T.C.C.B. — Annual Report 2019

Nov 13, 2019

Taichung Commercial Bank Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

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

Opinion

We have audited the accompanying consolidated financial statements of Taichung Commercial Bank Co., Ltd. (the “Bank”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into by the Financial Supervisory Commission (FSC) of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements 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 Consolidated Financial Statements section of our report. We are independent of the Group 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.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2019. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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The following were the descriptions of the key audit matters in the audit of the consolidated financial statements of the Group for the year ended December 31, 2019:

Expected Credit Losses of Notes Discounted and Loans, Net

As described in Notes 13 and 32 to the consolidated financial statements, notes discounted and loans amounted to $435,398,334 thousand which accounted for 64% of total assets at December 31, 2019 and the expected credit losses of the notes discounted and loans amounted to $509,127 thousand which accounted for 4% of total net revenue for the year ended December 31, 2019. Due to the large amount, such accounts have a significant effect on the consolidated financial statements of the Group. As discussed in Note 5 to the consolidated financial statements, the measurement of expected credit losses of notes discounted and loans involved various financial factors, such as probability of default and loss given default, which required compliance with relevant laws and regulations. Therefore, the expected credit loss of notes discounted and loans was identified as a key audit matter.

The relevant accounting policies, estimates, assumptions and other information are referred to in Notes 4, 5, 13 and 32 to the consolidated financial statements.

The main 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 the Group.

• We selected samples from schedule of expected credit losses of notes discounted and loans assessed by the Group, and evaluated the value of collateral and feasibility of the expected credit losses.

• We understood and tested the key parameters (such as probability of default and loss given default) for the expected credit losses of notes discounted and loans assessed by the Group to evaluate the reasonableness of expected credit losses in accordance with the current experience and economic situation in the Republic of China.

• We checked the Group’s compliance with relevant regulations issued by authorities on assessment of the expected credit losses.

Other Matter

We have also audited the parent company only financial statements of the Bank as of and for the years ended December 31, 2019 and 2018 on which we have issued an unmodified opinion.

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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In preparing the consolidated financial statements, management is responsible for assessing the Group’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 Group 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 Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated 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:

1. Identify and assess the risks of material misstatement of the consolidated 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.

2. 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 Group’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. 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 Group’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 consolidated 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 Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

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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 consolidated financial statements for the year ended December 31, 2019 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 February 25, 2020

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated 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 consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated 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 consolidated financial statements shall prevail.

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

ASSETS CASH AND CASH EQUIVALENTS (Notes 4 and 6) DUE FROM THE CENTRAL BANK AND CALL LOANS TO OTHER BANKS (Notes 4, 7 and 36) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4 and 8) FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (Notes 4 and 9) INVESTMENTS IN DEBT INSTRUMENTS AT AMORTIZED COST (Notes 4 and 10) SECURITIES PURCHASED UNDER RESELL AGREEMENTS (Notes 4 and 11) RECEIVABLES, NET (Notes 4, 5, 12 and 36) CURRENT TAX ASSETS (Notes 4 and 33) NOTES DISCOUNTED AND LOANS, NET (Notes 4, 13 and 35) INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD, NET (Notes 4 and 14) RESTRICTED ASSETS, NET (Notes 4, 15 and 36) OTHER FINANCIAL ASSETS, NET (Notes 4 and 16) PROPERTIES AND EQUIPMENT, NET (Notes 4 and 17) RIGHT-OF-USE ASSETS, NET (Notes 3, 4 and 18) INVESTMENT PROPERTIES, NET (Notes 4 and 19) INTANGIBLE ASSETS, NET (Notes 4 and 20) DEFERRED TAX ASSETS (Notes 4 and 33) OTHER ASSETS (Notes 4, 21 and 36) TOTAL LIABILITIES AND EQUITY DUE TO THE CENTRAL BANK AND OTHER BANKS (Note 22) FUNDS BORROWED FROM CENTRAL BANK AND OTHER BANKS (Notes 23 and 36) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4 and 8) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS (Notes 4 and 24) PAYABLES (Notes 25 and 35) CURRENT TAX LIABILITIES (Notes 4 and 33) DEPOSITS AND REMITTANCES (Notes 26 and 35) BANK DEBENTURES (Notes 27 and 35) OTHER FINANCIAL LIABILITIES (Note 28) PROVISIONS (Notes 4 and 29) LEASE LIABILITIES (Notes 3, 4 and 18) DEFERRED TAX LIABILITIES (Notes 4 and 33) OTHER LIABILITIES (Note 30) Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE BANK (Note 31) Ordinary shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Other equity Total equity attributable to owners of the Bank Total equity TOTAL		2019 Amount % $ 11,359,548 2 33,876,974 5 24,375,536 4 31,599,331 5 108,124,373 16 10,256,716 1 12,819,623 2 3,279 - 435,398,334 64 156,788 - 419,393 - 2,246 - 10,683,621 1 880,406 - 18,103 - 153,125 - 807,040 - 1,754,486 - $ 682,688,922 100 $ 6,527,060 1 6,092,040 1 233,803 - 10,369,025 2 5,988,117 1 385,113 - 583,321,957 85 14,000,000 2 1,174,083 - 1,383,470 - 895,285 - 111,021 - 898,742 - 631,379,716 92 37,088,349 6 726,981 - 8,188,237 1 150,243 - 4,302,204 1 853,192 - 51,309,206 8 51,309,206 8 $ 682,688,922 100		2018
				Amount % $ 15,874,631 2 31,768,897 5 26,336,500 4 28,933,152 4 100,462,761 15 9,294,168 1 12,780,910 2 35 - 452,594,552 66 153,423 - 447,036 - 1,111 - 9,446,769 1 - - 108,950 - 163,172 - 781,879 - 1,684,157 - $ 690,832,103 100 $ 3,378,752 1 5,495,519 1 165,360 - 9,904,467 1 12,254,764 2 380,869 - 587,967,658 85 20,000,000 3 1,000,807 - 1,421,814 - - - 111,021 - 927,419 - 643,008,450 93 35,255,084 5 726,981 - 6,985,726 1 110,159 - 4,093,133 1 652,570 - 47,823,653 7 47,823,653 7 $ 690,832,103 100

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

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

INTEREST REVENUE (Notes 4, 32 and 35) INTEREST EXPENSE (Notes 32 and 35) NET INTEREST NET INCOME AND LOSS OTHER THAN INTEREST Service fee income, net (Notes 4, 32 and 35) Gains on financial assets and liabilities at fair value through profit or loss (Notes 4 and 32) Realized gains on financial assets at fair value through other comprehensive income (Notes 4 and 32) Foreign exchange gains, net (Note 4) Reversal of (impairment losses) on assets (Notes 4, 9, 10 and 32) Share of loss of associates for using the equity method (Notes 4 and 14) Net loss on disposal of property (Note 4) Other non-interest gains, net (Notes 29 and 32) TOTAL NET REVENUE BAD-DEBT EXPENSES AND PROVISION FOR LOSSES ON COMMITMENTS AND GUARANTEES (Notes 4, 12, 13, 29 and 32)		2019 Amount % $ 13,433,777 111 (5,083,247) (42) 8,350,530 69 2,913,315 24 463,584 4 51,834 - 238,528 2 6,451 - (3,002) - (325) - 74,713 1 12,095,628 100 (615,474) (5)		2018 Amount % $ 13,060,733 112 (4,626,523) (40) 8,434,210 72 2,846,174 24 117,134 1 77,048 1 232,895 2 (17,488) - (6,716) - (2,437) - 8,604 - 11,689,424 100 (472,772) (4)	Percentage Increase (Decrease)
					% 3 10 (1) 2 296 (33) 2 137 (55) (87) 768 3 30 (Continued)

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING EXPENSES Employee benefits expenses (Notes 4, 29 and 32) Depreciation and amortization expenses (Notes 4 and 32) Other selling and administrative expenses (Notes 32 and 35) Total operating expenses PROFIT BEFORE INCOME TAX FROM CONTINUING OPERATIONS INCOME TAX EXPENSE (Notes 4 and 33) 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 29) Unrealized gains on investments in equity instruments at fair value through other comprehensive income (Note 4) Share of the other comprehensive income (loss) of associates accounted for using the equity method Income tax relating to items that will not be reclassified subsequently to profit or loss (Notes 4 and 33) Items that will not be reclassified subsequently to profit or loss, net of income tax		2019 Amount % $ (3,833,009) (32) (480,979) (4) (1,959,181) (16) (6,273,169) (52) 5,206,985 43 (887,102) (7) 4,319,883 36 (147,657) (1) 293,320 2 6,367 - 11,805 - 163,835 1		2018 Amount % $ (3,723,758) (32) (273,401) (2) (2,459,610) (21) (6,456,769) (55) 4,759,883 41 (751,514) (6) 4,008,369 35 (69,552) (1) 87,452 1 (404) - 29,425 - 46,921 -	Percentage Increase (Decrease)
					% 3 76 (20) (3) 9 18 8 112 235 1,676 (60) 249 (Continued)

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (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 gain (loss) 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 33) 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 34) Basic Diluted		2019 Amount % $ (57,989) - 50,117 - (3,151) - (11,023) - 152,812 1 $ 4,472,695 37 $1.16 $1.16		2018 Amount % $ 180 - (13,948) - - - (13,768) - 33,153 - $ 4,041,522 35 $1.12 $1.12	Percentage Increase (Decrease)	Percentage Increase (Decrease)
						% (32,316) 459 - (20) 361 11

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

(Concluded)

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

Ordinary Shares Capital Surplus BALANCE AT JANUARY 1, 2018 $ 32,931,789 $ 684,156 Effect of retrospective application and retrospective restatement - - 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 Appropriation of 2018 earnings Legal reserve - - Special reserve - - Cash dividends - - Share dividends 1,833,265 - Net profit for the year ended December 31, 2019 - - Other comprehensive (loss) income for the year ended December 31, 2019, net of income tax - - Total comprehensive income (loss) for the year ended December 31, 2019 - - Disposals of investments in equity instruments designated as at fair value through other comprehensive income - - BALANCE AT DECEMBER 31, 2019 $ 37,088,349 $ 726,981	Retained Earnings Unappropriated Legal Reserve Special Reserve Earnings $ 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 1,202,511 - (1,202,511) - 40,084 (40,084) - - (987,142) - - (1,833,265) - - 4,319,883 - - (117,889) - - 4,201,994 - - 70,079 $ 8,188,237 $ 150,243 $ 4,302,204	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 $ (38,507) $ - $ 223,484 - 623,457 (223,484) (38,507) 623,457 - - - - - - - - - - - - - - - - 180 62,090 - 180 62,090 - - - - - - - - 5,350 - (38,327) 690,897 - - - - - - - - - - - - - - - - (57,989) 328,690 - (57,989) 328,690 - - (70,079) - $ (96,316) $ 949,508 $ -	Total Equity $ 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 - - (987,142) - 4,319,883 152,812 4,472,695 - $ 51,309,206

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

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expenses Amortization expenses Bad-debt expenses and provision for losses on commitments and guarantees Gains on financial assets and liabilities at fair value through profit or loss Losses on disposal of properties and equipment Interest expense Interest revenue Dividend income Provision for losses on others Compensation costs of employee share options Share of loss of associates Gains on disposal of investments in debt instruments at fair value through other comprehensive income (Reversal of) impairment losses on financial assets Unrealized loss (gain) on foreign currency exchange Gain on lease suspension 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	2019 $ 5,206,985 429,038 51,941 615,474 (463,584) 325 5,083,247 (13,433,777) (44,228) (12,000) - 3,002 (7,606) (6,451) 531,607 (1,130) (7,254,142) 132,740 3,272,451 (214,100) 16,703,241 837 (23,899) 3,148,308 (779,460) 464,558 (6,177,109) (4,645,701) (2,127) (158,109) (42,306) 11,679,324 9,632,167 13,791,954 44,228 (5,172,785) (902,609) 17,392,955	2018 $ 4,759,883 220,234 53,167 472,772 (117,134) 2,437 4,626,523 (13,060,733) (50,261) (2,437) 12,825 6,716 (26,787) 17,488 (429,099) - (8,274,289) (746,918) 6,738,946 1,079,969 (22,250,976) 38,085 (214,693) (6,140,120) (889,768) 5,596,657 (1,190,405) 21,872,878 (41,307) (45,369) 34,502 3,841,481 327,075 13,120,974 50,261 (4,513,076) (691,596) 8,293,638 (Continued)

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at fair value through other comprehensive income 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 Payments for properties and equipment Proceeds from disposal of properties and equipment (Increase) decrease in refundable deposits Payments for intangible assets Payments for investment properties Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from funds borrowed from central bank and other banks Proceeds from (repayments of ) commercial papers issued Proceeds from issue of bank debentures Repayments of issue of bank debentures Proceeds from guarantee deposits received Repayments of principal portion of lease liabilities Cash dividends distributed Proceeds from issuance of ordinary shares Net cash (used in) 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	2019 $ (7,224,112) 4,817,690 (753,231,971) - 744,915,247 (1,443,289) 1,691 (25,894) (41,350) (15,000) (12,246,988) 596,521 175,403 - (6,000,000) 13,629 (198,107) (987,142) - (6,399,696) (57,989) (1,311,718) 39,653,064 $ 38,341,346	2018 $ (276,021) 4,297,417 (761,952,805) 45,650 746,586,250 (282,743) 1,930 117,963 (56,112) (63,790) (11,582,261) 374,579 (15,752) 2,500,000 - 166,548 - (1,481,931) 1,530,000 3,073,444 180 (214,999) 39,868,063 $ 39,653,064 (Continued)

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TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

December 31 2019 2018 RECONCILIATIONS OF THE AMOUNTS IN THE CONSOLIDATED STATEMENTS OF CASH FLOWS WITH THE EQUIVALENT ITEMS REPORTED IN THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2019 AND 2018 Cash and cash equivalents in the consolidated balance sheets $ 11,359,548 $ 15,874,631 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” 16,725,082 14,484,265 Securities purchased under resell agreements in accordance with cash and cash equivalents under IAS 7 “Statement of Cash Flows” 10,256,716 9,294,168 Cash and cash equivalents at the end of the year $ 38,341,346 $ 39,653,064 The accompanying notes are an integral part of the consolidated financial statements. (Concluded)		**December 31 **	**December 31 **
			2018 $ 15,874,631 14,484,265 9,294,168 $ 39,653,064 (Concluded)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

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 shares were listed on May 15, 1984.

In line with the national financial policy to provide public and 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, 2019, the Bank had a business department, a trust department, a foreign exchange transaction department, 81 domestic branches, a Malaysia 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 establishment, the amount of capital invested by the Bank 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, 2019, the Bank’s capital amount was $37,088,349 thousand.

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

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Bank’s board of directors on February 25, 2020.

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, Regulations Governing the Preparation of Financial Reports by Securities firms 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, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities firms and the IFRSs endorsed and issued into effect by the FSC did not have any material impact on the Group’s accounting policies:

 IFRS 16 “Leases”

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessee and lessor. It supersedes IAS 17 “Leases”,

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IFRIC 4 “Determining whether an Arrangement contains a Lease”, and a number of related interpretations. Refer to Note 4 for information relating to the relevant accounting policies.

Definition of a lease

The Group elects to apply the guidance of IFRS 16 in determining whether contracts are, or contain a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 are not reassessed and are accounted for in accordance with the transitional provisions under IFRS 16.

The Group as lessee

The Group recognizes right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value asset and short-term leases are recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group presents 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 consolidated statements of cash flows, cash payments for the principal portion of lease liabilities are classified within financing activities; cash payments for the interest portion are classified within financing activities. Prior to the application of IFRS 16, payments under operating lease contracts were recognized as expenses on a straight-line basis. Cash flows for operating leases were classified within operating activities on the consolidated statements of cash flows. Leased assets and finance lease payables were recognized on the consolidated balance sheets for contracts classified as finance leases.

The Group elected to apply IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized in retained earnings on January 1, 2019. Comparative information was not restated.

Lease liabilities were recognized on January 1, 2019 for leases previously classified as operating leases under IAS 17. Lease liabilities were 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 are measured at an amount equal to the lease liabilities. The Group applies IAS 36 to all right-of-use assets.

The Group also applies the following practical expedients:

• 1) The Group applies a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.

• 2) The Group accounts for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.

• 3) The Group excludes initial direct costs from the measurement of right-of-use assets on January 1, 2019.

• 4) The Group uses hindsight, such as in determining lease terms, to measure lease liabilities.

• 14 -

The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 was 3.36%. The difference between the (i) lease liabilities recognized and (ii) operating lease commitments disclosed under IAS 17 on December 31, 2018 is explained as follows:

The future minimum lease payments of non-cancellable operating lease commitments on December 31, 2018 Less: Recognition exemption for short-term leases Less: Recognition exemption for leases of low-value assets Undiscounted amounts on January 1, 2019 Discounted amounts using the incremental borrowing rate on January 1, 2019 Add: Adjustments as a result of a different treatment of extension and termination options Lease liabilities recognized on January 1, 2019

$ 474,529 (4,486) (7,930) $ 462,113 $ 444,989 594,877 $ 1,039,866

The Group as lessor

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

The impact on assets, liabilities and equity as January 1, 2019 from the initial application of IFRS 16 is set out as follows:

				Adjustments
	As Originally			Arising from
		Stated on		Initial	Restated on
	January 1, 2019			Application	January 1, 2019
Right-of-use assets	$		-	$ 1,039,866	$ 1,039,866
Total effect on assets	$		-	$ 1,039,866	$ 1,039,866
Lease liabilities	$		-	$ 1,039,866	$ 1,039,866
Total effect on liabilities	$		-	$ 1,039,866	$ 1,039,866

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

• b. The IFRSs endorsed by the FSC for application starting from 2020

New IFRSs Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform” Amendments to IAS 1 and IAS 8 “Definition of Material”	Effective Date Announced by IASB
	January 1, 2020 (Note 1) January 1, 2020 (Note 2) January 1, 2020 (Note 3)

• Note 1: The Group 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.

