funds of $158,825 thousand previously classified as available-for-sale financial assets under IAS 39 were designated as at FVTOCI under IFRS 9. As a result of retrospective application, the related adjustment comprised an increase in retained earnings of $5,195 thousand and a decrease in other equity of $5,195 thousand on January 1, 2018.
4) Credit certificate previously classified as available-for-sale financial assets under IAS 39 was classified as at amortized cost under IFRS 9, because the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is to collect contractual cash flows.
5) Debt instruments of $84,761,833 thousand previously classified as held-to-maturity financial assets and measured at amortized cost under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9, because the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is to collect contractual cash flows. As a result of retrospective application, the related adjustments comprised a decrease in retained earnings of $9,177 thousand on January 1, 2018.
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6) Debt instruments of $780,262 thousand previously classified as held-to-maturity financial assets and measured at amortized cost under IAS 39 were classified as at FVTOCI with an assessment of expected credit losses under IFRS 9, because the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. As a result of retrospective application, the related adjustments comprised a decrease in retained earnings of $256 thousand and an increase in other equity of $5,433 thousand on January 1, 2018.
7) Investments in unlisted shares of $145,684 thousand previously classified as measured at cost under IAS 39 were classified as at FVTOCI under IFRS 9 and were remeasured at fair value. As a result of retrospective application, the related adjustments comprised an increase in other equity of $348,226 thousand on January 1, 2018.
8) Receivables that were previously classified as loans and receivables under IAS 39 were classified as at amortized cost and off-balance financial commitments with an assessment of expected credit losses under IFRS 9. As a result of retrospective application, the adjustments comprised a decrease in retained earnings of $225 thousand and $56,773 thousand, respectively, on January 1, 2018.
9) As a result of the retrospective application of IFRS 9 by investments accounted for using the equity method of $4,735,107 thousand, the adjustments comprised decrease in retained earnings of $361 thousand and increase in other equity of $32,430 thousand on January 1, 2018.
b. Amendments to the Regulations Governing the Preparation of Financial Reports by Public Banks and the IFRSs endorsed by the FSC for application starting from 2019.

New, Amended or Revised Standards and Interpretations (the New IFRSs) Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 9 “Prepayment Features with Negative Compensation” IFRS 16 “Leases” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” IFRIC 23 “Uncertainty Over Income Tax Treatments”	Effective Date Announced by IASB (Note 1)
	January 1, 2019 January 1, 2019 (Note 2) January 1, 2019 January 1, 2019 (Note 3) January 1, 2019 January 1, 2019

New, Amended or Revised Standards and Interpretations
(the New IFRSs)
Annual Improvements to IFRSs 2015-2017 Cycle

Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”

IFRS 16 “Leases”

Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”

Amendments to IAS 28 “Long-term Interests in Associates and Joint
Ventures”

IFRIC 23 “Uncertainty Over Income Tax Treatments”

Effective Date
Announced by IASB (Note 1)

January 1, 2019
January 1, 2019 (Note 2)
January 1, 2019
January 1, 2019 (Note 3)
January 1, 2019
January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.
Note 3: The Bank shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.
IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17, IFRIC 4 and a number of related interpretations.

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Definition of a lease

Upon initial application of IFRS 16, the Bank will elect to apply IFRS 16 only to contracts entered into (or changed) on or after January 1, 2019 in order to determine whether those contracts are, or contain, a lease. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Bank as lessee

Upon initial application of IFRS 16, the Bank will recognize right-of-use assets and lease liabilities for all leases on the balance sheets except for those whose payments under low-value and short-term leases will be recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Bank will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the statements of cash flows. Leased assets and financial lease payables are recognized for contracts classified as finance leases.

The Bank anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets will be measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments. The Bank will apply IAS 36 to all right-of-use assets.

The Bank expects to apply the following practical expedients:

a) The Bank will apply a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.
b) The Bank will account for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.
c) The Bank will exclude initial direct costs from the measurement of right-of-use assets on January 1, 2019.
d) The Bank will use hindsight, such as in determining lease terms, to measure lease liabilities.

For leases currently classified as finance lease under IAS 17, the carrying amounts of right-of-use assets and lease liabilities on January 1, 2019 will be determined as at the carrying amounts of the respective leased assets and financial lease payables as of December 31, 2018.

The Bank as lessor

The Bank will not make any adjustments for leases in which it is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019.

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Anticipated impact on assets, liabilities and equity

	Carrying	Carrying	Carrying	Adjustments	Adjusted
	Amount as of			Arising from	Carrying
	December		31,	Initial	Amount as of
		2018		Application	January 1, 2019
Right-of-use assets	$		-	$ 821,579	$ 821,579
Total effect on assets	$		-	$ 821,579	$ 821,579
Lease liabilities - current	$		-	$ 100,570	$ 100,570
Lease liabilities - non-current			-	721,009	721,009
Total effect on liabilities	$			$ 821,579	$ 821,579

Except for the above impact, as of the date the parent company only financial statements were authorized for issue, the Bank assessed the application of the standards above would not have any material impact on the Bank’s financial position and financial performance.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

The New IFRSs Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between An Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 and IAS 8 “Definition of Material”	Effective Date Announced by IASB (Note 1)
	January 1, 2020 (Note 2) To be determined by IASB January 1, 2021 January 1, 2020 (Note 3)

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The Bank shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.
Note 3: The Bank shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.

Except for the above impact, as of the date the parent company only financial statements were authorized for issue, the Bank is continuously assessing the possible impact that the application of other standards and interpretations will have on the Bank’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

The parent company only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks.

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b. Basis of preparation

The parent company only financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
3) Level 3 inputs are unobservable inputs for an asset or liability.
c. Classification of current and non-current assets and liabilities

Accounts included in the Bank’s financial statements are not classified as current or non-current but are stated in the order of their liquidity. Refer to Note 37 for the maturity analysis of assets and liabilities.

d. Foreign currencies

In preparing the Bank’s financial statements, transactions in currencies other than the Bank’s functional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income; in which cases, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

For the purpose of presenting parent company only financial statements, the functional currencies of the Bank is translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income.

e. Bonds purchased under resell/notes issued under repurchase agreements

A bond purchased under resell/a note issued under repurchase agreements is considered as a financing transaction if the risk and reward are attributed to the dealer. When a bond is purchased under a resell agreement, its purchase price is listed as “bonds purchased under resell agreements,” an asset account. For a note issued under repurchase agreement, the selling price is listed as “notes issued under repurchase agreements,” a liability account. The difference between purchase (sale) price under the agreement and actual sale (purchase) price is recorded as interest income (expense).

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f. Investments in subsidiaries

The Bank uses the equity method to account for its investments in subsidiaries. A subsidiary is an entity (including a structured entity) that is controlled by the Bank.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Bank’s share of the profit or loss and other comprehensive income of the subsidiary. The Bank also recognizes the changes in the Bank’s share of equity of subsidiaries.

The Bank assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the investee’s financial statements as a whole. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Bank recognizes a reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years.

Profits or losses resulting from downstream transactions are eliminated in full only in the parent company’s financial statements. Profits and losses resulting from upstream transactions and transactions between subsidiaries are recognized only in the parent company’s financial statements only to the extent of interests in the subsidiaries that are not related to the Bank.

g. Investments in associates

An associate is an entity over which the Bank has significant influence and which is neither a subsidiary nor an interest in a joint venture.

The Bank uses the equity method to account for its investments in associates.

Under the equity method, investments in an associate are initially recognized at cost and adjusted thereafter to recognize the Bank’s share of the profit or loss and other comprehensive income of the associate. The Bank also recognizes the changes in the Bank’s share of the equity of associates attributable to the Bank.

The entire carrying amount of an investment is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

When the Bank transacts with its associate and joint venture, profits and losses resulting from the transactions with the associate and joint venture are recognized in the Bank’ financial statements only to the extent that interests in the associate and the joint venture are not related to the Bank.

h. Property and equipment

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment loss.

Depreciation of property and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

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On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

i. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). Investment properties also include land held for a currently undetermined future use.

Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

On derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount of the asset is included in profit or loss.

j. Intangible assets
1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful lives, residual values, and amortization methods are reviewed at the end of each reporting period, with the effect of any changes in the estimates accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

2) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

k. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Bank reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered any impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Bank estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation, or conversely, the smallest group of cash-generating units on a reasonable basis.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually and whenever there is an indication that the assets may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset, cash-generating unit or assets related to contract costs is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset, cash-generating unit or assets related to contract costs in prior years. A reversal of an impairment loss is recognized in profit or loss.

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l. Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

a) Measurement categories

2018

Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost and investments in debt instruments and equity instruments at FVTOCI.

i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified or designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 36.

ii. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, due from the central bank and call loans to other banks, securities purchased under resell agreements, notes discounted and loans, trade receivables at amortized cost, other financial assets and refundable deposits, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

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Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for:

i) Purchased or originated credit-impaired financial assets, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial assets; and
ii) Financial assets that are not credit-impaired on purchase or origination but have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

iii. Investments in debt instruments at FVTOCI

Debt instruments that meet the following conditions are subsequently measured at FVTOCI:

i) The debt instrument is held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of such financial assets; and
ii) The contractual terms of the debt instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Investments in debt instruments at FVTOCI are subsequently measured at fair value. Changes in the carrying amounts of these debt instruments relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and impairment losses or reversals are recognized in profit or loss. Other changes in the carrying amount of these debt instruments are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of.

iv. Investments in equity instruments at FVTOCI

On initial recognition, the Bank may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead, it will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Bank’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2017

Financial assets are classified into the following categories: Financial assets at FVTPL, held-to-maturity investments, available-for-sale financial assets and loans and receivables.

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i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such financial assets are either held for trading or designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 36.

Investments in equity instruments under financial assets at FVTPL that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are subsequently measured at cost less any identified impairment loss at the end of each reporting period and presented as a separate line item as financial assets measured at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in profit or loss.

ii. Held-to-maturity investments

Commercial paper, corporate bonds, foreign bonds and foreign government bonds, which have credit ratings above a specific credit rating and which the Bank has a positive intent and ability to hold to maturity, are classified as held-to-maturity investments.

Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.

iii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at FVTPL.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets (relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments) are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when such investments are disposed of or are determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Bank’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and presented as a separate line item as financial assets measured at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value of such financial assets is recognized in other comprehensive income. Any impairment losses are recognized in profit and loss.

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iv. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalents, debt investments with no active market, due from the central bank and call loans to other banks, securities purchased under resell agreements, notes discounted and loans, other financial assets and refundable deposits) are measured using the effective interest method at amortized cost less any impairment, except for short-term receivables when the effect of discounting is immaterial.

b) Impairment of financial assets and contract assets

2018

The Bank recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables), investments in debt instruments that are measured at FVTOCI, lease receivables, as well as contract assets.

The Bank always recognizes lifetime expected credit losses (ECLs) for discounts and loans, trade receivables and lease receivables. For all other financial instruments, the Bank recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Bank measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

According to the Regulations, the Bank determines the allowance for credit losses by evaluating the recoverability of the outstanding balances of various loans at the balance sheet date. The allowances for doubtful accounts are determined based on management’s evaluation of the collectability of individual accounts, the borrowers’/clients’ financial condition and payment history. Such doubtful accounts are categorized into: Normal loans, need attention, less likely to be collectible in full, difficult to collect, and uncollectible accounts; and the allowance should be provided at 1%, 2%, 10%, 50%, and 100%, respectively, of the loan amount to meet the minimum requirement for each category. Under the rule No. 10010006830 issued by the Banking Bureau of the FSC, additional allowance for doubtful accounts should be provided at 1% of the total loans. Under the rule No. 10300329440 issued by the Banking Bureau of the FSC, allowance for doubtful accounts should be provided at 1.5% or more of the loans for real estate.

The Bank recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of such a financial asset.

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2017

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of such financial assets, that the estimated future cash flows of the investment have been affected.

Financial assets at amortized cost, such as loans, discounts, foreign exchange purchases and trade receivables, are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Bank’s past experience with collecting payments, an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables.

Objective evidence that a financial asset is impaired includes observable data that comes to the attention of the holder of an asset about the following loss events:

i. Significant financial difficulty of the issuer or obligor;
ii. A breach of contract, such as a default or delinquency in interests or principal payments;
iii. The lender, for economic or legal reasons relating to the borrower’s financial difficulty, grants the borrower a concession that the lender would not otherwise consider;
iv. The disappearance of an active market for that financial asset because of financial difficulties

If there is objective evidence that an impairment loss on financial assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, 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 previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment (at the date the impairment is reversed) does not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

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When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to impairment is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of such an investment can be objectively related to an event occurring after the recognition of the impairment loss.

For evidence of objective impairment of other financial assets, refer to the statement of financial assets presented at amortized cost.

For a financial asset measured at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets, with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When trade receivables and other receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

c) Derecognition of financial assets

The Bank derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

Before 2017, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

2) Equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.

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3) Financial liabilities

a) Subsequent measurement

Except the following situations, all financial liabilities are measured at amortized cost using the effective interest method:

i. Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when such financial liabilities are either held for trading or designated as at FVTPL.

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the other gains and losses line item. Fair value is determined in the manner described in Note 36.

During the reporting period which was before the commencement of 2017, financial liabilities at FVTPL, which are obligations to deliver unquoted equity instruments borrowed by a short seller whose fair value cannot be reliably measured, and derivatives, which are linked to and must be settled by delivery of such unquoted equity instruments, are subsequently measured at cost less any identified impairment loss at the end of each reporting period and presented as a separate line item as financial liabilities measured at cost. If, in a subsequent period, the fair value of the financial liabilities can be reliably measured, the financial liabilities are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in profit or loss.

ii. Financial guarantee contracts

2018

Financial guarantee contracts issued by the Bank, if not designated as at FVTPL, are subsequently measured at the higher of:

i) The amount of the loss allowance reflecting expected credit losses; and
ii) The amount initially recognized less, where appropriate, the cumulative amount of income recognized in accordance with the revenue recognition policies.

2017

Financial guarantee contracts issued by the Bank are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of the best estimate of the obligation under the contract and the amount initially recognized less the cumulative amortization recognized.

b) Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

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4) Derivative financial instruments

The Bank enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps and convertible bond asset exchange contracts.

Derivatives are initially recognized at fair value at the date on which the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument; in which event, the timing of the recognition in profit or loss depends on the nature of the hedging relationship. When the fair value of a derivative financial instrument is positive, the derivative is recognized as a financial asset; when the fair value of a derivative financial instrument is negative, the derivative is recognized as a financial liability.

Before 2017, derivatives embedded in non-derivative host contracts were treated as separate derivatives when they met the definition of a derivative; their risks and characteristics were not closely related to those of the host contracts; and the contracts were not measured at FVTPL. Starting from 2018, derivatives embedded in hybrid contracts that contain financial asset hosts that is within the scope of IFRS 9 are not separated; instead, the classification is determined in accordance with the entire hybrid contract. Derivatives embedded in non-derivative host contracts that are not financial assets that is within the scope of IFRS 9 (e.g. financial liabilities) are treated as separate derivatives when they meet the definition of a derivative; their risks and characteristics are not closely related to those of the host contracts; and the host contracts are not measured at FVTPL.

m. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

n. Revenue recognition

2018

1) Interest income

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Bank and the amount of income can be measured reliably.

2) Service fee and commissions income

Service fee income and expenses are recognized when loans or other services are provided, the Bank allocates the transaction price to each performance obligation after the customer contract recognizes the performance obligation, and recognizes the income when the performance obligation is fulfilled. The contract between the labor service and the collection of consideration is within one year, the major financial components of the contract will not be adjusted.

3) Dividend income

Dividend income from investments is recognized when a shareholder’s right to receive payment has been established and provided that it is probable that the economic benefits will flow to the Bank and that the amount of income can be measured reliably.

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2017

1) Interest income

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Bank and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

2) Service fee and commissions income

Service revenue and real estate management service revenue are recognized at once after providing loans or other services. If the service revenue belongs to several significant items, it is recognized when the significant items have been accomplished, such as the service revenue which the lead arranger received from syndication of bank loans. If the service revenue is for further loan service and of significant amount, it is allocated during the period of the service or included in the base of calculating the effective interest rate of loans and receivables.

3) Dividend income

o. Leasing

Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Bank as lessor

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

2) The Bank as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered services entitling them to the contributions.

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Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liabilities represent the actual deficit in the Bank’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

3) Employee benefit - employees’ preferential deposits

The Bank has granted a preferential interest rate to its current employees and retired employees for their deposits within a prescribed amount. The preferential interest rate in excess of market interest rate is considered employee benefits.

Under Article 30 of the “Regulations Governing the Preparation of Financial Reports by Public Bank”, if the Bank’s preferential deposit interest rate for an employee as stated in the employment contract exceeds the market interest rate, the excess will be subject to IAS 19 “Employee Benefits” upon the employee’s retirement. The actuarial valuation assumptions and parameters are based on the guidelines announced by authority.

4) Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for defined benefit plans except that remeasurement is recognized in profit or loss.

q. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain earnings.

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

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carryforwards and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

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Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates except where the Bank is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. If investment properties measured using the fair value model, the carrying amounts of such assets are presumed to be recovered entirely through sale.

3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity; in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Bank’s accounting policies, the Bank’s management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

a. Business model assessment for financial assets - 2018

The Bank determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. This assessment includes judgment about all relevant evidence including how the performance of the assets is evaluated, the risks that affect the performance of the assets and how these are managed, and how the managers of the assets are compensated. The Bank monitors financial assets measured at amortized cost or at fair value through other comprehensive income, and when assets are derecognized prior to their maturity, the Bank understands the reasons for their disposal and whether the reasons are consistent with the objective of the business for which the assets were held. Monitoring is part of the Bank’s continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and, if it is not appropriate, whether there has been a change in the business model such that a prospective change to the classification of those assets is proper.

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b. Estimated credit loss assessment for loans and accounts receivable - 2018

The difference between all contractual cash flows received by the Bank and the estimated cash flows received from the contract is discounted at the original effective interest rate or the credit-adjusted effective interest rate, and the risk of default is calculated as weight of the weighted average by considering forward-looking information to measure expected credit losses.

c. Estimated impairment of loans and accounts receivable - 2017

The Bank performs impairment assessments of loans and receivables, including individual impairment assessments and overall impairment assessments, and uses the following methods to estimate future cash flows.

1) Individual impairment assessments

The Bank has a total balance of more than $10,000 thousand (inclusive) after returning to the household. When there is objective evidence for signs of impairment, it will consider factors such as the collateral, the nature of collateral, the characteristics of the case and the historical experience to estimate the future cash flow.

2) Overall impairment assessments

The Bank conducts an overall impairment assessment in a combined classification for loans and receivables that do not meet the above-mentioned household amount and that have no objective evidence for signs of impairment. The Bank’s book value according to the combination classification is based on the default rate and recovery rate to estimate future cash flow.

The amount of impairment loss is measured by the difference between carrying amount of the asset and the present value of estimated future cash. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checks for clearing Due from banks		December 31	December 31
		2018 $ 4,330,449 5,715,927 4,924,678 $ 14,971,054	2017 $ 3,783,476 6,021,021 4,139,831 $ 13,944,328

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Reconciliations of cash and cash equivalents between the statements of cash flows and the balance sheets as of December 31, 2018 and 2017 were stated below.

Cash and cash equivalents, ending balance in the balance sheets Due from the central bank and call loans to other banks in accordance with cash and cash equivalents under IAS 7 “Statement of Cash Flows” Securities purchased under resell agreements in accordance with cash and cash equivalents under IAS 7 “Statement of Cash Flows” Cash and cash equivalents, ending balance in the statements of cash flows		December 31	December 31
		2018 $ 14,971,054 14,484,265 9,094,151 $ 38,549,470	2017 $ 13,944,328 13,583,928 11,283,082 $ 38,811,338

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

Deposit reserves Deposit reserves - account A Deposit reserves - account B Inter-bank clearing account Deposit reserves - foreign currency deposits Due from banks Deposit reserves for trust compensation		December 31	December 31
		2018 $ 12,624,827 17,001,032 1,798,018 61,420 223,600 60,000 $ 31,768,897	2017 $ 12,171,562 16,396,414 1,020,959 53,586 429,121 50,000 $ 30,121,642

a. The monthly depositary reserves to be deposited in the central bank of the Republic of China are calculated by applying the legally required reserve ratio to the monthly average balance of the reserve accounts. These reserve accounts can be used any time but the demand account can only be used for monthly deposit reserve adjustments.
b. The Bank deposited the reserves for trust compensation on government bonds measured at amortized cost on December 31, 2018, with a nominal amount of 60,000 thousand. Refer to Note 34.
c. The Bank deposited the reserves for trust compensation on government bonds held to maturity on December 31, 2017, with a nominal amount of 50,000 thousand. Refer to Note 34.
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8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL Commercial paper Domestic listed shares and emerging market shares PEM group policy assets Beneficiary certificate Asset swap contracts Cross-currency swap contracts Foreign exchange forward contracts Cross-currency option contracts Interest structured instrument contracts Financial liabilities at FVTPL Cross-currency swap contracts Foreign exchange forward contracts Cross-currency option contracts Interest structured instrument contracts		December 31	December 31
		2018 $ 22,044,240 852,977 998,147 172,843 1,911,673 29,105 49,726 78,217 11 $ 26,136,939 $ 55,386 27,744 78,986 11 $ 162,127	2017 $ 27,935,360 802,483 - 361,332 1,648,955 77,442 57,188 82,462 290 $ 30,965,512 $ 98,478 25,612 82,845 290 $ 207,225

a. The Bank engages in exchange rate-related derivative financial contracts, mainly to provide customers with hedging instruments for foreign exchange positions arising from transactions such as import/export and currency exchange, to avoid the risks arising from the business and to flatten the demand for foreign exchange funds arising from non-transactional operations.
b. As of December 31, 2018 and 2017, the outstanding cross-currency swap contracts were as follows:

December 31	December 31
2018 Contract Amounts (In Thousands) Maturity Date Sell CNY 121,693 2019/01/11-2019/11/13 HKD 162,378 2019/01/22-2019/03/05 EUR 3,000 2019/01/09 USD 42,219 2019/01/07-2019/12/04 JPY 3,671,053 2019/01/04-2019/01/07 Buy CNY 28,799 2019/01/28-2019/12/04 NZD 7,000 2019/01/11 ZAR 316,333 2019/01/11-2019/01/22 AUD 15,000 2019/01/07-2019/01/22 GBP 13,500 2019/01/04-2019/01/07 USD 58,134 2019/01/04-2019/11/13	2017
	Contract Amounts (In Thousands) Maturity Date Sell CNY 462,369 2018/01/26-2018/12/04 HKD 209,761 2018/01/11-2018/02/26 EUR 16,500 2018/01/05-2018/01/17 GBP 8,500 2018/01/03-2018/01/09 USD 22,996 2018/01/04-2018/04/12 Buy CNY 11,586 2018/03/27-2018/04/12 NZD 8,000 2018/01/11 ZAR 28,107 2018/01/04 AUD 8,000 2018/01/04 CAD 9,508 2018/01/04 JPY 940,850 2018/01/05 USD 118,149 2018/01/03-2018/12/04

**December 31 **

2018
Contract Amounts
(In Thousands)
Maturity Date
Sell CNY 121,693 2019/01/11-2019/11/13
HKD 162,378 2019/01/22-2019/03/05
EUR
3,000
2019/01/09
USD
42,219 2019/01/07-2019/12/04
JPY 3,671,053 2019/01/04-2019/01/07
Buy CNY
28,799 2019/01/28-2019/12/04
NZD
7,000
2019/01/11
ZAR 316,333 2019/01/11-2019/01/22
AUD 15,000 2019/01/07-2019/01/22
GBP
13,500 2019/01/04-2019/01/07
USD
58,134 2019/01/04-2019/11/13

2017

Contract Amounts
(In Thousands)
Maturity Date
Sell CNY 462,369 2018/01/26-2018/12/04

HKD 209,761 2018/01/11-2018/02/26
EUR
16,500 2018/01/05-2018/01/17

GBP
8,500 2018/01/03-2018/01/09

USD
22,996 2018/01/04-2018/04/12
Buy CNY
11,586 2018/03/27-2018/04/12
NZD
8,000
2018/01/11

ZAR
28,107
2018/01/04

AUD
8,000
2018/01/04

CAD
9,508
2018/01/04

JPY 940,850
2018/01/05
USD 118,149 2018/01/03-2018/12/04

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c. As of December 31, 2018 and 2017, the outstanding foreign exchange forward contract were as follows:

			Contract Amounts
			(In Thousands of
	Currency	Expiration Date	New Taiwan Dollars)
December 31, 2018
Sell forward exchange	USD/NTD	2019/01/02-2019/11/08	USD53,603/NTD1,620,267
Sell forward exchange	EUR/NTD	2019/02/12-2019/10/30	EUR3,215/NTD113,526
Sell forward exchange	CNY/NTD	2019/01/24	CNY1,000/NTD4,428
Sell forward exchange	JPY/NTD	2019/03/05-2019/12/04	JPY211,000/NTD57,484
Buy forward exchange	NTD/USD	2019/02/15	NTD57,030/USD2,000
Buy forward exchange	EUR/USD	2019/01/12-2019/06/21	EUR17,700/USD20,771
Buy forward exchange	GBP/USD	2019/01/15-2019/05/17	GBP11,700/USD15,167
Buy forward exchange	JPY/USD	2019/01/23-2019/01/28	JPY441,740/USD4,000
Buy forward exchange	CNY/USD	2019/01/09-2019/12/04	CNY27,128/USD3,982
Buy forward exchange	USD/EUR	2019/02/21-2019/06/24	USD22,660/EUR19,600
Buy forward exchange	USD/GBP	2019/03/12-2019/05/07	USD2,413/GBP1,900
Buy forward exchange	GBP/JPY	2019/02/15-2019/03/22	GBP7,600/JPY1,097,730
Buy forward exchange	USD/JPY	2019/03/20-2019/06/28	USD17,000/JPY1,880,498
Buy forward exchange	EUR/JPY	2019/06/25	EUR1,000/JPY125,910
December 31, 2017
Sell forward exchange	USD/NTD	2018/01/02-2018/12/27	USD115,951/NTD3,468,476
Sell forward exchange	EUR/NTD	2018/01/05-2018/03/16	EUR1,394/NTD49,404
Sell forward exchange	CNY/NTD	2018/01/24-2018/03/12	CNY3,170/NTD14,114
Sell forward exchange	JPY/NTD	2018/02/13-2018/07/11	JPY160,575/NTD43,614
Sell forward exchange	CAD/NTD	2018/01/18-2018/03/09	CAD389/NTD9,382
Buy forward exchange	NTD/USD	2018/01/04-2018/01/19	NTD29,822/USD1,000
Buy forward exchange	EUR/USD	2018/01/02-2018/06/07	EUR18,700/USD22,224
Buy forward exchange	CNY/USD	2018/03/27-2018/05/07	CNY29,785/USD4,277
Buy forward exchange	GBP/USD	2018/01/18-2018/03/29	GBP5,500/USD7,377
Buy forward exchange	JPY/USD	2018/01/22-2018/06/26	JPY1,935,589/USD17,300
Buy forward exchange	HKD/USD	2018/01/11	HKD1,798/USD230
Buy forward exchange	NZD/USD	2018/02/08	NZD1,000/USD736
Buy forward exchange	AUD/USD	2018/02/06	AUD600/USD460
Buy forward exchange	USD/GBP	2018/01/18-2018/04/10	USD19,104/GBP14,250
Buy forward exchange	CNY/USD	2018/01/08-2018/03/29	CNY42,000/USD6,353
Buy forward exchange	EUR/USD	2018/01/08-2018/06/12	EUR25,050/USD29,717
Buy forward exchange	JPY/USD	2018/02/22-2018/05/17	JPY718,241/USD6,400
Buy forward exchange	AUD/USD	2018/03/15	AUD2,000/USD1,533
Buy forward exchange	CAD/USD	2018/03/29	CAD629/USD500
Buy forward exchange	JPY/EUR	2018/03/22-2018/03/23	JPY268,900/EUR2,000

d. As of December 31, 2018 and 2017, the asset swap contracts of the Bank amounted to $1,911,400 thousand and $1,648,300 thousand, respectively, with interest rate ranges of 0.90% to 1.35% and 0.90% to 1.40%, respectively.
e. As of December 31, 2018 and 2017, the cross-currency option contracts of the Bank amounted to $6,233,293 thousand (US$202,973 thousand) and $8,770,121 thousand (US$294,596 thousand), respectively.
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f. As of December 31, 2018 and 2017, the interest structured instrument contracts of the Bank amounted to $14,889 thousand and $43,434 thousand, respectively, with interest rate ranges of 6.50% and 6.50% to 6.60%, respectively.
g. The PEM Group policy assets were classified as other financial assets under IAS 39. Refer to Notes 3 and 17 for information relating to their reclassification and comparative information for 2017.

9. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in equity instruments at FVTOCI Investments in debt instruments at FVTOCI a. Investments in equity instruments at FVTOCI Domestic unlisted shares Foreign listed shares	December 31, 2018 $ 705,301 27,492,194 $ 28,197,495 December 31, 2018 $ 510,523 194,778 $ 705,301

These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term strategic purposes. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Bank’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Notes 3, 14 and 17 for information relating to their reclassification and comparative information for 2017.

b. Investments in debt instruments at FVTOCI

Corporate bonds Government bonds Foreign bonds	December 31, 2018 $ 20,730,435 5,976,359 785,400 $ 27,492,194

1) The investments in debt instruments were classified as available-for-sale financial assets and held-to-maturity financial assets under IAS 39. Refer to Notes 3, 14 and 15 for information relating to their reclassification and comparative information for 2017.
2) The Bank recognized gain on reversal of impairment loss of $3,820 thousand in 2018 after assessing the expected credit losses of the investments in debt instruments at FVTOCI.
3) Refer to Note 37 for information relating to their credit risk management and impairment.
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10. INVESTMENTS IN DEBT INSTRUMENTS AT AMORTIZED COST

Foreign bonds Government bonds NCDs issued by the CBC Corporate bonds Credit certificate Less: Allowance for impairment loss Less: Withdrawal of reserves for trust compensation and refundable deposits a. The foreign bonds denominated in foreign currencies were as follows: USD RMB AUD ZAR	December 31, 2018 $ 21,361,293 13,123,603 55,500,000 11,418,483 9,511 101,412,890 (105,129) (845,000) $ 100,462,761 December 31, 2018 $ 571,613 510,000 61,000 70,000

b. The investments in debt instruments at amortized cost were classified as available-for-sale financial assets and held-to-maturity financial assets under IAS 39. Refer to Notes 3, 14 and 15 for information relating to their reclassification and comparative information for 2017.
c. As of December 31, 2018, the government bonds and the foreign bonds at amortized cost amounted to $1,200,000 thousand and $9,642,940 thousand (US$314,000 thousand), respectively, which had been sold under repurchase agreements.
d. The Bank recognized the impairment loss of $21,308 thousand in 2018 after assessing the expected credit losses of the investments in debt instruments at amortized cost.
e. Refer to Note 37 for information relating to their credit risk management and impairment.

11. SECURITIES PURCHASED UNDER RESELL AGREEMENTS

Securities purchased for $9,094,151 thousand, $11,283,082 thousand under repurchase agreements as of December 31, 2018 and 2017, respectively, would subsequently be sold for $9,095,775 thousand and $11,284,292 thousand, respectively, with interest rate ranges of 0.54 ％ to 0.65 ％ and 0.40 ％ to 0.42 ％ , respectively.

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12. RECEIVABLES, NET

Receivables on credit cards Accounts receivable factored without recourse Acceptances Interest receivables Receivables on foreign currency settlement Receivables on sale of securities Other receivables Less: Allowance for doubtful accounts (Note 13)		December 31	December 31
		2018 $ 748,384 133,277 836,196 1,294,953 1,909,476 119,576 137,664 5,179,526 (151,385) $ 5,028,141	2017 $ 791,111 1,656,114 871,032 1,114,474 1,805,037 45,958 232,820 6,516,546 (187,472) $ 6,329,074

a. The following table shows the movement of the total carrying amount of receivables for the year ended December 31, 2018:

	12-month ECL	12-month ECL		Lifetime ECL	Credit- impaired Financial Assets	Credit- impaired Financial Assets		Total
Balance at January 1, 2018 Transfers to lifetime ECL Transfers to credit-impaired financial assets Transfers to 12-month ECL New receivables purchased or originated Write-offs Derecognition Change in others Balance at December 31,2018		$ 51,287,061 (14,154) (8,074) 14,106 1,445,585 - (3,574,029) 951,740 $ 50,102,235		$ 261,946 14,204 (12,217) (13,764) 12,086 - (226,240) 5,246 $ 41,261		$ 155,793 (50) 20,291 (342) 4,071 (43,353) (52,082) 38,007 $ 122,335		$ 51,704,800 - - - 1,461,742 (43,353) (3,852,351) 994,993 $ 50,265,831

The above-mentioned carrying amount of receivables include due to the banks, due from the central banks and call loans to other banks, securities purchased under resell agreements, notes receivable, receivables on credit cards, accounts receivable factored without recourse, interest receivables, acceptances, receivables on securities settlement, other receivables, delinquent receivables not arising from loans and refundable deposits.

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b. The following table shows the movement of the allowance for doubtful accounts of receivables for the year ended December 31, 2018:

		12-month ECL		Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Accessed under IFRS 9	Impairment Loss Accessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2018 Reconciliation arising from financial instruments recognized at the beginning of the year: Transfers to lifetime ECL Transfers to credit-impaired financial assets Transfers to 12-month ECL Derecognition of financial assets in current period New financial assets purchased or originated Difference of impairment loss under regulations Write-offs Recovery of written-offs Change in exchange influence or others Balance at December 31, 2018		$ 40,814 (47) (29) 2,169 (37,279) 16,395 - - - (2,280) $ 19,743		$ 47,733 66 (1,109) (1,889) (44,177) 1,416 - - - 1,865 $ 3,905		$ 92,916 (19) 1,138 (280) (10,204) 1,154 - (34,971) - 33,093 $ 82,827		$ 181,463 - - - (91,660) 18,965 - (34,971) - 32,678 $ 106,475		$ 28,056 - - - - - 12,241 (8,382) 17,227 - $ 49,142		$ 209,519 - - - (91,660) 18,965 12,241 (43,353) 17,227 32,678 $ 155,617

The allowance for doubtful accounts of the abovemetioned receivables includes allowances for delinquent receivables not arising from loans, refer to Note 17.

c. Receivables classified according to the credit risk characteristics of the products as of December 31, 2017 were as follows:

	Items		Receivables	Allowance for Possible Losses
			December 31, 2017	December 31, 2017
With objective evidence of individual impairment	Individual assessment of impairment	Corporate loans	$ 65,962	$ 18,835
		Consumer loans	8,672	223
		Others	57,805	57,805
	Collective assessment of impairment	Corporate loans	9,051	1,901
		Consumer loans	30,483	14,482
Without objective evidence of individual impairment	Collective assessment of impairment	Corporate loans	2,809,370	36,763
		Consumer loans	980,249	7,403
		Others	47,743,208	-
Total			51,704,800	137,412

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The above-mentioned receivables of the Bank on December 31, 2017 include due to the banks, due from the central bank and call loans to other banks, securities purchased under resell agreements, notes receivable, receivables on credit card, accounts receivable factored without recourse, interest receivables, acceptances, delinquent receivables not arising from loans and refundable deposits.

According to IAS 39, the amount of allowance for doubtful accounts was measured based on the credit risk characteristics of the accounts. The amount measured under IAS 39 was less than the amount calculated under rule No. 10010006830 issued by the Banking Bureau of the FSC, which should be 1% higher than the ratio of allowance for receivables recognized over total receivables. Consequently, bad-debt expense increased as of December 31, 2017.

13. NOTES DISCOUNTED AND LOANS, NET

Bills negotiated Overdrafts Secured overdrafts Account receivable financing Short-term unsecured loans Short-term secured loans Medium-term unsecured loans Medium-term secured loans Long-term unsecured loans Long-term secured loans Delinquent loans Add: Adjustment of premium or discount Less: Allowance for doubtful accounts		December 31	December 31
		2018 $ 475,822 1,061 10,031 80,862 43,046,052 103,198,900 49,659,266 109,958,945 4,499,987 145,623,202 1,662,082 458,216,210 44,071 (6,531,703) $ 451,728,578	2017 $ 648,036 1,555 23,154 28,060 46,156,527 93,034,520 42,237,777 108,897,802 4,405,504 139,335,006 1,185,395 435,953,336 47,706 (6,344,810) $ 429,656,232

a. As of December 31 2018 and 2017, the delinquent loans on which interest ceased to accrue amounted to $1,640,185 thousand and $1,168,006 thousand, respectively. The unrecognized interest revenues on these loans were $34,228 thousand and $30,298 thousand for the years ended December 31, 2018 and 2017, respectively.

b. There was no credit loan written off without a lawsuit in 2018 and 2017.
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c. The following table shows the movement of the total carrying amount of notes discounted and loans for the year ended December 31, 2018:

	12-month ECL	12-month ECL		Lifetime ECL	Credit- impaired Financial Assets	Credit- impaired Financial Assets		Total
Balance at January 1, 2018 Reconciliation arising from financial instruments recognized at the beginning of the year: Transfers to lifetime ECL Transfers to credit-impaired financial assets New notes discounted and loans purchased or originated Write-offs Derecognition Change in others Balance at December 31,2018		$ 401,603,091 (7,160,622) (1,835,301) 7,142,086 251,247,141 (20,366) (195,245,211) (20,728,689) $ 435,002,129		$ 32,188,249 7,163,352 (4,787,508) (7,141,465) 3,555,867 (306,169) (14,245,972) (1,084,623) $ 15,341,731		$ 2,209,702 (2,730) 6,622,809 (621) 1,327,498 (707,249) (875,437) (657,551) $ 7,916,421		$ 436,001,042 - - - 256,130,506 (1,033,784) (210,366,620) (22,470,863) $ 458,260,281

d. The following table shows the movement of the allowance for doubtful accounts of notes discounted and loans for the year ended December 31, 2018:

		12-month ECL	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets		Impairment Loss under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2018 Reconciliation arising from financial instruments recognized at the beginning of the year: Transfers to lifetime ECL Transfers to credit-impaired financial assets Transfers to 12-month ECL Derecognition of financial assets in current period New financial assets purchased or originated Difference of Impairment loss under regulations Write-offs Recovery of written-offs Change in exchange influence or others Balance at December 31,2018		$ 1,644,957 (15,810) (6,279) 376,160 (1,035,356) 1,277,130 - (3) - (472,863) $ 1,767,936		$ 2,624,516 16,855 (442,489) (376,096) (1,590,753) 200,940 - (15,876) - 244,743 $ 661,840		$ 490,440 (1,045) 448,768 (64) (172,658) 421,442 - (242,177) - 1,090,502 $ 2,035,208		$ 4,759,913 - - - (2,798,767) 1,899,512 - (258,056) - 862,382 $ 4,464,984		$ 1,584,897 - - - - - 550,859 (775,728) 706,691 - $ 2,066,719		$ 6,344,810 - - - (2,798,767) 1,899,512 550,859 (1,033,784) 706,691 862,382 $ 6,531,703

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e. Notes discounted and loans classified according to the credit risk characteristics of the products as of December 31, 2017 were as follows:

	Items		Notes Discounted and Loans	Allowance for Possible Losses
			December 31, 2017	December 31, 2017
With objective evidence of individual impairment	Individual assessment of impairment	Corporate loans	$ 7,071,371	$ 1,855,412
		Consumer loans	2,273,811	255,556
	Collective assessment of impairment	Corporate loans	911,688	283,721
		Consumer loans	2,177,833	278,992
Without objective evidence of individual impairment	Collective assessment of impairment	Corporate loans	221,343,141	1,632,665
		Consumer loans	202,175,492	214,635
Total			435,953,336	4,520,981

According to IAS 39, the amount of allowance for doubtful accounts was measured based on the credit risk characteristics of the accounts. The amount measured under IAS 39 was less than the amount calculated under rule No. 10010006830 issued by the Banking Bureau of the FSC, which should be 1% higher than the ratio of allowance for notes discounted and loans recognized over total loans, and under rule No. 10300329440 issued by the Banking Bureau of the FSC, allowance for doubtful accounts should be provided at 1.5% or more of the loans for real estate. Consequently, bad-debt expense increased on notes discounted and loans.

f. The changes in allowance for possible losses on receivables and notes discounted and loans for the year ended December 31, 2017 were as follows:

Balance, January 1 Provision for possible losses Write-offs Recovery of written-off credits Exchange influence Balance, December 31		For the Year Ended December 31, 2017	For the Year Ended December 31, 2017
		Receivables Discounts and Loans $ 122,534 $ 6,226,687 98,719 770,744 (30,869) (1,010,672) 19,840 391,827 (930) (33,776) $ 209,294 $ 6,344,810	Total $ 6,349,221 869,463 (1,041,541) 411,667 (34,706) $ 6,554,104

The allowance for doubtful accounts of the abovementioned receivables includes allowances for delinquent receivables arising from loans, refer to Note 17.

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14. AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET - 2017

Corporate bonds Government bonds Foreign listed shares Credit certificate and depository receipts	December 31, 2017 $ 24,536,414 6,497,632 158,825 - $ 31,192,871

a. The foreign listed shares and depository receipts denominated in foreign currencies were as follows:

	December 31,	December 31,
		2017
USD	$	5,335

b. As of December 31, 2017, the investments in credit certificate and depositary receipts at available-for-sale had been fully assessed for impairment losses.

15. HELD-TO-MATURITY FINANCIAL ASSETS, NET - 2017

Foreign bonds Government bonds Central bank transferable deposit slip a. The foreign bonds denominated in foreign currencies were as below: USD RMB AUD ZAR	December 31, 2017 $ 19,529,633 8,512,462 57,500,000 $ 85,542,095 December 31, 2017 $ 483,962 750,000 61,000 70,000

b. As of December 31, 2017, government bonds and foreign bonds at held-to-maturity amounted to $2,200,000 thousand and $2,232,750 thousand (US$75,000 thousand), respectively, had been sold under repurchase agreements.
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16. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries Investments in associates		December 31	December 31
		2018 $ 5,071,278 153,423 $ 5,224,701	2017 $ 4,606,994 128,113 $ 4,735,107

a. Investments in subsidiaries

Domestic non-listed (cabinet) companies Taichung Bank Leasing Co., Ltd. Taichung Bank Insurance Brokers Co., Ltd. Taichung Bank Securities Co., Ltd.		December 31	December 31	December 31
		2018 Proportion of Ownership Amount (%) $ 1,858,956 100.00 1,828,479 100.00 1,383,843 100.00 $ 5,071,278		2017
				Proportion of Ownership Amount (%) $ 1,790,773 100.00 1,432,236 100.00 1,383,985 100.00 $ 4,606,994

b. Investments in associates

Associates that are not individually material Reliance Securities Investment Trust Co., Ltd.		December 31	December 31	December 31
		2018 Proportion of Ownership Amount (%) $ 153,423 38.46		2017
				Proportion of Ownership Amount (%) $ 128,113 38.46

Detail of share of loss of associates for using the equity method was as follows:

Investee Company Reliance Securities Investment Trust Co., Ltd.	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ (6,716)	2017 $ (2,875)

Investment was accounted for using the equity method and the share of loss of the investment was calculated based on financial statements which have been audited.

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17. OTHER FINANCIAL ASSETS, NET

Financial assets carried at cost Other financial assets - other Other delinquent receivables, net		December 31	December 31
		2018 $ - - 1,111 $ 1,111	2017 $ 145,684 900,335 21,606 $ 1,067,625

a. Financial assets carried at cost were as follows:

		December 31,
		2017
Domestic non-public	ordinary shares	$ 145,684

Management believed that the above unlisted equity investments held by the Bank had fair values which could not be reliably measured, because the range of reasonable fair value estimates was so significant. Therefore, they were measured at cost less impairment at the end of the reporting period.

b. Other financial assets – other were as follows:

	December 31,	December 31,
		2017
Products issued by PEM group	$	2,000,308
Less: Accumulated impairment		(1,099,973)
	$	900,335

On May 6, 2009, the Bank set the Private Equity Management Group (PEM Group) linked debt customer rights protection plan, and decided to buy back those financial instruments from investors with the resolution of board of directors and as of February 2011, the Bank received the policy assets from PEM Group.

The Bank assessed the value of the policy assets issued by PEM Group in 2017, and recognized the impairment loss of $50,533 thousand.

c. Other delinquent receivables, net were as follows:

Delinquent receivables not arising from loans Less: Allowance for doubtful accounts (Notes 12 and 13)		December	31
		2018 $ 5,343 (4,232) $ 1,111	2017 $ 43,428 (21,822) $ 21,606

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18. PROPERTIES AND EQUIPMENT, NET

Cost Balance, beginning of year Addition Disposals Reclassifications Exchange influence Balance, end of year Accumulated depreciation Balance, beginning of year Addition Disposals Reclassifications Exchange influence Balance, end of year Impairment Balance, beginning of year Addition Disposals Reclassifications Balance, end of year Balance, end of year, net Cost Balance, beginning of year Addition Disposals Reclassifications Exchange influence Balance, end of year Accumulated depreciation Balance, beginning of year Addition Disposals Reclassifications Exchange influence Balance, end of year Impairment Balance, beginning of year Addition Disposals Reclassifications Balance, end of year Balance, end of year, net			2018	2018
		Land $ 7,843,120 - - - 7,843,120 - - - - 77,000 - - - 77,000 $ 7,766,120	Building and Structures Transportation Equipment Miscellaneous Equipment Construction in Progress $ 2,086,402 $ 34,554 $ 1,498,222 $ 143,380 - 8,763 194,571 62,035 - (2,503 ) (59,918 ) - - - 2,580 (2,580) 2,086,402 40,814 1,635,455 202,835 1,105,281 21,524 1,105,614 - 39,788 3,858 145,997 - - (1,432) (57,333) - 1,145,069 23,950 1,194,278 - - - - - - - - - - - - - - - - - - - - - $ 941,333 $ 16,864 $ 441,177 $ 202,835 2017		Total $ 11,605,678 265,369 (62,421 ) - 11,808,626 2,232,419 189,643 (58,765) 2,363,297 77,000 - - - 77,000 $ 9,368,329
		Land $ 7,843,120 - - - 7,843,120 - - - - - 77,000 - - - 77,000 $ 7,766,120	Building and Structures Transportation Equipment $ 2,086,402 $ 32,458 - 2,179 - (83 ) - - 2,086,402 34,554 1,065,488 18,039 39,793 3,568 - (83 ) - - 1,105,281 21,524 - - - - - - - - - - $ 981,121 $ 13,030	Miscellaneous Equipment Construction in Progress $ 1,446,429 $ 100,965 77,428 42,415 (25,635 ) - - - 1,498,222 143,380 977,330 - 153,524 - (25,240 ) - - - 1,105,614 - - - - - - - - - - - $ 392,608 $ 143,380	Total $ 11,509,374 122,022 (25,718 ) - 11,605,678 2,060,857 196,885 (25,323 ) - 2,232,419 77,000 - - - 77,000 $ 9,296,259

Depreciation is calculated by the straight-line method over service lives estimated as follows:

Building and structures Building 30 to 60 years Renovation 10 to 29 years Transportation equipment 3 to 5 years Miscellaneous equipment 2 to 15 years

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19. INVESTMENT PROPERTIES, NET

Cost Balance, beginning of year Additions Balance, end of year Accumulated depreciation Balance, beginning of year Additions Balance, end of year Balance, end of year, net Cost Balance, beginning of year Disposals Balance, end of year Accumulated depreciation Balance, beginning of year Additions Disposals Balance, end of year Balance, end of year, net			2018
		Land $ 20,269 - 20,269 - - - $ 20,269	Structures $ 12,575 - 12,575 10,094 90 10,184 $ 2,391 2017	Total $ 32,844 - 32,844 10,094 90 10,184 $ 22,660
		Land $ 71,180 (50,911) 20,269 - - - - $ 20,269	Structures $ 29,453 (16,878) 12,575 22,365 240 (12,511) 10,094 $ 2,481	Total $ 100,633 (67,789) 32,844 22,365 240 (12,511) 10,094 $ 22,750

a. The investment properties are depreciated using the straight-line method over their estimated useful lives as follows:

Building and structures Building 60 years Renovation 10 to 25 years

b. The board of directors of the Bank resolved to sell part of the investment properties in 2017, and the proceeds amounted to 403,950 thousand, which resulted in gain on disposals of 348,672 thousand and land value increment tax of 57,840 thousand.
c. The fair value of the investment properties of the Bank on December 31, 2018 and 2017 were $63,122 thousand and $61,652 thousand, respectively. The fair value was not evaluated by independent qualified professional valuers. The valuation was arrived at by reference to the market evidence of transaction price for similar properties.
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20. INTANGIBLE ASSETS, NET

Movements of intangible assets were as follows:

Balance, beginning of year Additions Amortization Balance, ending of year	For the Year Ended	For the Year Ended	December 31
		2018 $ 115,605 55,611 (46,191) $ 125,025	2017 $ 124,544 52,367 (61,306) $ 115,605

Computer software was amortized on a straight-line basis over their estimated useful lives as follows: Computer software 5 years

21. OTHER ASSETS, NET

Refundable deposits Prepayments		December 31	December 31
		2018 $ 1,202,712 93,227 $ 1,295,939	2017 $ 1,512,798 69,025 $ 1,581,823

As of December 31, 2018 and 2017, the government bonds at amortized cost and held-to-maturity government bonds amounted to $785,000 thousand and $1,017,800 thousand, respectively, were pledged to district court for litigation, as a collateral for the overdraft of the US dollar clearing account and the provision of guarantee deposit for business operations, which were stated as refundable deposits. Refer to Note 34.

22. DUE TO THE CENTRAL BANK AND OTHER BANKS

Call loans from banks Due to Chunghwa Post Co., Ltd. Due to banks		December 31	December 31
		2018 $ 2,874,850 503,276 626 $ 3,378,752	2017 $ 9,007,150 511,474 248 $ 9,518,872

23. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Government bonds Foreign bonds		December 31	December 31
		2018 $ 1,200,036 8,704,431 $ 9,904,467	2017 $ 2,202,581 2,105,229 $ 4,307,810

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The post-year repurchase price and rate were as follows:

Government bonds Foreign bonds Government bonds Foreign bonds		December 31	December 31
		2018 $ 1,200,797 8,768,302 $ 9,969,099 0.42%-0.52% 2.69%-2.90%	2017 $ 2,203,231 2,114,799 $ 4,318,030 0.37%-0.43% 1.68%-1.90%

The foreign bonds denominated in foreign currencies were as follows:

USD	December 31
	2018 2017 $ 283,440 $ 70,716

24. PAYABLES

Notes and checks in clearing Foreign currency settlement payable Accrued expenses Acceptances Interest payable Securities settlement payable Factored accounts payable Collections payable Other payables		December 31	December 31
		2018 $ 5,715,927 1,912,669 1,361,270 845,279 532,536 438,763 33,552 25,981 476,887 $ 11,342,864	2017 $ 6,021,021 1,804,654 1,023,315 872,015 430,541 - 1,581,918 25,994 436,284 $ 12,195,742

25. DEPOSITS AND REMITTANCES

Deposits Checking Demand Demand savings Time Time savings Remittances		December 31	December 31
		2018 $ 9,766,073 130,125,733 126,189,743 165,278,089 157,855,126 28,125 $ 589,242,889	2017 $ 9,696,673 129,321,426 121,997,110 160,119,564 146,104,716 16,102 $ 567,255,591

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26. BANK DEBENTURES

Subordinated financial debenture

December 31 2018 2017 $ 20,000,000 $ 17,500,000

a. The Bank issued first subordinated financial debenture on November 13, 2012, which was approved under ruling reference No. 10100305900 issued by the Banking Bureau of the FSC on September 24, 2012. Detail of the subordinated financial debenture issuance is summarized as follows:
1) Total approved principal: $3,000,000 thousand.
2) Principal issued: $3,000,000 thousand.
3) Denomination: $1,000 thousand, issued at par.
4) Period: 7 years with maturities on November 13, 2019.
5) Nominal interest rate: Fixed interest rate, 2.1%.
6) Repayment: The subordinated financial debenture will be paid on the maturity date.
7) The interest will be paid semi-annually from the issuance date.
b. The Bank issued first subordinated financial debenture and second subordinated financial debenture on June 25, 2013 and December 16, 2013, respectively, which were approved under ruling reference No. 10200089330 issued by the Banking Bureau of the FSC on April 8, 2013. Details of the financial subordinated debenture issuance are summarized as follows:
1) Total approved principal: $6,000,000 thousand.
2) Principal issued:
- a) Debenture I on 2013: $2,500,000 thousand.

b) Debenture II on 2013: $3,000,000 thousand.

