2014 annual report -...

Date：Feb. 28, 2015This report is also available at our website.(http://www.firstholding.com.tw)

Stock Code: 2892

2014 ANNUAL REPORT

This English version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail.

FIRSTFINANCIALHOLDING

Contents02041116

3235

5156

242

Financial HighlightsLetter to ShareholdersCompany ProfileCorporate Governance

Capital OverviewSubsidiaries Overview

Corporate Social ResponsibilitiesFinancial InformationGeneral Information

FIRSTFINANCIALHOLDING

FIRST FINANCIAL HOLDING CO., LTD. 2014 ANNUAL REPORT

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2014 2013 2012Income statements (in NT$ mn)

Net Revenue 34,186 36,466 35,273

Expenses (17,703) (23,417) (23,126)

Income before tax 16,483 13,049 12,147

Net income 14,078 10,877 10,169

EPS (in NT$) 1.52 1.26 1.25

Adjusted EPS (in NT$)2 1.52 1.18 1.18

Balance sheet (in NT$ mn)

Total assets 2,355,709 2,263,385 2,124,279

Total liability 2,201,332 2,122,179 1,991,555

Total shareholders’ equity 154,377 141,206 132,724

Shares issued (in mn shares) 9,259 8,654 8,125

FFHC at a GlanceConsolidated basis, data as of December 31, 2012, 2013 and 2014

2014 Net Income % of Group1

First Bank 13,381 95.0%First Securities 74 0.5%FSITC 79 0.6%First-Aviva2 (15) (0.1%)First Financial AMC 263 1.9%Others3 295 2.1%

2014 Net Income Breakdown by Subsidiaries

1. Estimated by sum-of-the-parts method.2. FFHC claims 51% of First-Aviva operating results, a net loss of NT$ 8 mn was

recognized in 2014.3. Including subsidiary First Venture Capital, First Consulting & First P&C Insurance

Agency & Financial Holding standalone.

in NT$ mn

1.9% 2.1%

(0.1%)

0.5% 0.6%

95.0% First BankFirst SecuritiesFSITCFirst-AvivaFirst Financial AMCOthers

Financial Highlights


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Dividends (in NT$)

Cash dividends3 0.70 0.50 0.45

Stock dividends3 0.65 0.70 0.65

Total dividends3 1.35 1.20 1.10

Ratios (%)

ROAE 9.53 7.94 7.86

ROAA 0.61 0.50 0.48

Double Leverage Ratio4 109.05 103.37 104.15

Group CAR 125.34 123.04 125.55

Credit Ratings

Taiwan Ratings twA+/twA-1/Stable

S&P BBB-/A-3/Stable

Moody’s Baa1/Stable

1. Data are stated in accordance with IFRS.2. EPS is adjusted retroactively for stock dividends. 3. 2014’s dividend proposal is subject to final approval at 2015 annual shareholders’ meeting on June 26, 2015.4. Double Leverage Ratio = Long-term equity investment/Shareholders’ equity

Remarks: Data are stated in accordance with IFRS.

Net Income

10,877

10,169

14,078

Consolidated basis, in NT$ mn

2012

2013

2014

EPS

1.18

1.18

1.52

Consolidated basis, in NT$

2012

2013

2014

ROAE

7.94

7.86

9.53

Consolidated basis, in %

2012

2013

2014


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Letter To Shareholders

Chairman, First FinancialChing-Nain Tsai

Dear Shareholders,The global economy expanded at a subdued pace in 2014. The structural difference and varying speed of recovery in major economies led to diverging monetary policies among the U.S., the eurozone and Japan, in turn increasing volatility in the international markets. Additionally, the exit of the U.S. quantitative easing program and a strong U.S. dollar brought turbulence to global capital flows and commodity prices. The eurozone continued to struggle with deflation, structural unemployment and geopolitical tensions in east Europe, which impeded the area’s economic stability and growth. Japanese Prime Minister Shinzo Abe’s stimulus policies were faltering, thus creating risk of long-term debt and weakening the effectiveness of Japan’s fiscal actions. China was at a time of challenging economic transition. These critical economies influenced and shaped the 2014 performance of the global economy.


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In our home market, the U.S. recovery and booming trade and investment activities across Taiwan and China provided support for the economy. Growth in 2014 was the strongest in recent years thanks to a pick-up in corporate investment, improved consumer spending, a buoyant stock market and rising volume of tourist visits. According to the forecast published in February 2015 by the Directorate General of Budget, Accounting and Statistics, Taiwan’s economy is expected to advance 3.78% in 2015, beating growth expectations for Hong Kong, South Korea and Singapore. Yet the deceleration in China, Taiwan’s top export destination, may lead to slower exports growth to China. The need for sustainable economic development raises the urgency for the Taiwan government to create competitive terms of trade for local corporations and to seek greater regional integration through trade agreements.