• 15 -

• Note 2: The Group shall apply these amendments retrospectively for annual reporting periods beginning on or after January 1, 2020.

• Note 3: The Group shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.

• Amendments to IFRS 3 “Definition of a Business”

The amendments clarify that, to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process applied to the input that together significantly contribute to the ability to create outputs. The amendments narrow the definitions of outputs by focusing on goods and services provided to customers, and the reference to an ability to reduce costs is removed. Moreover, the amendments remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. In addition, the amendments introduce an optional concentration test that permits a simplified assessment of whether or not an acquired set of activities and assets is a business.

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

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

Effective Date New IFRSs Announced by IASB (Note) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined by IASB between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 “Classification of Liabilities as Current or January 1, 2022 Non-current”

Note: Unless stated otherwise, the above New IFRSs are effective for annual reporting periods beginning on or after their respective effective dates.

As of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of above standards and interpretations will have on the Group’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 consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms and IFRSs as endorsed and issued into effect by the FSC.

• 16 -

b. Basis of preparation

The consolidated 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 Group’s consolidated financial statements are not classified as current or non-current but are stated in the order of their liquidity. Refer to Note 39 for the maturity analysis of assets and liabilities.

• d. Basis of consolidation

• 1) Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Bank and the entities controlled by the Bank (i.e. its subsidiaries).

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.

• 2) Subsidiaries included in the consolidated financial statements

The main part of the consolidated financial statements was as follows:

Main business and Investment Company Subsidiary Products Taichung Commercial Taichung Bank Insurance Brokers Co. Insurance broker industry Bank Co., Ltd. Taichung Bank Leasing Corporation Limited Leasing business Taichung Commercial Bank Securities Co., Ltd. Securities industry Taichung Bank Leasing Corporation Limited TCCBL Co., Ltd. Financial leasing and investment business TCCBL Co., Ltd. Taichung Bank Financial Leasing (Suzhou) Co., Ltd. Financial leasing business	Percentage of Equity Held
	December 31
	2019 2018 100 100 100 100 100 100 100 100 100 100

• 3) Subsidiaries not included in the consolidated financial report: None.

• 17 -

e. Foreign currencies

In preparing the Group’s consolidated financial statements, transactions in currencies other than the Group’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 consolidated financial statements, the functional currencies of the Bank and the group entities are 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.

f. Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits, time deposits that can be readily terminated without the deduction of principal, and highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value. For the consolidated statements of cash flows, cash and cash equivalents include cash and cash equivalents on the consolidated balance sheets, due from the Central Bank and call loans to other banks and securities purchased under resell agreements that are in conformity with the definition of cash and cash equivalents in IAS 7 “Statement of Cash Flows”, as endorsed and issued into effect by the FSC.

• g. 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).

• h. Investments in associates

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

The Group 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 Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of the equity of associates attributable to the Group.

• 18 -

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 group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’s consolidated financial statements only to the extent that interests in the associate are not related to the Group.

• i. 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.

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.

• j. 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.

• k. 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.

• 19 -

• l. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group 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 Group 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 or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized on the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

m. Financial instruments

Financial assets and financial liabilities are recognized when the Group 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

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 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.

• 20 -

Financial assets at FVTPL are subsequently measured at fair value, and any dividends, interest earned and remeasurement gains or losses on such financial assets are recognized in gains on financial assets and liabilities at fair value through profit or loss. Fair value is determined in the manner described in Note 38.

• 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.

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.

A financial asset is credit impaired when one or more of the following events have occurred:

• i) Significant financial difficulty of the issuer or the borrower;

• ii) Breach of contract, such as a default;

• iii) It is becoming probable that the borrower will enter bankruptcy or undergo a financial reorganization; or

• iv) The disappearance of an active market for that financial asset because of financial difficulties.

• 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.

• 21 -

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 Group 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 Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

• b) Impairment of financial assets

The Group 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.

The Group always recognizes lifetime expected credit losses (ECLs) for notes discounted and loans, trade receivables and lease receivables. For all other financial instruments, the Group 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 Group 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.

For internal credit risk management purposes, the Group determines that the following situations indicate that a financial asset is in default (without taking into account any collateral held by the Group):

• i. Internal or external information show that the debtor is unlikely to pay its creditors.

• ii. When a financial asset is more than 90 days past due unless the Group has reasonable and corroborative information to support a more lagged default criterion.

• 22 -

According to the Regulations, the Group 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 Group 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.

• c) Derecognition of financial assets

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

On derecognition of a financial asset 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.

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 held for trading or designated as at FVTPL.

• 23 -

Financial liabilities at fair value through profit or loss are stated at fair value, and any dividends, interest earned and remeasurement gains or losses on such financial assets are recognized in gains on financial assets and liabilities at fair value through profit or loss. Fair value is determined in the manner described in Note 38.

• ii. Financial guarantee contracts

Financial guarantee contracts issued by the Group, 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.

• 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.

• 4) Derivative financial instruments

The Group 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, cross-currency swap contracts, cross-currency option contracts, interest structured instrument contracts, non-deliverable forward contracts and asset swap 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.

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.

• n. Provisions (excluding amounts in provision for employee benefits)

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.

• o. Revenue recognition

The Group identifies contracts with customers, allocates the transaction price to the performance obligations and recognizes revenue when performance obligations are satisfied.

• 24 -

1) Interest income

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

p. Leases

2019

At the inception of a contract, the Group assesses whether the contract is, or contains, a lease.

1) The Group as lessor

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.

Under finance leases, the lease payments comprise fixed payments, in-substance fixed payments, variable lease payments which depend on an index or a rate, residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating a lease if the lease term reflects such termination, less any lease incentives payable. The net investment in a lease is measured at (a) the present value of the sum of the lease payments receivable by a lessor and any unguaranteed residual value accrued to the lessor plus (b) initial direct costs and is presented as a finance lease receivable. Finance lease income is allocated to the relevant accounting periods so as to reflect a constant, periodic rate of return on the Group’s net investment outstanding in respect of leases.

Lease payments (less any lease incentives payable) from operating leases are recognized as income on a straight-line basis over the terms of the relevant leases. Initial direct costs incurred in obtaining operating leases are added to the carrying amounts of the underlying assets and recognized as expenses on a straight-line basis over the lease terms.

When a lease includes both land and building elements, the Bank assesses the classification of each element separately as a finance or an operating lease based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the lessee. The lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of a contract. If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with its lease classification. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases; in which case, the entire lease is classified as an operating lease.

• 25 -

2) The Group as lessee

The Group recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease incentives received. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented on a separate line in the Group’s consolidated financial statements.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments, in-substance fixed payments, variable lease payments which depend on an index or a rate. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses the lessee’s incremental borrowing rate.

Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Group remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line on the consolidated balance sheets.

Variable lease payments that do not depend on an index or a rate are recognized as expenses in the periods in which they are incurred.

2018

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 Group as lessor

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

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

• 2) The Group as lessee

Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included on the consolidated balance sheets as a finance lease obligation.

• 26 -

Finance expenses implicit in lease payments for each period are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets; in which case, they are capitalized.

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

• q. 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.

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 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 Group’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 Group 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.

• r. 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 on unappropriated earnings is provided for as income tax in the year the shareholders approve to retain earnings.

• 27 -

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 and unused loss carryforwards to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group 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 Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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 Group’s accounting policies, the Group’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.

• 28 -

Critical Accounting Judgments

Business model assessment for financial assets

The Group 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 Group 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 Group understands the reasons for its disposal and whether the reasons are consistent with the objective of the business for which the assets were held. Monitoring is part of the Group’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.

Key Sources of Estimation Uncertainty

Estimated impairment of financial assets

The provision for impairment of loans, notes discounted, trade receivables, investments in debt instruments, and financial guarantee contracts is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Group’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. For details of the key assumptions and inputs used, see Notes 38 and 39. 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
		2019 $ 4,553,235 1,007,649 5,798,664 $ 11,359,548	2018 $ 4,330,622 5,715,927 5,828,082 $ 15,874,631

• a. The loss allowance are measured at an amount equal to 12-month ECLs per historical experience and forward-looking information; there was no loss allowance on cash and cash equivalents as of December 31, 2019 and 2018.

• b. Reconciliations of cash and cash equivalents between the consolidated statements of cash flows and the consolidated balance sheets as of December 31, 2019 and 2018 are shown in the consolidated statements of cash flows.

• c. The amount of time deposits due from other banks as the operating deposit of Taichung Securities Co., Ltd. both amounted to $200,000 thousand on December 31, 2019 and 2018, which were transferred to the refundable deposits. Refer to Note 21.

• 29 -

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

Deposit reserves Deposit reserves for checking accounts Deposit reserves for demand accounts Inter-bank clearing account Deposit reserves for foreign currency deposits Due from banks Deposit reserves for trust compensation		December 31	December 31
		2019 $ 14,879,013 16,997,138 1,512,809 60,000 368,014 60,000 $ 33,876,974	2018 $ 12,624,827 17,001,032 1,798,018 61,420 223,600 60,000 $ 31,768,897

• a. The loss allowance are measured at an amount equal to 12-month ECLs per historical experience and forward-looking information; there was no loss allowance on due from the Central Bank and call loans to banks as of December 31, 2019 and 2018.

• b. 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 accounts can only be used for monthly deposit reserve adjustments.

• c. The Group deposited the reserves for trust compensation on government bonds measured at amortized cost on December 31, 2019 and 2018, with a nominal amount of $60,000 thousand. Refer to Note 36.

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 Corporate bonds Asset swap contracts Cross-currency swap contracts Foreign exchange forward contracts Cross-currency option contracts Non-deliverable forward contracts Interest structured instrument contracts		December 31	December 31
		2019 $ 20,074,138 724,544 1,029,839 360,119 89,816 1,812,530 71,394 82,809 125,545 4,802 - $ 24,375,536	2018 $ 22,044,240 974,680 998,147 172,843 57,899 1,911,673 29,105 49,726 98,176 11 $ 26,336,500 (Continued)

• 30 -

Financial liabilities at FVTPL Cross-currency swap contracts Foreign exchange forward contracts Cross-currency option contracts Non-deliverable forward contracts Interest structured instrument contracts		**December 31 **	**December 31 **
		2019 $ 88,092 27,168 113,590 4,953 - $ 233,803	2018 $ 55,386 30,977 78,986 11 $ 165,360 (Concluded)

• a. The Group 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, 2019 and 2018, the outstanding cross-currency swap contracts were as follows:

December 31

2019 Contract Amounts (In Thousands) Maturity Date Sell CNY 310,034 2020/01/13-2020/09/18 HKD 223,175 2020/05/26-2020/06/12 USD 20,152 2020/01/03-2020/12/10 GBP 4,500 2020/01/06 EUR 4,600 2020/01/06 NZD 3,000 2020/01/03 ZAR 206,055 2020/01/10-2020/03/10 TWD 335,433 2020/03/06-2020/09/11 Buy CNY 30,388 2020/02/11-2020/12/10 NZD 7,500 2020/01/03 ZAR 174,963 2020/01/03-2020/03/10 AUD 8,445 2020/01/06 CAD 3,376 2020/01/06-2020/05/26 USD 96,741 2020/01/03-2020/09/18 JPY 486,180 2020/01/06

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

• c. As of December 31, 2019 and 2018, the outstanding foreign exchange forward contracts were as follows (including non-deliverable forward contracts):

			Contract Amounts
			(In Thousands of
	Currency	Expiration Date	New Taiwan Dollars)
December 31, 2019
Sell forward exchange	USD/NTD	2020/01/02-2020/12/09	USD52,017/NTD1,587,474
Sell forward exchange	EUR/NTD	2020/01/03-2020/03/27	EUR1,840/NTD62,316
			(Continued)

• 31 -

Contract Amounts (In Thousands of Currency Expiration Date New Taiwan Dollars)

Sell forward exchange CNY/NTD 2020/02/10-2020/12/24 CNY5,370/NTD23,208 Sell forward exchange JPY/NTD 2020/01/09-2020/11/19 JPY198,000/NTD55,703 Sell forward exchange AUD/NTD 2020/04/23-2020/09/30 AUD1,550/NTD32,371 Sell forward exchange HKD/NTD 2020/02/14-2020/04/01 HKD2,731/NTD10,603 Buy forward exchange NTD/USD 2020/01/17-2020/06/11 NTD422,335/USD14,000 Buy forward exchange JPY/GBP 2020/01/15-2020/02/27 JPY829,400/GBP6,000 Buy forward exchange USD/CNY 2020/01/10-2020/04/14 USD29,850/CNY208,618 Buy forward exchange USD/EUR 2020/01/16-2020/07/02 USD13,386/EUR12,000 Buy forward exchange USD/GBP 2020/02/18-2020/07/02 USD11,786/GBP9,200 Buy forward exchange USD/NZD 2020/03/06 USD1,302/NZD2,000 Buy forward exchange CNY/USD 2020/01/10-2020/12/10 CNY55,696/USD7,904 Buy forward exchange EUR/USD 2020/01/17 EUR1,000/USD1,145 Buy forward exchange GBP/USD 2020/01/13-2020/03/27 GBP7,500/USD9,902 Buy forward exchange JPY/USD 2020/01/07-2020/04/17 JPY2,277,230/USD21,000 Buy forward exchange EUR/JPY 2020/03/09 EUR600/JPY72,444 Buy forward exchange USD/ZAR 2020/02/14-2020/03/19 USD9,000/ZAR133,478 Buy forward exchange USD/AUD 2020/03/30-2020/06/12 USD3,474/AUD5,000 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 2019/01/09-2019/12/25 CNY88,843/USD12,982 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 (Concluded)

• d. As of December 31, 2019 and 2018, the outstanding asset swap contracts of the Group amounted to $1,811,600 thousand and $1,911,400 thousand, respectively, with both interest rate ranges from 0.90% to 1.35%.

• e. As of December 31, 2019 and 2018, the outstanding cross-currency option contracts of the Group amounted to $12,375,872 thousand (US$412,529 thousand) and $6,617,168 thousand (US$215,473 thousand), respectively.

• f. As of December 31, 2018, the interest structured instrument contracts of the Group amounted to $14,889 thousand, with interest rate of 6.50%. As of December 31, 2019, all of the interest structured instrument contracts of the Group were matured.

• 32 -

9. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in equity instruments at FVTOCI Investments in debt instruments at FVTOCI		December 31	December 31
		2019 $ 1,598,987 30,000,344 $ 31,599,331	2018 $ 1,440,958 27,492,194 $ 28,933,152

a. Investments in equity instruments at FVTOCI

Domestic listed shares Domestic unlisted shares Foreign listed shares		December 31	December 31
		2019 $ 651,358 664,957 282,672 $ 1,598,987	2018 $ 735,657 510,523 194,778 $ 1,440,958

These investments in equity instruments are not 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 Group’s strategy of holding these investments for long-term purposes.

Dividends income of $44,228 thousand and $50,261 thousand were recognized in profit or loss for the years ended December 31, 2019 and 2018, respectively. Those were related to investments held at December 31, 2019 and 2018, respectively.

b. Investments in debt instruments at FVTOCI

Corporate bonds Government bonds Foreign bonds Bank debentures		December 31	December 31
		2019 $ 21,503,613 5,997,423 799,314 1,699,994 $ 30,000,344	2018 $ 20,730,435 5,976,359 785,400 - $ 27,492,194

• 1) The Group recognized gain on reversal of impairment loss of $113 thousand and $3,820 thousand in 2019 and 2018, respectively, after assessing the expected credit losses of the investments in debt instruments at FVTOCI.

• 2) Refer to Note 39 for information relating to their credit risk management and impairment.

• 33 -

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		December 31	December 31
		2019 $ 23,806,064 14,246,649 59,535,000 11,413,931 9,291 109,010,935 (41,662) (844,900) $ 108,124,373	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

• a. The foreign bonds denominated in foreign currencies were as follows:

USD CNY AUD ZAR	December 31
	2019 2018 $ 638,859 $ 571,613 550,000 510,000 61,000 61,000 450,000 70,000

• b. As of December 31, 2019 and 2018, the government bonds and the foreign bonds at amortized cost amounted to $2,000,000 thousand and $8,850,000 thousand (US$295,000 thousand), $1,200,000 thousand and $9,642,940 thousand (US$314,000 thousand), respectively, which had been sold under repurchase agreements. Refer to Note 40 for information relating to their carrying amount.

• c. The Group recognized gain on reversal of impairment loss of $6,338 thousand and the impairment loss of $21,308 thousand in 2019 and 2018, respectively, after assessing the expected credit losses of the investments in debt instruments at amortized cost.

• d. Refer to Note 39 for information relating to their credit risk management and impairment.

11. SECURITIES PURCHASED UNDER RESELL AGREEMENTS

Securities purchased amounted to $10,256,716 thousand and $9,294,168 thousand under repurchase agreements as of December 31, 2019 and 2018, would subsequently be sold for $10,258,145 thousand and $9,295,812 thousand, respectively, with interest rate ranges from 0.54% to 0.56% and 0.35% to 0.65%, respectively.