3) Denomination:
- a) Debenture I on 2013: $500 thousand, issued at par.
- b) Debenture II on 2013: $500 thousand, issued at par.
4) Period:
- a) Debenture I on 2013: 7 years with maturities on June 25, 2020.
- b) Debenture II on 2013: 6 years with maturities on December 16, 2019.
5) Nominal interest rate:
- a) Debenture I on 2013: Fixed interest rate, 2.1%.
- b) Debenture II on 2013: Fixed interest rate, 2.1%.
6) Repayment: The subordinated financial debenture will be paid on the maturity date.
7) The interest will be paid semi-annually from the issuance date.
c. The Bank issued first subordinated financial debenture on December 28, 2015, which was approved under ruling reference No. 10400200460 issued by the Banking Bureau of the FSC on August 26, 2015. Detail of the subordinated financial debenture issuance is summarized as follows:
1) Total approved principal: $1,500,000 thousand.
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2) Principal issued: $1,500,000 thousand.
3) Denomination: $10,000 thousand, issued at par.
4) Period: No due date.
5) Nominal interest rate: According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08%.
6) Repayment: Execute according to the issuance.
7) The interest will be paid annually from the issuance date.
d. The Bank issued first no due date non-cumulative subordinated financial debenture, second no due date non-cumulative subordinated financial debenture, third no due date non-cumulative subordinated financial debenture and first no due date non-cumulative subordinated financial debenture on March 28, 2017, May 18, 2017, August 28, 2017 and December 28, 2016, respectively, which were approved under ruling reference No. 10500210950 issued by the Banking Bureau of the FSC on September 2, 2016. Details of the subordinated financial debenture issuance are summarized as follows:
1) Total approved principal: $3,500,000 thousand.
2) Principal issued:
- a) Debenture I on 2016: $1,500,000 thousand.
- b) Debenture I on 2017: $1,000,000 thousand.
- c) Debenture II on 2017: $500,000 thousand.
- d) Debenture III on 2017: $500,000 thousand.
3) Denomination:
- a) Debenture I on 2016: $10,000 thousand, issued at par.
- b) Debenture I on 2017: $10,000 thousand, issued at par.
- c) Debenture II on 2017: $10,000 thousand, issued at par.
- d) Debenture III on 2017: $10,000 thousand, issued at par.
4) Period: No due date.
5) Nominal interest rate: According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08%.
6) Repayment: Execute according to the issuance.
7) The interest will be paid annually from the issuance date.
e. The Bank issued first no due date non-cumulative subordinated financial debenture, fourth no due date non-cumulative subordinated financial debenture and fifth no due date non-cumulative subordinated financial debenture on April 25 2018, December 5, 2017 and December 27, 2017, respectively, which were approved under ruling reference No. 10600229120 issued by the Banking Bureau of the FSC on September 22, 2017. Details of the subordinated financial debenture issuance are summarized as follows:
1) Total approved principal: $5,000,000 thousand.
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2) Principal issued:
- a) Debenture IV on 2017: $1,350,000 thousand. b) Debenture V on 2017: $2,650,000 thousand.
- c) Debenture I on 2018: $1,000,000 thousand.
3) Denomination:
- a) Debenture IV on 2017: $10,000 thousand, issued at par. b) Debenture V on 2017: $10,000 thousand, issued at par. c) Debenture I on 2018: $10,000 thousand, issued at par.
4) Period: No due date.
5) Nominal interest rate: According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08%.
6) Repayment: Execute according to the issuance.
7) The interest will be paid annually from the issuance date.
f. The Bank issued second no due date non-cumulative subordinated financial debenture on December 18, 2018, which was approved under ruling reference No. 10702156550 issued by the Banking Bureau of the FSC on August 23, 2018. Detail of the subordinated financial debenture issuance is summarized as follows:
1) Total approved principal: $1,500,000 thousand.
2) Principal issued: $1,500,000 thousand.
3) Denomination: $10,000 thousand, issued at par.
4) Period: No due date.
5) Nominal interest rate: According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08%.
6) Repayment: Execute according to the issuance.
7) The interest will be paid annually from the issuance date.

27. PROVISIONS

Provision for employee benefits Provision for losses on guarantees Provision for losses on accidental Provision for loan commitments		December 31	December 31
		2018 $ 1,144,224 189,848 23,933 63,809 $ 1,421,814	2017 $ 1,120,042 243,637 26,300 - $ 1,389,979

53 -

a. Details of provision for employee benefits were as follows:

Benefit plans Preferential interest on employees’ deposits Other long-term employee benefit liabilities		December 31	December 31
		2018 $ 1,000,467 120,769 22,988 $ 1,144,224	2017 $ 992,816 108,779 18,447 $ 1,120,042

1) Defined contribution plans

The Bank adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

The amount paid by the Bank in 2018 and 2017 in accordance with the defined contribution plan had been recognized in the parent company only statements of comprehensive income as total amounts of $75,505 thousand and $69,047 thousand, respectively.

2) Defined benefit plans

The defined benefit plan adopted by the Bank in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Bank contributes amounts equal to 3% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Bank assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Bank is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (the “Bureau”); the Bank has no right to influence the investment policy and strategy.

The amounts included in the balance sheets in respect of the Bank’s defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Deficit Net defined benefit liability		December 31	December 31
		2018 $ 1,719,860 (719,393) 1,000,467 $ 1,000,467	2017 $ 1,693,578 (700,762) 992,816 $ 992,816

54 -

Movements in net defined benefit liability were as follows:

Present Value
of the Defined
Benefit
Obligation
Fair Value of
the Plan Assets
Balance at January 1, 2017
$ 1,810,954
$ (778,937)

Service cost
Current service cost
22,119
-
Net interest expense (income)

18,110

(7,942)

Recognized in profit or loss

40,229

(7,942)

Remeasurement
Return on plan assets (excluding
amounts included in net interest)
-
574
Actuarial loss - changes in
demographic assumptions
1,422
-
Actuarial gain - changes in financial
assumptions
(51,176)
-
Actuarial loss - experience adjustments
31,330

-

Recognized in other comprehensive
income

(18,424)

574

Contributions from the employer
-
(27,100)
Benefits paid
(112,643)
112,643
Company paid

(26,538)

-

Balance at December 31, 2017

1,693,578

(700,762)

Service cost
Current service cost
19,029
-
Net interest expense (income)

21,170

(8,921)

Recognized in profit or loss

40,199

(8,921)

Remeasurement
Return on plan assets (excluding
amounts included in net interest)
-
(20,491)
Actuarial loss - changes in financial
assumptions
24,335
-
Actuarial loss - experience adjustments
39,459

-

Recognized in other comprehensive
income

63,794

(20,491)

Contributions from the employer
-
(56,895)
Benefits paid
(67,676)
67,676
Company paid

(10,035)

-

Balance at December 31, 2018
$ 1,719,860
$ (719,393)

Net Defined
Benefit
Liability
$ 1,032,017
22,119

10,168

32,287
574
1,422
(51,176)

31,330

(17,850)

(27,100)
-

(26,538)

992,816
19,029

12,249

31,278

(20,491)
24,335

39,459

43,303

(56,895)
-

(10,035)
$ 1,000,467

An analysis by function of the amounts recognized in profit or loss in respect of the defined benefit plans was as follows:

Operating expenses	For The Year Ended December 31	For The Year Ended December 31	For The Year Ended December 31
		2018 $ 31,278	2017 $ 32,287

55 -

Through the defined benefit plans under the Labor Standards Law, the Bank is exposed to the following risks:

a) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.
b) Interest risk: A decrease in the government or corporate bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.
c) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate(s) Expected rate(s) of salary increase	December 31
	2018 2017 1.125% 1.250% 1.500% 1.500%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

Discount rate(s) 0.25% increase 0.25% decrease Expected rate(s) of salary increase 0.25% increase 0.25% decrease		December	31
		2018 $ (48,217) $ 50,072 $ 49,981 $ (47,405)	2017 $ (49,203) $ 51,178 $ 50,105 $ (48,413)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Expected contributions to the plan for the next year Average duration of the defined benefit obligation		December 31	December 31
		2018 $ 26,277 11.4 years	2017 $ 25,887 11.8 years

56 -
3) Preferential interest on employees’ deposits

The Bank had revised the interest rate of the employees’ savings deposit since December 21, 2014, in accordance with the regulations of the Financial Management Law No. 10110000850 and the Regulations Governing the Preparation of Financial Reports by Public Banks, and the preferential interest on employee’s deposit liabilities were carried out by qualified actuaries.

The amount included in the balance sheet in respect of the preferential interest on employee’s deposit plan were as follows:

Present value of the preferential interest on deposits Fair value of plan assets Deficit Provision for preferential interest on deposits		December 31	December 31
		2018 $ 120,769 - 120,769 $ 120,769	2017 $ 108,779 - 108,779 $ 108,779

Movements in preferential interest on employees’ deposits obligation were as follows:

Balance at January 1, 2017

Service cost
Current service cost
Net interest expense

Recognized in profit or loss

Remeasurement
Actuarial loss - changes in
demographic assumptions
Actuarial loss - experience adjustments
Recognized in other comprehensive
income

Company paid

Balance at December 31, 2017

Service cost
Current service cost
Net interest expense

Recognized in profit or loss

Remeasurement
Actuarial loss - changes in
demographic assumptions
Actuarial loss - experience adjustments
Recognized in other comprehensive
income

Company paid

Balance at December 31, 2018

Present Value
of the
Preferential
Interest on
Employees’
Deposits
Obligation
Fair Value of
the Plan Assets
Net Preferential
Interest on
Employees’
Deposits
Liability
$ 93,544
$ -
$ 93,544
15,231
-
15,231
3,284

-

3,284
18,515

-

18,515
2,727
-
2,727
18,810

-

18,810
21,537

-

21,537
(24,817)

-

(24,817)
108,779

-

108,779
9,112
-
9,112
3,855

-

3,855
12,967

-

12,967
6,076
-
6,076
20,173

-

20,173
26,249

-

26,249
(27,226)

-

(27,226)
$ 120,769
$ -
$ 120,769

57 -

An analysis by function of the amounts recognized in profit or loss in respect of the preferential interest on employees’ deposits plan was as follows:

Operating expenses	For The Year Ended December 31	For The Year Ended December 31	For The Year Ended December 31
		2018 $ 12,967	2017 $ 18,515

The actuarial valuations of the present value of preferential interest on employees’ deposits obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate(s) Expected return on employees’ deposits Excess interest rate Preferential deposit withdrawal rate	December 31
	2018 2017 4.00% 4.00% 2.00% 2.00% 2.00% 2.00% 4.00% 4.50%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of preferential interest on employees’ deposits obligation would increase (decrease) as follows:

Discount rate(s) 0.25% increase 0.25% decrease Preferential deposit withdrawal rate 0.25% increase 0.25% decrease		December	31
		2018 $ (2,858) $ 2,982 $ 3,099 $ (3,227)	2017 $ (2,502) $ 2,608 $ 2,727 $ (2,838)

The sensitivity analysis presented above may not be representative of the actual change in the present value of preferential interest on employees’ deposits obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Expected contributions to the plan for the next year Average duration of preferential interest on employees’ deposits obligation		December	31
		2018 $ - 10.1 years	2017 $ - 9.8 years

4) Other long-term employee benefit liabilities

Other long-term employee benefits of the Bank are long-term disability benefits. If the employee does not encounter any casualty due to occupational disaster or accidental death, the Bank will pay the pension according to the seniority.

58 -

The Bank recognized total expenses (interests) related to the long-term employee benefits in the parent company only statements of comprehensive income in 2018 and 2017 were $4,542 thousand and $3,230 thousand, respectively. As of December 31, 2018 and 2017, other long-term employee benefit liabilities were $22,988 thousand and $18,447 thousand, respectively.

b. Movements in provision for losses on guarantees were as follows:

Provision for losses on guarantees reconciliation table

2018

		12-month ECL		Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Accessed under IFRS 9	Impairment Loss Accessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2018 Reconciliation arising from financial instruments recognized at the beginning of the year: Transfers to lifetime ECL Transfers to credit-impaired financial instruments Transfers to 12-month ECL Derecognition of financial instruments in current period New financial instruments purchased or originated Difference of impairment loss under regulations Write-offs Recovery of written-offs Change in exchange influence or others Balance at December 31, 2018		$ 161,287 (82) (1,071) 2,682 (127,962) 91,123 - - - (4,916) $ 121,061		$ 78,453 82 (10) (2,682) (75,721) 592 - - - 1,037 $ 1,751		$ 112 - 1,081 - (6) 8,075 - - - 45,959 $ 55,221		$ 239,852 - - - (203,689) 99,790 - - - 42,080 $ 178,033		$ 3,785 - - - - - 8,030 - - - $ 11,815		$ 243,637 - - - (203,689) 99,790 8,030 - - 42,080 $ 189,848

2017

Balance, January 1, 2017 Provision Exchange influence Balance, December 31, 2017	Amount $ 166,760 77,434 (557) $ 243,637

The provision in 2018 and 2017 are accounted for bad-debt expenses and provision for losses on commitments and guarantees.

59 -
c. Movements in provision for losses on accidental were as follows:

Provision for losses on accidental reconciliation table

2018

	12-month ECL	12-month ECL		Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Accessed under IFRS 9	Impairment Loss Accessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2018 Reconciliation arising from financial instruments recognized at the beginning of the year: Transfers to lifetime ECL Transfers to credit-impaired financial instruments Transfers to 12-month ECL Transfers to lifetime ECL New financial assets purchased or originated Difference of impairment loss under regulations Write-offs Recovery of written-offs Change in exchange influence or others Balance at December 31, 2018		$ 11,240 - - - (11,240) 12,108 - - - - $ 12,108		$ 8,802 - - - (8,802) - - - - - $ -		$ 3,086 - - - (3,086) - - - - - $ -		$ 23,128 - - - (23,128) 12,108 - - - - $ 12,108		$ 3,172 - - - - - 8,653 - - - $ 11,825		$ 26,300 - - - (23,128) 12,108 8,653 - - - $ 23,933

2017

Balance, January 1, 2017 Provision Balance, December 31, 2017	Amount $ 300 26,000 $ 26,300

The provision in 2018 and 2017 are accounted for net income and loss other than interest.

60 -
d. Movements in loan commitments were as follows:

Loan commitments reconciliation table

2018

	12-month ECL	12-month ECL		Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Accessed under IFRS 9	Impairment Loss Accessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2018 Reconciliation arising from financial instruments recognized at the beginning of the year: Transfers to lifetime ECL Transfers to credit-impaired financial instruments Transfers to 12-month ECL Transfers to lifetime ECL New financial assets purchased or originated Difference of impairment loss under regulations Write-offs Recovery of written-offs Change in exchange influence or others Balance at December 31, 2018		$ 45,440 1,703 (6) 2,532 (20,131) 21,975 - - - 10,256 $ 61,769		$ 9,183 (1,703) (20) (2,532) (4,757) 1,655 - - - 214 $ 2,040		$ 2,150 - 26 - (2,150) - - - - (26) $ -		$ 56,773 - - - (27,038) 23,630 - - - 10,444 $ 63,809		$ - - - - - - - - - - $ -		$ 56,773 - - - (27,038) 23,630 - - - 10,444 $ 63,809

The provision are accounted for bad-debt expenses and provision for losses on commitments and guarantees.

28. OTHER LIABILITIES

Guarantee deposit received Advance receipts		December 31	December 31
		2018 $ 235,618 236,487 $ 472,105	2017 $ 129,023 206,088 $ 335,111

61 -

29. EQUITY

a. Share capital

Ordinary shares

Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		December 31	December 31
		2018 4,320,000 $ 43,200,000 3,525,508 $ 35,255,084	2017 4,320,000 $ 43,200,000 3,293,179 $ 32,931,789

Ordinary shares issued at a $10 par value per share. Each share has one voting right and the right to receive dividends.

As of January 1, 2017, the Bank had issued ordinary shares totaling $32,381,307 thousand, divided into 3,238,131 thousand ordinary shares at $10 par value per share. In September 2017, the Bank transferred unappropriated earnings to ordinary shares of $550,482 thousand, divided into 55,048 thousand ordinary shares at $10 par value per share. As of December 31, 2017, the Bank had increased the number of ordinary shares to $32,931,789 thousand, divided into 3,293,179 thousand ordinary shares at $10 par value per share.

In August 2018, the Bank transferred unappropriated earnings to ordinary shares of $823,295 thousand, divided into 82,329 thousand ordinary shares at $10 par value per share. In October 2018, the board of directors of the Bank resolved to issue 150,000 thousand shares, with a par value of $10, for a consideration of $10.2 per share. The above transaction was approved under ruling reference No. 1070334491 issued by the Banking Bureau of the FSC, and the subscription base date was determined as at November 30, 2018. As of December 31, 2018, the Bank had increased ordinary shares to $35,255,084 thousand, divided into 3,525,508 thousand ordinary shares at $10 par value per share.

b. Employee share options

On October 2, 2018, the Bank retained 22,500 thousand shares of ordinary shares subscribed by employees when issuance of ordinary shares for cash was approved by the board of directors. Using the Black-Scholes pricing model, the compensation cost of employee share options recognized was $12,825 thousand in 2018. The inputs to the model are as follows:

Grunt-date share price $10.75 Exercise price $10.20 Volatility 9.79% Duration 56 days Risk-free interest rate 0.11%

The expected volatility is the average annual standard deviation of the rate of the Bank in the last year.

62 -

c. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital* Issuance of ordinary shares May be used to offset a deficit only Issuance of ordinary shares - employee share options Expired employee share options Share of changes in capital surplus of associates or joint ventures Conversion of bank debentures components		December 31	December 31
		2018 $ 663,633 32,124 6,682 16,813 7,729 $ 726,981	2017 $ 633,633 19,334 6,647 16,813 7,729 $ 684,156

Such capital surplus may be used to offset a deficit; in addition, when the Bank has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Bank’s capital surplus and to once a year).

d. Appropriation of earnings and dividend policy

Under the Bank`s dividends policy as set forth in the Articles, where the Bank made a profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as a legal reserve of 30% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Bank’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders. For the policies on the distribution of employees’ compensation and remuneration of directors and supervisors after the amendment, refer to employees’ compensation and remuneration of directors and supervisors in Note 30.

The appropriation of earnings mentioned above shall be retained by the board of directors in accordance with the changing operating environment, operating and investment needs. When dividends are declared, cash dividends must be at least 10% of total dividends declared.

An appropriation of earnings to a legal reserve shall be made until the legal reserve equals the Bank’s paid-in capital. The legal reserve may be used to offset deficits. If the Bank has no deficit and the legal reserve has exceeded 25% of the Bank’s paid-in capital, the excess may be transferred to capital or distributed in cash.

In addition, the Banking Law limits the appropriation of cash dividends to 15% of the Bank’s paid-in capital. But when the legal reserve equals the Bank’s paid-in capital, this 15% limit may be waived. If the ratio of own capital to risky assets does not meet the standards set by the business authority, the appropriation of earnings in cash or other properties should be subject to the restrictions or prohibitions of the relevant provisions of the business authority.

Under related regulations, a special reserve is appropriated from the balance of the retained earnings at an amount from the net income and unappropriated earnings that is equal to the debit balance of accounts in the shareholders’ equity section. Afterward, if there is any reversal of the decrease in shareholders’ equity, the Bank is allowed to appropriating retained earnings from the reversal amount.

63 -

According to Order No. 1010012865 issued by the FSC, Order No. 1010047490 issued by the FSC and International Financial Reporting Standards and “following IFRSs, Q&A on the application of the reference to the special reserve”, appropriating and appropriating retained from the special reserve. Afterward, if there is any reversal of the decrease in other shareholders’ equity, the Bank is allowed to appropriating retained earnings from the reversal amount. According to Order No. 10510001510 issued by the FSC, a special reserve should be appropriated between 0.5% and 1% of net income after tax when banks appropriate earnings of 2016 through 2018. Since 2017, the Bank is allowed to reverse the special reserve at the amount of the costs of employee transfer and arrangement in connection with the development of financial technology.

The appropriations of earnings for 2017 and 2016 were approved in the shareholders’ meetings on June 5, 2018 and June 7, 2017, respectively, as follows:

Legal reserve Special reserve Cash dividends Share dividends	Appropriation of Earnings 2017 2016 $ 1,089,196 $ 1,014,738 36,326 35,148 1,481,931 1,780,972 823,295 550,482	Dividends Per Share (NT$)
		2017 2016 $ - $ - - - 0.45 0.55 0.25 0.17

The appropriations of earnings for 2018 had been proposed by the Bank’s board of directors on March 14, 2019 were as follows:

	Appropriation	Dividends Per	Dividends Per
	of Earnings	Share	(NT$)
Legal reserve	$ 1,202,511	$	-
Special reserve	40,084		-
Cash dividends	987,142		0.28
Share dividends	1,833,265		0.52

The appropriations of earnings for 2018 are subject to the resolution of the shareholders’ meeting to be held on June 28, 2019.

e. Others equity items

Exchange
Differences on
Translating the
Financial
Statement of
Foreign
Operations
Unrealized Gain
on
Available-for-sale
Financial Assets
Unrealized Gain
on Financial
Assets at
FVTOCI
Balance at January 1, 2018 per IAS 39
$ (38,507)
$ 223,484
$ -

Adjustment on initial application of
IFRS 9

-
(223,484)
623,457

Balance at January 1, 2018 per IFRS 9
(38,507)
-
623,457

Effect of change in tax rate
-
-
(3,836)
Recognized for the year
Unrealized gains/(losses)
Equity instruments
-
-
50,762
Debt instruments
-
-
(10,129)

Total
$ 184,977
399,973
584,950
(3,836)
50,762
(10,129)
(Continued)

64 -

Exchange
Differences on
Translating the
Financial
Statement of
Foreign
Operations
Unrealized Gain
on
Available-for-sale
Financial Assets
Unrealized Gain
on Financial
Assets at
FVTOCI
Net remeasurement of loss
allowance - debt instruments
$ -
$ -
$ (3,820)

Share from associates accounted for
using the equity method
(13,638)
-
36,107
Cumulative unrealized gain of equity
instruments transferred to retained
earnings due to disposal
-
-
5,350
Cumulative translation adjustment
Exchange differences for current
period
13,818
-
-
Income tax related to other
comprehensive income

-

-

(6,994)

Balance at December 31, 2018
$ (38,327)
$ -
$ 690,897

Balance at January 1, 2017
$ (23,183)
$ 36,817
$ -

Available-for-sale financial assets
Valuation adjustment
-
224,250
-

Cumulative loss of available-for-sale
financial assets transferred to
retained earnings due to disposal
-
(27,608)
-

Cumulative translation adjustment
Exchange differences for current
period
(2,856)
-
-
Shares of the other comprehensive loss
of associates for using the equity
method for current period
(12,468)
(2,561)
-

Income tax related to other
comprehensive income

-

(7,414)

-

Balance at December 31, 2017
$ (38,507)
$ 223,484
$ -

Total
$ (3,820)
22,469
5,350
13,818

(6,994)
$ 652,570
$ 13,634
224,250
(27,608)
(2,856)
(15,029)

(7,414)
$ 184,977
(Concluded)

30. NET PROFIT FROM CONTINUING OPERATIONS

Net profit from continuing operations was attributable to:

a. Net interest

Interest revenue Notes discounted and loans Due from banks and call loans to the other banks Investment in securities Revolving interests of credit cards Accounts receivable factoring without recourse Securities purchased under resell agreements Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 10,725,813 131,709 1,517,886 41,377 5,670 29,921 775 12,453,151	2017 $ 10,148,998 149,496 1,222,577 43,487 2,453 23,824 584 11,591,419

(Continued)

65 -

Interest expense Deposits Deposits from the central bank and other banks Due to the central bank and other banks Securities sold under repurchase agreements Financial debentures Structured instruments Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ (3,629,376) (5,552) (92,509) (150,165) (581,800) (2,601) (12) (4,462,015) $ 7,991,136	2017 $ (3,289,437) (7,460) (63,777) (30,993) (373,299) (3,102) (10) (3,768,078) $ 7,823,341 (Concluded)

b. Service fee income, net

Service fee income Loans Trust business Guarantee Others Service fee expense Cross-bank transactions Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 461,478 809,086 159,332 505,561 1,935,457 (35,082) (107,421) (142,503) $ 1,792,954	2017 $ 312,790 769,960 121,771 503,341 1,707,862 (33,016) (121,345) (154,361) $ 1,553,501

The Bank provides custody, trust, investment management and consultancy services to third parties, so the Bank’s activities involve the planning, management and trading decisions of financial instruments. For the trust funds or investment portfolios that are managed and used on behalf of the trustee, the independent accounting reports and preparation of financial statements for internal management purposes are not included in the Bank’s financial statements.

66 -

c. Gain on financial assets and liabilities at fair value through profit or loss

Realized profit and loss Commercial papers Shares Beneficiary certificates Derivative financial instruments Valuation Commercial papers Shares Beneficiary certificates Derivative financial instruments PEM Group policy assets	For the Year Ended	For the Year Ended	December 31
		2018 $ 146,516 (24,126) (77,102) 18,344 63,632 3,046 100,112 (12,799) (22,096) 14,456 82,719 $ 146,351	2017 $ 141,078 3,442 106,857 416,121 667,498 3,256 37,672 4,516 (240,044) - (194,600) $ 472,898

1) Realized profit and loss of gain on financial assets and liabilities at fair value through profit or loss include disposal (loss) profit in 2018 and 2017 amounted to $(134,285) thousand and $496,313 thousand, dividend revenue amounted to $32,232 and $17,617 thousand and interest revenue amounted to $165,684 thousand and $153,568 thousand, respectively.
2) Net income from exchange rate commodities includes realized and unrealized gains and losses on exchange forward contracts, cross-currency options and cross-currency swap.
d. Realized gain on available-for-sale financial assets, net - 2017

Realized gain on available-for-sale financial assets, net includes disposal of corporate bonds and government bonds amounted to $27,608 thousand.

e. Realized gains on financial assets at fair value through other comprehensive income

	For the Year
	Ended
	December 31,
	2018
Dividend income	$ 27,230
Gain on disposal of bonds	26,787
	$ 54,017

67 -

f. Impairment (losses) gain on reversal

For the Year Ended	For the Year Ended	December 31
2018 $ 3,820 (21,308) - $ (17,488) For the Year Ended		2017 $ - - (50,533) $ (50,533) December 31
		2017 $ 21,619 (26,000) 16,057 $ 11,676 December 31
	2018 $ (28,953) 487,296 (54,000) 6,604 $ 410,947	2017 $ 98,719 770,744 77,434 - $ 946,897

i. Employee benefits expense

Salaries Labor and health insurance Pension expense Remuneration of directors and supervisors Other employee expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 2,778,605 171,768 106,783 101,025 185,698 $ 3,343,879	2017 $ 2,445,480 169,260 101,334 101,990 183,146 $ 3,001,210

68 -
j. Employees’ compensation and remuneration of directors and supervisors

According to the Articles of Incorporation of the Bank, the Bank accrued employees’ compensation and remuneration of directors and supervisors at rates of 0.5%-3% and no higher than 1.5%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors and supervisors. The employees’ compensation and the remuneration of directors and supervisors for the years ended December 31, 2018 and 2017, which were approved by the Bank’s board of directors on March 14, 2019 and March 14, 2018, respectively, were as follows:

Accrual rate

Employees’ compensation Remuneration of directors and supervisors Amount Employees’ compensation Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2018 2017 0.70% 0.60% 1.50% 1.40% For the Year Ended December 31
		2018 $ 33,198 $ 71,138	2017 $ 26,141 $ 60,995

If there is a change in the amounts after the parent company only financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate.

There was no difference between the actual amounts of employees’ compensation and remuneration of directors and supervisors paid and the amounts recognized in the parent company only financial statements for the years ended December 31, 2017 and 2016.