2015: overcoming “a new mediocre era” through innovation, integration, market open-up and technology The world economy is facing the risk of a new mediocre in an environment of low growth, low rates, low inflation and low investment. In order to overcome the new mediocre, policymakers must seek fresh sources of growth through the relaxation of trade and investment restrictions, closer integration into the regional economy, a commitment to a stable financial policy, the acceleration of structural reforms and more efficient energy use. The financial sectors must play their part, too. They must learn to harness technology and innovation for global competitiveness.

In 2014, First Financial Holding’s overseas expansion picked up pace with the goal of becoming a regional financial player in Asia. In China, our extended bank branch network, coupled with the development of peripheral financial services such as leasing and securities trading, enabled us to tap the Yangtze River Delta, the western region and the southeast coast of China. We also strengthened our presence in ASEAN with the setting up of two sub-branches under the Phnom Penh branch and a branch in Vientiane, the capital of Lao, which grand-opened on March 31, 2015. With these footprints, a westward financial corridor – a so-called “new Silk Road” was built to link Northeast Asia and Indochina, which best serves Taiwanese-owned businesses with the region’s thriving trade and investment opportunities.

In 2014, we shifted from past sales-driven model to more of a customer-driven model, under which we consolidated products, distribution and marketing resources among subsidiaries. By providing value-added products to our clients, we were able to deepen relationships with improved customer penetration, retention and patronage. During


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2014, profit from cross-selling within First Financial Holdings and its subsidiaries reached NT$2,627 billion, representing a CAGR of 36.85% over the past four years. The holding company achieved net profit of NT$14,078 billion, or NT$1.52 per share, on net revenue of NT$34,186 billion. Total assets reached NT$2.36 trillion at December 31, 2014. First Bank, our flagship subsidiary, posted record net profit with 45.69% of its earnings coming from foreign operations (including OBU and a U.S. subsidiary bank). The share of profit gains from foreign branches and OBU was 23% and 22%, respectively, reflecting First Bank’s success in combining local depth with international reach.

In addition to our pursuit of growth, we have a long-standing commitment to sustainability and environmental protection. We are ahead of our peers by adopting the Equator Principles and integrating environmental and social risk criteria into our financing policies and lending procedures. Through these actions, we look to position First Financial Holding as an environment-conscious financial brand. In 2014, our efforts to promote socially responsible behavior were recognized with honors including CommonWealth Magazine’s Corporate Citizenship Award and two Taiwan Corporate Sustainability Awards in the categories of Taiwan’s top 50 corporate sustainability reports – large corporates in the financial sector and climate leadership.

Global expansion yielding results The 2014 summary results of our banking subsidiaries and various non-bank units are detailed below:

◆ First BankBanking arm continued its strategic roadmap in China and ASEAN to capture opportunities in these markets. The bank activated further collaboration between its units and strengthened functions of five technology platforms for the recognition of collaborative revenue, client referrals, global online banking, cross-border payment, clearing and settlement. It also leveraged its scale and expertise to deliver four cross-border services including global treasury management, cross-border supply-chain financing, third-party payment processing and global credit facility. These efforts allowed First Bank to serve clients with superior global connectivity and broadened offering, which held the edge differentiating the bank from its peers. Moreover, First Bank’s renewed focus on profit rather than volume, and well-contained capital consumption contributed significantly to its growth. Net interest income rose 9.11% to NT$27,792 billion and net fee income as a share of total income increased to 17.29% in 2014. In


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particular, foreign offices and branches contributed a record NT$3,381 billion to pre-tax profit, an increase of 13.15% over 2013. First Bank reported NT$13,381 billion, or NT$1.81 per share, in 2014 net profit.

◆ First SecuritiesThe Taiwan Stock Exchange Capitalization Weighted Stock Index finished 2014 at 9,307 points, up 8.08%, with market capitalization increasing by 10.92%. The buoyant market sent First Securities’ average margin balance to NT$6.323 billion, 25% higher than that in 2013. At the same time, the firm continued to advise China-based, Taiwanese-owned businesses on listings in Taiwan. It advised on and lead-managed 19 IPOs in the year, bringing the number of IPOs it’d managed to 38 as of the end of 2014. In order to boost its wealth management business, increase transactions handled electronically and tap opportunities in international stock brokerage, First Securities moved to reposition its business and partnered with First Insurance Agency by setting up new sales desks that

President, First Financial Grace M.L. Jeng


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support clients’ needs for stock trading and insurance. First Securities posted net profit of NT$74 million, or NT$0.12 per share, in 2014.