• 34 -

12. RECEIVABLES, NET

Notes receivable Receivables on credit cards Accounts receivable factored without recourse Acceptances Interest receivables Receivables on foreign currency settlement Lease receivables Assignment receivables Receivables on sale of securities Receivables on securities settlement Other receivables Less: Unrealized interest income Less: Allowance for doubtful accounts		December 31	December 31
		2019 $ 4,586,001 785,636 649,997 505,650 1,216,731 870,200 3,358,947 756,458 - 686,758 356,327 13,772,705 (658,785) (294,297) $ 12,819,623	2018 $ 3,801,182 748,384 133,277 836,196 1,317,322 1,909,476 2,645,781 1,286,128 119,576 475,828 311,742 13,584,892 (506,137) (297,845) $ 12,780,910

• a. Movements in the total carrying amount of receivables for the years ended December 31, 2019 and 2018 were as follows: 2019

	**12-month ECLs **	**12-month ECLs **		Lifetime ECL	Credit- impaired Financial Assets	Credit- impaired Financial Assets		Total
Balance at January 1, 2019 Transfers to lifetime ECL Transfers to credit-impaired financial assets Transfers to 12-month ECLs New receivables purchased or originated Write-offs Derecognition Change in exchange influence or others Balance atDecember31,2019		$ 59,094,832 (477,280) (73,185) 22,944 11,259,104 - (6,473,610) (448,640) $ 62,904,165		$ 226,460 483,005 (35,874) (9,661) 6,425 (20,242) (95,016) 2,220 $ 557,317		$ 314,656 (5,725) 109,059 (13,283) 133,797 (175,884) (71,408) 23,859 $ 315,071		$ 59,635,948 - - - 11,399,326 (196,126) (6,640,033) (422,561) $ 63,776,553

• 35 -

2018

	**12-month ECLs **	**12-month ECLs **		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 ECLs New receivables purchased or originated Write-offs Derecognition Change in exchange influence or others Balance atDecember31,2018		$ 59,913,373 (68,200) (92,358) 30,898 7,277,784 (2,866) (8,817,972) 854,173 $ 59,094,832		$ 429,594 68,250 (22,337) (30,556) 12,086 - (235,487) 4,910 $ 226,460		$ 302,897 (50) 114,695 (342) 74,539 (112,012) (102,244) 37,173 $ 314,656		$ 60,645,864 - - - 7,364,409 (114,878) (9,155,703) 896,256 $ 59,635,948

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

• b. Movements in the allowance for doubtful accounts of receivables for the years ended December 31, 2019 and 2018 were as follows:

2019

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2019 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 ECLs 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 atDecember31,2019		$ 87,567 (6,905) (641) 6,542 (71,437) 84,315 - - - (3,561) $ 95,880		$ 5,695 7,332 (819) (1,335) (2,039) 776 - (20,242) - 22,257 $ 11,625		$ 151,315 (427) 1,460 (5,207) 2,892 80,009 - (117,213) - 52,395 $ 165,224		$ 244,577 - - - (70,584) 165,100 - (137,455) - 71,091 $ 272,729		$ 57,500 - - - - - 8,507 (58,671) 16,492 - $ 23,828		$ 302,077 - - - (70,584) 165,100 8,507 (196,126) 16,492 71,091 $ 296,557

• 36 -

2018

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed 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 ECLs 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		$ 106,947 (966) (1,001) 3,508 (85,315) 70,292 - (2,866) - (3,032) $ 87,567		$ 51,093 985 (1,356) (3,228) (45,073) 1,416 - - - 1,858 $ 5,695		$ 162,048 (19) 2,357 (280) (5,558) 5,662 - (49,769) - 36,874 $ 151,315		$ 320,088 - - (135,946) 77,370 - (52,635) - 35,700 $ 244,577		$ 46,904 - - - - - 55,612 (62,243) 17,227 - $ 57,500		$ 366,992 - - - (135,946) 77,370 55,612 (114,878) 17,227 35,700 $ 302,077

The allowance for doubtful accounts of the above mentioned receivables includes allowances for delinquent receivables not arising from loans, refer to Note 16.

c. Refer to Note 36 for information relating to note receivable as a guarantee for interbank financing.

13. NOTES DISCOUNTED AND LOANS, NET

Bills negotiated Overdrafts Secured overdrafts Accounts receivable financing Marginal receivables 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
		2019 $ 393,291 1,404 38,166 51,595 929,368 39,586,875 100,653,393 49,151,361 103,127,599 5,210,470 141,838,997 963,045 441,945,564 26,487 (6,573,717) $ 435,398,334	2018 $ 475,822 1,061 10,031 80,862 866,372 43,046,052 103,198,900 49,659,266 109,958,945 4,499,987 145,623,202 1,662,082 459,082,582 44,071 (6,532,101) $ 452,594,552

• 37 -

• a. As of December 31, 2019 and 2018, the delinquent loans on which interest ceased to accrue amounted to $949,601 thousand and $1,640,185 thousand, respectively. The unrecognized interest revenues on these loans were $22,534 thousand and $34,228 thousand for the years ended December 31, 2019 and 2018, respectively.

• b. There was no credit loan written off without a lawsuit in 2019 and 2018.

• c. Movements in the total carrying amount of notes discounted and loans for the years ended December 31, 2019 and 2018 were as follows:

2019

	**12-month ECLs **	**12-month ECLs **		Lifetime ECL	Credit- impaired Financial Assets	Credit- impaired Financial Assets		Total
Balance at January 1, 2019 Transfers to lifetime ECL Transfers to credit-impaired financial assets Transfers to 12-month ECLs New notes discounted and loans purchased or originated Write-offs Derecognition Change in exchange influence or others Balance at December 31, 2019		$ 435,868,501 (7,768,850) (3,018,334) 2,487,600 217,508,394 (41,246) (210,078,061) (19,414,260) $ 415,543,744		$ 15,341,731 7,849,116 (1,694,994) (2,417,603) 2,752,410 (366,663) (4,281,192) (308,940) $ 16,873,865		$ 7,916,421 (80,266) 4,713,328 (69,997) 593,167 (927,477) (2,954,801) 364,067 $ 9,554,442		$ 459,126,653 - - - 220,853,971 (1,335,386) (217,314,054) (19,359,133) $ 441,972,051

2018

	**12-month ECLs **	**12-month ECLs **		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 ECLs New notes discounted and loans purchased or originated Write-offs Derecognition Change in exchange influence or others Balance atDecember31,2018		$ 402,804,819 (7,160,622) (1,835,301) 7,142,086 251,247,141 (20,366) (195,580,567) (20,728,689) $ 435,868,501		$ 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		$ 437,202,770 - - - 256,130,506 (1,033,784) (210,701,976) (22,470,863) $ 459,126,653

• 38 -

• d. Movements in the allowance for doubtful accounts of notes discounted and loans for the years ended December 31, 2019 and 2018 were as follows:

2019

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2019 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 ECLs 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 atDecember31,2019		$ 1,768,334 (20,881) (8,619) 133,519 (1,053,833) 1,127,791 - (118) - (169,565) $ 1,776,628		$ 661,840 31,563 (99,038) (128,814) (155,288) 112,374 - (50,704) - 480,421 $ 852,354		$ 2,035,208 (10,682) 107,657 (4,705) (632,674) 192,290 - (370,099) - 1,151,262 $ 2,468,257		$ 4,465,382 - - - (1,841,795) 1,432,455 - (420,921) - 1,462,118 $ 5,097,239		$ 2,066,719 - - - - - (559,801) (914,465) 884,025 - $ 1,476,478		$ 6,532,101 - - - (1,841,795) 1,432,455 (559,801) (1,335,386) 884,025 1,462,118 $ 6,573,717

2018

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed 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 ECLs 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 atDecember31,2018		$ 1,644,957 (15,810) (6,279) 376,160 (1,035,356) 1,277,528 - (3) - (472,863) $ 1,768,334		$ 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) 1,899,910 - (258,056) - 862,382 $ 4,465,382		$ 1,584,897 - - - - - 550,859 (775,728) 706,691 - $ 2,066,719		$ 6,344,810 - - - (2,798,767) 1,899,910 550,859 (1,033,784) 706,691 862,382 $ 6,532,101

• 39 -

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD, NET

The following table shows the Group’s proportion of ownership and voting right of associates at the end of reporting date:

Associates that are not individually material Reliance Securities Investment Trust Co., Ltd.		December 31	December 31	December 31
		2019		2018
		Proportion of Ownership Amount (%) $ 156,788 38.46		Proportion of Ownership Amount (%) $ 153,423 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	For the Year Ended	December 31
		2019 $ (3,002)	2018 $ (6,716)

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

15. RESTRICTED ASSETS, NET

Restricted assets - cash in banks Collections from underwriting Pending settlement payments		**December 31 **	**December 31 **
		2019 $ 419,388 - 5 $ 419,393	2018 $ 446,310 348 378 $ 447,036

Refer to Note 36 for information relating to the restricted assets - cash in banks, which are used as collateral for financing to other banks.

16. OTHER FINANCIAL ASSETS, NET

Other delinquent receivables, net		**December **	**31 **
		2019 $ 2,246	2018 $ 1,111

• 40 -

Other delinquent receivables, net were as follows:

Delinquent receivables not arising from loans Less: Allowance for doubtful accounts (Note 12)

	December	31
	2019 $ 4,506 (2,260) $ 2,246	2018 $ 5,343 (4,232) $ 1,111

17. PROPERTIES AND EQUIPMENT, NET

Cost Balance, beginning of year Additions Disposals Reclassifications Exchange influence Balance, end of year Accumulated depreciation Balance, beginning of year Additions Disposals Reclassifications Exchange influence Balance, end of year Impairment Balance, beginning of year Additions Disposals Reclassifications Balance, end of year Balance, end of year, net Cost Balance, beginning of year Additions Disposals Reclassifications Exchange influence Balance, end of year Accumulated depreciation Balance, beginning of year Additions Disposals Exchange influence Balance, end of year Impairment Balance, beginning of year Additions Disposals Reclassifications Balance, end of year Balance, end of year, net				2019
		Land $ 7,843,120 - - 4,468 - 7,847,588 - - - - - - 77,000 - - - 77,000 $ 7,770,588	Building and Structures Transportation Equipment $ 2,086,402 $ 48,195 8,525 11,496 - (5,579 ) 6,603 - - (59) 2,101,530 54,053 1,145,069 29,111 39,809 5,740 - (4,901 ) 6,603 - - (18) 1,191,481 29,932 - - - - - - - - - - $ 910,049 $ 24,121	Miscellaneous Equipment $ 1,830,060 98,520 (28,075 ) 1,297 (1,548) 1,900,254 1,314,540 167,942 (27,623 ) - (1,065) 1,453,794 - - - - - $ 446,460 2018	Lease Improvement $ 6,938 547 (5,586 ) 5,900 - 7,799 5,061 1,271 (4,700 ) - - 1,632 - - - - - $ 6,167	Construction in Progress $ 202,835 1,324,201 - (800 ) - 1,526,236 - - - - - - - - - - - $ 1,526,236	Total $ 12,017,550 1,443,289 (39,240 ) 17,468 (1,607) 13,437,460 2,493,781 214,762 (37,224 ) 6,603 (1,083) 2,676,839 77,000 - - - 77,000 $ 10,683,621
		Land $ 7,843,120 - - - - 7,843,120 - - - - - 77,000 - - - 77,000 $ 7,766,120	Building and Structures Transportation Equipment $ 2,086,402 $ 40,518 - 10,246 - (2,569 ) - - - - 2,086,402 48,195 1,105,281 26,142 39,788 4,454 - (1,481 ) - (4) 1,145,069 29,111 - - - - - - - - - - $ 941,333 $ 19,084	Miscellaneous Equipment $ 1,677,668 210,267 (60,868 ) 3,534 (541) 1,830,060 1,198,063 174,523 (57,589 ) (457) 1,314,540 - - - - - $ 515,520	Lease Improvement $ 6,743 195 - - - 6,938 3,682 1,379 - - 5,061 - - - - - $ 1,877	Construction in Progress $ 143,380 62,035 - (2,580 ) - 202,835 - - - - - - - - - - $ 202,835	Total $ 11,797,831 282,743 (63,437 ) 954 (541) 12,017,550 2,333,168 220,144 (59,070 ) (461) 2,493,781 77,000 - - - 77,000 $ 9,446,769

• 41 -

The above items of property and equipment are depreciated on a straight-line basis over their estimated useful lives as follows:

Building and structures Building 30 to 60 years Renovation 10 to 29 years Transportation equipment 2 to 5 years Miscellaneous equipment 1 to 15 years Lease improvement 2 to 5 years

18. LEASE ARRANGEMENTS

• a. Right-of-use assets - 2019

b.

December 31, 2019 Carrying amounts Land and buildings $ 800,549 Transportation equipment 79,857 $ 880,406 For the Year Ended December 31, 2019 Additions to right-of-use assets $ 322,926 Depreciation charge for right-of-use assets Land and buildings $ 137,980 Transportation equipment 76,207 $ 214,187 Lease liabilities - 2019 December 31, 2019 Carrying amounts $ 895,285 Range of discount rate for lease liabilities was as follows: December 31, 2019 Land 1.01%-4.14% Buildings 1.01%-5.95% Transportation equipment 1.01%-5.96%

• 42 -

c. Material lease-in activities and terms

The Group leases domestic offices, ATM sites and business cars with lease terms of 1 to 15 years. The lease contract specifies that lease payments will be adjusted on the basis of changes in market rental rates. The Group does not have bargain purchase options to acquire the leasehold land and buildings at the end of the lease terms.

d. Other lease information

Lease arrangements under operating leases for the leasing out of freehold properties are set out in Note 19.

2019

	For the Year	For the Year
		Ended
	December 31,
		2019
Expenses relating to short-term leases	$	5,346
Expenses relating to low-value asset leases	$	3,910
Expenses relating to variable lease payments not included in the measurement of
lease liabilities	$	-
Total cash outflow for leases	$	(241,476)

The Group leases certain office equipment which qualify as short-term leases and certain computer equipment which qualify as low-value asset leases. The Group has elected to apply the recognition exemption and thus, did not recognize right-of-use assets and lease liabilities for these leases.

2018

The future minimum lease payments of non-cancellable operating lease commitments are as follows:

	December 31,
	2018
Not later than 1 year	$ 202,863
Later than 1 year and not later than 5 years	271,126
Later than 5 years	540
	$ 474,529

19. INVESTMENT PROPERTIES, NET

Cost Balance, beginning of year Additions	2019
	Land Structures Investment Properties Under Construction Total $ 20,269 $ 12,575 $ 86,290 $ 119,134 - - 15,000 15,000 (Continued)

• 43 -

Reclassified as finance leases Reclassifications Balance, end of year Accumulated depreciation Balance, beginning of year Additions Reclassifications Balance, end of year Balance, end of year, net			2019
		Land - (4,468) 15,801 - - - - $ 15,801	Structures Investment Properties Under Construction - (101,290) (6,603) - 5,972 - 10,184 $ - 89 - (6,603) - 3,670 - $ 2,302 $ -	Total (101,290) (11,071) 21,773 $ 10,184 89 (6,603) 3,670 $ 18,103 (Concluded)

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			2018
		Land $ 20,269 - 20,269 - - - $ 20,269	Structures Investment Properties Under Construction $ 12,575 $ 22,500 - 63,790 12,575 86,290 10,094 - 90 - 10,184 - $ 2,391 $ 86,290	Total $ 55,344 63,790 119,134 10,094 90 10,184 $ 108,950

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 Group leased out its investment properties under construction in 2019. The lease payments from investment properties under construction were recorded as lease receivables under finance lease whenever the terms of a lease transfer substantially all the risks and rewards to the lessee.

• 44 -

• c. The fair values of the investment properties of the Group on December 31, 2019 and 2018 were $53,847 thousand and $149,412 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, and the fair value was measured by using Level 3 inputs.

• d. The abovementioned investment properties were leased out for 5 years. The lessees do not have bargain purchase options to acquire the investment properties at the expiry of the lease periods.

• e. The maturity analysis of lease payments receivable under operating leases of investment properties as of December 31, 2019 was as follows:

			December 31,	December 31,
				2019
Not later than	1	year	$	646

The future minimum lease payments of non-cancellable operating lease commitments as of December 31, 2018 are as follows:

	December 31,	December 31,
		2018
Not later than 1 year	$	864
Later than 1 year and not later than 5 years		648
	$	1,512

20. INTANGIBLE ASSETS, NET

Business right Computer software		**December 31 **	**December 31 **
		2019 $ 28,000 125,125 $ 153,125	2018 $ 28,000 135,172 $ 163,172

• a. Business right of the Group arose from the transfer of Fengxing Securities Co., Ltd., with indefinite useful lives and no amortization. As of December 31, 2019, no impairment loss of the business right should be charged.

• b. Movements of intangible assets were as follows:

Balance, beginning of year Additions Amortization Reclassifications Exchange influence Balance, ending of year	**For The Year Ended December 31 **	**For The Year Ended December 31 **	**For The Year Ended December 31 **
		2019 $ 163,172 41,350 (51,941) 610 (66) $ 153,125	2018 $ 160,054 56,112 (53,167) 190 (17) $ 163,172

• 45 -

Computer software is amortized on a straight-line basis over its estimated useful lives as follows:

Computer software

5 years

21. OTHER ASSETS, NET

Refundable deposits Prepayments Credit transaction Others		December 31	December 31
		2019 $ 1,595,973 138,477 15,014 5,022 $ 1,754,486	2018 $ 1,570,179 113,852 - 126 $ 1,684,157

As of December 31, 2019 and 2018, the time deposits and government bonds at amortized cost amounted to $984,900 thousand and $985,000 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 36.

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 **
		2019 $ 6,200,860 326,187 13 $ 6,527,060	2018 $ 2,874,850 503,276 626 $ 3,378,752

23. FUNDS BORROWED FROM CENTRAL BANK AND OTHER BANKS

Funds borrowed from other banks Funds borrowed from other banks (%)		**December 31 **	**December 31 **
		2019 $ 6,092,040 1.00-5.44	2018 $ 5,495,519 1.44-5.70

Refer to Note 36 for information relating to collateral of funds borrowed from other banks.

24. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Government bonds Foreign bonds		**December 31 **	**December 31 **
		2019 $ 2,002,755 8,366,270 $ 10,369,025	2018 $ 1,200,036 8,704,431 $ 9,904,467

• 46 -

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

Government bonds Foreign bonds Government bonds Foreign bonds		December 31	December 31
		2019 $ 2,003,566 8,415,535 $ 10,419,101 0.50%-0.54% 2.18%-2.45%	2018 $ 1,200,797 8,768,302 $ 9,969,099 0.42%-0.52% 2.69%-2.90%

The foreign bonds denominated in foreign currencies were as follows:

USD	December 31
	2019 2018 $ 278,876 $ 283,440

25. PAYABLES

Accrued expenses Notes and checks in clearing Foreign currency settlement payable Accounts payable for delivery Acceptances Interest payable Factored accounts payable Collections payable Securities settlement payable Other payables		December 31	December 31
		2019 $ 1,550,678 1,007,649 870,282 716,756 514,383 465,092 49,615 38,414 - 775,248 $ 5,988,117	2018 $ 1,584,664 5,715,927 1,912,669 476,395 845,279 554,630 33,552 30,267 438,763 662,618 $ 12,254,764

26. DEPOSITS AND REMITTANCES

Deposits Checking Demand Demand savings Time Time savings Remittances		December 31	December 31
		2019 $ 8,067,443 138,021,835 134,211,159 143,834,144 159,025,088 162,288 $ 583,321,957	2018 $ 9,766,073 129,050,502 126,189,743 165,078,089 157,855,126 28,125 $ 587,967,658

• 47 -

27. BANK DEBENTURES

Subordinated financial debenture

	December 31	December 31
	2019 $ 14,000,000	2018 $ 20,000,000

• 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.

• 48 -

• 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.

• 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: To be executed 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: To be executed according to the issuance.

• 7) The interest will be paid annually from the issuance date.

• 49 -

• 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.

• 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: To be executed 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: To be executed according to the issuance.

• 7) The interest will be paid annually from the issuance date.

• 50 -

28. OTHER FINANCIAL LIABILITIES

Commercial paper payable Structured commodity principal		December 31	December 31
		2019 $ 1,174,083 - $ 1,174,083	2018 $ 998,680 2,127 $ 1,000,807

29. PROVISIONS

Provision for employee benefits Provision for losses on guarantees Provision for accidental losses Provision for loan commitments		**December 31 **	**December 31 **
		2019 $ 1,133,772 174,463 11,878 63,357 $ 1,383,470	2018 $ 1,144,224 189,848 23,933 63,809 $ 1,421,814

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
		2019 $ 972,820 131,433 29,519 $ 1,133,772	2018 $ 1,000,467 120,769 22,988 $ 1,144,224

1) Defined contribution plans

The Group 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 Group in 2019 and 2018 in accordance with the defined contribution plan had been recognized in the consolidated statements of comprehensive income as total amounts of $98,904 thousand and $87,645 thousand, respectively.

• 51 -

2) Defined benefit plans

The defined benefit plan adopted by the Bank of the Group 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 consolidated 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 liabilities		December 31	December 31
		2019 $ 1,817,070 (844,250) 972,820 $ 972,820	2018 $ 1,719,860 (719,393) 1,000,467 $ 1,000,467

Movements in net defined benefit liabilities were as follows:

Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets Balance at January 1, 2018 $ 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) Service cost Current service cost 14,250 - Net interest expense (income) 19,348 (10,365) Recognized in profit or loss 33,598 (10,365)

Net Defined Benefit Liabilities $ 992,816 19,029 12,249 31,278 (20,491) 24,335 39,459 43,303 (56,895) - (10,035) 1,000,467 14,250 8,983 23,233

• 52 -

Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets Remeasurement Return on plan assets (excluding amounts included in net interest) $ - $ (21,788) Actuarial loss - changes in financial assumptions 73,096 - Actuarial loss - experience adjustments 68,402 - Recognized in other comprehensive income 141,498 (21,788) Contributions from the employer - (151,850) Benefits paid (59,146) 59,146 Company paid (18,740) - Balance at December 31, 2019 $ 1,817,070 $ (844,250)

Net Defined Benefit Liabilities $ (21,788) 73,096 68,402 119,710 (151,850) - (18,740) $ 972,820 (Concluded)

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
		2019 $ 23,233	2018 $ 31,278

Through the defined benefit plans under the Labor Standards Law, the Group 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
	2019 2018 0.750% 1.125% 1.500% 1.500%

• 53 -

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 **
		2019 $ (49,168) $ 50,983 $ 49,708 $ (48,188)	2018 $ (48,217) $ 50,072 $ 48,981 $ (47,405)

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 **
		2019 $ 127,438 11 years	2018 $ 26,277 11.4 years

3) Preferential interest on employees’ deposits plan

The Group 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 amounts included in the consolidated balance sheets 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 **
		2019 $ 131,433 - 131,433 $ 131,433	2018 $ 120,769 - 120,769 $ 120,769

• 54 -

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

	Present Value
	of the
	Preferential			Net Preferential
	Interest on			Interest on
	Employees’			Employees’
	Deposits	Fair Value of		Deposits
	Obligation	the Plan Assets		Liabilities
Balance at January 1, 2018	$ 108,779	$	-	$ 108,779
Service cost
Current service cost	9,112		-	9,112
Net interest expense	3,855		-	3,855
Recognized in profit or loss	12,967		-	12,967
Remeasurement
Actuarial loss - changes in
demographic assumptions	6,076		-	6,076
Actuarial loss - experience adjustments	20,173		-	20,173
Recognized in other comprehensive
income	26,249		-	26,249
Company paid	(27,226)		-	(27,226)
Balance at December 31, 2018	120,769		-	120,769
Service cost
Current service cost	6,700		-	6,700
Net interest expense	4,286		-	4,286
Recognized in profit or loss	10,986		-	10,986
Remeasurement
Actuarial loss - changes in
demographic assumptions	6,770		-	6,770
Actuarial loss - experience adjustments	21,177		-	21,177
Recognized in other comprehensive
income	27,947		-	27,947
Company paid	(28,269)		-	(28,269)
Balance at December 31, 2019	$ 131,433	$	-	$ 131,433

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		**December **	**31 **
		2019 $ 10,986	2018 $ 12,967

• 55 -

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 **
	2019 2018 4.00% 4.00% 2.00% 2.00% 2.00% 2.00% 3.50% 4.00%

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
		2019 $ (3,202) $ 3,343 $ 3,454 $ (3,599)	2018 $ (2,858) $ 2,982 $ 3,099 $ (3,227)

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
		2019 $ - 10.4 years	2018 $ - 10.1 years

4) Other long-term employee benefit liabilities

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

The Group recognized total expenses (interests) related to the long-term employee benefits in the consolidated statements of comprehensive income in 2019 and 2018 were $6,531 thousand and $4,542 thousand, respectively. As of December 31, 2019 and 2018, other long-term employee benefit liabilities were $29,519 thousand and $22,988 thousand, respectively.

• 56 -

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

2019

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2019 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 ECLs 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, 2019		$ 121,061 (3) (434) 11,027 (86,834) 80,868 - - - (15,965) $ 109,720		$ 1,751 3 - (292) (1,458) 1,720 - - - 54 $ 1,778		$ 55,221 - 434 (10,735) (7,647) 4,221 - - - 17,127 $ 58,621		$ 178,033 - - - (95,939) 86,809 - - - 1,216 $ 170,119		$ 11,815 - - - - - (7,471) - - - $ 4,344		$ 189,848 - - - (95,939) 86,809 (7,471) - - 1,216 $ 174,463

2018

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed 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 ECLs 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 atDecember31,2018		$ 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

The provisions in 2019 and 2018 were comprised of bad-debt expenses and provision for losses on commitments and guarantees.

• 57 -

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

2019

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2019 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 ECLs 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, 2019		$ 12,108 - - - (12,073) 9,628 - - - (25) $ 9,638		$ - - - - - - - - - - $ -		$ - - - - - 7 - - - - $ 7		$ 12,108 - - - (12,073) 9,635 - - - (25) $ 9,645		$ 11,825 - - - - - (9,592) - - - $ 2,233		$ 23,933 - - - (12,073) 9,635 (9,592) - - (25) $ 11,878

2018

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed 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 ECLs 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 atDecember31,2018		$ 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

The provisions in 2019 and 2018 were comprised of net income and loss other than interest.

• 58 -

• d. Movements in loan commitments were as follows:

2019

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed under IFRS 9	Difference of Impairment Loss under Regulations	Difference of Impairment Loss under Regulations		Total
Balance at January 1, 2019 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 ECLs 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, 2019		$ 61,769 (4) (4) 1,177 (9,439) 21,880 - - - (17,895) $ 57,484		$ 2,040 4 (4,032) (1,177) (791) 1,041 - - - 4,763 $ 1,848		$ - - 4,036 - - - - - - (11) $ 4,025		$ 63,809 - - - (10,230) 22,921 - - - (13,143) $ 63,357		$ - - - - - - - - - - $ -		$ 63,809 - - - (10,230) 22,921 - - - (13,143) $ 63,357

2018

		12-month ECLs	Lifetime ECL	Lifetime ECL		Credit- impaired Financial Assets	Impairment Loss Assessed under IFRS 9	Impairment Loss Assessed 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 ECLs 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 atDecember31,2018		$ 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 provisions in 2019 and 2018 were comprised of bad-debt expenses and provision for losses on commitments and guarantees.

• 59 -

30. OTHER LIABILITIES

Guarantee deposit received Advance receipts Credit transaction Others		December 31	December 31
		2019 $ 582,064 241,703 - 74,975 $ 898,742	2018 $ 568,435 246,443 1,956 110,585 $ 927,419

31. 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
		2019 4,320,000 $ 43,200,000 3,708,835 $ 37,088,349	2018 4,320,000 $ 43,200,000 3,525,508 $ 35,255,084

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, 2018, the Bank had issued ordinary shares totaling $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. 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.

In September 2019, the Bank transferred $1,833,265 thousand of unappropriated earnings to ordinary shares, divided into 183,327 thousand ordinary shares at $10 par value per share. As of December 31, 2019, the Bank had increased ordinary shares to $37,088,349 thousand, divided into 3,708,835 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:

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

• 60 -

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

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
		2019 $ 663,633 32,124 6,682 16,813 7,729 $ 726,981	2018 $ 663,633 32,124 6,682 16,813 7,729 $ 726,981

• 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 32.

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.

• 61 -

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.

According to Order No. 1010012865 issued by the FSC, Order No. 1010047490 issued by the FSC and International Financial Reporting Standards and “Q&A on the application of the reference to the special reserve following adoption of IFRSs”, retained earnings should be appropriated to or reversed from a special reserve by the Bank. 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. After that, under No. 10802714560 issued by the FSC, the Public Bank no longer to use special reserve to protect the right of bank employee in response to the developments of financial technology since 2019. From the fiscal year of 2019, the Bank can reverse the amount of expenditure of employees’ transfer arising from financial technology development within the amount of the abovementioned special reserve through 2016 to 2018.

The appropriations of earnings for 2018 and 2017 were approved in the shareholders’ meetings on June 28, 2019 and June 5, 2018, respectively, as follows:

Legal reserve Special reserve Cash dividends Share dividends	Appropriation of Earnings 2018 2017 $ 1,202,511 $ 1,089,196 40,084 36,326 987,142 1,481,931 1,833,265 823,295	Dividends Per Share (NT$)
		2018 2017 $ - $ - - - 0.28 0.45 0.52 0.25

The appropriations of earnings for 2019 had been proposed by the Bank’s board of directors on February 25, 2020 were as follows:

	Appropriation	Dividends Per
	of Earnings	Share (NT$)
Legal reserve	$ 1,281,622	$ -
Special reserve	-	-
Cash dividends	1,038,474	0.28
Share dividends	1,928,594	0.52

The appropriations of earnings for 2019 are subject to the resolution of the shareholders’ meeting to be held on June 11, 2020.

• 62 -

e. Other equity items

	Exchange	Exchange
	Differences on
	Translating	the
	Financial		Unrealized Gain			Unrealized Gain
	Statements of			on		on	Financial
	Foreign		Available-for-sale			Assets at
	Operations		Financial Assets			FVTOCI		Total
Balance at January 1, 2019	$ (38,327)		$		-	$	690,897	$ 652,570
Recognized for the year
Unrealized gains
Equity instruments		-			-		293,320	293,320
Debt instruments		-			-		50,230	50,230
Net remeasurement of loss
allowance - debt instruments		-			-		(113)	(113)
Share from associates accounted for
using the equity method		-			-		6,130	6,130
Cumulative unrealized gain of equity
instruments transferred to retained
earnings due to disposal		-			-		(70,079)	(70,079)
Cumulative translation adjustment
Exchange differences for current
period	(57,989)				-		-	(57,989)
Income tax related to other
comprehensive income		-			-		(20,877)	(20,877)
Balance at December 31, 2019	$ (96,316)		$		-	$	949,508	$ 853,192
Balance at January 1, 2018 per IAS 39	$ (38,507)		$	223,484		$	-	$ 184,977
Adjustment on initial application of
IFRS 9		-		(223,484)			623,457	399,973
Balance at January 1, 2018 per IFRS 9	(38,507)				-		623,457	584,950
Effect of change in tax rate		-			-		(3,836)	(3,836)
Recognized for the year
Unrealized gains(losses)
Equity instruments		-			-		87,452	87,452
Debt instruments		-			-		(10,128)	(10,128)
Net remeasurement of loss
allowance - debt instruments		-			-		(3,820)	(3,820)
Share from associates accounted for
using the equity method		-			-		(584)	(584)
Cumulative unrealized gain of equity
instruments transferred to retained
earnings due to disposal		-			-		5,350	5,350
Cumulative translation adjustment
Exchange differences for current
period	180				-		-	180
Income tax related to other
comprehensive income		-			-		(6,994)	(6,994)
Balance at December 31, 2018	$ (38,327)		$		-	$	690,897	$ 652,570

• 63 -

32. 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 Installment plan Rental Revolving interests of credit cards Securities purchased under resell agreements Accounts receivable factoring without recourse Others Interest expense Deposits Financial debentures Funds borrowed from the central bank and other banks Due to the central bank and other banks Securities sold under repurchase agreements Structured instruments Lease liabilities Others Service fee income, net Service fee income Brokering Trust business Loans Guarantee Others Service fee expense Commission Cross-bank transactions Others	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
	2019 2018 $ 11,046,706 $ 10,785,290 139,651 138,346 1,589,724 1,517,886 292,379 278,988 257,257 262,412 41,679 41,377 58,872 29,961 6,536 5,670 973 803 13,433,777 13,060,733 (3,950,966) (3,627,009) (643,380) (581,800) (207,985) (257,130) (4,908) (5,552) (240,500) (150,165) (98) (2,601) (34,113) - (1,297) (2,266) (5,083,247) (4,626,523) $ 8,350,530 $ 8,434,210 For the Year Ended December 31
		2019 $ 1,292,348 901,283 466,542 152,298 339,599 3,152,070 (93,237) (35,904) (109,614) (238,755) $ 2,913,315	2018 $ 1,487,633 809,086 461,478 159,332 358,691 3,276,220 (283,735) (35,082) (111,229) (430,046) $ 2,846,174

b. Service fee income, net

• 64 -

The Group provides custody, trust, investment management and consultancy services to third parties, so the Group’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 Group’s consolidated financial statements.

• 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 PEM Group policy assets Open-ended funds and money market instruments Derivative financial instruments	For the Year Ended	For the Year Ended	December 31
		2019 $ 132,342 329,528 (5,215) 9,206 465,861 (1,507) (142,706) 30,547 51,349 (109) 60,149 (2,277) $ 463,584	2018 $ 146,516 (29,243) (77,279) 18,344 58,338 3,046 82,909 (12,799) 14,456 230 (29,046) 58,796 $ 117,134

• 1) Realized profit and loss of gain on financial assets and liabilities at fair value through profit or loss include disposal profit (loss) in 2019 and 2018 amounted to $278,312 thousand and $(144,984) thousand, dividend revenue amounted to $37,158 thousand and $37,638 thousand and interest revenue amounted to $150,391 thousand and $165,684 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. The translation gains or losses included net income from exchange rate commodities when significant assets and liabilities denominated in foreign currencies classified as at FVTPL, which are not designated for hedging relationship.

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

Dividend income Gain on disposal of bonds	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 44,228 7,606 $ 51,834	2018 $ 50,261 26,787 $ 77,048

• 65 -

• e. Reversal of (impairment losses) on financial assets

Investments in debt instruments at FVTOCI Financial assets at amortized cost	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 113 6,338 $ 6,451	2018 $ 3,820 (21,308) $ (17,488)

f. Other non-interest gains, net

Other provisions Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 12,000 62,713 $ 74,713	2018 $ 2,437 6,167 $ 8,604

g. Bad-debt expenses and provision for losses on commitment and guarantees

Bad-debt for receivables Bad-debt for notes discounted and loans Reversal of provision for losses on guarantees Loan commitment	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2019 $ 121,547 509,127 (15,226) 26 $ 615,474	2018 $ 32,835 487,333 (54,000) 6,604 $ 472,772

h. Employee benefits expenses

Salaries Labor and health insurance Pension expense Other employee expenses	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2019 $ 3,273,703 209,356 122,137 227,813 $ 3,833,009	2018 $ 3,198,945 192,240 118,923 213,650 $ 3,723,758

• 66 -

• i. 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, 2019 and 2018, which were approved by the Bank’s board of directors on February 25, 2020 and March 14, 2019, 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 **
	2019 2018 0.75% 0.70% 1.50% 1.50% For the Year Ended December 31
		2019 $ 38,880 $ 77,759	2018 $ 33,198 $ 71,138

If there is a change in the amounts after the annual consolidated 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 supervisions paid and the amounts recognized in the financial statements for the years ended December 31, 2018 and 2017.