Information on the employees’ compensation and remuneration of directors and supervisions resolved by the Bank’s board of directors in 2019 and 2018 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

k. Depreciation and amortization

Properties and equipments Investment properties Intangible assets	For the Year Ended	For the Year Ended	December 31
		2018 $ 189,643 90 46,191 $ 235,924	2017 $ 196,885 240 61,306 $ 258,431

69 -

l. Other selling and administrative expenses

Taxes Professional service Advertisement Insurance Rental Entertainment Donation Postage Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 671,174 195,266 72,505 182,143 139,260 125,925 81,532 64,211 514,085 $ 2,046,101	2017 $ 638,899 179,419 47,407 174,044 130,537 122,311 97,370 55,857 426,059 $ 1,871,903

31. INCOME TAXES RELATING TO CONTINUING OPERATIONS

a. Major components of income tax expense were as follows:

For the Year Ended December 31 2018 2017 Current tax In respect of the current period $ 676,838 $ 561,862 Income tax on unappropriated earnings 19,879 - Adjustments for prior periods 532 66 Land value increment tax - 57,840 Deferred tax In respect of the current period 22,272 17,328 Adjustments to deferred tax attributable to changes in tax rates and laws (89,718) - Income tax expense recognized in profit or loss $ 629,803 $ 637,096 A reconciliation of accounting profit and income tax expense was as follows: For the Year Ended December 31 2018 2017 Profit before tax from continuing operations $ 4,638,172 $ 4,269,638 Income tax expense calculated at the statutory rate $ 927,634 $ 725,838 Non-deductible expenses in determining taxable income 7,597 7,882 Tax-exempt income (227,945) (154,530) Land value increment tax - 57,840 Unrecognized temporary differences (8,176) - Income tax on unappropriated earnings 19,879 - Effect of tax rate changes (89,718) - Adjustments for prior years’ tax 532 66 Income tax expense recognized in profit or loss $ 629,803 $ 637,096	For the Year Ended	For the Year Ended	For the Year Ended	December 31
				2017 $ 561,862 - 66 57,840 17,328 - $ 637,096 December 31
		2018 $ 4,638,172 $ 927,634 7,597 (227,945) - (8,176) 19,879 (89,718) 532 $ 629,803	2017 $ 4,269,638 $ 725,838 7,882 (154,530) 57,840 - - - 66 $ 637,096

70 -

In 2017, the applicable corporate income tax rate used by the Bank in the ROC was 17%. However, the Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%.

As the status of the 2019 appropriation of earnings is uncertain, the potential income tax consequences of the 2018 unappropriated earnings are not reliably determinable.

b. Income tax recognized in other comprehensive income

Deferred tax In respect of the current period Fair value changes of financial assets at FVTOCI Fair value changes of available-for-sale financial assets Remeasurement of defined benefit plans Effect of change in tax rate Total income tax (benefit) expense recognized in other comprehensive income Current tax liabilities Current tax liabilities Income tax payable	For the Year Ended	For the Year Ended	December 31
	2018 $ 6,994 - (13,910) (22,509) $ (29,425) For the Year Ended		2017 $ - 7,414 (626) - $ 6,788 December 31
		2018 $ 296,788	2017 $ 223,235

c. Current tax liabilities

d. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:

For the year ended December 31, 2018

					Recognized in	Recognized in	Recognized in
						Other
			Recognized in		Comprehensive
	Opening Balance		Profit or Loss		Income			Closing Balance
Deferred tax assets
Temporary differences
Property, plant and equipment	$	3,097	$	547	$		-	$	3,644
Unrealized losses on structure notes
payment		192,655		31,106			-		223,761
Defined benefit obligations		190,407		(1,817)		40,255			228,845
Allowance for doubtful accounts		262,087		24,160			-		286,247
Others		(12,291)		13,450		(10,830)			(9,671)
	$	635,955	$	67,446	$	29,425		$	732,826
Deferred tax liabilities
Temporary differences
Provision for land value increment
tax	$	111,021	$	-	$		-	$	111,021

71 -

For the year ended December 31, 2017

					Recognized in	Recognized in
					Other
			Recognized in		Comprehensive
	Opening Balance		Profit or Loss		Income		Closing Balance
Deferred tax assets
Temporary differences
Property, plant and equipment	$	3,097	$	-	$	-	$	3,097
Unrealized losses on structure notes
payment		184,028		8,627		-		192,655
Defined benefit obligations		193,932		(4,151)	626			190,407
Allowance for doubtful accounts		306,746		(44,659)		-		262,087
Others		(27,732)		22,855	(7,414)			(12,291)
	$	660,071	$	(17,328)	$ (6,788)		$	635,955
Deferred tax liabilities
Temporary differences
Provision for land value increment
tax	$	111,021	$	-	$	-	$	111,021

e. Income tax assessments

The income tax returns of the Bank through 2016 have been assessed and approved by the tax authority.

32. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share	Unit: NT$ Per Share For the Year Ended December 31	Unit: NT$ Per Share For the Year Ended December 31	Unit: NT$ Per Share For the Year Ended December 31
		2018 $ 1.18 $ 1.18	2017 $ 1.08 $ 1.08

The weighted average number of shares outstanding used for the earnings per share computation was adjusted retroactively for the issuance of bonus shares on August 6, 2018. The basic and diluted earnings per share adjusted retrospectively for the year ended December 31, 2017 are as follows:

	Unit:	NT$ Per Share
	Before	After
	Retrospective	Retrospective
	Adjustment	Adjustment
Basic earnings per share	$ 1.10	$ 1.08
Diluted earnings per share	$ 1.10	$ 1.08

72 -

The earnings and weighted average number of ordinary shares outstanding used in the computation of earnings per share were as follows:

Net profit for the year

Earnings used in the computation of basic earnings per share Earnings used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 4,008,369 $ 4,008,369	2017 $ 3,632,542 $ 3,632,542

The weighted average number of ordinary shares outstanding (in thousands of shares) was as follows:

Weighted average number of ordinary shares used in the computation of basic earnings per share Effect of potentially dilutive ordinary shares Employees’ compensation or bonuses issued to employees Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended	For the Year Ended	December 31
		2018 3,388,659 3,765 3,392,424	2017 3,375,508 3,258 3,378,766

If the Bank offered to settle the compensation or bonuses paid to employees in cash or shares, the Bank assumed that the entire amount of the compensation or bonuses will be settled in shares, and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

33. RELATED-PARTY TRANSACTIONS

Related Party

Relationship with the Company

China Man-Made Fiber Corporation Chin-Yuan Lai (Legal representative of Hsu Tian Investment Co., Ltd.) (Note 1)

Kuei-Fong Wang (Legal representative of Hsu Tian Investment Co., Ltd.) (Note 1)
Hsu Tian Investment Co., Ltd., Pan Asia Investment Co., Ltd. and He Yang Management Consultant Co., Ltd.
Jin-Yi Lee, Hsin-Chang Tsai, Lim Li Woon
Ming-Shan Chuang, Hsin-Ching Chang, Kuei-Fong Wang, Wei-Liang Lin, Chin-Yuan Lai, Chien-Hui Huang, Ming-Hsiung Huang, Te-Wei Chia, Ching-Tai Huang, Lai-Hsing Tsai (Note 2)
27 persons including the Chairman’s spouse
49 persons including the director of the Board’s spouse

Parent company of the Bank Key management personnel

Key management personnel

Legal entity as director of the Bank

Independent directors of the Bank Representative of the Bank's legal entity as director

The Chairman and general manager’s spouse and second-degree relatives, etc. Director of the Board’s spouse and children of the Bank

(Continued)

73 -

Relationship with the Company

Related Party

6 persons including Cheng-Yuan Chen 19 persons including associate general manager’s spouse

101 persons including Chien-Hung Lin 35 persons including Kuei -Hsien Wang

Reliance Securities Investment Trust Co., Ltd.

China Man-Made Fiber Corporation Taichung Bank Insurance Brokers Co., Ltd. Taichung Bank Leasing Co., Ltd. Taichung Bank Securities Co., Ltd. TCCBL Co., Ltd. Taichung Bank Financial Leasing (Suzhou) Co., Ltd. China Fiber Investment Co., Ltd. Pan Asia Investment Co., Ltd. Taichung Commercial Bank Cultural and Educational Foundation, Taichung Commercial Bank Workers’ Welfare Commission Deh Hsing Investment Co., Ltd. Iolite Company Limited Hammock (Hong Kong) Company Limited Hebei Hanoshi Contact Lens Co., Ltd. Chou Chin Industrial Co., Ltd. Chou Chang Co., Ltd. Pan Feng Enterprise Co., Ltd. Greenworld Food Co., Ltd. Nan Chung Petrochemical Corporation Je Mi Fang Corporation Rai Chia Investment Co., Ltd. Xiang Fong Development Co., Ltd. Reliance Securities Co., Ltd. (Note 3) Sheen Ren Knitting Factory Co., Ltd. Ta Fa Investment Co., Ltd. Tai Yi Investment Co., Ltd. Formosa Imperial Wineseller Corp. Tou Ming Industry Limited Company Jin Bang Ge Industrial Company Limited. Ta Yi Development Co., Ltd. Yu Hui Limited Formosawine Vintners Corporation Bomi International Co., Ltd. Shanghai Bomi Food Co., Ltd. Noble House Global Limited Noble House Glory Corporation Wang Wanjin Culture and Education Foundation Chaoqing Investment Co., Ltd.

Key management personnel Associate general manager’s spouse and children of the Bank Manager of the Bank Representative and general manager of the parent company of the Bank’s spouse and children associates accounted for using the equity method Parent company of the Bank Subsidiary Subsidiary Subsidiary Sub-subsidiary Sub-subsidiary Related parties in substance Related parties in substance Related parties in substance

Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance Related parties in substance

(Concluded)

74 -
Note 1: Chairman of board of directors of Taichung Bank, Chin-Yuan Lai, resigned on June 26, 2018. After June 27, 2018, the board of directors elected Ming-Hsiung Huang as the new chairman. Later, Chairman Ming-Hsiung Huang resigned due to physical factors on July 12, 2018. The standing board of directors appointed Kuei-Fong Wang as the new chairman on the same day.
Note 2: Ching-Tai Huang, the legal representative of the legal director of Hsu Tian Investment Co., Ltd., resigned on April 20, 2018. The legal director of Hsu Tian Investment Co., Ltd. reassigned his representative to Lai-Hsing Tsa on April 27, 2018; the legal director of Hsu Tian Investment Chin-Yuan Lai, who was the legal representative of the company limited by shares, resigned on June 26, 2018, the vacant position of legal director will be appointed by Hsu Tian Investment Co., Ltd.
Note 3: Dexin Securities Co., Ltd. re-elected its directors in September 2017. As of December 31, 2018, the director was not a substantial person of the Bank.

Significant transactions between the Bank and related parties:

a. Receivables

Taichung Bank Insurance Brokers Co., Ltd.	For the Year Ended	For the Year Ended	December 31
		2018 $ 16,663	2017 $ 16,663

As of December 31, 2018 and 2017, the receivables from Taichung Bank Insurance Brokers Co., Ltd. are receivables on service fee income.

b. Loans

For the year ended December 31, 2018

Unit: NT$ in Thousand

Balance,
Numbers/
Name
Highest
Balance
End of the
Year
Employees
consumption loans
9
$ 4,317
$ 2,911
Loans on mortgage
27
109,451
83,660
Other loans
Lee OO
2,817
2,685
Ni OO
1,500
-
Zhu OO
4,500
-
You OO
4,300
-
Chen OO
7,000
4,000
Liu OO
2,176
2,044
Yang OO
1,298
846
Zhong OO
14,387
12,230
Lin OO
38,000
19,000
Liang OO
3,053
1,002
Chen OO
4,000
-
Huang OO
1,830
1,701
Zhuang OO
1,487
-
Zhuang OO
1,769
1,620
Chiu OO
3,826
3,534
Cai OO
3,642
1,529
Huang OO
2,500
-
Lee OO
3,600
-
Lin OO
1,500
- Compliance
The
Difference
Between
Related and
Performing
Loans
Overdue
Loans
Interest
Revenue
Collaterals
Non-related
Party
$ 2,911
$ -
$ 44
Credit loans
None
83,660
-
1,032
Real estate
〃
2,685
-
43
〃
〃
-
-
8
〃
〃
-
-
31
〃
〃
-
-
15
〃
〃
4,000
-
54
〃
〃
2,044
-
31
〃
〃
846
-
16
〃
〃
12,230
-
206
〃
〃
19,000
-
337
〃
〃
1,002
-
23
〃
〃
-
-
54
〃
〃
1,701
-
30
〃
〃
-
-
24
〃
〃
1,620
-
22
〃
〃
3,534
-
53
〃
〃
1,529
-
43
〃
〃
-
-
26
〃
〃
-
-
17
〃
〃
-
-
2
〃
〃

75 -

For the year ended December 31, 2017

Unit: NT$ in Thousand

Balance,
Numbers/
Name
Highest
Balance
End of the
Year
Employees
consumption loans
10
$ 4,110
$ 2,817
Loans on mortgage
21
59,882
52,562
Other loans
Chen OO
5,000
5,000
Ni OO
3,500
1,500
Ni OO
1,440
1,440
You OO
4,300
4,300
Zhu OO
3,500
3,500
Meng OO
9,209
-
Lee OO
10,947
2,817
Huang OO
2,500
2,500
Chiu OO
1,600
1,600
Liu OO
2,305
2,176
Yang OO
1,743
1,298
Chen OO
7,100
3,000
Chang OO
1,773
-
Chen OO
4,000
4,000
Liang OO
4,970
3,053
Chen OO
3,000
3,000
Zhuang OO
1,917
1,769
Cai OO
3,831
3,642
Ceng OO
500
-
Chiu OO
4,114
3,826
Zhong OO
15,211
14,387
Lin OO
2,600
1,600
Lee OO
1,500
1,500 Compliance
The
Difference
Between
Related and
Performing
Loans
Overdue
Loans
Interest
Revenue
Collaterals
Non-related
Party
$ 2,817
$ -
$ 42
Credit loans
None
52,562
-
647
Real estate
〃
5,000
-
75
〃
〃
1,500
-
27
〃
〃
1,440
-
15
〃
〃
4,300
-
63
〃
〃
3,500
-
24
〃
〃
-
-
150
〃
〃
2,817
-
48
〃
〃
2,500
-
2
〃
〃
1,600
-
-
〃
〃
2,176
-
33
〃
〃
1,298
-
22
〃
〃
3,000
-
50
〃
〃
-
-
12
〃
〃
4,000
-
20
〃
〃
3,053
-
45
〃
〃
3,000
-
-
〃
〃
1,769
-
24
〃
〃
3,642
-
76
〃
〃
-
-
6
〃
〃
3,826
-
58
〃
〃
14,387
-
234
〃
〃
1,600
-
30
〃
〃
1,500
-
17
〃
〃

According to Articles 32 and 33 of the Banking Law, credit loans cannot be made to related parties except loans to government and consumers; secured loans to related parties shall be provided with adequate collateral.

c. Deposits

Taichung Bank Insurance Brokers Co., Ltd. Reliance Securities Investment Trust Co., Ltd. Taichung Commercial Bank Workers’ Welfare Commission Taichung Bank Leasing Co., Ltd. China Man-Made Fiber Corporation Taichung Commercial Bank Cultural and Educational Foundation Formosa Imperial Wineseller Corp. Greenworld Food Co., Ltd. Pan Asia Chemical Corporation	For the Year Ended December 31, 2018
	Ending Balance Interest Ratio Interest Expense $ 1,124,787 0.01-1.07 $ 2,174 166,258 0.00-1.05 1,128 141,566 0.01-5.09 7,367 139,351 0.00-0.43 158 47,135 0.01-0.43 71 8,232 0.01-1.09 88 2,393 0.08 - 474 0.08 1 22,189 0.01-0.08 11 (Continued)

76 -

For the Year Ended December 31, 2018

	For the Year Ended December 31, 2018	For the Year Ended December 31, 2018
Chou Chin Industrial Co., Ltd. Chou Chang Co., Ltd. Taichung Bank Securities Co., Ltd. TCCBL Co., Ltd. Je Mi Fang Corporation Yu Hui Limited Hsu Tian Investment Co., Ltd. Pan Feng Enterprise Co., Ltd. He Yang Management Consultant Co., Ltd. Others Taichung Bank Insurance Brokers Co., Ltd. Reliance Securities Investment Trust Co., Ltd. Taichung Commercial Bank Workers’ Welfare Commission Taichung Bank Leasing Co., Ltd. China Man-Made Fiber Corporation Reliance Securities Co., Ltd. Taichung Commercial Bank Cultural and Educational Foundation Formosa Imperial Wineseller Corp. Greenworld Food Co., Ltd. Pan Asia Chemical Corporation Chou Chin Industrial Co., Ltd. Chou Chang Co., Ltd. Taichung Bank Securities Co., Ltd. TCCBL Co., Ltd. Je Mi Fang Corporation WK Taipei Co., Ltd. Hsu Tian Investment Co., Ltd. Others	Ending Balance Interest Ratio Interest Expense $ 20,778 0.01-0.08 $ 2 479 0.01 - 10,231 0.01-0.23 32 863 0.33-0.43 3 14,190 0.08 9 4 0.01 - 11,888 0.01-0.43 86 291 0.08 - 34,828 0.01 1 242,116 0.00-5.09 3,847 $ 1,988,053 $ 14,978 (Concluded) For the Year Ended December 31, 2017
	Ending Balance Interest Ratio $ 1,059,701 0.01-1.07 178,625 0.00-1.05 141,943 0.01-5.09 75,888 0.00-0.25 61,454 0.01-0.18 14,323 0.08-0.80 8,220 0.01-1.09 270 0.08 554 0.08 8,148 0.01-0.08 3,944 0.01-0.08 3,034 0.01 24,389 0.00-0.23 833 0.18 9,843 0.08 72 0.08 37,263 0.01-0.08 234,093 0.00-5.09 $ 1,862,597	Interest Expense $ 1,906 1,093 7,232 244 24 106 88 - 1 9 1 - 49 1 8 - 33 3,839 $ 14,634

The transaction terms with related parties do not significantly differ from those with ordinary customers except for the 5.09% interest rate on the Bank’s employee deposits for both years of 2018 and 2017.

77 -

d. Financial debenture

The Bank issued second no due date non-cumulative subordinated financial debenture on 2013, first no due date non-cumulative subordinated financial debenture on 2015, first no due date non-cumulative subordinated financial debenture on 2016, first no due date non-cumulative subordinated financial debenture, second no due date non-cumulative subordinated financial debenture, third no due date non-cumulative subordinated financial debenture, fourth no due date non-cumulative subordinated financial debenture and fifth no due date non-cumulative subordinated financial debenture on 2017, first no due date non-cumulative subordinated financial debenture and second no due date non-cumulative subordinated financial debenture on 2018, respectively, and entrusted KGI Securities Co., Ltd. as a financial advisor for the issuance and collection of bonds.

As of December 31, 2018, the related parties subscribed for the financial debenture issued by the Bank through underwriting brokers were as follows:

Counterparty	Subscription	Period
Hsu Tian Investment Co., Ltd.	$ 4,000,000	First no due date non-cumulative subordinated
		financial debenture on 2015, first no due date
		non-cumulative subordinated financial
		debenture on 2016, first no due date
		non-cumulative subordinated financial
		debenture and fifth no due date non-cumulative
		subordinated financial debenture on 2017, first
		no due date non-cumulative subordinated
		financial debenture, second no due date
		non-cumulative subordinated financial
		debenture on 2018
Others	2,551,000	Second no due date non-cumulative subordinated
		financial debenture on 2013, first no due date
		non-cumulative subordinated financial
		debenture on 2015, first no due date
		non-cumulative subordinated financial
		debenture on 2016, first no due date
		non-cumulative subordinated financial
		debenture, second no due date non-cumulative
		subordinated financial debenture, third no due
		date non-cumulative subordinated financial
		debenture, fourth no due date non-cumulative
		subordinated financial debenture, fifth no due
		date non-cumulative subordinated financial
		debenture on 2017, first no due date
		non-cumulative subordinated financial
		debenture and second no due date
		non-cumulative subordinated financial
		debenture on 2018

The interest payables on the financial debenture of the above-mentioned related parties were $44,653 thousand and $24,467 thousand, respectively, on December 31, 2018 and 2017. The interest expenses were $212,158 thousand and $116,147 thousand in 2018 and 2017.

78 -

e. Guarantee deposit received

Taichung Bank Insurance Brokers Co., Ltd. Taichung Bank Leasing Co., Ltd. Taichung Bank Securities Co., Ltd.	For the Year Ended	For the Year Ended	December 31
		2018 $ 200 230 435 $ 865	2017 $ 200 120 435 $ 755

f. Rental income

Taichung Bank Insurance Brokers Co., Ltd. Taichung Bank Leasing Co., Ltd. Taichung Bank Securities Co., Ltd.	For the Year Ended	For the Year Ended	December 31
		2018 $ 1,200 885 2,609 $ 4,694	2017 $ 1,200 720 2,736 $ 4,656

g. Service fee income, net

Service fee income Taichung Bank Insurance Brokers Co., Ltd. Reliance Securities Investment Trust Co., Ltd. Service fee expense Taichung Bank Securities Co., Ltd.	For the Year Ended	For the Year Ended	December 31
		2018 $ 200,000 1,236 201,236 (5,416) $ 195,820	2017 $ 200,000 1,291 201,291 (2,455) $ 198,836

The above amounts are for the promotion and channel revenue, etc. Taichung Bank Insurance Brokers Co., Ltd. pay the toll fee on a monthly basis; the service fee expense from Taichung Bank Securities Co., Ltd. are brokerage fee. The price of transactions with its related parties is similar to those of the non-related parties.

h. Other non-interest gains, net

Taichung Bank Securities Co., Ltd.	For the Year Ended	For the Year Ended	December 31
		2018 $ 958	2017 $ 661

The above amount is other non-interest gains. The price of transactions with its related parties is similar to those of the non-related parties.

79 -

i. Other expenses

Taichung Bank Securities Co., Ltd. Greenworld Food Co., Ltd. Je Mi Fang Corporation Pan Feng Enterprise Co., Ltd.	For the Year Ended	For the Year Ended	December 31
		2018 $ 24,084 1,010 4,313 640 $ 30,047	2017 $ 25,520 595 2,612 628 $ 29,355

The above amounts are other business expenses. The price of transactions with its related parties is similar to those of the non-related parties.

j. Compensation of directors, supervisors and key management personnel

Compensation of directors, supervisors and key management personnel were as follows:

Short-term benefits Post-employee benefits Other long-term benefits		December 31	December 31
		2018 $ 156,103 1,045 25 $ 157,173	2017 $ 178,124 791 60 $ 178,975

34. PLEDGED ASSETS

Held-to-maturity financial assets - government bonds Investments in debt instrument at amortized cost - government bonds		December 31	December 31
		2018 $ - 845,000 $ 845,000	2017 $ 1,067,800 - $ 1,067,800

Government bonds were pledged to district courts for litigation, the collateral for the overdraft of the clearing account and the compensation reserve for the securities firm and the trust business. The details were as follows:

Guarantee to district courts for litigation Reserve of trust compensation Collateral for overdraft of clearing account		December 31	December 31
		2018 $ 285,000 60,000 500,000 $ 845,000	2017 $ 517,800 50,000 500,000 $ 1,067,800

80 -

35. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in Notes 8, 11 and 23, significant commitments and contingencies of the Bank as of December 31, 2018 and 2017 were as follows:

a. Significant commitments

Loan commitments (excluding credit card) Loan commitments - credit card Guarantee receivable Trust liability Letters of credit	December 31
	2018 2017 $ 152,638,816 $ 158,951,848 10,507,270 17,317,987 18,335,961 18,693,022 65,770,665 62,673,911 4,140,679 3,900,545

b. According to Article 17 of the Implementation Rules of Trust Law, the Bank should disclose its balance sheet of trust account and its asset items, which were as follows:

Trust Account Balance Sheet December 31, 2018

Trust Asset Cash in banks Short-term investments Structured finance instruments Real estate Land Buildings Securities under custody Trust asset	Amount Trust Liability $ 1,945,793 Securities under custody 52,565,072 payable 2,369,583 Trust capital Net income 1,745,119 Deferred carry-over amounts 123,233 7,021,865 $ 65,770,665 Trust liability Trust Account Asset Items December 31, 2018	Amount $ 7,021,865 58,748,800 2,001,849 (2,001,849) $ 65,770,665

Item Cash in banks Short-term investments Structured finance instruments Real estate Land Buildings Securities under custody	Amount $ 1,945,793 52,565,072 2,369,583 1,745,119 123,233 7,021,865 $ 65,770,665

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Trust Account Income Statement Year Ended December 31, 2018

Amount

Trust income Interest revenue Dividend income Trust expense Management fee Tax Income before income tax Income tax expense Net income	$ 2,777,593 33,056 (808,648) (152) 2,001,849 - $ 2,001,849

Trust Account Balance Sheet December 31, 2017

Trust Asset Cash in banks Short-term investments Structured finance instruments Real estate Land Buildings Securities under custody Trust asset Item Cash in banks Short-term investments Structured finance instruments Real estate Land Buildings Securities under custody	Amount Trust Liability $ 1,575,084 Securities under custody 50,348,720 payable 1,894,932 Trust capital Funds and investment 1,564,319 Real estate trust 116,531 Net income 7,174,325 Deferred carry-over amounts $ 62,673,911 Trust liability Trust Account Asset Items December 31, 2017	Amount $ 7,174,325 53,818,736 1,680,850 1,795,915 (1,795,915) $ 62,673,911 Amount $ 1,575,084 50,348,720 1,894,932 1,564,319 116,531 7,174,325 $ 62,673,911

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Trust Account Income Statement Year Ended December 31, 2017

Trust income Interest revenue Dividend income Trust expense Management fee Tax Income before income tax Income tax expense Net income	Amount $ 2,541,642 27,644 (769,410) (3,961) 1,795,915 - $ 1,795,915

c. Maturity analysis of lease commitments and capital expenditures

The lease contract commitments of the Bank are operating leases.

Operating lease commitment is the minimum lease payment when the Bank is lessee or lessor with non-cancelling condition.

Capital expenditure commitments represent contractual commitments for the acquisition of capital expenditures on construction and equipment.

Maturity analysis of lease commitments and capital expenditures were summarized as follows:

December 31, 2018

Not Later
Than 1 Year
Later Than 1
Year and Not
Later Than
5 Years
Later Than
5 Years
Operating lease expense (lessee)
$ 128,095
$ 229,589
$ 540

Operating lease income (lessor)
6,053
13,844
-
Capital expenditure commitment
117,104

104,725

-

$ 251,252
$ 348,158
$ 540

December 31, 2017
Not Later
Than 1 Year
Later Than 1
Year and Not
Later Than
5 Years
Later Than
5 Years
Operating lease expense (lessee)
$ 110,576
$ 155,182
$ 1,620

Operating lease income (lessor)
5,532
17,635
-
Capital expenditure commitment
195,376

108,657

-

$ 311,484
$ 281,474
$ 1,620

Total
$ 358,224
19,897

221,829
$ 599,950
Total
$ 267,378
23,167

304,033
$ 594,578

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36. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments not measured at fair value

Except as detailed in the following table, management believes the carrying amounts of financial assets and financial liabilities recognized in the financial statements approximate their fair values.