◆ First Securities Investment TrustGuided by its core values of professionalism, discipline, integrity and philanthropy, First Securities Investment Trust remained keen to enlarge its scale in 2014. Assets under management at December 31, 2014 were NT$74.1 billion. Assets of public offering funds were NT$72.7 billion, ranking 11th in the industry. The monthly average net assets of non-money market funds as a percentage of total assets rose by five percentage points to 42%, resulting in improved profitability. First Securities Investment Trust also broadened its lineup to incorporate more offshore, multi-currency strategies, expanded its discretionary asset management business and developed products tailored to the needs of OBUs and OSUs. First Securities Investment Trust reported net profit of NT$79 million, or NT$1.32 per share, in 2014.

◆ First-Aviva Life InsuranceFirst-Aviva Life Insurance was awarded by the regulators for the 13th straight times for its efforts to raising public awareness of the importance of having adequate insurance protection. The company continued to help people learn about virtues of insurance and the wide range of policy options available to them. First-Aviva’s main product lines are mortgage insurance, investment-linked insurance plans and traditional life policies, which are sold through First Bank’s branch network, telemarketing, insurance brokers and other channels. In 2014, total premium income rose 44% to NT$13,436 billion. First-year premium income jumped 69.55% to NT$12,447 billion, surpassing the NT$10 billion milestone and hitting an all-time high thanks to strengthened channel support from First Bank. The insurer also saw embedded value sustain its upward trend during the year.

First-Aviva’s net loss narrowed from the prior year to NT$15 million, or NT-$0.07 per share.

◆ First AMC, First Venture Capital, First Consulting & First P&C Insurance Agency

First AMC continued to deliver decent results by leveraging its market knowledge and industry expertise to diversify its business. Its investment in First Leasing (Chengdu) contributed strongly to the bottom line. First Venture Capital extended its reach to foreign markets and realized robust gains on its investments. First Consulting was impacted by weaker-than-expected management fees due to the delay of re-cap plan on Venture Capital. First P&C Insurance Agency saw revenue and profit both reach their best levels since 2010, a year marked by the deregulation of fee schedules for property & casualty insurance sectors. The strong performance was attributable to cross-selling jointly conducted with the parent group. In sum, all companies except for First Consulting delivered strong earnings growth compared to the prior year. First AMC, First Venture Capital, First consulting and First P&C Insurance Agency reported net profit of NT$263 million, NT$88 million, NT$11 million and NT$7 million, respectively.

2015 strategic priorities: expanding scale and leveraging competitive advantagesWe expect the global pace of recovery to be uneven and country-specific in 2015. The end of quantitative easing opens a new era for the U.S. dollar, boosting opportunities for export-driven Asian countries such as Taiwan. Regional integration through multilateral trade agreements, the new affluent consumers in emerging markets and demand spurred by innovative technology are keys to driving global growth going forward.

A clear set of strategic priorities is defined for 2015. They include: improving business processes; broadening the range


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of products and services available to clients; optimizing the profit mix; strengthening the compliance and control functions; enhancing risk management capabilities; and delivering on our commitment to corporate social responsibility. Our goal is to distinguish ourselves with exemplary contribution to charities, the protection of shareholders’ interests, value creation for customers and support for employee welfare.

In the light of our expansionary strategy in the Asia-Pacific region, we will continue setting up branches and exploring opportunities for mergers and acquisitions, strategic investments or joint ventures in order to establish meaningful presence in the region. Additionally, capital injection into our banking, securities and life insurance subsidiaries will support them for future growth. To address the changing regulatory landscape, we are assessing plans to appoint independent directors and form an audit committee at our insurance subsidiary. We also look to consolidate First Insurance Agency and First P&C Insurance Agency, and create an independent unit within our banking subsidiary dedicated to driving the insurance business.

Given a growing share of profit from abroad, we will strengthen our platform for managing referrals and leads that originate from foreign markets. This platform, we believe, enables us to identify and retain customers while delivering superior support for leasing, loans, foreign currency deposits and advisory service for foreign-based, Taiwanese-owned businesses seeking listings in Taiwan. Key functions of the platform include setting business targets and profit goals for cross-selling in foreign markets; tracking and evaluating the progress toward meeting those goals and budget, with profit from cross-selling in foreign markets measured against total profit earned by the group; and facilitating communication between branches, subsidiaries or lines of businesses. Through this platform, we will be able to serve customers across multiple markets and lines of business, in a bid to generate multi-profit drivers.

We will enhance our delivery of in-branch services while addressing the trend of digitalization with a new service model that combines physical and virtual channels. With our migration to digital and mobile technology, the convergence of existing branches and virtual channels will create a seamless experience for customers. It will also set us apart as a financial institution that uses technology to connect people and help them realize financial goals.