Information on the employees’ compensation and remuneration of directors and supervisions resolved by the Bank’s board of directors in 2020 and 2019 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

• j. Depreciation and amortization expenses

Properties and equipment Investment properties Right-of-use assets Intangible assets	For the Year Ended	For the Year Ended	December 31
		2019 $ 214,762 89 214,187 51,941 $ 480,979	2018 $ 220,144 90 - 53,167 $ 273,401

• 67 -

k. 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
		2019 $ 707,259 177,037 106,571 180,763 12,794 89,990 132,934 65,736 486,097 $ 1,959,181	2018 $ 707,547 202,524 160,301 188,610 297,336 170,138 90,085 70,144 572,925 $ 2,459,610

33. INCOME TAXES RELATING TO CONTINUING OPERATIONS

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

For the Year Ended December 31 2019 2018 Current tax In respect of the current period $ 902,934 $ 800,677 Income tax on unappropriated earnings 1,507 19,879 Adjustments for prior periods (832) 2,016 Deferred tax In respect of the current period (16,507) 20,741 Adjustments to deferred tax attributable to changes in tax rates and laws - (91,799) Income tax expense recognized in profit or loss $ 887,102 $ 751,514 A reconciliation of accounting profit and income tax expense was as follows: For the Year Ended December 31 2019 2018 Profit before tax from continuing operations $ 5,206,985 $ 4,759,883 Income tax expense calculated at the statutory rate $ 1,041,397 $ 951,976 Non-deductible expenses in determining taxable income 6,164 18,946 Tax-exempt income (166,805) (139,011) Income tax on unappropriated earnings 1,507 19,879 Loss carryforwards 1,684 (14,009) Adjustments for prior years’ tax (832) 2,016 Unrecognized loss carryforwards and deductible temporary differences 290 2,781 Effect of tax rate changes - (91,799) Effect of different tax rates of group entities operating in other jurisdictions 3,697 735 Income tax expense recognized in profit or loss $ 887,102 $ 751,514	For the Year Ended	For the Year Ended	For the Year Ended	December 31
				2018 $ 800,677 19,879 2,016 20,741 (91,799) $ 751,514 **December 31 **
		2019 $ 5,206,985 $ 1,041,397 6,164 (166,805) 1,507 1,684 (832) 290 - 3,697 $ 887,102	2018 $ 4,759,883 $ 951,976 18,946 (139,011) 19,879 (14,009) 2,016 2,781 (91,799) 735 $ 751,514

• 68 -

The Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%. The effect of the change in tax rate on deferred tax income to be recognized in profit or loss in full is recognized in the period in which the change in tax rate occurs. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%.

• b. Income tax recognized in other comprehensive income

Deferred tax In respect of the current period Fair value changes of financial assets at FVTOCI Remeasurement of defined benefit plans Effect of change in tax rate Total income tax expense recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ (20,877) 29,531 - $ 8,654	2018 $ (6,994) 13,910 22,509 $ 29,425

• c. Current tax assets and liabilities

Current tax assets Tax refund receivable Current tax liabilities Income tax payable		December 31	December 31
		2019 $ 3,279 $ 385,113	2018 $ 35 $ 380,869

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, 2019

					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	$	3,644	$	-	$		-	$	3,644
Unrealized losses on structure notes
payment		223,761		(10,270)			-		213,491
Defined benefit obligations		228,845		(31,622)		29,531			226,754
Allowance for doubtful accounts		332,641		51,163			-		383,804
Others		(7,012)		7,236		(20,877)			(20,653)
	$	781,879	$	16,507	$	8,654		$	807,040
Deferred tax liabilities
Temporary differences
Provision for land value increment
tax	$	111,021	$	-	$		-	$	111,021

• 69 -

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		295,955		36,686			-		332,641
Others		(718)		4,536		(10,830)			(7,012)
	$	681,396	$	71,058	$	29,425		$	781,879
Deferred tax liabilities
Temporary differences
Provision for land value increment
tax	$	111,021	$	-	$		-	$	111,021

• e. Unused loss carryforwards and deductible temporary differences for which no deferred tax assets have been recognized in the consolidated balance sheets

Loss carryforwards Expiry in 2029 Deductible temporary differences Share of subsidiaries Allowance for doubtful accounts Unrealized evaluation loss	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2019 $ 8,418 $ 5,628 143,188 6,568 $ 155,384	2018 $ - $ 61,707 150,098 6,836 $ 218,641

• f. Income tax assessments

The income tax returns of Taichung Commercial Bank Co., Ltd., Taichung Bank Insurance Brokers Co., Taichung Bank Leasing Corporation Limited, and Taichung Commercial Bank Securities Co., Ltd. through 2017 have been assessed and approved by the tax authority.

34. EARNINGS PER SHARE

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Basic earnings per share Diluted earnings per share	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2019 $ 1.16 $ 1.16	2018 $ 1.12 $ 1.12

• 70 -

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

	Unit:	NT$ Per Share
	Before	After
	Retrospective	Retrospective
	Adjustment	Adjustment
Basic earnings per share	$ 1.18	$ 1.12
Diluted earnings per share	$ 1.18	$ 1.12

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 **
		2019 $ 4,319,883 $ 4,319,883	2018 $ 4,008,369 $ 4,008,369

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
		2019 3,708,835 3,852 3,712,687	2018 3,564,869 3,961 3,568,830

If the Group offered to settle the compensation or bonuses paid to employees in cash or shares, the Group 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.

35. RELATED-PARTY TRANSACTIONS

Related Party

Relationship with the Group

China Man-Made Fiber Corporation

Kuei-Fong Wang (Legal representative of Hsu Tian Investment Co., Ltd.) (Note 1)

Hsu Tian Investment Co., Ltd., Pan Asia Chemical Co., Ltd. and Ho Yang Management Consultant Co., Ltd.

Parent company of the Bank Key management personnel

Legal entity as director of the Bank

(Continued)

• 71 -

Relationship with the Group

Related Party

Jin-Yi Lee, Hsin-Chang Tsai, Li-Woon Lim Ming-Shan Chuang, Hsin-Ching Chang, Kuei-Fong Wang, Wei-Liang Lin, Chien-Hui Huang, Ming-Hsiung Huang, Te-Wei Chia, Lai-Hsing Tsai, Siou-Huei Ye (Note 2)

25 persons including the Chairman’s spouse

52 persons including the director of the Board’s spouse

7 persons including Yi-Yuan Tung 22 persons including associate general manager’s spouse

111 persons including Chien-Hung Lin 11 persons including Kuei -Hsien Wang

Reliance Securities Investment Trust 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. Sheng Yuan Ze Investment Limited Company Pan Hsu Investment Co., Ltd.

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

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 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 Related parties in substance Related parties in substance

(Continued)

• 72 -

Relationship with the Group

Related Party

Precious Wealth International Limited Related parties in substance Storm Model Management Co., Ltd. Related parties in substance Bonwell Praise Co., Ltd. Related parties in substance Chen Teng Public Relations (Shanghai) Company Related parties in substance Shanghai Bomi Consulting management Limited Company Related parties in substance

(Concluded)

• 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 condition 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 Tsai 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 legal director of Hsu Tian Investment Co., Ltd. reassigned his representative to Siou-Huei Ye on May 28, 2019.

Significant transactions between the Group and related parties:

• a. Loans

For the year ended December 31, 2019

Balance, Numbers/ Name Highest Balance End of the Year Employees consumption loans 11 $ 4,772 $ 3,223 Loans on mortgage 37 187,417 115,535 Other loans Lee OO 2,685 2,552 Chen OO 4,000 - Liu OO 2,044 1,911 Yang OO 846 - Zhong OO 12,230 - Fang OO 4,432 1,916 Lin OO 38,000 18,800 Liang OO 1,002 886 Ye OO 33,000 11,000 Huang OO 1,701 1,570 Chiu OO 3,534 3,238 Tsai OO 1,529 - Chen OO 1,600 -

Compliance The Difference Between Related and Performing Loans Overdue Loans Interest Revenue Collaterals Non-related Party $ 3,223 $ - $ 67 Credit loans None 115,535 - 1,585 Real estate None 2,552 - 41 Real estate None - - 17 Real estate None 1,911 - 29 Real estate None - - 4 Real estate None - - 154 Real estate None 1,916 - 34 Real estate None 18,800 - 354 Real estate None 886 - 14 Real estate None 11,000 - 166 Real estate None 1,570 - 27 Real estate None 3,238 - 49 Real estate None - - 29 Real estate None - - 5 Real estate None

• 73 -

For the year ended December 31, 2018

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 Tsai 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 None 2,685 - 43 Real estate None - - 8 Real estate None - - 31 Real estate None - - 15 Real estate None 4,000 - 54 Real estate None 2,044 - 31 Real estate None 846 - 16 Real estate None 12,230 - 206 Real estate None 19,000 - 337 Real estate None 1,002 - 23 Real estate None - - 54 Real estate None 1,701 - 30 Real estate None - - 24 Real estate None 1,620 - 22 Real estate None 3,534 - 53 Real estate None 1,529 - 43 Real estate None - - 26 Real estate None - - 17 Real estate None - - 2 Real estate None

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, and the terms of credits to related parties should be similar to those for third parties.

• b. Deposits

Reliance Securities Investment Trust Co., Ltd. Taichung Commercial Bank Workers’ Welfare Commission China Man-Made Fiber Corporation Taichung Commercial Bank Cultural and Educational Foundation Formosa Imperial Wineseller Corp. Greenworld Food Co., Ltd. Pan Asia Chemical Corporation Pan Feng Enterprise Co., Ltd. Chou Chin Industrial Co., Ltd. Chou Chang Co., Ltd. Je Mi Fang Corporation Yu Hui Limited Hsu Tian Investment Co., Ltd. Reliance Securities Co., Ltd. Pan Hsu Investment Co., Ltd. Pan Asia Investment Co., Ltd. Deh Hsing Investment Co., Ltd. Others	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019
	Ending Balance Interest Ratio $ 176,452 0.00-1.05 139,771 0.01-5.09 67,328 0.01-0.48 8,223 0.01-1.09 206 0.08 3,897 0.08 38,487 0.01-0.08 248 0.08 5,639 0.01-0.08 4,728 0.01 14,799 0.08 4 0.01 46,712 0.01-0.48 13,652 0.08-0.80 3 0.01 6 0.01 6,830 0.08 321,852 0.00-5.09 $ 848,837	Interest Expense $ 1,280 7,258 45 88 1 1 14 - 2 - 12 - 13 104 - - 1 4,180 $ 12,999

• 74 -

Reliance Securities Investment Trust Co., Ltd. Taichung Commercial Bank Workers’ Welfare Commission China Man-Made Fiber Corporation Taichung Commercial Bank Cultural and Educational Foundation Formosa Imperial Wineseller Corp. Greenworld Food Co., Ltd. Pan Asia Chemical Corporation Pan Feng Enterprise Co., Ltd. Chou Chin Industrial Co., Ltd. Chou Chang Co., Ltd. Je Mi Fang Corporation Yu Hui Limited Hsu Tian Investment Co., Ltd. Ho Yang Management Consultant Co., Ltd. Others	For the Year Ended December 31, 2018	For the Year Ended December 31, 2018
	Ending Balance Interest Ratio $ 166,258 0.00-1.05 141,566 0.01-5.09 47,135 0.01-0.43 8,232 0.01-1.09 2,393 0.08 474 0.08 22,189 0.01-0.08 291 0.08 20,778 0.01-0.08 479 0.01 14,190 0.08 4 0.01 11,888 0.01-0.43 34,828 0.01 242,116 0.00-5.09 $ 712,821	Interest Expense $ 1,128 7,367 71 88 - 1 11 - 2 - 9 - 86 1 3,847 $ 12,611

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 2019 and 2018.

c. 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.

• 75 -

As of December 31, 2019, 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.,	$ 4,000,000	First no due date non-cumulative subordinated financial
Ltd.		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	3,751,000	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 debentures of the above-mentioned related parties were $50,136 thousand and $50,137 thousand on December 31, 2019 and 2018, respectively. The interest expenses were $320,872 thousand and $261,838 thousand in 2019 and 2018, respectively.

• d. Service fee income

Reliance Securities Investment Trust Co., Ltd.	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 889	2018 $ 1,236

The above amounts are for the promotion and channel revenue, etc. The price of transactions with its related parties is similar to those of the non-related parties.

• e. Other expenses

Greenworld Food Co., Ltd. Je Mi Fang Corporation Pan Feng Enterprise Co., Ltd.	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 1,092 372 399 $ 1,863	2018 $ 1,010 4,313 640 $ 5,963

• 76 -

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

• f. Compensation of directors, supervisors and key management personnel

As of December 31, 2019 and 2018, compensation of directors, supervisors and key management personnel were as follows:

Short-term benefits Post-employee benefits Other long-term benefits	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2019 $ 215,757 1,282 13 $ 217,052	2018 $ 208,825 1,467 25 $ 210,317

36. PLEDGED ASSETS

Due from the central bank and call loans to other banks - time deposits Restricted assets - cash in banks Notes receivable Investments in debt instrument at amortized cost - government bonds		**December 31 **	**December 31 **
		2019 $ 200,000 419,388 2,889,030 844,900 $ 4,353,318	2018 $ 200,000 446,310 2,277,240 845,000 $ 3,768,550

Due from the central bank and call loans to other banks - time deposits were the provision of operation deposit. Restricted assets - cash in banks and notes receivable were the guarantee for financing to other banks. 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 Collateral for overdraft of clearing account Reserve of trust compensation		**December 31 **	**December 31 **
		2019 $ 284,900 500,000 60,000 $ 844,900	2018 $ 285,000 500,000 60,000 $ 845,000

• 77 -

37. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in Notes 8, 11 and 24, significant commitments and contingencies of the Group as of December 31, 2019 and 2018 were as follows:

• a. Significant commitments

Loan commitments (excluding credit card) Loan commitments - credit card Guarantee receivable Trust liability Letters of credit Lease contract commitment	December 31
	2019 2018 $ 139,176,198 $ 152,638,816 11,743,903 10,507,270 16,485,312 18,335,961 67,330,687 65,770,665 3,318,935 4,140,679 1,240,804 1,803,183

• 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, 2019

Trust Asset Cash in banks Short-term investments Structured finance instruments Real estate Land Buildings Securities under custody Trust asset	Amount Trust Liability $ 3,588,759 Securities under custody 54,341,837 payable 2,041,602 Trust capital Net income 1,350,853 Deferred carry-over amounts 123,079 5,884,557 $ 67,330,687 Trust liability Trust Account Asset Items December 31, 2019	Amount $ 5,884,557 61,446,130 2,047,880 (2,047,880) $ 67,330,687

Item Cash in banks Short-term investments Structured finance instruments Real estate Land Buildings Securities under custody	Amount $ 3,588,759 54,341,837 2,041,602 1,350,853 123,079 5,884,557 $ 67,330,687

• 78 -

Trust Account Income Statement Year Ended December 31, 2019

Trust income Interest revenue Dividend income Trust expense Management fee Tax Income before income tax Income tax expense Net income Trust Account Balance Sheet December 31, 2018 Trust Asset Amount Trust Liability Cash in banks $ 1,945,793 Securities under custody Short-term investments 52,565,072 payable Structured finance instruments 2,369,583 Trust capital Real estate Net income Land 1,745,119 Deferred carry-over amounts Buildings 123,233 Securities under custody 7,021,865 Trust asset $ 65,770,665 Trust liability Trust Account Asset Items December 31, 2018 Item Cash in banks Short-term investments Structured finance instruments Real estate Land Buildings Securities under custody

Amount $ 2,921,019 27,138 (900,164) (113) 2,047,880 - $ 2,047,880 Amount $ 7,021,865 58,748,800 2,001,849 (2,001,849) $ 65,770,665 Amount $ 1,945,793 52,565,072 2,369,583 1,745,119 123,233 7,021,865 $ 65,770,665

• 79 -

Trust Account Income Statement Year Ended December 31, 2018

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

c. Maturity analysis of lease commitments and capital expenditures

The lease contract commitments of the Group include operating leases and finance leases.

Operating lease commitment is the minimum lease payment when the Group is lessee or lessor with non-cancelling condition. The lease contract commitments of the operating leases are referred to in Note 19.

The finance lease commitments refer to the total lease investment of the lessor under the finance lease conditions and the present value of the minimum lease payments receivable.

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

Considering the expansion of business scale and the increasing number of employees in the future, the Group held a tender for the construction project of head office through an online open bidding process on February 11, 2019. Dacin Construction Co., Ltd. and Earthpower Co., Ltd. won the bidding, both parties entered into a joint venture agreement worth $11,160,000 thousand on March 29, 2019, and started construction on April 27, 2019. In addition, the Group entered into a contract of planning, design and supervision worth $480,492 thousand with YSL architects & associates.

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

December 31, 2019

Lease commitments financing lease income Present value of financing lease income Capital expenditure commitment	Not Later Than 1 Year Later Than 1 Year and Not Later Than 5 Years $ 2,836,102 $ 522,845 $ 2,551,965 $ 373,579 $ 823,970 $ 9,396,811	Later Than 5 Years $ - $ - $ -	Total $ 3,358,947
			$ 2,925,544
			$ 10,220,781

• 80 -

December 31, 2018

Operating lease commitments financing lease income Present value of financing lease income Capital expenditure commitment	Not Later Than 1 Year Later Than 1 Year and Not Later Than 5 Years $ 1,543,678 $ 1,102,103 $ 1,362,538 $ 1,006,172 $ 117,104 $ 104,725	Later Than 5 Years $ - $ - $ -	Total $ 2,645,781
			$ 2,368,710
			$ 221,829

38. FINANCIAL INSTRUMENTS

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

Except as detailed in the following table, the carrying amounts of financial instruments recognized in the consolidated financial statements approximate their fair values or that the fair values cannot be reasonably measured. Therefore, those were not disclosed in this note.

• 1) Fair value hierarchy

December 31, 2019

Carrying Amount Financial assets Investments in debt instrument at amortized cost $ 108,969,273 Financial liabilities Financial liabilities at amortized cost Bank debentures 14,000,000 December 31, 2018 Carrying Amount Financial assets Investments in debt instrument at amortized cost $ 101,307,761 Financial liabilities Financial liabilities at amortized cost Bank debentures 20,000,000	Fair Value
	Level 1 Level 2 Level 3 Total $ 85,512,551 $ 24,092,164 $ - $ 109,604,715 - 14,014,140 - 14,014,140 Fair Value
	Level 1 Level 2 Level 3 Total $ 80,185,438 $ 21,028,688 $ - $ 101,214,126 - 20,098,746 - 20,098,746

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

Financial Instruments Valuation Techniques and Inputs Non-derivatives The market transaction price in the non-active market is taken as the fair value.