December 31, 2018

Carrying Amount Financial assets Investments in debt instrument at amortized cost $ 101,247,761 Financial liabilities Financial liabilities at amortized cost Bank debentures 20,000,000 December 31, 2017 Carrying Amount Financial assets Held-to-maturity investments $ 86,559,895 Financial liabilities Financial liabilities at amortized cost Bank debentures 17,500,000	FairValue
	Level 1 Level 2 Level 3 Total $ 65,891,744 $ 32,453,053 $ - $ 98,344,797 - 20,098,746 - 20,098,746 FairValue
	Level 1 Level 2 Level 3 Total $ 67,132,470 $ 19,472,844 $ - $ 86,605,314 - 17,662,353 - 17,662,353

b. Fair value of financial instruments measured at fair value on a recurring basis
1) Fair value hierarchy

Financial assets at FVTPL Derivative financial assets Commercial papers Domestic listed shares and emerging market shares Beneficiary certificates Others Financial assets at FVTOCI Investments in equity instruments Domestic unlisted shares Foreign listed shares Investments in debt instruments Domestic corporate bonds Domestic government bonds Foreign bonds Financial liabilities at FVTPL Derivative financial liabilities			December 31, 2018	December 31, 2018
		Total $ 2,068,732 22,044,240 852,977 172,843 998,147 $ 26,136,939 $ 510,523 194,778 20,730,435 5,976,359 785,400 $ 28,197,495 $ 162,127	Level 1 $ - 22,044,240 852,977 172,843 - $ 23,070,060 $ - 194,778 20,730,435 5,976,359 - $ 26,901,572 $ -	Level 2 $ 2,068,732 - - - 998,147 $ 3,066,879 $ - - - - 785,400 $ 785,400 $ 162,127	Level 3 $ - - - - - $ - $ 510,523 - - - - $ 510,523 $ -

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Reconciliation of Level 3 fair value measurements of financial instruments:

Item	Beginning Balance	Valuation Gains (Losses)		Increase	Increase	Increase	Decrease	Decrease	Decrease		Ending Balance
				Buy or Issue	Transfer in		Sell, Disposal		Transfer Out
Financial assets at FVTOCI Unlisted shares	$493,910	$16,613		$ -	$ -		$ -		$ -		$510,523
Financial assets at FVTPL Derivative financial assets Commercial papers Domestic listed shares and emerging market shares Beneficiary certificates Others Available-for-sale financial assets Equity securities Domestic listed shares Debt securities Domestic corporate bonds Domestic government bonds Financial liabilities at FVTPL Derivative financial liabilities						December 31, 2017
			Total $ 1,866,337 27,935,360 802,483 361,332 - $ 30,965,512 $ 158,825 24,536,414 6,497,632 $ 31,192,871 $ 207,225			Level 1 $ - 27,935,360 802,483 361,332 - $ 29,099,175 $ 158,825 24,536,414 6,497,632 $ 31,192,871 $ -		Level 2 $ 1,866,337 - - - - $ 1,866,337 $ - - - $ - $ 207,225		Level 3 $ - - - - - $ - $ - - - $ - $ -

Reconciliation of Level 3 fair value measurements of financial instruments: None

There were no transfers between Levels 1 and 2 in the current and prior periods.

2) Valuation techniques and inputs applied for Level 2 fair value measurement

Financial Instruments
Non-derivatives

Derivatives
Option contracts

Cross-currency swap
contracts, Foreign
exchange forward
contracts

Valuation Techniques and Inputs

The market transaction price in the non-active market is taken as
the fair value.
Model evaluation:
The execution price, the maturity date, and the market volatility,
interest rate and exchange rate set by the contract are used as
evaluation parameters. The model with closed solution is then
used for evaluation.
Discounted cash flow:
Future cash flows are estimated based on observable forward
exchange rates at the end of the reporting period and contract
forward rates, discounted at a rate that reflects the credit risk of
various counterparties.

(Continued)

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Financial Instruments Asset swap contract Structured Finance Instruments Interest structured instruments	Valuation Techniques and Inputs
	Convertible corporate bond closing price on the day minus bond value. The pure bond value is discounted by the cash flow provided by the convertible corporate bonds in accordance with Taiwan Bills Index Rate (TAIBIR). The counterparty quotes.

(Concluded)

3) Valuation techniques and inputs applied for Level 3 fair value measurement

Financial Instruments Unlisted shares	Valuation Techniques and Inputs
	Market multiple: Considering the comparable transaction price of the share in active market, the corresponding net value multiplier and the liquidity discount ratio to evaluate the fair value.

4) Sensitivity analysis of fair value regarding reasonable and possible alternative assumptions within Level 3

The Bank evaluates the fair value of financial instruments reasonably. Nevertheless, the outcome of the evaluation may vary because of the adoption of different valuation models and parameters. The sensitivity analysis based on assets category are as follow:

Risk Factor Liquidity discount ratio Categories of financial instruments Financial assets Financial assets at FVTPL Available-for-sale financial assets (Note 1) Held-to-maturity investments Loans and receivables (Note 2) Financial assets at amortized cost (Note 3) Financial assets at FVTOCI Financial liabilities Financial liabilities at FVTPL Financial liabilities at amortized cost (Note 4)	Number of Changes Number of Influences 10% $ (35,813) December 31
	2018 2017 $ 26,136,939 $ 30,965,512 - 31,338,555 - 85,542,095 - 492,868,762 614,257,405 - 28,197,495 - 162,127 207,225 634,106,717 610,950,472

c. Categories of financial instruments
Note 1: The balances include the carrying amount of available-for-sale financial assets measured at cost.
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Note 2: The balances include loans and receivables measured at amortized cost, which comprise cash and cash equivalents, due from the central bank and call loans to other banks, securities purchased under resell agreements, receivables, notes discounted and loans, refundable deposits, and other delinquent receivables. Those reclassified to held-for-sale disposal groups are also included.
Note 3: The balances include financial assets at amortized cost, which comprise cash and cash equivalents, due from the central bank and call loans to other banks, debt investments, securities purchased under resell agreements, receivable, notes discounted and loans, refundable deposits, and other delinquent receivables. Those reclassified to held-for-sale disposal groups are also included.
Note 4: The balances include financial liabilities at amortized cost, which comprise due to the central bank and other banks, funds borrowed from central bank and other banks, securities sold under repurchase agreements, payables, deposits and remittances, bank debentures, other financial liabilities, and guarantee deposit received. Those reclassified to held-for-sale disposal groups are also included.

37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Overview

The financial risk management objectives of the Bank is to achieve the goal of balancing risk tolerance, business objectives and external legal restrictions. These risks include market risks (including interest rate, exchange rate, equity securities, product price and the product price risks) and liquidity risks of on-and-off balance sheet business.

The Bank has formulated a relevant risk management policy, which has been approved by the board of directors to effectively identify, measure, monitor and control credit risk, market risk and liquidity risk.

Risk Management Organizational Structure

The board of directors is the highest decision-making unit for the Bank’s corporate risk management and assumes the ultimate responsibility for risk management. The Bank has a risk management committee and a risk management department, which grants risk authority and confers responsibilities on the relevant departments to ensure the smooth operation of risk management. The responsibilities of the committee are as follows:

a. Consideration of the risk management programme.
b. Consideration and review of risk limits.
c. Consideration of the bill on institutionalization of risk management.
d. Report to the board of directors regularly.

Members of the risk management committee set up various risk management measurement indicators according to the nature of their business and the scope of their duties, and the risk management department should report to the risk management committee to provide a reference for senior decision-making.

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1) Market risk

a) The source and definition of market risk

Market risks refer to the loss due to the changes in market price, such as the changes of the market interest rate, the exchange rate, the share price and the product price.

b) Market risk management policy

The objective of the Group market risk management is to develop a sound and effective market risk management mechanism that is consistent with the size, nature and complexity of the Bank’s business to ensure that the risks borne by the Bank can be properly managed and market risks are effectively identified, measured, monitored and controlled, and strike a balance between the level of risk tolerance and the expected level of compensation.

c) Market risk management process

i. Identification and measurement

The relevant market risks should be assessed through appropriate procedures to consider whether the risk is within an acceptable risk range before new products, business activities, processes and systems are rolled out or operated. The relevant units should use the methods of business analysis or product analysis to identify the sources of market risks, define the market risk factors of each financial commodity and make appropriate specifications.

Market risk measurement can use a variety of effective measures to properly measure risk, including but not limited to the following methods: Statistical basis measures, sensitivity analysis and situational analysis. The risk management department should measure the risk of the site on a daily basis and conduct regular stress tests to measure the amount of abnormal losses that may occur in the current extremes or historical extremes.

ii. Monitoring and reporting

The risk management department should report to the risk management committee and the board of directors regularly on the implementation of the Bank’s market risk management, including the Bank’s market risk location, risk level, profit and loss status, quota usage and compliance with relevant market risk management regulations and suggestions. The authorities also set up relevant limit management, stop loss mechanism, overrun treatment and exception management methods to effectively monitor market risks. In the event of an overrun or exception, it should be notified immediately to facilitate the immediate response.

d) Interest rate risk

i. Definition of interest rate risk

Interest rate risk refers to the change in interest rate, which causes the Bank to bear the risk of changes in the fair value of the interest rate risk or the loss of the surplus. The main sources of risk include deposits and interest-related securities.

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ii. Measurement methods and management procedures

The Bank monitors the interest rate risk system, sets the scope of the indicators to regularly monitor and report the results to the asset and liability management committee, the risk management committee and the board of directors, and adjusts according to the overall operating conditions of the Bank. In addition, the Bank measures the interest rate risk by DV01, assuming that the interest rate curve moves 100BP in parallel, the degree of impact on earnings and equity controls the interest rate risk.

e) Exchange rate risk

i. Definition of exchange rate risk

Exchange rate risk is the gain or loss resulting from the conversion of two different currencies at different times. The Bank’s exchange rate risk is mainly due to the spot and forward foreign exchange of the business. Since the foreign exchange transactions are mostly based on the principle of flattening the customer’s position for the day, the exchange rate risk is relatively small.

ii. Measurement methods and management procedures

The Bank adopts the quota management mechanism for the exchange rate risk system, sets the business quota and overnight limit for each currency, controls the maximum net foreign exchange position that can be held by all levels of personnel, and sets the maximum transaction amount according to the counterparty, and monitors it regularly. The results will be reported to the risk management committee and the board of directors for discussion.

In addition, the Bank assumes that the exchange rate of USD/NTD, CNY/NTD, and AUD/NTD is relatively revaluated/depreciated by 3%, and the degree of impact on earnings and equity controls the exchange rate risk.

f) Equity securities price risk
i. Definition of equity securities price risk

The market risk of the Bank’s equity securities is the individual risk arising from changes in the market price of individual equity securities and the general market risk arising from changes in the overall market price. The main risks include listing counter shares and beneficiary certificates.

ii. Measurement methods and management procedures

The Bank adopts a quota management mechanism for the equity securities price risk, ensuring that all levels are traded within the authorized amount, and sets up relevant mechanisms for stop loss control, and regularly reports the monitoring results to the risk management committee and the board of directors for discussion.

In addition, the Bank assumes that when the price of equity securities rises/falls by 15%, the degree of impact on earnings and equity controls the risk of equity securities.

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g) Market risk sensitivity analysis

Interest risk

The Bank assumed that when other change factors remain unchanged, if the yield curve increased/decreased by 100 basis points, the income before income tax of the Bank as of December 31, 2018 and 2017 would have increased/decreased by $743,763 thousand and $801,048 thousand, respectively. The equity would have decreased/increased by $2,246,616 thousand and $1,905,509 thousand, respectively.

Exchange rate risk

The Bank assumed that when other change factors remain unchanged, if the exchange rate of USD/NTD, CNY/NTD, and AUD/NTD appreciated/depreciated by 3%, the income before income tax as of December 31, 2018 and 2017 would have decreased/increased $35,790 thousand and $69,017 thousand, respectively. The equity would have increased/decreased by $26,011 thousand and $20,104 thousand, respectively.

Equity securities price risk

The Bank assumed that when other change factors remain unchanged, if the price of equity securities increased/decreased by 15%, the income before income tax as of December 31, 2018 and 2017 would have increased/decreased by $153,873 thousand and $174,572 thousand, respectively. The equity would have increased/decreased by $29,217 thousand and $23,824 thousand, respectively.

The summary of sensitivity analysis was as follows:

	December 31, 2018
Main Risk	Range of Change	Influence Amount
		Equity	Income
Interest risk	Interest rate curve rises 100BPS Interest rate curve falls 100BPS	$ (2,246,616) 2,246,616	$ 743,763 (743,763)
Exchange rate risk	USD/NTD, CNY/NTD, AUD/NTD increase by 3% respectively USD/NTD, CNY/NTD, AUD/NTD decrease by 3% respectively	26,011 (26,011)	(35,790) 35,790
Equity securities price risk	Equity securities prices rises 15% Equitysecuritiesprices falls 15%	29,217 (29,217)	153,873 (153,873)

	December 31, 2017
Main Risk	Range of Change	Influence Amount
		Equity	Income
Interest risk	Interest rate curve rises 100BPS Interest rate curve falls 100BPS	$ (1,905,509) 1,905,509	$ 801,048 (801,048)
Exchange rate risk	USD/NTD, CNY/NTD, AUD/NTD increase by 3% respectively USD/NTD, CNY/NTD, AUD/NTD decrease by 3% respectively	20,104 (20,104)	(69,017) 69,017
Equity securities price risk	Equity securities prices rises 15% Equitysecuritiesprices falls 15%	23,824 (23,824)	174,572 (174,572)

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2) Credit risk

a) The source and definition of credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Bank. Credit risk exists in both on and off balance sheet items. The on balance sheet exposures to credit risks are mainly from discounts ad loans, the credit card business, due from other banks, call loans to other banks, acceptance, investment in debt instrument and derivatives. The off-balance sheet exposures to credit risks are mainly from financial guarantees, letter of credits and loan commitments.

b) Credit risk management policy

Before launching new products or businesses, the Bank ensures compliance with all applicable rules and regulations and identifies relevant credit risks. On December 31, 2018, the ratio of loans with collateral to the total amount of loans was approximately 79%. The ratio of financing guarantees to commercial letters of collateral holdings was approximately 41%, and the collateral required for loans, loan commitments or guarantees is usually in the forms of cash, inventories, liquid securities or other property in circulation.

c) Credit risk management program

The measurement and management of credit risks from the Bank’s main businesses were as follows:

i. Loans business (including loan commitment and guarantees)

2018

i) Determination that credit risk has increased significantly since the initial recognition.

The Bank assesses the change in the probability of default of loans during the lifetime on each reporting date to determine if the credit risk has increased significantly since the initial recognition. In order to make this assessment, the Bank considerations show the reasonable and supportable information that the credit risk has increased significantly since the initial recognition (including forward-looking information). The main considerations include:

Quantitative indicators

Changes in external credit ratings of Taiwan Corporate Credit Rating Index (TCRI)

The TCRI rating of the listed cabinet company corresponding to the external rating has been reduced from the investment grade to the non-investment grade, that is, the credit risk has been significantly increased since the initial recognition.

Information on overdue status

When the contract amount is overdue for more than one month, it is determined that the credit risk of the financial asset has increased significantly since the initial recognition.

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Qualitative indicators

Unfavorable changes in the current or projected operating, financial or economic conditions that are expected to result in significant changes in the ability of the debtor to perform debt obligations.
Significant changes in actual or expected results of the debtor’s operations.
The credit risk of other financial instruments from the same debtor has increased significantly.
ii) Definition of default and credit impairment financial assets

The definition of financial asset default is the same as that of financial asset credit impairment. If one or more of the following conditions are met, the Bank determines that the financial asset has defaulted and become credit impaired:

Quantitative indicators

Changes in external TCRI credit ratings

The TCRI rating of the listed cabinet company is default grade, which means that the credit has been deducted since the initial recognition.

Information on overdue status

When the contract amount is overdue for more than three months, it is determined that the credit of the financial asset has been impaired since the initial recognition.

Qualitative indicators

If there is evidence that the borrower will not be able to pay the contract, or that the borrower has significant financial difficulties, such as:

The debtor has gone bankrupt or may have called for bankruptcy or financial restructuring.
Other debt instrument contracts of the debtor have defaulted.
Due to the economic or contractual reasons associated with the debtor’s financial difficulties, the debtor’s creditors give the borrower an unconfirmed concession and report the overdue loan.

The aforementioned default and credit impairment definitions are used to consolidate all financial assets held by the company and are consistent with the definitions used for the internal credit risk management purposes of the financial assets, and are also applied to the relevant impairment assessment model.

iii) Measurement of expected credit losses

In order to assess the expected credit losses, the combined company divides the credit assets into the following combinations according to the credit risk characteristics such as the use of borrowing, industrial nature, collateral type and borrowing status.

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Product Portfolio Corporation loans - secured Corporation loans Corporation loans - unsecured House mortgage Consumer loans - secured Consumer loans - unsecured Consumer loans Credit loans Debit card Credit card

The Bank evaluates loss allowance of financial assets, which credit risk does not significantly increase after initial recognition based on 12 months expected credit losses. The Bank evaluates loss allowance of financial assets, which credit risk significantly increases after initial recognition based on lifetime expected credit losses.

In order to evaluate expected credit losses, the Bank takes into consideration the debtor’s probability of default (“PD”) within the next 12 months, which includes the loss given default (“LGD”), the results are then multiplied by the exposure at default (“EAD”), while also considering the effect of time value of money to calculate the expected credit losses during the duration of 12 months.

PD is the default percentage of a borrower. LGD is the loss ratio once a borrower default. The Bank applied PD and LGD to evaluate loan business impairment based on each portfolio’s historical information calculated internally (i.e. credit loss experience), and adjusted historical data based on current observable information and forward-looking macroeconomic information calculated by using packet direct estimation method.

The Bank evaluates the loan default risk by packet direct estimation method. The Bank calculates 12 months and lifetime ECLs of financing commitment based on packet direct estimation method. The Bank uses credit conversion factor to calculate the portion of financing commitment expected to be used in 12 months after record date and the credit duration to calculate the default exposure amount of ECLs.

Consideration of forward - looking estimation

In considering the expected credit losses, the Bank uses forward looking economic factors that affect credit risk and expected credit losses to consider forward looking information. Forward looking information is based on the Taiwan National Development Council’s regular promulgation of the “Benefit Strategy Signal” of Taiwan’s overall prosperity as indicators, which are divided into boom expansion period, contraction period and flat period. The Bank evaluates the economic situation to adjust the default probability every quarter, and then incorporates it into the overall expected credit loss assessment.

ii. Debt instrument investment

The Bank considers the historical default loss rate provided by the external rating agencies and the current financial status of the debtor to calculate 12-month and lifetime ECLs of financing commitment in debt instrument investment.

The securities held by the Bank recognize the expected credit losses according to the expected credit losses during the lifetime ECLs of financing commitment. The credit quality of the Bank’s judgment securities was as follows:

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2018

i) The determination since the initial recognition of the credit risk has increased significantly.

The Bank assesses the change in the probability of default of debt instrument investment during the lifetime on each reporting date to determine if the credit risk has increased significantly since the initial recognition. In order to make this assessment, the Bank considerations show the reasonable and supportable information that the credit risk has increased significantly since the initial recognition. The main considerations include:

Quantitative indicators

At the time of initial recognition, the issuer’s credit rating is above the investment grade, but at the financial reporting date, the issuer’s credit rating is reduced to a non-investment grade.
For debt instrument investments on the initial recognition date, the issuer’s credit rating is below the non-investment grade and the credit rating on the reporting day has not changed.
When the issuer’s credit rating is a non-investment grade, the reported daily credit rating is reduced to a certain extent.

Qualitative indicators

The credit rating of the issuer indicates that its credit risk has increased significantly.
The fair value of the debt instrument investment is significantly and adversely changed on the reporting date.
ii) Definition of default and credit impairment financial assets

If the debt instrument investment meets one or more of the following conditions, it determines that the financial asset has defaulted and the credit is impaired.

Quantitative indicators

Debt instrument investment is the credit impairment bond when it is purchased.
The default rate for credit rating of the issuer or debt instrument investment will be adjusted on the reporting day.

Qualitative indicators

The issuer modifies the issue conditions of the debt instrument investment due to financial difficulties or fails to pay the principal or interest according to the conditions of the issue.
The issuer or the guarantee institution has ceased operations or has applied for reorganization, bankruptcy, dissolution, and sale of major assets that have a significant impact on the company’s continued operations.
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Measurement of expected credit losses

In order to evaluate expected credit losses, the Bank takes into consideration the debtor’s probability of default (“PD”) within the next 12 months, which includes the loss given default (“LGD”), the results are then multiplied by the exposure at default (“EAD”), while also considering the effect of time value of money to calculate the expected credit losses during the duration of 12 months.
Comparing the risk of default on the dated debt instrument with the default risk at the time of initial recognition, and considering the reasonable and corroborative information for a significant increase in credit risk since the initial recognition, to determine whether the financial instrument’s credit risk has increased significantly since the initial recognition.
- Those who meet the normal credit risk status will estimate the expected loss amount based on the one-year probability of default (PD).
- Those who meet the significant increase in credit risk status must consider the duration of the asset project and calculate the probability of default (PD) for each duration. If the cash flow of the contract in the future period (i.e., the default exposure amount of each period) can be assessed, the cash flow method is used to assess the expected amount of credit loss, and if the cash flow of each period cannot be assessed, and the current risk calculation method is used it.
- Those who meet the abnormal credit risk status are considered to be 100%, and will not consider the probability of default in each duration. Only consider the relevant recoverable amount and evaluate the overall expected credit loss amount.
- Debt instrument investment probability of default is the value released by external credit rating agencies, which implies the possibility of future market fluctuations.
d) Credit risk hedging or mitigation policies

i. Collaterals

The Bank has a series of measures for granting credit to reduce credit risks. One of the procedures is asking for collaterals from the borrowers. To secure the loans, the Bank manages and assesses the collaterals according to the procedures that suggest the scope of collateralization and valuation of collaterals and the process of disposition. In credit contracts, the Bank stipulates the security mechanism for loans and the conditions and terms for collaterals and offsetting to state clearly that the Bank reserves the right to reduce granted limit and repayment period, to demand immediate settlement or to offset the debt of the borrowers with their deposits in the Bank in order to reduce the credit risks.

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The Bank closely observed the value of pledged financial assets and evaluated which financial assets’ credit had been impaired in order to recognize allowance impairment. Credit impaired financial assets and its pledged values which eliminate potential loss, are as follows:

Financial assets that were impaired Notes discounted and loans Receivables Guarantees and letters of credit Debt instrument Total financial assets that were impaired	Total Book Value $ 7,916,421 122,335 418,070 74,444 $ 8,531,270	Allowance Impairment $ (2,035,208) (82,827) (55,221) (74,444) $ (2,247,700)	Exposure Collateral Fair Value $ 5,881,213 $ 5,881,213 39,508 38,012 362,849 301,416 - - $ 6,283,570 $ 6,220,641

ii. Credit risk concentration limits and control

To avoid the concentration of credit risks, the Bank has included credit limits for the same person (entity) and for the same related-party corporation (group) based on the credit risk arising from loans, securities investment and derivatives transactions.

Meanwhile, for trading and banking book investments, the Bank has set a ratio, which is the credit limit of a single issuer in relation to the total security position. The Bank has also included credit limits for a single counterparty and a single group.

In addition, to manage the concentration risk of the financial assets, the Bank has set credit limits by industry, conglomerate, country and transactions collateralized by shares, and integrated within one system to supervise the concentration of credit risk in these categories. The Bank monitors concentration of each asset and controls various types of credit risk concentration in a single transaction involving counterparties, groups, related-party corporations, industries and nations.

iii. Other credit enhancements

To reduce its credit risks, the Bank stipulates in its credit contracts the term for offsetting which clearly stated that the Bank reserves the right to offset the borrowers’ debt against their deposits in the Bank.