• 81 -

• 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 Domestic corporate bonds Others Financial assets at FVTOCI Investments in equity instruments Domestic unlisted shares Domestic listed shares Foreign listed shares Investments in debt instruments Domestic corporate bonds Domestic government bonds Foreign bonds Bank debentures Financial liabilities at FVTPL Derivative financial liabilities			December 31, 2019	December 31, 2019
		Total $ 2,097,080 20,074,138 724,544 360,119 89,816 1,029,839 $ 24,375,536 $ 664,957 651,358 282,672 21,503,613 5,997,423 799,314 1,699,994 $ 31,599,331 $ 233,803	Level 1 $ - 20,074,138 688,208 360,119 89,816 - $ 21,212,281 $ - 651,358 282,672 21,503,613 5,997,423 - 1,699,994 $ 30,135,060 $ -	Level 2 $ 2,097,080 - 36,336 - - 1,029,839 $ 3,163,255 $ - - - - - 799,314 - $ 799,314 $ 233,803	Level 3 $ - - - - - - $ - $ 664,957 - - - - - - $ 664,957 $ -

Reconciliation of Level 3 fair value measurements of financial instruments:

Item	Beginning Balance	Valuation Gains (Losses)	Valuation Gains (Losses)		Increase	Increase	Increase	Decrease	Decrease	Decrease		Ending Balance
					Buy or Issue	Transfer in		Sell, Disposal		Transfer Out
Financial assets at FVTPL Unlisted shares	$ 510,523	$ 154,434			$ -	$ -		$ -		$ -		$ 664,957
Financial assets at FVTPL							December 31, 2018
				Total $ 2,088,691 22,044,240 974,680 172,843 57,899 998,147 $ 26,336,500 $ 510,523 735,657 194,778 20,730,435 5,976,359 785,400 $ 28,933,152 $ 165,360			Level 1 $ - 22,044,240 946,787 172,843 57,899 - $ 23,221,769 $ - 735,657 194,778 20,730,435 5,976,359 - $ 27,637,229 $ -		Level 2 $ 2,088,691 - 27,893 - - 998,147 $ 3,114,731 $ - - - - - 785,400 $ 785,400 $ 165,360		Level 3 $ - - - - - - $ - $ 510,523 - - - - - $ 510,523 $ -

• 82 -

Reconciliation of Level 3 fair value measurements of financial instruments:

Item	Beginning Balance	Valuation Gains (Losses)	Increase	Increase	Decrease	Decrease	Ending Balance
			Buy or Issue	Transfer in	Sell, Disposal	Transfer Out
Financial assets at FVTPL Unlisted shares	$ 493,910	$ 16,613	$ -	$ -	$ -	$ -	$ 510,523

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 Asset swap contract Structured Finance Instruments Interest structured instruments

Valuation Techniques and Inputs

The market transaction price in the non-active market is taken as the fair value. Valuation model: The execution price, maturity date, market volatility, interest rate and exchange rate set by the contract are used as valuation parameters. The model with closed solution is then used for valuation. 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. 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.

• 3) The quantitative information on fair value of significant unobservable input (Level 3)

The quantitative information on unobservable inputs of the financial instruments classified in Level 3, and held by the Group on December 31, 2019 and 2018, were as follows:

Items	Fair value on December 31, 2019	Fair value on December 31, 2018	Valuation Techniques	Significant Unobservable Input	Range (Weighted- average)	Relationship Between Inputs and Fair Value
Financial assets at fair value through other comprehensive income Domestic unlisted shares	$ 664,957	$ 510,523	Seller’s quote (Monte Carlo Simulation Method)	Volatility rate	24.97%-36.00%	The lower the volatility rate, the higher the fair value

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• 4) The assessment of fair value in Level 3

The Group assessed fair value in accordance with evaluation report provided by independent company, and compiled the evaluation result into a quarterly report presented to the board of directors.

• 5) Sensitivity analysis of Level 3 fair value if reasonable possible alternative assumptions may be used.

The Group uses the volatility rate of quantitative information on significant unobservable input of market multiple. The sensitivity analysis based on assets category is as follows:

	Number of	Number of
Risk Factor	Changes	Influences
Liquidity discount ratio	10%	$ (16,279)

• c. Categories of financial instruments

Financial assets Financial assets at FVTPL Financial assets at amortized cost (Note 1) Financial assets at FVTOCI Equity instruments Debt instruments Financial liabilities Financial liabilities at FVTPL Financial liabilities at amortized cost (Note 2)	December 31
	2019 2018 $ 24,375,536 $ 26,336,500 613,433,787 624,347,209 1,598,987 1,440,958 30,000,344 27,492,194 233,803 165,360 628,054,346 640,570,402

• Note 1: 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, investment in debt instrument at amortized cost, securities purchased under resell agreements, receivables, notes discounted and loans, refundable deposits, and other delinquent receivables.

• Note 2: 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 deposits received.

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Overview

The financial risk management objectives of the Group 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.

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The Group 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 Group’s corporate risk management and assumes the ultimate responsibility for risk management. The Group 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.

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 Group’s business to ensure that the risks borne by the Group 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.

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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 Group’s market risk management, including the Group’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 Group 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.

• ii. Measurement methods and management procedures

The Group 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 Group. In addition, the Group 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 Group’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 Group 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 Group 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.

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f) Equity securities price risk

• i. Definition of equity securities price risk

The market risk of the Group’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 listed shares and beneficiary certificates.

• ii. Measurement methods and management procedures

The Group 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 Group 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.

g) Market risk sensitivity analysis

Interest risk

The Group 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 Group as of December 31, 2019 and 2018 would have increased/decreased by $759,373 thousand and $751,216 thousand, respectively. The other equity would have decreased/increased by $2,039,615 thousand and $2,280,815 thousand, respectively.

Exchange rate risk

The Group 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, 2019 and 2018 would have increased/decreased $20,939 thousand and decreased/increased $35,790 thousand, respectively. The other equity would have increased/decreased by $48,665 thousand and $47,853 thousand, respectively.

Equity securities price risk

The Group 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, 2019 and 2018 would have increased/decreased by $168,686 thousand and $172,338 thousand, respectively. The other equity would have increased/decreased by $134,158 thousand and $139,565 thousand, respectively.

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The summary of sensitivity analysis was as follows:

	December 31, 2019
Main Risk	Range of Change	Influence Amount
		Other Equity	Income
Interest risk	Interest rate curve rises 100BPS Interest rate curve falls 100BPS	$ (2,039,615) 2,039,615	$ 759,373 (759,373)
Exchange rate risk	USD/NTD, CNY/NTD, AUD/NTD increase by 3% respectively USD/NTD, CNY/NTD, AUD/NTD decrease by 3% respectively	48,665 (48,665)	20,939 (20,939)
Equity securities price risk	Equity securities prices rise by 15% Equity securities prices fall by 15%	134,158 (134,158)	168,686 (168,686)

	December 31, 2018
Main Risk	Range of Change	Influence Amount
		Other Equity	Income
Interest risk	Interest rate curve rises 100BPS Interest rate curve falls 100BPS	$ (2,280,815) 2,280,815	$ 751,216 (751,216)
Exchange rate risk	USD/NTD, CNY/NTD, AUD/NTD increase by 3% respectively USD/NTD, CNY/NTD, AUD/NTD decrease by 3% respectively	47,853 (47,853)	(35,790) 35,790
Equity securities price risk	Equity securities prices rise by 15% Equity securities prices fall by 15%	139,565 (139,565)	172,338 (172,338)

2) Credit risk

a) Defining credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk exists in both on and off balance sheet items. The on balance sheet exposures to credit risks are mainly from notes discounted ad loans, the credit card business, due from other banks and 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 Group ensures compliance with all applicable rules and regulations and identifies relevant credit risks. On December 31, 2019, 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 39%, 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. If the customers default, the Group will execute its rights on collateral in accordance with the terms of contracts.

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c) Credit risk management program

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

• i. Loans business (including loan commitment and guarantees)

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

The Group 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 Group 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.

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 Group 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.

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• 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.

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

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PD is the default percentage of a borrower. LGD is the loss ratio once a borrower default. The Group 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 Group evaluates the loan default risk by packet direct estimation method. The Group calculates 12 months and lifetime ECLs of financing commitment based on packet direct estimation method. The Group 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 Group 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 Group 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 Group 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 Group recognize the expected credit losses according to the expected credit losses during the lifetime ECLs of financing commitment. The credit quality of the Group’s judgment securities was as follows:

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

The Group 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 Group 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.

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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.

Measurement of expected credit losses

• In order to evaluate expected credit losses, the Group 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.

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  • 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 Group implements a series of polices and measures to reduce credit risks when granting of credit. One of the commonly used methods is to require borrowers to provide collaterals. To enforce the rights to collaterals, the Group manages and assesses the collaterals according to the procedures adopted in determining the scope of collateralization and valuation of collaterals.

The main types of collateral for granting credit are as follows:

• i) Real estate.

ii) Chattels and rights of pledge.

iii) Guarantee from external agency.

To enhance guarantee of transaction risk, the Group’s demand for collaterals depends on the nature of derivative transactions as follows:

• i) Guarantee of amount invested: Asking different ratio of guarantee depends on the credit rating scale of clients.

• ii) Guarantee of high-risk transactions: Asking for collaterals when option contracts are under resell agreement.

• iii) Performance bond (loss on investment position): Asking for collaterals when loss on investment position exceeds the limit of approved market value.

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

December 31, 2019

Financial assets that were impaired Notes discounted and loans Receivables Guarantees and letters of credit Debt instrument Others Total financial assets that were impaired December 31, 2018 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 $ 9,554,442 315,071 182,882 17,477 11,000 $ 10,080,872 Total Book Value $ 7,916,421 314,656 418,070 74,444 $ 8,723,591	Allowance Impairment $ (2,468,257) (165,224) (58,628) (17,477) (4,025) $ (2,713,611) Allowance Impairment $ (2,035,208) (151,315) (55,221) (74,444) $ (2,316,188)	Exposure Collateral Fair Value $ 7,086,185 $ 7,086,185 149,847 76,067 124,254 88,672 - - 6,975 6,975 $ 7,367,261 $ 7,257,899 Exposure Collateral Fair Value $ 5,881,213 $ 5,881,213 163,341 105,184 362,849 301,416 - - $ 6,407,403 $ 6,287,813

ii. Credit risk concentration limits and control

To avoid the concentration of credit risks, the Group 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 Group has set a ratio, which is the credit limit of a single issuer in relation to the total security position. The Group has also included credit limits for a single counterparty and a single group.

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In addition, to manage the concentration risk of the financial assets, the Group 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 Group 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 Group stipulates in its credit contracts the term for offsetting which clearly stated that the Group reserves the right to offset the borrowers’ debt against their deposits in the Group.

e) Maximum exposure to credit risk

The maximum exposures of assets on the consolidated 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 were as follows:

Irrevocable loan commitments Credit card commitments Guarantee receivables Letters of credit	December 31
	2019 2018 $ 7,152,089 $ 5,810,795 11,743,903 10,507,270 16,485,312 18,335,961 3,318,935 4,140,679

The management of the Group 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 Group

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 Group does not have such situation. The Group’s credit exposure related to loans was as follows:

Object Private enterprise Natural person Others		December 31	December 31
		2019 $ 248,612,635 217,305,317 2,626,646 $ 468,544,598	2018 $ 261,140,346 223,436,581 1,931,734 $ 486,508,661

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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 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 **
		2019 2018 $ 217,305,317 $ 223,436,581 84,278,234 91,638,350 54,445,987 60,759,475 60,316,865 53,991,855 14,458,438 18,082,362 11,490,230 13,378,876 10,820,858 11,905,926 8,000,869 8,000,887 7,427,800 5,314,349 $ 468,544,598 $ 486,508,661 December 31
		2019 2018 $ 434,606,494 $ 454,099,851 18,224,815 15,694,693 11,519,422 11,766,992 4,193,867 4,947,125 $ 468,544,598 $ 486,508,661 December 31
		2019 $ 73,956,256 352,931,718 15,598,868 5,755,471 12,696,708 1,582,648 2,872,996 3,149,933 $ 468,544,598	2018 $ 78,629,858 363,656,359 17,201,082 6,148,543 12,411,927 1,851,735 3,585,658 3,023,499 $ 486,508,661

• g) Write-off policy

If one of the following events have occurred, overdue loans and delinquent receivables should have the estimated recoverable amount deducted and should then be written off as bad debt:

• The debtor may not recover all or part of the obligatory claim due to dissolution, escape, settlement, bankruptcy or other reasons.

• The appraisal of collateral and properties of the main and subordinate debtors are very low, or the compensation is not available after deducting the amount of the first mortgage, or it is not beneficial that execution fee is close to or may exceed the Bank’s reimbursable amount.

• The collateral and the properties of the main and subordinate debtors are auctioned off at multiple auctions and the Bank did not bear the benefit.

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• Overdue loans and delinquent receivables which have been overdue for more than 2 years have been collected but not yet received.

• The minimum payable amount of credit card which is overdue for six months that should be written off in three months.

• h) Information of credit quality

• i. Notes discounted, loans and receivables

December 31, 2019

Notes Discounted and Loans

Product category Corporation loans Consumer loans Others Total book value Allowance for doubtful accounts Difference of impairment loss under regulations Product category Corporation loans Consumer loans Others Total book value Allowance for doubtful accounts Difference of impairment loss under regulations Product category Corporation loans Consumer loans Total book value Allowance for doubtful accounts Difference of impairment loss under regulations	Stage 1 12-month ECLs $ 216,003,227 199,516,196 24,321 415,543,744 (1,776,628 ) - $ 413,767,116		Stage 2 Lifetime ECL $ 3,305,915 13,565,815 2,135 16,873,865 (852,354 ) - $ 16,021,511		Difference of Impairment Loss Stage 3 under Lifetime ECL Regulations $ 6,117,319 $ - 3,437,092 - 31 - 9,554,442 - (2,468,257 ) - - (1,476,478) $ 7,086,185 $ (1,476,478) Receivables	Total $ 225,426,461 216,519,103 26,487 441,972,051 (5,097,239 ) (1,476,478) $ 435,398,334
			Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 526,388 $ 230,201 $ - 30,693 33,988 - 236 50,882 - 557,317 315,071 - (11,625 ) (165,224 ) - - - (23,828) $ 545,692 $ 149,847 $ (23,828) Irrevocable Loan Commitments			Total $ 11,453,415 938,093 51,385,045 63,776,553 (272,729 ) (23,828) $ 63,479,996
			Stage 2 Lifetime ECL $ - - - - $ -		Difference of Impairment Loss Stage 3 under Lifetime ECL Regulations $ 11,000 $ - - - 11,000 - (4,025 ) - - - $ 6,975 $ -	Total $ 7,026,489 125,600 7,152,089 (53,975 ) - $ 7,098,114

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Credit Card Commitments

Stage 1 12-month ECLs Product category Consumer loans $ 11,670,034 Total book value 11,670,034 Allowance for doubtful accounts (7,534 ) Difference of impairment loss under regulations - $ 11,662,500 Stage 1 12-month ECLs Product category Corporation loans$ 16,287,614 Total book value 16,287,614 Allowance for doubtful accounts (109,720 ) Difference of impairment loss under regulations - $ 16,177,894 Stage 1 12-month ECLs Product category Corporation loans$ 3,318,887 Total book value 3,318,887 Allowance for doubtful accounts (9,638 ) Difference of impairment loss under regulations - $ 3,309,249 December 31, 2018	Stage 1 12-month ECLs $ 11,670,034 11,670,034 (7,534 ) - $ 11,662,500		Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 73,869 $ - $ - 73,869 - - (1,848 ) - - - - - $ 72,021 $ - $ - Guarantee Receivables	Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 73,869 $ - $ - 73,869 - - (1,848 ) - - - - - $ 72,021 $ - $ - Guarantee Receivables	Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 73,869 $ - $ - 73,869 - - (1,848 ) - - - - - $ 72,021 $ - $ - Guarantee Receivables	Total $ 11,743,903 11,743,903 (9,382 ) - $ 11,734,521
			Stage 2 Lifetime ECL $ 14,864 14,864 (1,778 ) - $ 13,086			Total $ 16,485,312 16,485,312 (170,119 ) (4,344) $ 16,310,849
			Stage 2 Lifetime ECL $ - - - - $ -		Difference of Impairment Loss Stage 3 under Lifetime ECL Regulations $ 48 $ - 48 - (7 ) - - (2,233) $ 41 $ (2,233)	Total $ 3,318,935 3,318,935 (9,645 ) (2,233) $ 3,307,057

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 ECLs $ 227,802,577 208,024,931 40,993 435,868,501 (1,768,334 ) - $ 434,100,167		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 $ 236,395,435 222,687,147 44,071 459,126,653 (4,465,382 ) (2,066,719) $ 452,594,552

• 98 -

Product category Corporation loans Consumer loans Others Total book value Allowance for doubtful accounts Difference of impairment loss under regulations Product category Corporation loans Consumer loans Total book value Allowance for doubtful accounts Difference of impairment loss under regulations Product category Consumer loans Total book value Allowance for doubtful accounts Difference of impairment loss under regulations Product category Consumer loans Total book value Allowance for doubtful accounts Difference of impairment loss under regulations					Receivables
	Stage 1 12-month ECLs $ 9,583,734 1,355,009 48,156,089 59,094,832 (87,567 ) - $ 59,007,265		Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 194,095 $ 221,337 $ - 32,364 37,536 - 1 55,783 - 226,460 314,656 - (5,695 ) (151,315 ) - - - (57,500) $ 220,765 $ 163,341 $ (57,500) Irrevocable Loan Commitments			Total $ 9,999,166 1,424,909 48,211,873 59,635,948 (244,577 ) (57,500) $ 59,333,871
			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
			Difference of Impairment Loss Stage 2 Stage 3 under Lifetime ECL Lifetime ECL Regulations $ 49,205 $ - $ - 49,205 - - (1,299 ) - - - - - $ 47,906 $ - $ - Guarantee Receivables			Total $ 10,507,270 10,507,270 (9,382 ) - $ 10,497,888
			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 of Credit	Letters of Credit
	Stage 1 12-month ECLs $ 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 December 31, 2019

Product category (Note) Investment grade bond Non-investment grade bond Total book value Allowance for impairment Difference of impairment loss under regulations Product category (Note) Investment grade bond Non-investment grade bond Others (NCDs issued by the CBC) Total book value Allowance for impairment Difference of impairment loss under regulations			Financial Assets	Financial Assets	at FVTOCI
	Stage 1 Stage 2 Stage 3 12-month ECLs Lifetime ECL Lifetime ECL Total $ 30,015,749 $ - $ - $ 30,015,749 - - - - 30,015,749 - - 30,015,749 (15,405 ) - - (15,405 ) - - - - $ 30,000,344 $ - $ - $ 30,000,344 Investments in Debt Instruments at Amortized Cost
			Stage 2 Lifetime ECL $ - - - - - - $ -		Stage 3 Lifetime ECL $ - 17,477 - 17,477 (17,477 ) - $ -	Total $ 49,458,458 17,477 59,535,000 109,010,935 (41,662 ) - $ 108,969,273

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.

• 100 -

The breakdown below shows the debt instruments classified as FVTOCI and financial assets at amortized cost.

December 31, 2019

		Financial Assets
	Financial Assets	at Amortized
	at FVTOCI	Cost
Total book value	$ 29,857,621	$ 109,010,935
Loss allowance	(15,405)	(41,662)
Amortized cost	29,842,216	108,969,273
Fair value adjustment	158,128	-
	$ 30,000,344	$ 108,969,273

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

Credit Rating	Definition	Recognition Basis	Expected Credit Loss	Total Book Value	Total Book Value
				Financial Assets at FVTOCI	Financial Assets at Amortized Cost
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 recoverthe debt.	12-month expected credit losses Lifetime expected credit losses (no credit impaired) Lifetime expected credit losses (credit impaired) Write-off	0.00%-0.45% 100%	$ 29,857,621 - - -	$ 108,993,458 - 17,477 -

• 101 -

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

Financial assets at FVTOCI Balance, January 1, 2019 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 Loss allowance, December 31, 2019 Financial assets at amortized cost Balance, January 1, 2019 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 Loss allowance, December 31, 2019	Credit Rating
	Normal (12-Month Expected credit Losses) Abnormal (Lifetime ECL Without Credit Impaired) Default (Lifetime ECL with Credit Impaired) $ 15,525 $ - $ - - - - - - - - - - 2,910 - - (2,142) - - - - - (888) - - $ 15,405 $ - $ - Credit Rating
	Normal (12-Month Expected credit Losses) Abnormal (Lifetime ECL Without Credit Impaired) Default (Lifetime ECL with Credit Impaired) $ 30,685 $ - $ 74,444 - - - - - - - - - 2,017 - - (800) - (56,967) - - - (7,717) - - $ 24,185 $ - $ 17,477

• 102 -

December 31, 2018

Product category (Note) Investment grade bond Non-investment grade bond Total book value Allowance for impairment Difference of impairment loss under regulations Product category (Note) Investment grade bond Non-investment grade bond Others (NCDs issued by the CBC) Total book value Allowance for impairment Difference of impairment loss under regulations			Financial Assets	Financial Assets	at FVTOCI
	Stage 1 Stage 2 Stage 3 12-month ECLs 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 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 FVTOCI and financial assets at amortized cost.

December 31, 2018

		Financial Assets
	Financial Assets	at Amortized
	at FVTOCI	Cost
Total book value	$ 27,399,827	$ 101,412,890
Loss allowance	(15,525)	(105,129)
Amortized cost	27,384,302	101,307,761
Fair value adjustment	107,892	-
	$ 27,492,194	$ 101,307,761

• 103 -

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	Total Book Value
				Financial Assets at FVTOCI	Financial Assets at Amortized Cost
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 the debt.	12-month expected credit losses Lifetime expected credit losses (no credit impaired) Lifetime expected credit losses (credit impaired) Write-off	0.00%-2.09% 100%	$ 27,399,827 - - -	$ 101,338,446 - 74,444 -

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

Financial assets at FVTOCI 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 Loss allowance, December 31, 2018	Credit Rating
	Normal (12-Month Expected credit Losses) Abnormal (Lifetime ECL Without Credit Impaired) Default (Lifetime ECL with Credit Impaired) $ - $ - $ - 19,336 - - 19,336 - - - - - - - - - - - - - - (2,679) - - - - - (1,132) - - $ 15,525 $ - $ -

• 104 -

Financial assets at amortized cost 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 Loss allowance, 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 - 73,887 9,177 - 73,887 - - - - - - - - - 22,701 - - (1,020) - - - - - (173) - 557 $ 30,685 $ - $ 74,444

3) Liquidity risk

• a) The source and definition of liquidity risk:

Liquidity risk refers to the potential loss resulting from the shortage of funds in acquiring assets or repaying debts on maturity, such as the cash outflow arising from the depositors’ withdrawal of deposits, loan drawdown, other interests, expenses, or off-balance sheet transactions. To ensure sufficient capital liquidity, measures that can be taken include enough cash buffer in stock or readily realizable marketable securities, allocation of the period, absorbing deposits or financing borrowing, etc.

b) The Group’s liquidity risk policies

The Group establishes a strategy based on the conservatism principle to diversify the source and duration of funds, participates in the fund’s lending market and maintains strong relationship with fund providers to ensure the stability and reliability of funding sources.

The Group formulates relevant standards including risk identification, measurement, monitoring and reporting in order to control and grasp the potential adverse effects, regularly performs stress tests and analyzes the crisis situation to mitigate impact of excessive capital flows, establishes a limit monitoring mechanism, and sets management indicators such as liquidity ratios, cash flow gaps, etc.

The Group’s liquidity risk management unit is the Asset and Liability Management Committee (hereinafter referred to as the “Committee”). The Committee must adopt necessary monitoring steps to maintain adequate liquidity and ensure that certain committees should regularly report to the board of directors for effective management of liquidity risks.

• 105 -

Maturity analysis of non-derivative financial liabilities

The Group disclosed the analysis of cash outflows from non-derivative financial liabilities by the residual maturities as of the balance sheet date. 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 on the consolidated balance sheets.

December 31, 2019	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 **Year **	Over 1 Year	Total
Due to central bank and other banks Funds borrowed from central bank and other banks Securities sold under repurchase agreements Payables Deposits and remittances Bank debentures Lease liabilities Other items ofcashoutflow on maturity	$ 4,760,161 1,259,401 6,870,766 4,315,534 44,914,960 - 18,694 1,170,015	$ 1,599,224 2,162,174 3,548,335 519,917 65,567,852 - 37,439 177,790	$ 730 1,118,150 - 240,183 74,710,831 2,501,005 56,058 74,584	$ 166,945 1,429,534 - 501,299 150,260,795 68,701 88,458 114,448	$ - 122,781 - 341,478 247,867,519 11,500,000 817,249 219,310	$ 6,527,060 6,092,040 10,419,101 5,918,411 583,321,957 14,069,706 1,017,898 1,756,147
December 31, 2018	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 **Year **	Over 1 Year	Total
Due to 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 items ofcashoutflow on maturity	$ 2,934,764 1,453,828 4,752,462 10,353,538 52,195,290 - 740,565	99,224 1,677,823 5,216,637 708,785 74,868,276 - 522,875	$ 730 1,597,184 - 261,714 80,796,714 12,202 44,341	$ 344,034 652,684 - 488,855 145,026,424 6,068,723 73,008	$ - 114,000 - 360,947 235,080,954 14,000,000 188,452	$ 3,378,752 5,495,519 9,969,099 12,173,839 587,967,658 20,080,925 1,569,241

Maturity analysis of derivative financial liabilities

a) Derivative instruments that settled at net amount

The derivative instruments that settled at net amount include:

Foreign exchange derivative: Foreign exchange forward contracts and cross-currency option contracts

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

December 31, 2019	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	$ 8,052	$ 26,392	$ 25,784	$ 26,322	$ -	$ 86,550
Total	$ 8,052	$ 26,392	$ 25,784	$ 26,322	$ -	$ 86,550
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	$ 4,976	$ 19,442	$ 19,717	$ 11,987	$ -	$ 56,122
Total	$ 4,976	$ 19,442	$ 19,717	$ 11,987	$ -	$ 56,122

• 106 -

• b) Derivative instruments that settled at gross amount

The derivative instruments that settled at gross amount include:

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

The Group disclosed the analysis of derivative instruments to be settled at gross amount by the residual maturities as of the balance sheet date. The Group assesses the maturity dates of derivative 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 on the consolidated balance sheets. The maturity analysis of derivate financial liabilities which be settled at gross amount was as follows:

December 31, 2019	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	$ 1,104,025 1,087,564	$ 1,907,146 1,876,039	$ 2,013,035 1,974,123	$ 929,481 904,147	$ - -	$ 5,953,687 5,841,873
Total outflows Total inflows	1,104,025 1,087,564	1,907,146 1,876,039	2,013,035 1,974,123	929,481 904,147	- -	5,953,687 5,841,873
Net flows	$ (16,461)	$ (31,107)	$ (38,912)	$ (25,334)	$ -	$ (111,814)
December 31, 2010	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 5,736,966
Net flows	$ (48,270)	$ (17,710)	$ (9,491)	$ (7,661)	$ -	$ (83,132)

• 4) Maturity analysis of off-balance-sheet items

The following table shows the Group’s maturity analysis of off-balance sheet items based on the residual maturities from the consolidated balance sheets. 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 consolidated balance sheets.

December 31, 2019	0-30 Days	31-90 Days	91-180 Days	181 Days - 1 Year	Over 1 Year	Total
Loan commitment Letters of credit Guarantee receivables Lease contract commitment	$ 10,197,687 985,636 2,095,901 963,551	$ 17,979,600 1,955,514 5,829,509 252,675	$ 27,233,146 276,456 1,215,728 7,727	$ 64,306,327 101,329 1,878,103 16,851	$ 31,203,341 - 5,466,071 -	$ 150,920,101 3,318,935 16,485,312 1,240,804
Total	$ 14,242,775	$ 26,017,298	$ 28,733,057	$ 66,302,610	$ 36,669,412	$171,965,152
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 Lease contract commitment	$ 12,176,189 1,557,248 6,264,671 1,803,183	$ 24,525,708 2,428,724 3,749,910 -	$ 30,931,999 143,161 858,950 -	$ 65,838,590 11,546 1,659,683 -	$ 29,673,600 - 5,802,747 -	$ 163,146,086 4,140,679 18,335,961 1,803,183
Total	$ 21,801,291	$ 30,704,342	$ 31,934,110	$ 67,509,819	$ 35,476,347	$187,425,909

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

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

• 107 -

40. TRANSFERS OF FINANCIAL ASSETS

The Transferred Financial Assets That Do Not Qualify for Derecognition

Most of the transferred financial assets of the Group 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 Group’s obligation to repurchase the transferred financial assets at a fixed price in the future would be recognized. As the Group 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, 2019	December 31, 2019	December 31, 2019
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	$ 11,011,466	$ 10,369,025	$ 11,123,977	$ 10,369,025	$ 754,952
	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

41. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

The Group 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 consolidated balance sheets.

The Group 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 Group 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.

The netting information of financial assets and financial liabilities is set out below:

December 31, 2019

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 Sheet the Balance Sheets Securities purchased under resell agreements$ 10,256,716 $ - $ 10,256,716	Related Amounts Not Offset in the Balance Sheet Financial Instruments Cash Collateral Received $ 10,256,716 $ -	Net Amount $ -

• 108 -

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 Sheet the Balance Sheets Securities sold under repurchase agreements$ 10,369,025 $ - $ 10,369,025	Related Amounts Not Offset in the Balance Sheet Financial Instruments Cash Collateral Pledged $ 10,369,025 $ -	Net Amount $ -

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 Sheet the Balance Sheets Securities purchased under resell agreements$ 9,294,168 $ - $ 9,294,168 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 Sheet the Balance Sheets Securities sold under repurchase agreements$ 9,904,467 $ - $ 9,904,467	Related Amounts Not Offset in the Balance Sheet Financial Instruments Cash Collateral Received $ 9,294,168 $ - Related Amounts Not Offset in the Balance Sheet Financial Instruments Cash Collateral Pledged $ 9,904,467 $ -	Net Amount $ - Net Amount $ -

• 109 -

42. INFORMATION ABOUT THE BANK

a. Asset quality

Category	Items	Items			December 31, 2019					December 31, 2018
			Non-performing Loan (Note 1)	Total Loan	NPL Ratio (Note 2)	Allowance For Loan Losses	Coverage Ratio (Note 3)	Non-performing Loan (Note 1)	Total Loan	NPL Ratio (Note 2)	Allowance For Loan Losses	Coverage Ratio (Note 3)
Corporate loans	Secured		$ 596,122	$146,760,794	0.41%	$ 1,560,901	261.84%	$ 980,023	$152,938,946	0.64%	$ 1,471,243	150.12%
	Unsecured		156,327	78,622,829	0.20%	3,005,494	1,922.57%	350,210	83,415,828	0.42%	3,126,240	892.68%
Consumer loans	Mortgage (Note4)		164,457	55,404,669	0.30%	863,083	524.81%	277,102	57,027,677	0.49%	915,184	330.27%
	Cashcard		-	30	-	3	-	-	40	-	5	-
	Microcredit(Note5)		2,676	840,780	0.32%	86,721	3,240.70%	5,417	872,621	0.62%	90,357	1,668.03%
	Other (Note 6)	Secured	428,694	144,347,108	0.30%	692,342	161.50%	395,286	150,125,230	0.26%	577,436	146.08%
		Unsecured	34,021	15,039,986	0.23%	364,775	1,072.21%	46,306	13,835,868	0.33%	351,238	758.52%
Loans			1,382,297	441,016,196	0.31%	6,573,319	475.54%	2,054,344	458,216,210	0.45%	6,531,703	317.95%
Category		Items			December 31, 2019					December 31, 2018
			Overdue Receivable	Accounts Receivable	Delinquency Ratio	Allowance for Credit Losses	Coverage Ratio	Overdue Receivable	Accounts Receivable	Delinquency Ratio	Allowance for Credit Losses	Coverage Ratio
Credit card			$ 2,568	$ 786,214	0.33%	$ 22,982	894.94%	$ 4,710	$ 749,434	0.63%	$ 27,453	582.87%
Accounts rec	eivable without reco	urse(Note 7)	-	694,997	-	10,538	-	-	133,277	-	12,165	-

• 110 -

Non-reportable overdue loans and receivables

	December 31, 2019	December 31, 2019	December 31, 2018	December 31, 2018
	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)	$ 2,114	$ 1,100	$ 2,896	$ 1,376
Amount received from performance of debt negotiation program (Note 9)	9,635	17,396	9,103	17,680
Total	11,749	18,496	11,999	19,056

• 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, 2019
Top 10 Rank (Note 1)	Group (Note 2)	Total Credit (Note 3)	Percentage of Net Worth (%)
1	Group A 010892 manufacture of macaroni, noodles, couscous and similar farinaceous products	$ 2,665,813	5.20
2	Group B 016700realestate development activities	2,525,418	4.92
3	Group C 016700realestate development activities	2,503,343	4.88
4	Group D 016700realestate development activities	2,390,690	4.66
5	Group E 016811 real estate activities for sale and rental with own or leased property	2,375,429	4.63
6	Group F 012411 smelting and refining of iron and steel	2,283,081	4.45
7	Group G 016700 real estate development activities	2,115,000	4.12
8	Group H 015500 accommodation	2,085,229	4.06
9	Group I 012699 manufacture of other electronic parts and components not elsewhere classified	1,799,897	3.51
10	Group J 014612 wholesale of brick, sand, cement and products	1,550,001	3.02

• 112 -

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

• 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 manufacture of macaroni, noodles, couscous and similar farinaceous product).

• 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.

• c. Interest rate sensitivity information

Interest Rate Sensitivity December 31, 2019

(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	$463,217,920	$ 7,445,473	$ 9,154,304	$ 86,858,937	$ 566,676,634
Interest-sensitive liabilities	145,583,754	290,922,949	99,916,922	5,351,959	541,775,584
Interest sensitivity gap	317,634,166	(283,477,476)	(90,762,618)	81,506,978	24,901,050
Net equity					51,309,206
Ratio of interest-sensitive assets to liabilities					104.60%
Ratio of interest sensitivity gap tonet equity					48.53%

• 113 -

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-sensitiveliabilities	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 gap to net equity					53.87%

• 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, 2019

(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	$1,210,594	$ 231,333	$ 26,028	$ 436,459	$1,904,414
Interest-sensitive liabilities	781,756	909,543	216,067	-	1,907,366
Interest sensitivity gap	428,838	(678,210)	(190,039)	436,459	(2,952)
Net equity					1,710,307
Ratio of interest-sensitive assets to liabilities					99.85%
Ratio of interest sensitivity gap tonet equity					(0.17%)

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-sensitiveliabilities	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 gap tonet equity					2.31%

• 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.

• 114 -

• 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, 2019	December 31, 2018
Return on total assets	Pretax	0.75	0.69
	Aftertax	0.64	0.60
Return on net equity	Pretax	10.22	10.17
	After tax	8.72	8.79
Profitmargin		38.88	37.55

• 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, 2019 and 2018.

• e. Maturity analysis of assets and liabilities

Maturity Analysis of Assets and Liabilities December 31, 2019

(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	$ 609,292,349	$ 85,555,035	$ 43,772,344	$ 29,767,509	$ 51,719,298	$ 97,885,687	$ 300,592,476
Main capital outflow on maturity	726,163,310	24,967,880	30,412,825	72,406,095	98,591,847	192,988,476	306,796,187
Gap	(116,870,961)	60,587,155	13,359,519	(42,638,586)	(46,872,549)	(95,102,789)	(6,203,711)

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

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, 2019

(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	$ 2,159,517	$ 287,818	$ 258,938	$ 239,853	$ 141,120	$ 1,231,788
Main capital outflow on maturity	2,795,533	559,115	765,666	551,532	752,039	167,181
Gap	(636,016 )	(271,297 )	(506,728 )	(311,679 )	(610,919 )	1,064,607

• 115 -

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

• 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.