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e) The maximum credit exposure of the financial instruments of the Bank

The maximum exposures of assets on the balance sheets to credit risks without consideration of guarantees or other credit enforcement instruments approximate the assets’ carrying amounts. The maximum exposures of off-balance sheet items to credit risks without consideration of guarantees or other credit enforcement instrument are stated as follows:

Irrevocable loan commitments Credit card commitments Guarantee receivables Letters of credit	December 31
	2018 2017 $ 5,810,795 $ 5,930,487 273,680 400,251 18,335,961 18,693,022 4,140,679 3,900,545

The management of the Bank believes their abilities to minimize the credit risk exposures of the off-balance sheet items are mainly attributed to their rigorous evaluation of extended credit and the periodic reviews of these credits.

f) Credit risk concentration of the Bank

When the other parties to the financial instruments consist of a single individual, or a concentration of entities with similar commercial activities, they may have similar abilities to fulfill their credit obligations. The Bank does not have such situation. The Bank’s credit exposure related to loans on December 31, 2018 was classified as follows:

Object Private enterprise Natural person Others Credit Risk Profile by Group or Industry Natural person Manufacturing Commercial Real estate and leasing Construction industry Servicing Finance and insurance Transportation warehousing and information communication Others		December 31	December 31
		2018 2017 $ 253,732,767 $ 247,102,590 222,610,870 207,424,168 1,931,734 3,481,286 $ 478,275,371 $ 458,008,044 December 31
		2018 $ 222,610,870 87,737,033 60,069,759 53,376,739 17,727,688 12,247,924 11,855,826 7,924,653 4,724,879 $ 478,275,371	2017 $ 207,424,168 89,619,888 60,728,699 48,252,176 17,631,979 10,515,764 10,534,525 6,797,100 6,503,745 $ 458,008,044

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Credit Risk Profile by Regions Domestic Asia North America Others Credit Risk Profile by Collaterals Unsecured Secured Real estate Letter of bank guarantee Chattel debenture Notes receivable Bonds Others		December 31	December 31
		2018 2017 $ 448,688,187 $ 430,297,340 12,873,067 10,209,665 11,766,992 11,639,378 4,947,125 5,861,661 $ 478,275,371 $ 458,008,044 December 31
		2018 $ 78,106,128 360,800,311 17,201,082 12,411,927 3,233,420 1,850,147 2,523,887 2,148,469 $ 478,275,371	2017 $ 81,937,168 338,767,868 17,531,354 8,587,494 3,198,684 2,425,869 2,768,040 2,791,567 $ 458,008,044

g) Information of credit quality

December 31, 2018

i. Notes discounted, loans and receivables

Product category Corporation loans Consumer loans Others Total book value Allowance for doubtful accounts Difference of impairment loss under regulations				Notes Discounted and Loans	Notes Discounted and Loans	Notes Discounted and Loans
		Stage 1 12-month ECL $ 227,761,917 207,199,220 40,992 435,002,129 (1,767,936 ) - $ 433,234,193		Stage 2 Lifetime ECL $ 3,019,498 12,318,911 3,322 15,341,731 (661,840 ) - $ 14,679,891		Difference of Impairment Loss Stage 3 under Lifetime ECL Regulations $ 5,573,360 $ - 2,343,305 - (244) - 7,916,421 - (2,035,208 ) - - (2,066,719) $ 5,881,213 $ (2,066,719)	Total $ 236,354,775 221,861,436 44,070 458,260,281 (4,464,984 ) (2,066,719) $ 451,728,578

98 -

		Receivables
Stage 1 12-month ECL $ 1,339,194 911,973 47,851,068 50,102,235 (19,743 ) - $ 50,082,492	Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 8,896 $ 29,686 $ - 32,364 36,866 - 1 55,783 - 41,261 122,335 - (3,905 ) (82,827 ) - - - (49,142) $ 37,356 $ 39,508 $ (49,142) Irrevocable LoanCommitments		Total $ 1,377,776 981,203 47,906,852 50,265,831 (106,475 ) (49,142) $ 50,110,214

Stage 1 12-month ECL $ 5,545,278 248,450 5,793,728 (53,686 ) - $ 5,740,042	Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 17,067 $ - $ - - - - 17,067 - - (741 ) - - - - - $ 16,326 $ - $ - Credit Card Commitments		Total $ 5,562,345 248,450 5,810,795 (54,427 ) - $ 5,756,368

Stage 1 12-month ECL $ 10,458,065 10,458,065 (8,083 ) - $ 10,449,982	Stage 2 Lifetime ECL $ 49,205 49,205 (1,299 ) - $ 47,906	Difference of Impairment Loss Stage 3 under Lifetime ECL Regulations $ - $ - - - - - - - $ - $ -	Total $ 10,507,270 10,507,270 (9,382 ) - $ 10,497,888

Product category Consumer loans Total book value Allowance for doubtful accounts Difference of impairment loss under regulations				Guarantee Receivables	Guarantee Receivables	Guarantee Receivables
		Stage 1 12-month ECL $ 17,878,645 17,878,645 (121,061 ) - $ 17,757,584		Stage 2 Lifetime ECL $ 39,246 39,246 (1,751 ) - $ 37,495		Difference of Impairment Loss Stage 3 under Lifetime ECL Regulations $ 418,070 $ - 418,070 - (55,221 ) - - (11,815) $ 362,849 $ (11,815)	Total $ 18,335,961 18,335,961 (178,033 ) (11,815) $ 18,146,113

99 -

Product category Consumer loans Total book value Allowance for doubtful accounts Difference of impairment Loss under regulations					Letters ofCredit	Letters ofCredit
		Stage 1 12-month ECL $ 4,140,679 4,140,679 (12,108 ) - $ 4,128,571		Stage 2 Lifetime ECL $ - - - - $ -		Difference of Impairment Loss Stage 3 under Lifetime ECL Regulations $ - $ - - - - - - (11,825) $ - $ (11,825)	Total $ 4,140,679 4,140,679 (12,108 ) (11,825) $ 4,116,746

ii. Debt instrument investments

	Financial Assets	at FVTOCI
Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total $ 27,507,719 $ - $ - $ 27,507,719 - - - - 27,507,719 - - 27,507,719 (15,525 ) - - (15,525 ) - - - - $ 27,492,194 $ - $ - $ 27,492,194 Investments in Debt Instruments at Amortized Cost

Stage 1 12-month ECL $ 45,838,446 - 55,500,000 101,338,446 (30,685 ) - $ 101,307,761	Stage 2 Lifetime ECL $ - - - - - - $ -	Stage 3 Lifetime ECL $ - 74,444 - 74,444 (74,444 ) - $ -	Total $ 45,838,446 74,444 55,500,000 101,412,890 (105,129 ) - $ 101,307,761

Note: The bond rating is based on the original credit rating of Moody’s, Fitch (Fitch), Standard & Poor’s (S&P) and China Credit Rating.

The breakdown below shows the debt instruments classified as FVOCI and financial assets at amortized cost:

December 31, 2018

	Financial Asset	Amortized Cost
	at FVOCI	Financial Asset
Total book value	$ 27,368,778	$ 101,352,890
Allowance loss	(15,525)	(105,129)
Amortized cost	27,353,253	101,247,761
Fair value adjustment	123,416	-
	$ 27,476,669	$ 101,247,761

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The total book value of the current credit risk rating mechanism of the Bank and the investments in debt instruments of each credit rating are as follows:

Credit Rating	Definition	Recognition Basis	Expected Credit Loss	Total Book Value At December 31, 2018	Total Book Value At December 31, 2018
				Financial Asset at FVOCI	Amortized Cost Financial Asset
Normal (Stage 1) Abnormal (Stage 2) Default (Stage 3) write offs	The debtor has a low credit risk and is fully capable of paying off contractual cash flows Credit risk has increased significantly since the initial recognition There is evidence that the credit is impaired. There is evidence that the debtor is facing serious financial difficulties and the Bank cannot reasonably expect to recover, such as overdue for more than Z days.	12-month expected credit losses Lifetime expected credit losses (no credit impaired) Lifetime expected credit (credit impaired) Write-off	0.00%-0.46%	$ 27,368,778	$ 101,352,890
With respect to the debt instrument investments at FVTOCI and at amortized cost invested by the Bank, the information of changes in allowance is summarized as follows: Credit Rating Normal (12-Month Expected credit Losses) Abnormal (Lifetime ECL Without Credit Impaired) Default (Lifetime ECL with Credit Impaired) Financial asset at FVOCI Balance, January 1, 2018 (IAS 39) $ - $ - $ - Effect of retrospective application (IFRS 9) 19,336 - - Balance, January 1, 2018 (IFRS 9) 19,336 - - Change credit rating Normal turned to abnormal - - - Abnormal turned to default - - - Default turned to write off - - - Purchase new debt instruments - - - Dispose (2,799) - - Model/risk parameter change - - - Exchange rate and other changes (1,012) - - Allowance loss, December 31, 2018 $ 15,525 $ - $ -
		Normal (12-Month Expected credit Losses) Abnormal (Lifetime ECL Without Credit Impaired) Default (Lifetime ECL with Credit Impaired) $ - $ - $ - 19,336 - - 19,336 - - - - - - - - - - - - - - (2,799) - - - - - (1,012) - - $ 15,525 $ - $ -

With respect to the debt instrument investments at FVTOCI and at amortized cost invested by the Bank, the information of changes in allowance is summarized as follows:

101 -

Amortized cost financial asset Balance, January 1, 2018 (IAS 39) Effect of retrospective application (IFRS 9) Balance, January 1, 2018 (IFRS 9) Change credit rating Normal turned to abnormal Abnormal turned to default Default turned to write off Purchase new debt instruments Dispose Model/risk parameter change Exchange rate and other changes Allowance loss, December 31, 2018	Credit Rating
	Normal (12-Month Expected credit Losses) Abnormal (Lifetime ECL Without Credit Impaired) Default (Lifetime ECL with Credit Impaired) $ - $ - $ - 9,177 - 74,444 9,177 - 74,444 - - - - - - - - - 22,732 - - (994) - - - - - (230) - - $ 30,685 $ - $ 74,444

102 -

December 31, 2017

i. Notes discounted, loans and receivables

December 31, 2017		Neithe	r Past Due Nor Impaired	r Past Due Nor Impaired		Past Due But Not Impaired (B)	Impaired (C)	Total (A)+(B)+(C)	Provision for Impairment Losses (D)	Provision for Impairment Losses (D)	Net (A)+(B)+(C)-(D)
	Level 1	Level 2	Level 3	Level 4	Subtotal (A)				With Objective Evidence of Impairment	Without Objective Evidence of Impairment
Balance sheet items Receivables Credit cards Others Notes discounted and loans	$ 189,771 48,083,199 190,047,376	$ 160,008 417,538 129,319,121	$ 142,874 190,056 59,509,230	$ 229,601 2,002,088 15,906,542	$ 722,254 50,692,881 394,782,269	$ 55,562 62,130 28,736,364	$ 21,842 150,131 12,434,703	$ 799,658 50,905,142 435,953,336	$ 13,108 80,138 2,673,681	$ 7,129 37,037 1,847,300	$ 779,421 50,787,967 431,432,355

ii. Notes discounted and loans neither past due nor impaired (based on credit ratings of clients)

December 31, 2017 Consumer loans Residential mortgage Credit card Petit credit Others-secured Others-unsecured Corporate loans Secured Unsecured			Neither Past Due Nor Impaired	Neither Past Due Nor Impaired	Neither Past Due Nor Impaired
		Level 1 $ 17,452,411 - 95,952 72,032,518 4,551,581 94,132,462 63,256,970 32,657,944 95,914,914 $ 190,047,376	Level 2 $ 18,015,723 - 195,876 36,863,301 3,328,866 58,403,766 44,524,672 26,390,683 70,915,355 $ 129,319,121	Level 3 $ 11,394,153 9 240,162 13,928,751 1,155,305 26,718,380 19,962,146 12,828,704 32,790,850 $ 59,509,230	Level 4 $ 3,638,300 53 148,764 3,079,407 219,866 7,086,390 4,883,537 3,936,615 8,820,152 $ 15,906,542	Total $ 50,500,587 62 680,754 125,903,977 9,255,618 186,340,998 132,627,325 75,813,946 208,441,271 $ 394,782,269

103 -

iii. Marketable securities

December 31, 2017		Neither Past Du	e Nor Impaired		Past Due But Not Impaired (B)	Impaired (C)	Total (A)+(B)+(C)	Provision for Impairment Losses (D)	Net (A)+(B)+ (C)-(D)
	Level 1	Level 2	Level 3	Subtotal (A)
Available-for-sale financial assets Bonds Equities Others Held-to-maturity financial assets Bonds Others Other financial assets Equities Others	$ 31,034,046 158,825 - 27,813,845 57,500,000 - -	$ - - - 228,250 - - -	$ - - - - - 145,684 -	$ 31,034,046 158,825 - 28,042,095 57,500,000 145,684 -	$ - - - - - - -	$ 62,945 - 14,416 - - - 2,000,308	$ 31,096,991 158,825 14,416 28,042,095 57,500,000 145,684 2,000,308	$ 62,945 - 14,416 - - - 1,099,973	$ 31,034,046 158,825 - 28,042,095 57,500,000 145,684 900,335

104 -
iv. Aging analysis of financial assets that are past due but not impaired

Delayed processing procedures by borrowers and other administrative reasons could result in financial assets overdue but not yet impaired. According to the Bank’ internal risk management policies, financial assets overdue within 90 days are not considered impairment loss unless other evidences are provided.

Aging analysis of financial assets past due but not impaired was as follows:

Items Receivables Credit cards Others Notes discounted and loans Consumer loans Mortgage Cash card Micro credit Others-secured Others-unsecured Corporation loans Secured Unsecured	December 31, 2017
	Past Due Up to One Month Past Due One to Three Months $ 41,207 $ 14,355 61,916 214 $ 103,123 $ 14,569 $ 3,810,453 $ 3,065 16 - 69,369 - 10,864,150 46,508 1,037,303 3,630 15,781,291 53,203 8,932,285 360 3,969,105 120 12,901,390 480 $ 28,682,681 $ 53,683	Total $ 55,562 62,130 $ 117,692 $ 3,813,518 16 69,369 10,910,658 1,040,933 15,834,494 8,932,645 3,969,225 12,901,870 $ 28,736,364

3) Liquidity risk

Ratios of liquidity reserves of the Bank were 23 ％ and 26 ％ on December 31, 2018 and 2017, respectively. Since the capital and working capital are sufficient to perform all the contracted obligations, there will be no liquidity risk in this regard. Since derivatives have very little probabilities of failing to be sold at reasonable prices in the market, there will be very low liquidity risks.

The basic business management policy of the Bank is to match the maturity dates and interest rates on assets and liabilities, and to control the uncoordinated gaps. Due to the uncertainties and types of trading conditions, the maturity dates and interest rates of assets and liabilities are often not fully matched. Such gaps may have potential benefits or losses.

105 -

Maturity analysis of non-derivative financial liabilities

The Bank assesses the maturity dates of contracts to understand the basic elements of all derivative financial instruments shown in the balance sheets. The amounts used in the maturity analyses of derivative financial liabilities are based on contractual cash flows, so some of these amounts may not correspond to the amounts shown in the balance sheets. The maturity analysis of non-derivative financial liabilities was as follows:

December 31, 2018	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Due to central bank of China and other banks Securities sold under repurchase agreements Payables Deposits and remittances Bank debentures Other maturityitems	$ 2,934,764 4,752,462 9,546,243 53,270,521 - 155,432	$ 99,224 5,216,637 687,992 74,878,276 - 18,377	$ 730 - 261,933 80,926,314 - 2,132	$ 344,034 - 485,753 145,086,824 6,000,000 4,584	$ - - 360,943 235,080,954 14,000,000 57,220	$ 3,378,752 9,969,099 11,342,864 589,242,889 20,000,000 237,745

December 31, 2017	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Due to central bank of China and other banks Securities sold under repurchase agreements Payables Deposits and remittances Bank debentures Other maturityitems	$ 6,833,937 3,269,968 10,172,844 56,999,275 - 54,623	$ 2,332,875 1,048,062 1,196,049 78,961,344 - 14,131	$ 730 - 220,722 82,990,624 - 1,550	$ 351,330 - 328,451 136,252,947 - 8,532	$ - - 277,676 212,051,401 17,500,000 93,621	$ 9,518,872 4,318,030 12,195,742 567,255,591 17,500,000 172,457

Maturity analysis of derivative financial liabilities

a) Derivative instruments that settled on a net basis

The derivative instruments that settled on a net basis include:

Foreign exchange derivative: Foreign exchange forward contracts

The Bank evaluates the expiry days of derivative instruments which are shown in the balance sheet. The amount in the balance sheet are based on cash flow. Therefore, some amounts do not correspond to the balance sheet. The maturity analysis of derivative financial liabilities was as follows:

December 31, 2018	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Derivative financial liabilities at FVTPL Foreign currencyderivative	$ 4,976	$ 19,442	$ 19,717	$ 8,754	$ -	$ 52,889
Total	$ 4,976	$ 19,442	$ 19,717	$ 8,754	$ -	$ 52,889

December 31, 2017	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Derivative financial liabilities at FVTPL Foreign currencyderivative	$ 7,329	$ 15,383	$ 11,840	$ 10,541	$ -	$ 45,093
Total	$ 7,329	$ 15,383	$ 11,840	$ 10,541	$ -	$ 45,093

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b) Derivative instruments that settled on a gross basis

The derivative instruments that settled on a net basis include:

Foreign exchange derivatives: Foreign exchange forward contracts and cross-currency swap contracts

December 31, 2018	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Derivative financial liabilities at FVTPL Foreign currency derivative Outflows Inflows	$ 3,489,472 3,441,202	$ 1,284,922 1,267,212	$ 672,246 662,755	$ 373,458 365,797	$ - -	$ 5,820,098 5,736,966
Total outflows Total inflows	3,489,472 3,441,202	1,284,922 1,267,212	672,246 662,755	373,458 365,797	- -	5,820,098 8,736,966
Net flows	$ (48,270)	$ (17,710)	$ (9,491)	$ (7,661)	$ -	$ (83,132)

December 31, 2017	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Derivative financial liabilities at FVTPL Foreign currency derivative Outflows Inflows	$ 2,128,439 2,114,153	$ 1,688,533 1,673,724	$ 821,104 792,260	$ 1,610,312 1,544,154	$ - -	$ 6,248,388 6,124,291
Total outflows Total inflows	2,128,439 2,114,153	1,688,533 1,673,724	821,104 792,260	1,610,312 1,544,154	- -	6,248,388 6,124,291
Net flows	$ (14,286)	$ (14,809)	$ (28,844)	$ (66,158)	$ -	$ (124,097)

4) Maturity analysis of off-balance-sheet items

The following table shows the Bank’s maturity analysis of off-balance sheet items based on the residual maturities from the balance sheet. For the financial guarantee contract issued, the maximum amount of guarantee is included in the earliest period that may be required to perform the guarantee. The amounts in the table below were prepared on contractual cash flow basis; therefore, some disclosed amounts would not match with the balance sheet.

December 31, 2018	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Loan commitment Letters of credit Guarantee receivables	$ 12,176,189 1,557,248 6,264,671	$ 24,525,708 2,428,724 3,749,910	$ 30,931,999 143,161 858,950	$ 65,838,590 11,546 1,659,683	$ 29,673,900 - 5,802,747	$ 163,146,086 4,140,679 18,335,961
Total	$ 19,998,108	$ 30,704,342	$ 31,934,110	$ 67,509,819	$ 35,476,347	$185,622,726

December 31, 2017	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Loan commitment Letters of credit Guarantee receivables	$ 10,996,343 1,130,285 7,714,616	$ 23,429,412 2,565,045 3,948,429	$ 31,811,704 187,700 677,445	$ 70,695,877 17,515 1,778,351	$ 39,336,499 - 4,574,181	$ 176,269,835 3,900,545 18,693,022
Total	$ 19,841,244	$ 29,942,886	$ 32,676,849	$ 72,491,743	$ 43,910,680	$198,863,402

5) Cash flow and fair value risk of interest rate fluctuation

The floating-rate assets/liabilities held by the Bank may be exposed to risks of future cash inflow/outflow. Since the risk is considered substantial, it is therefore hedged by the Bank.

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38. TRANSFERS OF FINANCIAL ASSETS

The transferred financial assets that do not qualify for derecognition

Most of the transferred financial assets of the Bank that are not derecognized in their entirety are securities sold under repurchase agreements. According to these transactions, the right on cash flow of the transferred financial assets would be transferred to other entities and the associated liabilities of the Bank’s obligation to repurchase the transferred financial assets at a fixed price in the future would be recognized. As the Bank is restricted to use, sell or pledge the transferred financial assets throughout the term of transaction, and is still exposed to interest rate risks and credit risks on these instruments, the transferred financial assets are not derecognized in their entirety. The details of financial assets that were not derecognized in their entirety and the associated financial liabilities were as follows:

	December 31, 2018	December 31, 2018	December 31, 2018
Category of Financial Assets	Carrying Amount of Transferred Financial Assets	Carrying Amount of Associated Financial Liabilities	Fair Value of Transferred Financial Assets	Fair Value of Associated Financial Liabilities	Fair Value of Net Position
Investments in debt instruments at amortized cost Securities sold under repurchase agreements	$10,895,694	$ 9,904,467	$10,708,019	$ 9,904,467	$ 803,552

	December 31, 2017
Category of Financial Assets	Carrying Amount of Transferred Financial Assets	Carrying Amount of Associated Financial Liabilities	Fair Value of Transferred Financial Assets	Fair Value of Associated Financial Liabilities	Fair Value of Net Position
Held-to-maturity financial assets Securities sold under repurchase agreements	$4,658,926	$4,307,810	$4,674,084	$4,307,810	$ 366,274

39. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

The Bank did not hold financial instruments covered by Section 42 of the IAS 32 “Financial Instruments: Presentation” endorsed by the Financial Supervisory Commission; thus, it made an offset of financial assets and liabilities and reported the net amount in the balance sheet.

The Bank engages in transactions on the following financial assets and liabilities that are not subject to balance sheet offsetting based on IAS 32 but are under master netting arrangements or similar agreements. These agreements allow both the Bank and its counterparties to opt for the net settlement of financial assets and financial liabilities. If one party defaults, the other party may choose net settlement.

December 31, 2018

Gross Amounts Gross Amounts of Recognized Financial Liabilities Net Amounts of Financial Assets Presented in Financial Assets of Recognized Financial Assets Offset in the Balance Sheets the Balance Sheet Derivatives $ 2,068,732 $ - $ 2,068,732 Securities purchased under resell agreements 9,094,151 - 9,094,151 $ 11,162,883 $ - $ 11,162,883	Related Amounts Not Offset in the Balance Sheets Financial Instruments Cash Collateral Received $ - $ - 9,094,151 - $ 9,094,151 $ -	Net Amount $ 2,068,732 -

		$ 2,068,732

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Gross Amounts of Recognized Gross Amounts of Recognized Financial Assets Offset Net Amounts of Financial Liabilities Presented in Financial Liabilities Financial Liabilities in the Balance Sheets the Balance Sheet Derivatives $ 162,127 $ - $ 162,127 Securities sold under repurchase agreements 9,904,467 - 9,904,467 $ 10,066,594 $ - $ 10,066,594 December 31, 2017	Related Amounts Not Offset in the BalanceSheets Financial Instruments Cash Collateral Pledged $ - $ - 9,904,467 - $ 9,904,467 $ -	Net Amount $ 162,127 -

		$ 162,127

Gross Amounts Gross Amounts of Recognized Financial Liabilities Net Amounts of Financial Assets Presented in Financial Assets of Recognized Financial Assets Offset in the Balance Sheets the Balance Sheet Derivatives $ 1,866,337 $ - $ 1,866,337 Securities purchased under resell agreements 11,283,082 - 11,283,082 $ 13,149,419 $ - $ 13,149,419 Gross Amounts of Recognized Gross Amounts of Recognized Financial Assets Offset Net Amounts of Financial Liabilities Presented in Financial Liabilities Financial Liabilities in the Balance Sheets the Balance Sheet Derivatives $ 207,225 $ - $ 207,225 Securities sold under repurchase agreements 4,307,810 - 4,307,810 $ 4,515,035 $ - $ 4,515,035	Related Amounts Not Offset in the Balance Sheets Financial Instruments Cash Collateral Received $ - $ - 11,283,082 - $ 11,283,082 $ - Related Amounts Not Offset in the BalanceSheets Financial Instruments Cash Collateral Pledged $ - $ - 4,307,810 - $ 4,307,810 $ -	Net Amount $ 1,866,337 -
		$ 1,866,337
		Net Amount $ 207,225 -

		$ 207,225

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40. INFORMATION ABOUT THE BANK

a. Asset quality

Category	Items	Items			December 31, 2018					December 31, 2017
			Nonperforming Loan (Note 1)	Total Loan	NPL Ratio (Note 2)	Loan Loss Reserve	Coverage Ratio (Note 3)	Nonperforming Loan (Note 1)	Total Loan	NPL Ratio (Note 2)	Loan Loss Reserve	Coverage Ratio (Note 3)
Corporate loans	Secured		$ 980,023	$152,938,946	0.64%	$ 1,471,243	150.12%	$ 910,179	$147,076,012	0.62%	$ 1,533,082	168.44%
	Unsecured		350,210	83,415,828	0.42%	3,126,240	892.68%	307,442	82,250,188	0.37%	2,642,552	859.53%
Consumer loans	Mortgage(Note 4)		277,102	57,027,677	0.49%	915,184	330.27%	267,038	56,022,201	0.48%	969,098	362.91%
	Cash card		-	40	-	5	-	32	3,157	1.01%	2,120	6,625.00%
	Microcredit(Note 5)		5,417	872,621	0.62%	90,357	1,668.03%	8,312	782,564	1.06%	39,158	471.10%
	Other (Note 6)	Secured	395,286	150,125,230	0.26%	577,436	146.08%	301,228	139,104,500	0.22%	965,759	320.61%
		Unsecured	46,306	13,835,868	0.33%	351,238	758.52%	50,887	10,714,714	0.47%	193,041	379.35%
Loans			2,054,344	458,216,210	0.45%	6,531,703	317.95%	1,845,118	435,953,336	0.42%	6,344,810	343.87%

Category		Items			December 31, 2018					December 31, 2017
			Overdue Receivable	Account Receivable	Delinquency Ratio	Allow for Credit Losses	Coverage Ratio	Overdue Receivable	Account Receivable	Delinquency Ratio	Allow for Credit Losses	Coverage Ratio
Credit card			$ 4,710	$ 749,434	0.63%	$ 27,453	582.87%	$ 8,507	$ 797,032	1.07%	$ 32,560	382.74%
Account rece	ivable without recou	rse(Note 7)	-	133,277	-	12,165	-	-	1,656,114	-	28,350	-

110 -

Non-reportable overdue loans and receivable

	December 31, 2018	December 31, 2018	December 31, 2017	December 31, 2017
	Non-Reportable NPL Balance	Non-reportable Overdue Receivable Balance	Non-Reportable NPL Balance	Non-reportable Overdue Receivable Balance
Non-reportable amount upon performance of debt negotiationprogram(Note 8)	$ 2,896	$ 1,376	$ 6,940	1,780
Amount received from performance of debt negotiationprogram(Note9)	9,103	17,680	7,481	16,613
Total	11,999	19,056	14,421	18,393

Note 1: The amount recognized as non-performing loans (NPL) is in compliance with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans”. Non-performing credit loans represent the amounts of non-performing loans reported to the FSC, as required by the FSC in its letter dated July 6, 2005 (Ref. No. 0944000378).
Note 2: Non-performing loan ratio = Non-performing loans ÷ Outstanding loan balance; Non-performing credit loan ratio = Non-performing loans ÷ Accounts receivable balance.
Note 3: Allowance for doubtful accounts ratio = Allowance for doubtful accounts in loans ÷ Overdue loans; Allowance for doubtful accounts ratio of credit card = Allowance for doubtful accounts in credit cards ÷ Overdue loans.
Note 4: Home mortgage refers to financing obtained to buy, build, or fix houses owned by the borrowers’ spouse or children, with the house used as loan collateral.
Note 5: Micro credit is covered by the FSC pronouncement dated December 19, 2005 (Ref No. 09440010950) and is excluded from credit card and cash card loans.
Note 6: “Others” under consumer loans refers to secured or unsecured loans other than mortgage loans, cash cards, micro credit, and credit cards.
Note 7: As required by the FSC in its letter dated July 19, 2005 (Ref No. 094000494), provision for bad-debt is recognized once no compensation is made by a factor or insurance company for accounts receivable factored without recourse.
Note 8: Accounts under “loans not required to be classified as NPL upon performance of a debt negotiation program” and “accounts receivable not required to be classified as overdue receivable upon debt negotiation program” were processed according the FSC pronouncement dated April 25, 2006 (Ref No. 09510001270).
Note 9: Accounts under “loans not required to be classified as NPL upon performance of a debt discharge program and rehabilitation program” and “accounts receivable not required to be classified as overdue receivable upon debt discharge program and rehabilitation program” were processed according the FSC pronouncement dated September 15, 2008 (Ref No. 09700318940).
111 -

b. Concentration of credit extensions

(In Thousands of New Taiwan Dollars, %)

Year	December 31, 2018
Top 10 Rank (Note 1)	Group (Note 2)	Total Credit (Note 3)	Percentage of Net Worth (%)
1	Group A 016811 real estate activities for sale and rental with own or leasedproperty	$ 2,460,000	5.14
2	Group B 010892 manufacture of macaroni, noodles, couscous and similar farinaceousproducts	2,321,274	4.85
3	Group C 016700real estate development activities	2,286,478	4.78
4	Group D 015500accommodation	2,151,855	4.50
5	Group E 012411 smeltingand refiningof iron and steel	1,937,578	4.05
6	Group F 016700real estate development activities	1,333,917	2.79
7	Group G 014612wholesale of brick,sand,cement andproducts	1,258,337	2.63
8	Group H 016700real estate development activities	1,099,800	2.30
9	Group I 016700real estate development activities	1,095,680	2.29
10	Group J 012203manufacture of industrialplasticproducts	1,073,192	2.24

112 -

(In Thousands of New Taiwan Dollars, %)

Year	December 31, 2017
Top 10 Rank (Note 1)	Group (Note 2)	Total Credit (Note 3)	Percentage of Net Worth (%)
1	Group C 016700 real estate development activities	$ 3,148,737	7.25
2	Group B 010892 manufacture of macaroni, noodles, couscous and similar farinaceousproducts	2,625,197	6.05
3	Group E 012411 smeltingand refiningof iron and steel	1,796,162	4.14
4	Group K 012699 manufacture of other electronic parts and components not elsewhere classified	1,776,807	4.09
5	Group D 015500accommodation	1,704,281	3.93
6	Group L 016700real estate development activities	1,577,529	3.63
7	Group F 016700real estate development activities	1,428,583	3.29
8	Group G 014612wholesale of brick,sand,cement andproducts	1,327,851	3.06
9	Group H 016700real estate development activities	1,171,800	2.70
10	Group M 016700real estate development activities	1,141,157	2.63

Note 1: The ranking is arranged in descending order of the outstanding loan balance, excluding all the government entities and nation-owned enterprises. If the borrower is a member company of a group, then the disclosed amount will be the total granted loan amount for that entire group. (i.e. Group A real estate activities for sale and rental with own or leased property).
Note 2: According to Article 6 of the “Supplementary Provisions to the Stock Exchange Corporation Criteria for the Review of Securities Listings”, “Group” refers to the entity that has a controlling or subordinate relationship with the counterparty that obtained loans from the Bank.
Note 3: Credit balance means the sum of all the loans (including import bill negotiated, discounted export bills negotiated, overdrafts, short-term secured and unsecured loans, marginal receivables, medium-term secured and unsecured loans, long-term secured and unsecured loans and delinquent receivables), exchange bills negotiated, accounts receivable factored without recourse, acceptances receivable, and guarantees issued.
113 -

c. Interest rate sensitivity information

Interest Rate Sensitivity December 31, 2018

(In Thousands of New Taiwan Dollars, %)

Items	1 to 90 Days	91 to 180 Days	181 Days to One Year	Over One Year	Total
Interest-sensitive assets	$473,227,441	$ 6,893,149	$11,984,930	$83,634,023	$575,739,543
Interest-sensitive liabilities	160,487,053	284,562,819	97,600,888	7,323,668	549,974,428
Interest sensitivity gap	312,740,388	(277,669,670)	(85,615,958)	76,310,355	25,765,115
Net equity					47,823,653
Ratio of interest-sensitive assets to liabilities					104.68%
Ratio of interest sensitivity gapto net equity					53.87%

Interest Rate Sensitivity December 31, 2017

(In Thousands of New Taiwan Dollars, %)

Items	1 to 90 Days	91 to 180 Days	181 Days to One Year	Over One Year	Total
Interest-sensitive assets	$462,435,741	$ 6,503,542	$ 8,109,517	$77,217,728	$554,266,528
Interest-sensitive liabilities	151,989,766	276,148,497	90,493,177	13,711,029	532,342,469
Interest sensitivity gap	310,445,975	(269,644,955)	(82,383,660)	63,506,699	21,924,059
Net equity					43,401,940
Ratio of interest-sensitive assets to liabilities					104.12%
Ratio of interest sensitivity gapto net equity					50.51%

Note 1: The above amounts included only the New Taiwan dollar amounts held by the head office and branches of the Bank (i.e., excluding foreign currency).
Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of interest-earning assets and interest-bearing liabilities affected by interest rate changes.
Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities.
Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets ÷ Interest rate-sensitive liabilities (in New Taiwan dollars).