43. CAPITAL MANAGEMENT

• a. The purpose of capital management is to reach the criteria set by administration which is the basic goal of the Group’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 Group 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 Group 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.

• 116 -

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.

c. Capital adequacy ratio (CAR)

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

Year Items	Year Items	Year Items	December 31, 2019	December 31, 2018
Eligible capital	Common equity		$ 50,574,005	$ 47,091,109
	Other Tier 1capital		11,424,239	11,424,845
	Tier 2capital		5,572,418	6,044,912
	Eligible capital		67,570,662	64,560,866
Risk-weighted assets	Credit risk	Standardized approach	455,727,824	466,250,475
		Internal ratings-based approach	-	-
		Securitization	-	-
	Operational risk	Basicindicatorapproach	21,789,238	20,815,488
		Standardized approach/alternative standardized approach	-	-
		Advanced measurement approach	-	-
	Market risk	Standardized approach	8,165,000	9,128,563
		Internal modelapproach	-	-
	Risk-weighted assets		485,682,062	496,194,526
Capital adequacy ratio (%)			13.91%	13.01%
Ratio ofcommonequity torisk-weighted assets (%)			10.41%	9.49%
Ratio of Tier 1 capital to risk-weighted assets (%)			12.77%	11.79%
Leverage ratio (%)			8.69%	8.05%

• 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.

• 117 -

• 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.

44. 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 Funds borrowed from central bank and banks Deposits and remittances Financial liabilities at fair value through profit or loss Payables Provisions Securities sold under repurchased agreements Lease liabilities Other liabilities New Taiwan dollars exchange rate

December 31, 2019

USD CNY JPY AUD EUR Others Total $ 1,989,452 $ 1,132,113 $ 1,020,819 $ 369,682 $ 111,721 $ 389,871 $ 5,013,658 60,000 94,754 - 273,260 - - 428,014 1,183,605 14,669 - 210 - - 1,198,484 1,081,986 - - - - - 1,081,986 34,318,741 877,054 369,279 78,956 414,949 848,924 36,907,903 1,526,730 3,283,336 161,925 39,577 109,455 70,775 5,191,798 19,180,305 2,368,093 - 1,282,208 - 959,972 23,790,578 121,236 86,140 - - - - 207,376 1,490,060 - - - 100,860 9,940 1,600,860 114,000 2,502,533 - - - - 2,616,533 47,488,086 3,128,176 678,269 2,278,560 539,523 1,838,341 55,950,955 104,773 - - 300 65 - 105,138 797,132 200,782 111,876 8,857 126,869 116,283 1,361,799 - 48,951 - - - 7,726 56,677 8,366,270 - - - - - 8,366,270 28,552 - - - - - 28,552 73,580 9,505 1,803 - 3,343 - 88,231 30.00 4.31 0.28 21.02 33.62

• 118 -

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 Funds borrowed from central bank and banks Deposits and remittances Financial liabilities at fair value through profit or loss Payables Securities sold under repurchased agreements Lease liabilities Other liabilities New Taiwan dollars exchange rate

December 31, 2018

USD CNY JPY AUD EUR Others Total $ 1,789,951 $ 856,457 $ 491,643 $ 465,958 $ 1,277,676 $ 807,161 $ 5,688,846 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 2,634,671 2,460,502 251,121 11,470 150,493 85,759 5,594,016 17,538,248 2,280,163 - 1,322,022 - 148,932 21,289,365 140,863 3,202 - - - - 144,065 1,074,850 - - - - - 1,074,850 377,733 2,039,436 - - - - 2,417,169 44,331,207 3,556,606 664,068 2,336,307 506,670 1,610,067 53,004,925 71,504 - - - - 10 71,514 974,330 226,251 91,995 6,612 1,208,062 116,473 2,623,723 8,704,431 - - - - - 8,704,431 29,944 - - - - - 29,944 205,768 11,418 - - 1,360 2,127 220,673 30.71 4.47 0.28 21.67 35.21

45. CASH FLOW INFORMATION

Changes in Liabilities Arising from Financing Activities

For the year ended December 31, 2019

Funds borrowed from central bank and other banks Commercial papers Guarantee deposit received Bank debentures Lease liabilities (Note 3)	Opening Balance $ 5,495,519 998,680 568,435 20,000,000 1,039,866 $ 28,102,500	Cash Inflows (Outflows) $ 596,521 175,403 13,629 (6,000,000 ) (198,107) $ (5,412,554)		Non-cash Changes New Leases Lease Term End $ - $ - - - - - - - 322,926 (269,400) $ 322,926 $ (269,400)	Closing Balance $ 6,092,040 1,174,083 582,064 14,000,000 895,285 $ 22,743,472
				New Leases $ - - - - 322,926 $ 322,926

For the year ended December 31, 2018

Funds borrowed from central bank and other banks Commercial papers Guarantee deposit received Bank debentures	Opening Balance $ 5,120,940 1,014,432 401,887 17,500,000 $ 24,037,259	Cash Inflows (Outflows) $ 374,579 (15,752 ) 166,548 2,500,000 $ 3,025,375		Non-cash Changes New Leases Lease Term End $ - $ - - - - - - - $ - $ -	Closing Balance $ 5,495,519 998,680 568,435 20,000,000 $ 27,062,634
				New Leases $ - - - - $ -

• 119 -

46. OPERATING SEGMENT FINANCIAL INFORMATION

Information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided. The Group’s reportable segments are as follows:

Northern area Central area Southern area OBU Overseas branch Head office and others

a. Segment revenues and results

The analysis of the Group’s revenue and results from continuing operations by reportable segment was as follows:

For the year ended December 31, 2019 Interest revenue Interest expense Net revenue Net income and loss other than interest Service fee income Gain on financial instrument Others Bad - debt expenses and provision for losses on commitments and guarantees Operating expenses Income before income tax For the year ended December 31, 2018 Interest revenue Interest expense Net revenue Net income and loss other than interest Service fee income Gain on financial instrument Others Bad - debt expenses and provision for losses on commitments and guarantees Operating expenses Income before income tax	Northern Area $ 3,515,081 (1,664,235) 1,850,846 453,415 26,422 13,661 (686,193 ) (846,131) $ 812,020 $ 3,697,810 (1,764,659) 1,933,151 479,533 34,922 10,994 (240,590 ) (872,165) $ 1,345,845	Central Area $ 5,177,962 (1,535,001) 3,642,961 820,649 46,435 28,812 (180,314 ) (1,558,845) $ 2,799,698 $ 5,025,730 (1,482,816) 3,542,914 901,917 35,445 28,636 (670,576 ) (1,525,404) $ 2,312,932	Southern Area $ 3,131,905 (1,034,086) 2,097,819 531,960 14,816 26,972 (381,850 ) (1,052,138) $ 1,237,579 $ 3,116,222 (1,002,346) 2,113,876 525,119 12,706 25,839 (5,969 ) (982,443) $ 1,689,128	OBU $ 1,961,867 (1,317,893) 643,974 99,767 52,811 (13,705 ) (161,912 ) (36,910) $ 584,025 $ 1,760,179 (1,221,116) 539,063 142,634 28,585 13,906 (42,609 ) (31,212) $ (650,367)	Overseas Branch $ 59,514 (23,805) 35,709 6,504 - 19,302 (22,645 ) (27,466) $ 11,404 $ 150 (5) 145 1,382 - (4,851 ) (4,398 ) (12,439) $ (20,161 )	Head Office and Others Adjustment and Write-off $ 2,425,966 $ (2,838,518 ) (2,346,745) 2,838,518 79,221 - 1,001,020 - 378,383 - 313,229 (75,355 ) 817,440 (2,827,034) 75,355 $ (237,741) $ - $ 2,345,448 $ (2,884,806 ) (2,040,387) 2,884,806 305,061 795,589 - 58,320 - 241,415 (76,877 ) 491,370 (3,109,983) 76,877 $ (1,218,228) $ -	Total $ 13,433,777 (5,083,247) 8,350,530 2,913,315 518,867 312,916 (615,474 ) (6,273,169) $ 5,206,985 $ 13,060,733 (4,626,523) 8,434,210 2,846,174 169,978 239,062 (472,772 ) (6,456,769) $ 4,759,883

This measure is provided to the chief operating decision maker to allocate resources and measure the segment performance.

• 120 -

b. Segment assets

Segment Assets Northern area Central area Southern area OBU Overseas branch Head office and others		December 31	December 31
		2019 $ 131,547,637 190,521,187 97,703,639 55,115,671 1,696,811 206,103,977 $ 682,688,922	2018 $ 144,116,849 206,291,855 106,254,895 52,338,356 289,829 181,540,319 $ 690,832,103

• c. Revenue from major products and services

The main business of the Group is interest revenue; therefore, no product or service information is available.

d. Geographical information

Location Taiwan Asia America	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 11,825,672 258,904 11,052 $ 12,095,628	2018 $ 11,532,449 143,629 13,346 $ 11,689,424

• e. Information about major customers

The interest revenue of the Group from any single customer does not exceed 10% of the total interest revenue; therefore, information on major customers is not available.

• 121 -

47. 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 the paid-in capital.	None
2	Acquisition of individual real estate at costs of at least NT$300 million or 10% of the paid-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 ofservicefees torelated parties amounting to atleast NT$5million.	None
5	Receivables from related parties amounting to at least NT$300 million or 10% of the paid-incapital.	None
6	Sale of nonperforming loans.	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 Group’s investees:

No.	**Item **	Note
1	Related information and proportionate share in investees.	Table 1
2	Financing provided.	Table 2
3	Endorsement/guarantee provided.	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 the paid-in capital	None
6	Acquisition of individual real estates at costs of at least NT$300 million or 10% of the paid-in capital.	None
7	Disposal of individual real estates at costs of at least NT$300 million or 10% of the paid-in capital.	None
8	Allowance ofservicefees torelated parties amounting to atleast NT$5million.	None
9	Receivables from related parties amounting to at least NT$300 million or 10% of the paid-incapital.	None
10	Sale of nonperforming loans.	None
11	Financialasset securitizationandrealestate securitization.	None
12	Derivative transactions.	Note 8
13	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).

• d. Business relationships and significant transactions among parent company and subsidiaries: Table 6 (attached).

• 122 -

TABLE 1

TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

THE RELATED INFORMATION AND PROPORTIONATE SHARE IN INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2019

(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)	Note
							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	$ 2,024,588 156,788 1,404,823 1,904,602 786,508 726,048	$ 471,300 (3,002) 20,671 74,928 33,564 25,808	128,600 18,643 150,000 189,729 30,000 -	- - - - - -	128,600 18,643 150,000 189,729 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.

• 123 -

TABLE 2

TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No. (Note 1)	Lender	Borrower	Financial Statements 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 2 3	Taichung Bank Leasing Corporation Limited TCCBL Co., Ltd. (B.V.I.) Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Chang Hong International Development Co., Ltd. Hung Hsin Construction Inc. General Energy Solutions Co., Ltd. Yi Le Construction Inc. Huang Chao Golden Hall Co., Ltd. Yuan Li Engineering Inc. Kuang Ming Shipping Corp. Pao Mei Construction Inc. Wisdom International industrial Co., Ltd. Pao Hung Construction industrial Co., Ltd. Hsin Fu International Co., Ltd. Wan Ku Fu Co., Ltd. Ever Merit Trading Limited League International Limited Cross Border Profits Limited TCT Capital Co., Ltd. Zhangjiajie Zhongjun Real Estate Co., Ltd.	Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Entrusted loan	Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related	$ 21,989 64,170 23,476 63,050 16,696 35,678 100,000 104,000 100,000 116,000 58,520 120,000 18,960 7,900 29,230 50,560 27,600	$ - - - - - 16,298 42,150 - 75,177 114,260 58,520 115,070 - - 23,070 - 14,213	$ - - - - - 16,298 42,150 - 75,177 114,260 - 55,070 - - 23,070 - 14,213	4-10 4-10 4-10 4-10 4-10 4-10 4-10 4-10 3.5-10 4-10 4-10 4-10 5.25 4-10 4-10 4-10 9.6	Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing Necessary for short-term financing	$ - - - - - - - - - - - - - - - - -	Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Business turnover Capital investment plan expenditure	$ - - - - - 163 222 - 752 1,143 - 551 - - 201 - 213	Real estate Real estate Margin Real estate Margin None Margin Real estate None Real estate Real estate Real estate Share Margin Margin Margin Real estate	$ 29,079 58,613 5,000 65,161 6,000 - 20,000 88,813 - 100,194 59,632 70,984 60,480 3,000 3,000 4,800 232,190	$ 190,460 190,460 190,460 190,460 190,460 190,460 190,460 190,460 190,460 190,460 190,460 190,460 78,651 78,651 78,651 78,651 290,419	$ 761,841 761,841 761,841 761,841 761,841 761,841 761,841 761,841 761,841 761,841 761,841 761,841 314,603 314,603 314,603 314,603 290,419	Note 9 Note 9 Note 9 Note 9 Note 9 Note 9 Note 9 Note 9 Note 9 Note 9 Note 9 Note 9 Note 10 Note 10 Note 10 Note 10 Note 11

(Continued)

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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 contracts or those who have short-term financing.

Note 5: Nature of the loan of the business contracts 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.

• 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 provided 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 provided 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 provided to others is limited to 40% of the net value of Taichung Bank Financial Leasing (Suzhou) Co., Ltd.

(Concluded)

• 125 -

TABLE 3

TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2019 (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	$ 11,427,612	$ 1,221,512	$ 942,289	$ 114,000	$ -	49.48	$ 19,046,020	-	-	-
2	Taichung Bank Leasing Corporation Limited	Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Indirect shareholding of 100% of subsidiary	11,427,612	2,083,830	1,841,251	1,663,922	-	96.68	19,046,020	-	-	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.

• 126 -

TABLE 4

TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars or Shares)

Name of Holding Company	Type and Name of Marketable Securities	Relationship	Financial Statements Account		December 31, 2019	December 31, 2019		Note
				Shares	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 unlisted 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 shares TCCBL Co., Ltd. (B.V.I.) Foreign unlisted shares Taichung Bank Financial Leasing (Suzhou) Co., Ltd.	Subsidiary Subsidiary Subsidiary Association 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 Investment accounted for using the equity method Investment accounted for using the equity method Investment accounted for using the equity method	189,729 128,600 150,000 12,000 30,000 -	$ 1,904,602 2,024,588 1,404,823 156,788 786,508 726,048	100 100 100 38 100 100	$ 1,904,602 2,024,588 1,404,823 156,788 786,508 726,048

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

• 127 -

TABLE 5

TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2019 (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, 2019	Investment Flows	Investment Flows	Accumulated Outflow of Investment from Taiwan as of December 31, 2019	% Ownership of Direct or Indirect Investment	Investment Gain	Carrying Value as of December 31, 2019	Accumulated Inward Remittance of Earnings as of December 31, 2019
							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	$ 25,808 (CNY 5,774 thousand)	$ 726,048 (CNY 168,574 thousand)	$ -
Accumulated Investment in Mainland China as of December 31, 2019		Investment Amount Approved by the Investment Commission, MOEA		Maximum Investment Allowable (Note 2)
$893,373		$893,373		$1,142,761

Note 1: Recognition of investment gains and losses based on the financial statements audited by the parent company’s 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’s 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$4.31, CNY1=NT$4.47).

• 128 -

TABLE 6

TAICHUNG COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES

BUSINESS RELATIONSHIP AND SIGNIFICANT TRANSACTIONS BETWEEN THE PARENT COMPANY AND SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 2019

(In Thousands of New Taiwan Dollars)

No. (Note 1)	Transaction Company	Counterparty	Transaction Flow (Note 2)		Description of Transactions	Description of Transactions
				Financial Statements Account	Amounts (Note 3)	Trading Terms	Transaction Amount/Total Consolidated Net Revenue or Total Consolidated Assets (%) (Note 4)
0	December 31, 2019 Taichung Commercial Bank Co., Ltd.	Taichung Insurance Brokers Co. Taichung Insurance Brokers Co. Taichung Insurance Brokers Co. Taichung Commercial Bank Securities Co., Ltd. Taichung Commercial Bank Securities Co., Ltd. Taichung Commercial Bank Securities Co., Ltd. Taichung Commercial Bank Securities Co., Ltd. Taichung Bank Leasing Corporation Limited Taichung Bank Leasing Corporation Limited Taichung Bank Leasing Corporation Limited	a a a a a a a a a a	Deposits and remittances Service fee income Receivables Right-of-use assets Lease liabilities Deposits and remittances General and administrative Deposits and remittances Right-of-use assets Lease liabilities	$ 1,452,291 250,000 20,837 22,261 19,863 22,915 26,680 68,474 11,340 10,190	The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties. The terms for the transactions between the company and related parties are similar to those for unrelated parties.	- 2 - - - -

(Continued)

• 129 -

• Note 1: The parent company and subsidiaries are numbered as follows:

• a. Parent company: 0.

• b. Subsidiaries are numbered sequentially from 1.

Note 2: Transaction flows are as follows:

• a. From parent company to subsidiary,

• b. From subsidiary to parent company, and

• c. Between subsidiaries.

Note 3: Have been eliminated on consolidation.

• Note 4: Percentage to the consolidated total assets is calculated by dividing the amount of a particular asset or liability account by the consolidated total assets as of December 31, 2019 and 2018. Percentage to the consolidated total revenues is calculated by dividing the amount of a particular revenue or cost or expense account by the consolidated total operating revenues for the years ended December 31, 2019 and 2018.

• Note 5: Referring to transactions exceeding $10,000 thousand.

(Concluded)

• 130 -