Interest Rate Sensitivity December 31, 2018

(In Thousands of U.S. Dollars, %)

Items	1 to 90 Days	91 to 180 Days	181 Days to One Year	Over One Year	Total
Interest-sensitive assets	$1,063,068	$ 256,810	$ 20,502	$ 457,260	$1,797,640
Interest-sensitive liabilities	831,067	738,109	192,424	-	1,761,600
Interest sensitivity gap	232,001	(481,299)	(171,922)	457,260	36,040
Net equity					1,557,266
Ratio of interest-sensitive assets to liabilities					102.05%
Ratio of interest sensitivity gapto net equity					2.31%

114 -

Interest Rate Sensitivity December 31, 2017

(In Thousands of U.S. Dollars, %)	(In Thousands of U.S. Dollars, %)	(In Thousands of U.S. Dollars, %)	(In Thousands of U.S. Dollars, %)	(In Thousands of U.S. Dollars, %)	(In Thousands of U.S. Dollars, %)
Items	1 to 90 Days	91 to 180 Days	181 Days to One Year	Over One Year	Total
Interest-sensitive assets	$ 902,199	$ 339,282	$ 39,210	$ 404,801	$1,685,492
Interest-sensitive liabilities	525,683	954,563	142,981	-	1,623,227
Interest sensitivity gap	376,516	(615,281)	(103,771)	404,801	62,265
Net equity					1,457,909
Ratio of interest-sensitive assets to liabilities					103.84%
Ratio of interest sensitivity gapto net equity					4.27%

Note 1: The above amounts included only the U.S. dollar amounts held by the head office, domestic branches, OBU and overseas branches of the Bank and excluded contingent assets and contingent liabilities.
Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of interest-earning assets and interest-bearing liabilities affected by interest rate changes.
Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities.
Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets ÷ Interest rate-sensitive liabilities (in U.S. dollars)

d. Profitability

			Unit: %
	Items	December 31, 2018	December 31, 2017
Return on total assets	Pretax	0.69	0.67
	After tax	0.60	0.57
Return on net equity	Pretax	10.17	10.07
	After tax	8.79	8.57
Profit margin		37.55	35.10

Note 1: Return on total assets = Income before (after) income tax ÷ Average total assets
Note 2: Return on equity = Income before (after) income tax ÷ Average equity
Note 3: Net income ratio = Income after income tax ÷ Total net revenues
Note 4: Income before (after) income tax represents income for the years ended December 31, 2018 and 2017.
115 -

e. Maturity analysis

Maturity Analysis of Assets and Liabilities December 31, 2018

(In Thousands of New Taiwan Dollars)

	Total		Period	Remaining until D	ue Date and Amo	unt Due
		0-10 Days	11-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year
Main capital inflow on maturity	$619,398,838	$ 97,398,772	$ 34,941,879	$ 31,135,311	$ 55,245,416	$ 98,133,621	$302,543,839
Main capital outflow on maturity	742,326,833	29,605,923	35,688,786	81,243,268	105,947,813	196,715,151	293,125,892
Gap	(122,927,995)	67,792,849	(746,907)	(50,107,957)	(50,702,397)	(98,581,530)	9,417,947

December 31, 2017

(In Thousands of New Taiwan Dollars)

	Total		Period	Remaining until D	ue Date and Amo	unt Due
		0-10 Days	11-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year
Main capital inflow on maturity	$598,141,237	$109,914,586	$ 30,498,374	$ 29,468,061	$ 51,262,425	$ 88,329,183	$288,668,608
Main capital outflow on maturity	710,537,090	36,411,396	37,325,982	88,778,387	108,514,499	171,244,522	268,262,304
Gap	(112,395,853)	73,503,190	(6,827,608)	(59,310,326)	(57,252,074)	(82,915,339)	20,406,304

Note: The above amounts included only the New Taiwan dollar amounts held by the head office and domestic branches of the Bank (excluding foreign currency).

Maturity Analysis of Assets and Liabilities December 31, 2018

(In Thousands of U.S. Dollars)

	Total		Remaining Period to Maturity	Remaining Period to Maturity	Remaining Period to Maturity
		0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year
Maincapitalinflow on maturity	$ 2,035,175	$ 272,430	$ 298,059	$ 257,196	$ 77,992	$ 1,129,498
Main capital outflow on maturity	2,857,122	602,245	811,276	484,962	812,641	145,998
Gap	(821,947)	(329,815)	(513,217)	(227,766)	(734,649 )	983,500

December 31, 2017

(In Thousands of U.S. Dollars)

	Total		Remaining Period to Maturity	Remaining Period to Maturity	Remaining Period to Maturity
		0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year
Main capital inflow on maturity	$ 2,057,206	$ 472,931	$ 288,565	$ 317,306	$ 100,961	$ 877,443
Main capital outflow on maturity	2,875,529	557,042	748,449	554,700	839,630	175,708
Gap	(818,323)	(84,111)	(459,884)	(237,394)	(738,669)	701,735

Note 1: The above amounts included only the U.S. dollar amounts held by the head office, domestic branches, OBU and overseas branches of the Bank and excluded contingent assets and contingent liabilities.
Note 2: When the OBU’s assets account for 10% of total assets of the Bank, the Bank should provide complimentary disclosed information.
116 -

41. CAPITAL MANAGEMENT

a. The purpose of capital management is to reach the criteria set by administration which is the basic goal of the Bank’s capital management. The calculation method of the relevant qualified eligible capital and legal capital should be handled in accordance with the provisions of the competent authority.

To maintain the ratio of eligible capital to risk-weighted assets above the target level, the capital management structure of the Bank should be properly planned depending on the conditions of capital market, the characteristics of various capital instruments, the efficiency of capital utilization and the impact of operational performance.

b. The Bank follows the relevant regulations of the competent authority and the internal operating procedures of the Bank, to regularly disclose relevant information on capital adequacy and report to the competent authority on a quarterly basis.

Self-owned capital of the Bank is divided into Tier 1 capital and Tier 2 capital according to principles of capital adequacy management.

1) The term “Net Tier 1 Capital” shall mean the aggregate amount of net common Equity Tier 1 and net additional Tier 1 Capital.
a) The common equity Tier 1 capital consists of the common shares and additional paid-in capital in excess of par - common shares, the capital collected in advance, the capital reserves, the statutory surplus reserves, the special reserves, the accumulated profit or loss, the non-controlling interests and the other items of interest.
b) Additional Tier 1 capital consists of non-cumulative perpetual preferred shares and its capital share premium, the non-cumulative perpetual subordinated debts, the non-cumulative perpetual preferred shares and its capital share premium, and the non-cumulative perpetual subordinated debts which are issued by banks’ subsidiaries, and are not directly or indirectly held by banks.

2) Tier 2 capital

The Tier 2 capital consists of cumulative perpetual preferred shares and its capital share premium, the cumulative perpetual subordinated debts, the convertible subordinated debts, the long-term subordinated debts, the non-perpetual preferred shares and its capital share premium, when applying International Financial Reporting Standards in real estate and using the fair value method or the re-estimated value method as the deemed cost for the first time, the difference in amount between the deemed cost and the book value recognized in retained earnings, the 45% of unrealized gains on changes in the fair value of investment properties using the fair value method, as well as the 45% of unrealized gains on available-for-sale financial assets, the operational reserves and loan-loss provisions and the cumulative perpetual preferred shares and its capital share premium, the cumulative perpetual subordinated debts, the convertible subordinated debts, the long-term subordinated debts, and the non-perpetual preferred shares and its capital share premiums, which are issued by banks’ subsidiaries, and are not directly or indirectly held by banks.

117 -

c. Capital adequacy ratio (CAR)

(Unit: In Thousands of New Taiwan Dollars, %)

Year Items	Year Items	Year Items	December 31, 2018	December 31, 2017
Eligible capital	Common equity		$45,861,436	$41,576,965
	Other Tier 1 capital		10,157,025	7,787,052
	Tier 2 capital		3,391,593	4,629,062
	Eligible capital		59,410,054	53,993,079
Risk-weighted assets	Credit risk	Standardized approach	454,751,838	425,267,057
		Internal ratings-based approach	-	-
		Securitization	-	-
	Operational risk	Basic indicator approach	18,893,313	17,893,063
		Standardized approach/alternative standardized approach	-	-
		Advanced measurement approach	-	-
	Market risk	Standardized approach	7,272,988	6,369,638
		Internal model approach	-	-
	Risk-weighted assets		480,918,139	449,529,758
Capital adequacyratio(%)			12.35%	12.01%
Ratio of common equityto risk-weighted assets(%)			9.54%	9.25%
Ratio of Tier 1 capital to risk-weighted assets(%)			11.65%	10.98%
Leverage ratio(%)			7.80%	7.13%

Note 1: Eligible capital and risk-weighted assets are calculated under the “Regulations Governing the Capital Adequacy Ratio of Banks” and “Explanation of Methods for Calculating the Eligible Capital and Risk-Weighted Assets of Banks”.
Note 2: Annual financial statements should include capital adequacy ratio of the current and prior year. Semi-annual financial statements in addition to exposing the current and prior year’s financial status, should also include the capital adequacy ratio at the end of prior year.
Note 3: Formulas used were as follows:
1) Eligible capital = Common equity + Other Tier 1 capital + Tier 2 capital.
2) Risk-weighted assets = Risk-weighted asset for credit risk + Capital requirements for operational risk and market risk x 12.5.
3) Capital adequacy ratio = Eligible capital ÷ Risk-weighted assets.
4) Ratio of the common equity to risk-weighted assets = Common equity ÷ Risk-weighted assets.
5) Ratio of Tier 1 capital to risk-weighted assets = (Common equity + Other Tier 1 capital) ÷ Risk-weighted assets.
6) Leverage ratio = Tier 1 capital ÷ Exposure measurement.
Note 4: Exempt from disclosure in the preparation of the first and third quarters of the financial reports.
118 -

42. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

Details of significant assets and liabilities denominated in foreign currencies were as follows:

Financial assets in
foreign currencies
Cash and cash equivalents

Due from the central bank
and call loans to other
banks
Financial assets at fair value
through profit or loss
Financial assets at fair value
through other
comprehensive income
Notes discounted and loans
Receivables
Financial assets at
amortized cost
Other assets
Financial liabilities in
foreign currencies
Due to the central bank and
other banks
Deposits and remittances
Financial liabilities at fair
value through other
comprehensive income
Payables
Securities sold under
repurchased agreements
Provisions
Other liabilities
New Taiwan dollars
exchange rate

Financial assets in
foreign currencies
Cash and cash equivalents

Due from the central bank
and call loans to other
banks
Financial assets at fair value
through profit or loss
Financial assets at fair value
through other
comprehensive income
Notes discounted and loans
Receivables
Financial assets at
amortized cost
Other assets
Financial liabilities in
foreign currencies
Due to the central bank and
other banks
Deposits and remittances
Financial liabilities at fair
value through other
comprehensive income
Payables
Securities sold under
repurchased agreements
Provisions
Other liabilities
New Taiwan dollars
exchange rate

December 31, 2018

USD
RMB
JPY
AUD
EUR
Others
Total
$ 1,753,626 $ 320,117 $ 491,643 $ 465,958 $ 1,277,676 $ 807,161 $ 5,116,181
61,420
223,600
-
-
-
-
285,020
1,079,159
-
-
-
-
11
1,079,170
980,178
-
-
-
-
-
980,178

34,421,321
1,266,246
351,738
216,969
470,514
655,638
37,382,426
2,205,979
118,401
251,121
11,470
150,493
85,759
2,823,223
17,538,248
2,280,163
-
1,322,022
-
148,932
21,289,365
131,592
-
-
-
-
-
131,592
1,074,850
-
-
-
-
-
1,074,850
44,332,288
3,556,606
664,068
2,336,307
506,670
1,610,387
53,006,326
71,504
-
-
-
10
71,514
973,662
110,904
91,995
6,612
1,208,062
116,473
2,507,708
8,704,431
-
-
-
-
-
8,704,431
29,944
-
-
-
-
-
29,944
172,294
-
-
-
1,360
2,127
175,781
30.71
4.47
0.28
21.67
35.21
December 31, 2017

USD
RMB
JPY
AUD
EUR
Others
Total
$ 2,091,909 $ 398,920 $ 631,027 $ 110,926 $ 186,417 $ 340,995 $ 3,760,194
53,586
91,300
-
-
-
337,821
482,707
119,251
-
-
-
-
290
119,541
158,825
-
-
-
-
-
158,825

32,528,042
1,260,225
295,904
406,267
491,123
867,454
35,849,015
3,510,147
153,270
117,420
19,623
511,021
76,434
4,387,915
14,520,384
3,424,197
-
1,416,042
-
169,010
19,529,633
900,335
-
-
-
-
-
900,335
163,288
-
-
-
-
-
163,288
2,828,150
-
-
-
178,000
-
3,006,150
43,393,558
3,263,127
788,466
2,159,266
472,269
1,355,064
51,431,750
71,728
-
-
-
-
290
72,018
2,706,501
47,389
70,684
7,683
448,365
302,000
3,582,622
2,105,229
-
-
-
-
-
2,105,229
6,674
-
-
-
-
-
6,674
72,489
-
113
-
4,112
44,528
121,242
29.77
4.57
0.26
23.20
35.60

119 -

43. ADDITIONAL DISCLOSURES

a. Information about significant transactions and investees:

Disclosure of relevant information in accordance with Article 18 of Regulations Governing the Preparation of Financial Reports by Public Banks are as follows:

No.	Item	Note
1	Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 10%of thepaid-in capital.	None
2	Acquisition of individual real estate at costs of at least NT$300 million or 10% of thepaid-in capital.	None
3	Disposal of individual real estate at prices of at least NT$300 million or 10% of the paid-in capital.	None
4	Allowance of service fees to relatedparties amountingto at least NT$5 million.	None
5	Receivables from related parties amounting to at least NT$300 million or 10% of the paid-in capital.	None
6	Sale of nonperformingloans.	None
7	Financial asset securitization and real estate securitization.	None
8	Other significant transactions which may affect the decisions of users of financial reports.	None

b. The related information of the Bank’s investees:

No.	Item	Note
1	Related information andproportionate share in investees.	Table 1
2	Financing provided.	Table 2
3	Endorsement/guaranteeprovided.	Table 3
4	Marketable securities held.	Table 4
5	Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 10%of thepaid-in capital.	None
6	Other significant transactions which may affect the decisions of users of financial reports.	None

Note: The financial, insurance and securities industries of the invested companies are exempt from disclosure.

c. Investment in mainland China: Table 5 (attached).
120 -

TABLE 1

TAICHUNG COMMERCIAL BANK CO., LTD.

THE RELATED INFORMATION AND PROPORTIONATE SHARE IN INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Investor Company	Investee Company (Note 1)	Location	Main Businesses and Products	Percentage of Ownership	Carrying Value	Investment Gain (Loss)	Proportionate Share of the Bank (Note	Proportionate Share of the Bank (Note	and its Affiliates in Investees 1)	and its Affiliates in Investees 1)
							Shares (In Thousands)	Pro Forma Shares (Note 2)	Total
									Shares (In Thousands)	Percentage of Ownership
Taichung Commercial Bank Co., Ltd. Taichung Bank Leasing Corporation Limited TCCBL Co., Ltd. (B.V.I.)	Taichung Bank Insurance Brokers Co. Reliance Securities Investment Trust Co., Ltd. Taichung Commercial Bank Securities Co., Ltd. Taichung Bank Leasing Corporation Limited TCCBL Co., Ltd. (B.V.I.) Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Taichung City Taipei City Taichung City Taipei City British Virgin Islands Suzhou	Insurance broker industry Securities investment trust industry Securities industry Leasing business Financial leasing and investment business Financial leasing business	100.00 38.46 100.00 100.00 100.00 100.00	$ 1,828,479 153,423 1,383,843 1,858,956 782,226 728,040	$ 360,419 (6,716) 219 81,821 21,246 8,660	128,600 18,643 150,000 185,000 30,000 -	- - - - - -	128,600 18,643 150,000 185,000 30,000 -	100.00 59.75 100.00 100.00 100.00 100.00

Note 1: Shares or pro forma shares held by the Bank, directors, supervisors, president, vice president and affiliates have all been included in accordance with the Company Act.

Note 2: a. Pro forma shares are shares assumed to be obtained through buying equity-based securities or entering into equity-linked derivative contracts for purposes defined in Article 74 of the Banking Law. b. Equity-based securities, such as convertible bonds and warrants, are covered by Article 11 of “Securities and Exchange Law Enforcement Rules.”
c. Derivative contracts, such as share options, are those conforming to the definition of derivatives in International Financial Reporting Standard 9.

Note 3: This table of “information of investees’ names, locations, etc.” can only be seen in the second and fourth quarter’s financial statements.

121 -

TABLE 2

TAICHUNG COMMERCIAL BANK CO., LTD.

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No. (Note 1)	Lender	Borrower	Financial Statement Account (Note 2)	Related Party	Highest Balance for the Period (Note 3)	Ending Balance (Note 8)	Actual Borrowing Amount	Interest Rate (%)	Nature of Financing (Note 4)	Business Transaction Amount (Note 5)	Reasons for Short-term Financing (Note 6)	Allowance for Impairment Loss	Collateral	Collateral	Financing Limit for Each Borrower (Note 7)	Aggregate Financing Limit (Note 7)	Note
													Item	Value
1	Taichung Bank Leasing Corporation Limited	Mi Qi Ji, Ltd.	Other receivables	Not related	$ 170,000	$ -	$ -	6.50	Necessary for short-term financing	$ -	Business turnover	$ -	Real estate	$ 171,396	$ 185,896	$ 743,582	Note 9
2	Taichung Bank Leasing Corporation Limited	Chang Hong International Development Co., Ltd.	`〃`	`〃`	50,000	21,989	21,989	4-10	`〃`	-	`〃`	226	Real estate	29,079	185,896	743,582	`〃`
3	Taichung Bank Leasing Corporation Limited	Yuan Mao Construction Co., Ltd.	`〃`	`〃`	100,000	-	-	4-10	`〃`	-	`〃`	-	Share	63,180	185,896	743,582	`〃`
4	Taichung Bank Leasing Corporation Limited	Yan Xin Construction Co., Ltd.	`〃`	`〃`	95,654	64,170	64,170	4-10	`〃`	-	`〃`	661	Real estate	58,613	185,896	743,582	`〃`
5	Taichung Bank Leasing Corporation Limited	General Energy Solutions Inc.	`〃`	`〃`	50,000	23,476	23,476	4-10	`〃`	-	`〃`	190	Margin	5,000	185,896	743,582	`〃`
6	Taichung Bank Leasing Corporation Limited	Yi Le Construction Co., Ltd.	`〃`	`〃`	65,000	63,050	63,050	4-10	`〃`	-	`〃`	649	Real estate	65,161	185,896	743,582	`〃`
7	Taichung Bank Leasing Corporation Limited	Huang Chao Golden Hall Inc.	`〃`	`〃`	30,000	16,696	16,696	4-10	`〃`	-	`〃`	110	Margin	6,000	185,896	743,582	`〃`
8	Taichung Bank Leasing Corporation Limited	Yuan Li Engineering Co., Ltd.	`〃`	`〃`	50,000	35,678	35,678	4-10	`〃`	-	`〃`	367	None	-	185,896	743,582	`〃`
9	Taichung Bank Leasing Corporation Limited	Kuang Ming Shipping Corp.	`〃`	`〃`	100,000	100,000	-	4-10	`〃`	-	`〃`	-	Margin	20,000	185,896	743,582	`〃`
10	TCCBL Co., Ltd. (B.V.I.)	Ever Merit Trading Limited	`〃`	`〃`	73,704	18,426	18,426	5.25	`〃`	-	`〃`	184	Share	61,911	78,223	312,890	Note 10
11	TCCBL Co., Ltd. (B.V.I.)	League International Limited	`〃`	`〃`	30,710	7,678	7,678	4-10	`〃`	-	`〃`	46	Margin	3,071	78,223	312,890	`〃`
12	TCCBL Co., Ltd. (B.V.I.)	TCT Capital Co., Ltd.	`〃`	`〃`	49,136	-	-	4-10	`〃`	-	`〃`	-	Margin	4,914	78,223	312,890	`〃`
13	TCCBL Co., Ltd. (B.V.I.)	Cross Border Profits Limited	`〃`	`〃`	42,994	28,867	28,867	4-10	`〃`	-	`〃`	258	Margin	3,071	78,223	312,890	`〃`
14	TCCBL Co., Ltd. (B.V.I.)	TCT Capital Co., Ltd.	`〃`	`〃`	49,136	49,136	49,136	4-10	`〃`	-	`〃`	442	Margin	4,914	78,223	312,890	`〃`
15	Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Sanyuan Construction (Qingdao) Development Co., Ltd.	Entrusted loan	`〃`	169,936	-	-	10	`〃`	-	Capital investment plan expenditure	-	Real estate	1,783,693	291,216	291,216	Note 11
16	Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Zhangjiajie Zhongjun Real Estate Co., Ltd.	`〃`	`〃`	26,832	26,832	26,832	9.6	`〃`	-	`〃`	402	Real estate	241,086	291,216	291,216	`〃`

Note 1: The description of the number column is as follows:
a. Issuer: 0.
b. The invested company is numbered sequentially by the Arabic number 1 according to the company.

Note 2: Items such as accounts receivable, corporate receivables, shareholder transactions, prepayments, provisional payments, etc., which are provided by financing are required to be filled in this field.

Note 3: The annual fund is provided to others to the highest balance.
Note 4: Nature of financing should be filled with business contacts or those who have short-term financing.

Note 5: Nature of the loan of the business contacts should be filled with the amount of business transactions. The amount of business transactions refers to the amount of business transactions between the company that lends the funds and the target of last year’s loan.

(Continued)

122 -

Note 6: Nature of the loan required for short-term financing should specify the reasons for the loans and the use of funds for the loan, such as repayment of loans, purchase of equipment, business turnover, etc.

Note 7: The company shall fill in the borrowing limit and total limit for individual objects according to the operating procedures and explains the calculation method of the total limit in the column Note.

Note 8: If the board of directors of the public offering company according to Article 14 (1) of the Public Offering Company’s Financing and Endorsement Guarantee Processing Guidelines will make a resolution, the amount of the resolution of the board of directors shall be included in the announcement balance to disclose its risk; however, if the funds are repaid, the balance after repayment should be disclosed to reflect the adjustment of risk. If the public offering company authorizes the chairman of the board to allocate or repay the loan in a certain amount and within one year according to the resolution of the board of directors in accordance with Article 14(2) of the handling criteria, the fund's loan and the amount approved by the board of directors shall be the declared balance. Although the funds will be repaid afterwards, the consideration may still be re-loaned. Therefore, the fund loan and the amount approved by the board of directors should still be used as the announced balance.

Note 9: Taichung Bank Leasing Corporation Limited should not exceed 10% of its own net value for a single enterprise. The total amount of financing provide to others is limited to 40% of the net value of Taichung Bank Leasing Corporation Limited.

Note 10: TCCBL Co., Ltd. (B.V.I.) should not exceed 10% of its own net value for a single enterprise. The total amount of financing provide to others is limited to 40% of the net value of TCCBL Co., Ltd. (B.V.I.).

Note 11: Taichung Bank Financial Leasing (Suzhou) Co., Ltd. should not exceed 40% of its own net value for a single enterprise. The total amount of financing provide to others is limited to 40% of the net value of Taichung Bank Financial Leasing (Suzhou) Co., Ltd.

(Concluded)

123 -

TABLE 3

TAICHUNG COMMERCIAL BANK CO., LTD.

ENDORSEMENTS/GUARANTEES PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorser/Guarantor	Endorsee/Guarantee	Endorsee/Guarantee	Limit on Endorsement/ Guarantee Given on Behalf of Each Party (Note 1)	Maximum Amount Endorsed/ Guaranteed During the Period (Note 2)	Outstanding Endorsement/ Guarantee at the End of the Period	Actual Borrowing Amount	Amount Endorsed/ Guaranteed by Collateral	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Aggregate Endorsement/ Guarantee Limit (Note 1)	Endorsement/ Guarantee Given by Parent on Behalf of Subsidiaries (Note 3)	Endorsement/ Guarantee Given by Subsidiaries on Behalf of Parent (Note 3)	Endorsement/ Guarantee Given on Behalf of Companies in Mainland China (Note 3)
		Name	Relationship
1	Taichung Bank Leasing Corporation Limited	TCCBL Co., Ltd. (B.V.I.)	Direct shareholding of 100% of subsidiary	$ 11,153,738	$ 2,510,000	$ 1,221,512	$ 377,733	$ -	66.99	$ 18,589,563	-	-	-
2	Taichung Bank Leasing Corporation Limited	Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Indirect shareholding of 100% of subsidiary	11,153,738	2,083,830	2,083,830	1,282,320	-	114.28	18,589,563	-	-	Y

Note 1: According to Taichung Bank Leasing Corporation Limited’s “Operating Procedures to Fund Endorsement and Guarantee”, the endorsement limit to single company cannot surpass six times of Taichung Bank Leasing Corporation Limited’s audited net worth. The endorsement limits to all subsidiaries cannot surpass 10 times of Taichung Bank Leasing Corporation Limited’s audited net worth.

Note 2:

The maximum balance guaranteed for endorsement of others during the year.

Note 3: It is a guarantor of the listed parent company to the endorsement of the subsidiary, the subsidiary company's endorsement to the listed parent company and the endorsement of the mainland area must be filled with Y.

124 -

TABLE 4

TAICHUNG COMMERCIAL BANK CO., LTD.

MARKETABLE SECURITIES HELD FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars or Shares)

Name of Holding Company	Type and Name of Marketable Securities	Relationship	Financial Statements Account		December 31, 2018	December 31, 2018		Note
				Shares/Units/ Face Amount	Carrying Amount (Note)	Percentage of Ownership	Market Value or Net Asset Value (Note)
Taichung Commercial Bank Co., Ltd. Taichung Bank Leasing Corporation Limited TCCBL Co., Ltd. (B.V.I.)	Domestic non-listed (cabinet) shares Taichung Bank Leasing Corporation Limited Taichung Bank Insurance Brokers Co., Ltd. Taichung Bank Securities Co., Ltd. Reliance Securities Investment Trust Co., Ltd. Foreign unlisted (cabinet) shares TCCBL Co., Ltd. (B.V.I.) Foreign unlisted (cabinet) shares Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Subsidiary `〃` `〃` Associated Sub-subsidiary Sub-subsidiary	Investment accounted for using the equity method `〃` `〃` `〃` Investment accounted for using the equity method Investment accounted for using the equity method	185,000 128,600 150,000 12,000 30,000 -	$ 1,858,956 1,828,479 1,383,843 153,423 782,226 728,040	100 100 100 38 100 100	$ 1,858,956 1,828,479 1,383,843 153,423 782,226 728,040

Note: The financial industry, the insurance industry and the securities industry are exempt from disclosure.

125 -

TABLE 5

TAICHUNG COMMERCIAL BANK CO., LTD.

INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investee Company Name	Main Businesses and Products	Main Businesses and Products	Total Amount of Paid-in Capital	Total Amount of Paid-in Capital	Investment Type	Accumulated Outflow of Investment from Taiwan as of January 1, 2018	Investment Flows	Investment Flows	Accumulated Outflow of Investment from Taiwan as of December 31, 2018	% Ownership of Direct or Indirect Investment	Investment Gain	Carrying Value as of December 31, 2018	Accumulated Inward Remittance of Earnings as of December 31, 2018
							Outflow	Inflow
Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Financial leasing business		$ 893,373 (CNY 186,329 thousand)		Investment in mainland China companies through an existing company established in a third region.	$ 893,373 (CNY 186,329 thousand)	$ -	$ -	$ 893,373 (CNY 186,329 thousand)	100	$ 8,660 (CNY 1,900 thousand)	$ 728,040 (CNY 162,780 thousand)	$ -

Accumulated Investment in Mainland China as of December 31, 2018		Investment Amount Approved by the Investment Commission, MOEA		Maximum Investment Allowable (Note 2)
$893,373		$893,373		$1,115,374

Note 1: Recognition of investment gains and losses based on the financial statements audited by the parent company accountant.

Note 2: Based on the Investment Commission’s “Regulation on the Examination of Investment or Technical Cooperation in Mainland China”, investments are limited to the regulation of Taichung Bank Leasing Corporation Limited calculation.

Note 3: Foreign currency involved translation into the New Taiwan dollar at the spot rate and average exchange rate on the date of the financial statements. (CNY1=NT$4.47, CNY1=NT$4.56)

126 -

TAICHUNG COMMERCIAL BANK CO., LTD.

THE CONTENTS OF STATEMENTS OF MAJOR ACCOUNTING ITEMS

Item

Major Accounting Items in Assets, Liabilities and Equity
Statement of cash and cash equivalents
Statement of financial instrument at fair value through profit or loss
Statement of securities purchased under resell agreements
Statement of receivable, net
Statement of notes discounted and loans, net
Statement of financial assets at fair value through other comprehensive income
Statement of investment in debt instruments at amortized cost
Statement of changes in investments accounted for using equity method
Statement of other financial assets
Statement of change in properties and equipment
Statement of change in accumulated depreciation of properties and equipment
Statement of change in accumulated impairment of properties and equipment
Statement of change in investment properties
Statement of financial liabilities at fair value through profit or loss
Statement of securities sold under repurchase agreements
Statement of accounts payables
Statement of deposits and remittances
Statement of bank debentures
Major Accounting Items in Profit or Loss
Statement of net interest
Statement of net service fee income
Statement of employee benefits expense
Statement of other selling and administrative expenses

**Statement Index **

1
2
3
4
5
6
7
8
9
Note 18
Note 18
Note 18
Note 19
10
11
12
13
14
Note 30
Note 30
15
Note 30

127 -

STATEMENT 1

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF CASH AND CASH EQUIVALENTS DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Item Cash on hand Cash on hand - foreign currencies (Note) Checks for clearing Due from banks	Amount $ 3,360,012 970,437 5,715,927 4,924,678 $ 14,971,054

Note: The cash on hand - foreign currencies include: US$12,317 thousand, US$1=NT$30.71; EUR1,407 thousand; EUR1=NT$35.21; JPY1,064,351 thousand, JPY1=NT$0.28; HK$20,845 thousand, HK$1=NT$3.92; AUD725 thousand, AUD1=NT$21.67; CAD314 thousand, CAD1=NT$22.57; CNY31,755 thousand, CNY1=NT$4.47.

128 -

STATEMENT 2

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS DECEMBER 31, 2018

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

Name Description Shares Amount Total Amount Financial assets at FVTPL 1. Domestic listed shares and emerging market shares Taiwan Fire & Marine Insurance Co., Ltd. 10,662 10 $ 106,620 Taiwan Business Bank, Ltd. 51,452 10 514,520 Others (Note) 1,349 10 13,490 634,630 2. Cross-currency swap contracts Note 8 - - 3. Beneficiary certificate UPAMC Small And Medium Cap 1,300 30,000 FUH-HWA SMALL CAPITAL FUND 465 30,000 Yuanta/P-shares Taiwan Top 50 ETF 400 33,305 Yuanta/P-shares Taiwan Dividend Plus ETF 600 14,910 UPAMC Global Innovative Tech 2,304 30,000 Jih Sun Upstream Fund 1,033 30,000 Yuanta S&P GSCI Crude Oil ER Futures ETF 1,054 15,567 183,782 4. Commercial paper Dragon Steel - 1,400,000 Formosa Plastics - 1,850,000 Taiwan Cooperative Financial Holding - 1,500,000 NAN YA - 1,300,000 Cathay Financial - 7,459,000 Waterland Securities - 1,150,000 Others (Note) - 7,395,000 22,054,000 5. Foreign exchange forward contracts Note 8 - -	Cost $ 295,771 331,285 117,956 745,012 - 30,000 30,000 33,305 14,910 30,000 30,000 15,567 183,782 1,399,245 1,847,807 1,498,103 1,298,636 7,450,835 1,149,430 7,387,752 22,031,808 -	FairValue
		Unit Price (NT$) Total Amount 19.55 $ 208,442 10.35 532,528 112,007 852,977 29,105 21.92 28,505 60.00 27,881 75.50 30,199 23.94 14,364 11.83 27,258 28.24 29,184 14.66 15,452 172,843 1,399,515 1,849,519 1,498,882 1,299,186 7,456,365 1,149,743 7,391,030 22,044,240 49,726 (Continued)

129 -

Name Amount 6. Asset swap contract Highwealth 5 4,208 100 Taiwan Mobile 3 1,012 100 Shanyuan 2 1,532 100 Shin Kong Financial Holding 5 1,345 100 China Airlines 6 4,725 100 Yang Ming Marine Transport 5 2,140 100 Others (Note) 4,152 100 7. Cross-currency option contracts Note 8 - 8. Interest structured instrument contracts - 9. PEM group policy assets -	$ 420,800 101,200 153,200 134,500 472,500 214,000 415,200 1,911,400 - - 998,147 $ 25,781,959	Cost $ 420,800 101,200 153,200 134,500 472,500 214,000 415,200 1,911,400 42,393 - 998,147 $ 25,912,542	FairValue
			Unit Price (NT$) Total Amount 105.80 $ 420,963 103.05 101,372 103.50 152,297 100.95 134,505 101.60 472,768 101.55 214,144 415,624 1,911,673 78,217 11 998,147 $ 26,136,939

Note: The amount of each item in others does not exceed 5% of the account balance.

(Concluded)

130 -

STATEMENT 3

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF SECURITIES PURCHASED UNDER RESELL AGREEMENTS DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Type Period Carrying Value Commercial paper 2018.12.10-2019.01.14$ 9,105,000	Amount Interest $ 9,094,151 0.54%-0.65%

131 -

STATEMENT 4

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF RECEIVABLE, NET DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Accounts receivable factored without recourse Receivables on credit cards Acceptances Interest receivables Receivables on foreign currency settlement Receivables on attorney fees of advances Receivables on sale of securities Others receivables Less: Allowance for doubtful accounts	Amount $ 133,277 748,384 836,196 1,294,953 1,909,476 32,027 119,576 105,637 5,179,526 (151,385) $ 5,028,141

132 -

STATEMENT 5

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF NOTES DISCOUNTED AND LOANS, NET DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Bills negotiated Overdrafts Secured overdrafts Account receivable financing Short-term unsecured loans Short-term secured loans Medium-term unsecured loans Medium-term secured loans Long-term unsecured loans Long-term secured loans Delinquent loans Add: Adjustment of premium or discount Less: Allowance for doubtful accounts	Amount $ 475,822 1,061 10,031 80,862 43,046,052 103,198,900 49,659,266 109,958,945 4,499,987 145,623,202 1,662,082 458,216,210 44,071 (6,531,703) $ 451,728,578

133 -

STATEMENT 6

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Name Description Interest Payment Date Due Date Units/Shares (In Thousands) Domestic unlisted shares Taiwan Stock Exchange Corporation 1,593 Financial Information Service Co., Ltd 5,938 Taiwan Incubator SME Development Co 3,417 Taiwan Futures Exchange 1,503 Taiwan Depository & Clearing Corporation 581 Others (Note) 5,011 - Corporate bonds P05 YFH 1C Par Value 5,000,000 2019/05/27 2023/05/27 5,000 P05 CST 1 Par Value 1,500,000 2019/09/26 2020/09/26 1,500 Others (Note) Government bonds 101 Central government bond A7 Par Value 700,000 2018/08/10 2032/08/10 700 103 Central government A11 Par Value 800,000 2018/07/31 2034/07/31 800 Central government bond 95-7 Par Value 2,300,000 2018/11/10 2026/11/10 2,300 99 Central government bond A7 Par Value 500,000 2018/08/12 2030/08/12 500 Central government bond 97-5 Par Value 300,000 2018/08/14 2028/08/14 300 105 Central government A13 Par Value 500,000 2018/10/25 2021/10/25 500 Others (Note) Foreign listed shares Visa International 29 Master Card International 14 Foreigm bonds HSBC HOLDINGS PLC - HSBC HOLDINGS PLC - WELLS FARGO & COMPANY - JPMORGAN CHASE & CO - JPMORGAN CHASE & CO - -	Amount Interest % Carrying Value Accumulated Impairment Loss Allowance for Doubtful Accounts $ - $ 111,770 $ - $ - - 192,775 - - - 42,246 - - - 115,465 - - - 43,519 - - - 4,748 - - - 510,523 - - 5,000,000 1.00 5,000,000 - 12,156 1,500,000 0.71 1,500,000 - (4,946) 14,025,000 14,110,243 - 112,982 $ 20,525,000 20,610,243 - 120,192 700,000 1.50 723,583 - 19,340 800,000 2.13 898,492 - 7,341 2,300,000 2.13 2,510,339 - (28,286) 500,000 1.75 536,362 - 3,411 300,000 2.63 345,725 - 872 500,000 0.63 498,346 - 2,001 450,000 457,689 - 1,144 $ 5,550,000 5,970,536 - 5,823 19,003 - 96,910 12,944 - 65,921 31,947 - 162,831 245,680 253,820 - (6,047) 122,840 121,569 - (2,595) 122,840 121,071 - (2,505) 92,130 92,871 - (1,667) 214,970 214,192 - (5,309) 798,460 803,523 - (18,123) $ 27,926,772 $ - $ 270,723	Fair Value $ 111,770 192,775 42,246 115,465 43,519 4,748 510,523 5,012,156 1,495,054 14,223,225 20,730,435 742,923 905,833 2,482,053 539,773 346,597 500,347 458,833 5,976,359 115,913 78,865 194,778 247,773 118,974 118,566 91,204 208,883 785,400 $ 28,197,495

Note: The amount of each item in others does not exceed 5% of the account balance.

134 -

STATEMENT 7

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF INVESTMENT IN DEBT INSTRUMENTS AT AMORTIZED COST

DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Type Description Interest Payment Date Maturity Date 1. Government bonds 101 Central government bond A5 Guaranteed par value $24,500 Thousand 2019/03/07 2022/03/07 90 Central government bond B1 Guaranteed par value $500,000 Thousand 2019/09/11 2021/09/11 89 Central government bond A7 2019/01/18 2020/01/18 103 Central government bond A6 2019/03/03 2024/03/03 106 Central government bond A4 2019/03/01 2027/03/01 99 Central government bond A4 2019/02/22 2030/02/22 106 Central government bond A9 2019/09/20 2027/09/20 Others (Note) Less: Deposit reserves for trust compensation Refundable deposits 2. Foreign bonds (Note) 3. Credit certificate 4. Commercial paper NCDs 5. Corporate bonds P07 FENC 1 P07 Pegatron 1B P06 YL 1A P07 DSC 2 Others (Note)	Carrying Value (NT$) Interest % $ 700,000 1.250 1,000,000 4.000 1,000,000 6.250 1,000,000 1.500 1,200,000 1.125 1,050,000 1.875 1,650,000 1.000 5,020,000 0.625-5.875 (60,000) (785,000) 11,775,000 21,305,890 2.000-8.375 9,511 55,500,000 0.200-0.700 800,000 600,000 600,000 600,000 8,800,000 11,400,000 $ 99,990,401	Allowance For Doubtful Accounts $ (201) (308) (303) (293) (346) (326) (472) (1,511) - - (3,760) (71,928) (9,511) - (842) (478) (930) (631) (17,049) (19,930) $ (105,129)	Unamortized Price $ 3,340 74,886 56,408 21,584 8,458 87,788 (3,570) 254,709 - - 503,603 55,403 - - - - 29 - 18,454 18,483 $ 577,489	Fair Value $ 703,139 1,074,578 1,056,105 1,021,291 1,208,112 1,137,462 1,645,958 5,273,198 (60,000) (785,000) 12,274,843 21,289,365 - 55,500,000 799,158 599,522 599,099 599,369 8,801,405 11,398,553 $ 100,462,761

Note: The amount of each item in others does not exceed 5% of the account balance.

135 -

STATEMENT 8

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Investees Taichung Bank Insurance Brokers Co. (Note 1) Reliance Securities Investment Trust Co., Ltd. (Note 2) Taichung Bank Leasing Corporation Limited (Note 3) Taichung Bank Securities Co., Ltd. (Note 4)	Balance, January 1, 2018 Shares (In Thousands) Amount 105,600 $ 1,432,236 12,000 128,113 185,000 1,790,773 150,000 1,383,985 $ 4,735,107	Additions in Investment Shares (In Thousands) Amount 23,000 $ 397,109 - 32,609 - 81,821 - 219 $ 511,758	Decrease in Investment Shares (In Thousands) Amount - $ (866) - (7,299) - (13,638) - (361) $ (22,164)	Balance, December 31,	2018 Market Value or Net Assets Amount Value $ 1,828,479 $ 1,828,479 153,423 153,423 1,858,956 1,858,956 1,383,843 1,383,843 $ 5,224,701 $ 5,224,701
	Shares (In Thousands) 105,600 12,000 185,000 150,000	Shares (In Thousands) 23,000 - - -	Shares (In Thousands) - - - -	Shares (In Thousands) % 128,600 100.00 12,000 38.46 185,000 100.00 150,000 100.00

Note 1: The increase in the current year is based on investment income recognized under equity method of $360,419 thousand, the shares of dividends in the current year are 23,000 shares and the recognition of unrealized gains on financial instruments amounted to $36,690 thousand. The current decrease is reduced by $866 thousand of cash dividends. The net assets value was calculated based on financial statements which have been audited.
Note 2: The increase in the current year is based on the adjustment under IFRS 9 of $32,430 thousand and the defined benefit plans recognized under equity method of $179 thousand. The current decrease is recognized as investment loss of $6,716 thousand and the recognition of unrealized loss on financial instruments amounted to $583 thousand. The net assets value was calculated based on financial statements which have been audited.
Note 3: The increase in the current year is based on investment income recognized under equity method of $81,821 thousand, the current decrease is reduced by $13,638 thousand of cumulative translation adjustment. The net assets value was calculated based on financial statements which have been audited.
Note 4: The increase in the current year is based on investment income recognized under equity method of $219 thousand, the current decrease is reduced by $361 thousand of the adjustment under IFRS 9. The net assets value was calculated based on financial statements which have been audited.
136 -

STATEMENT 9

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF OTHER FINANCIAL ASSETS DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Other delinquent receivables, net Delinquent receivables not arising from loans Less: Allowance for doubtful accounts	Amount $ 5,343 (4,232) $ 1,111

Note: The amount of each item in others does not exceed 5% of the account balance.

137 -

STATEMENT 10

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Item Description (Note) Shares Carrying Value Total Amount Rate Financial liability held for trading Cross-currency swap contracts Note 8 - - $ - - Foreign exchange forward contracts Note 8 - - - - Cross-currency option contracts Note 8 - - - - Interest structured instrument contracts - - - -	Cost $ - - 52,888 - $ 52,888	FairValue
		Unit Price (NT$) Total Amount $ - $ 55,386 - 27,744 - 78,986 - 11 $ 162,127

Note: The amount of each item in others does not exceed 5% of the account balance.

138 -

STATEMENT 11

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF SECURITIES SOLD UNDER REPURCHASE AGREEMENTS DECEMBER 31, 2018

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

Trading Product Name Trading Period Carrying Value Government bonds A06109 2018.12.10-2019.01.09 $ 500,000 Others (Note) 700,000 Foreign bonds UBO TPE 2018.10.19-2019.01.08 US$ 19,000 UBO TPE 2018.10.17-2019.01.17 US$ 19,000 UBO TPE 2018.10.23-2019.02.22 US$ 21,000 J.P. Morgan HK 2018.11.09-2019.02.11 US$ 30,000 Others (Note) US$ 225,000	Amount Rate $ 500,036 0.52% 700,000 0.42%-0.45% 1,200,036 532,143 2.69% 555,979 2.69% 593,059 2.81% 775,882 2.85% 6,247,368 2.69%-2.90% 8,704,431 $ 9,904,467

Note: The amount of each item in others does not exceed 5% of the account balance.

139 -

STATEMENT 12

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF ACCOUNTS PAYABLES DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Notes and checks in clearing Foreign currency settlement payable Acceptances Interest payable Accrued expenses Factored accounts payable Collections payable Securities settlement payable Other payables	Amount $ 5,715,928 1,912,669 845,279 532,536 1,361,270 33,552 25,981 438,763 476,886 $ 11,342,864

Note: The amount of individual client included in others does not exceed 5% of the account balance.

140 -

STATEMENT 13

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF DEPOSITS AND REMITTANCES DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Item Checking deposits Checking Bank checking Certified check Demand deposits Demand Public treasury Foreign exchange demand Demand savings deposits Demand savings Staff demand savings Time deposits Time Foreign exchange time Time savings deposits Withdrawals of interest savings Round - amount savings Regular deposits Remittances	Amount $ 7,969,294 1,688,430 108,349
	9,766,073
	110,000,512 308,922 19,816,299
	130,125,733
	123,693,127 2,496,616
	126,189,743
	132,116,187 33,161,902
	165,278,089
	145,479,884 12,196,776 178,466
	157,855,126
	28,125
	$ 589,242,889

141 -

STATEMENT 14

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF BANK DEBENTURES DECEMBER 31, 2018

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

Bonds Name First subordinated financial debenture on 2012 First subordinated financial debenture on 2013 Second subordinated financial debenture on 2013 First no due date non-cumulative subordinated financial debenture on 2015 First no due date non-cumulative subordinated financial debenture on 2016 First no due date non-cumulative subordinated financial debenture on 2017 Second no due date non-cumulative subordinated financial debenture on 2017 Third no due date non-cumulative subordinated financial debenture on 2017 Fourth no due date non-cumulative subordinated financial debenture on 2017 Fifth no due date non-cumulative subordinated financial debenture on 2017 First no due date non-cumulative subordinated financial debenture on 2018 Second no due date non-cumulative subordinated financial debenture on 2018	Detailof the Subordinated Financial Debenture Issuance Issuance Date Maturity Date Interest Rate 2012.11.13 2019.11.13 Fixed interest rate, 2.1% 2013.06.25 2020.06.25 Fixed interest rate, 2.1% 2013.12.16 2019.12.16 Fixed interest rate, 2.1% 2015.12.28 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2016.12.28 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2017.03.28 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2017.05.18 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2017.08.28 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2017.12.05 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2017.12.27 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2018.04.25 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08% 2018.12.18 No due date According to the one-year time savings deposit interest rate of Chunghwa Post Co., Ltd., plus 3.08%	Bonds Category Carrying Value Subordinated 1,000 Subordinated 500 Subordinated 500 Subordinated 10,000 Subordinated 10,000 Subordinated 10,000 Subordinated 10,000 Subordinated 10,000 Subordinated 10,000 Subordinated 10,000 Subordinated 10,000 Subordinated 10,000	Book Value $ 3,000,000 2,500,000 3,000,000 1,500,000 1,500,000 1,000,000 500,000 500,000 1,350,000 2,650,000 1,000,000 1,500,000 $ 20,000,000

142 -

STATEMENT 15

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENT OF EMPLOYEE BENEFITS EXPENSE DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Employee benefits expense Salaries Labor and health insurance Pension expense Remuneration of directors and supervisors Other employee expenses	Employee Benefit Expense $ 2,778,605 171,768 106,783 101,025 185,698 $ 3,343,879	Non-interest Gains Other Selling and Administrative Expenses $ - $ - - - - - - - - - $ - $ -	Total Remark $ 2,778,605 171,768 106,783 101,025 185,698 $ 3,343,879

Note 1: As of December 31, 2018 and 2017, the Bank had 2,358 and 2,240 employees, respectively. And there were 10 and 11 non-employee directors, respectively.
Note 2: The average employee benefits expense amounted to $1,381 thousand in current year.
Note 3: The average employee salaries amounted to $1,183 thousand in current year.
143 -

AI assistant

T.C.C.B. — Annual Report 2018

52197_rns_2018-11-13_fb8fd502-e2cb-4612-8cc9-a7632fdd928f.pdf

Taichung Commercial Bank Co., Ltd.

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Emphasis of Matter

Key Audit Matters

Expected Credit Losses of Notes Discounted and Loans, Net

Interest Revenue Recognition on Notes Discounted and Loans

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

Auditors’ Responsibilities for the Audit of the Parent Company Only Financial Statements

Notice to Readers

TAICHUNG COMMERCIAL BANK CO., LTD.

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

TAICHUNG COMMERCIAL BANK CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

TAICHUNG COMMERCIAL BANK CO., LTD.

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

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

Classification, measurement and impairment of financial assets

Definition of a lease

The Bank as lessee

The Bank as lessor

Anticipated impact on assets, liabilities and equity

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

d. Foreign currencies

f. Investments in subsidiaries

2018

2017

i. Financial assets at FVTPL

ii. Held-to-maturity investments

iii. Available-for-sale financial assets

iv. Loans and receivables

b) Impairment of financial assets and contract assets

2018

2) Equity instruments

3) Financial liabilities

a) Subsequent measurement

i. Financial liabilities at FVTPL

ii. Financial guarantee contracts

4) Derivative financial instruments

m. Provisions

n. Revenue recognition

1) Interest income

p. Employee benefits

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

a. Business model assessment for financial assets - 2018

6. CASH AND CASH EQUIVALENTS

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

8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

9. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

10. INVESTMENTS IN DEBT INSTRUMENTS AT AMORTIZED COST

11. SECURITIES PURCHASED UNDER RESELL AGREEMENTS

12. RECEIVABLES, NET

13. NOTES DISCOUNTED AND LOANS, NET

14. AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET - 2017

15. HELD-TO-MATURITY FINANCIAL ASSETS, NET - 2017

16. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

17. OTHER FINANCIAL ASSETS, NET

18. PROPERTIES AND EQUIPMENT, NET

19. INVESTMENT PROPERTIES, NET

20. INTANGIBLE ASSETS, NET

21. OTHER ASSETS, NET

22. DUE TO THE CENTRAL BANK AND OTHER BANKS

23. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

24. PAYABLES

T.C.C.B. Annual Report 2018