For financial health, we aim to maintain our strong capital position and apply a disciplined approach to the management of capital. Our capital-raising plans are designed to meet our financial stability, to finance our various units for future growth and to strengthen our ability to withstand losses. In addition, on-going monitor on the return on capital employed is in place and adjust our capital allocation in order to achieve an optimal level of return. Our goal is to achieve year-over-year growth in return on equity on the basis of sustainability and shareholders’ interests.


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Ching-Nain TsaiChairman, First Financial

As part of our efforts to strengthen the compliance function and to operate sustainably, we will roll out training sessions on financial regulations and host seminars with our subsidiaries over compliance and control issues to ensure ongoing adherence to the group’s compliance framework. Additionally, we will continue to advance the academic education, charity, sports, arts and culture, bringing together with people from disadvantaged backgrounds, the public and government agencies in a wide range of charitable work. With our training courses, we look to embed a corporate culture that encourages socially responsible behavior in all employees. We also seek to raise brand awareness by giving back to the communities where we work and live. Our CSR initiatives are shared by many of our customers and suppliers, who help to spread our positive influence throughout the society.

The ratings of various rating agenciesin 2014 are as follows:

First Financial HoldingST LT Outlook

Taiwan ratings twA-1 twA+ Stable

S&P A-3 BBB- Stable

Moody’s -- Baa1 Stable

First BankST LT Outlook

Taiwan ratings twA-1+ twAA Stable

S&P A-2 BBB+ Stable

Moody’s P-2 A3 Stable

First SecuritiesST LT Outlook

Taiwan ratings twA-1 twA+ Stable

S&P -- -- --

Moody’s -- -- --

A foundation of enduring values and sound managementWe appreciate your continued trust and support, which enables us to grow, prosper and deliver strong results against a challenging environment. For 2015 and beyond, we will consistently leverage our scale and expertise; harness technology to improve the delivery of services; reposition our business to capture synergies; maintain financial soundness; achieve strong and sustained growth across all lines of business; and act responsibly for the benefit of society. Our goal is to become an evergreen and value & financial institution that constantly drives change and improves results, and through your support we will succeed.


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First Financial Holding Co., Ltd. was incorporated on January 2, 2003 with First Commercial Bank as its flagship entity. It is listed on Taiwan Stock Exchange under the stock code 2892.

Founded in 1899, First Bank was one of the three government-affiliated banks with the mission to allocate credit to underserved industrial and commercial businesses, finance national infrastructure, and serve as an underlying force of Taiwan’s great economic advancement. In 1998, First Bank became the largest private-owned bank on the island after privatization. Since then it has been able to secure leadership positions in such selected areas as the corporate banking, SME business, home mortgages, mutual-fund distribution, trade finance, deposit and lending. It currently owns 190 branches at home along with 31 overseas branches and representative offices including the U.S. subsidiary of First Commercial Bank (USA).

With the historical groundwork well laid by First Bank, First Financial Holding Co. further diversified its business portfolio into securities trading, property and casualty insurance and asset management on July 31, 2003, by acquiring First Taisec Securities Co., Ltd., Mingtai Fire & Marine Insurance Co., Ltd. and National Investment Trust Co., Ltd. On July 28, 2003, it successfully raised the equivalent of NT$17.3 billion via a global depository receipt program, the first ever issued by a Taiwanese financial institution, which significantly shored up capital bases of the group and its subsidiaries. From May through September of 2004, in its second round of penetrating into new markets to deliver full product range and high quality services, First Financial Holding Co. established First Financial Asset Management Co., Ltd., First Venture Capital Co., Ltd., First Financial Management Consulting Co., Ltd., and First P&C Insurance Agency Co., Ltd.

Company Profile


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First Financial Holding, in an aim to capture growth in wealth management, expand product offerings, retain clients and address personal retirement planning needs, sought to form a joint venture with U.K’s largest insurer Aviva in 2007. First-Aviva Life, a 51:49 joint-venture between the two companies, was incorporated on December 11, 2007.

In order to solidify group image, raise popular awareness of its subsidiaries and promote employee loyalty, First Financial Holding rebranded subsidiaries First Taisec Securities, National Securities Investment Trust and First Taisec Capital Management under the names “First Securities”, “First Securities Investment Trust” and “First Capital Management” on December 31, 2008. And in September of 2009, First-Aviva’s Chinese brand was successfully renamed.

First Financial Holding Co., Ltd. focuses on resource deployment in emerging markets in the Asia Pacific region and assisting its subsidiaries to expand overseas businesses. In order to increase its operation scale, First Financial Holding successfully completed the rights issues of 800 million new shares on September 29, 2011 and raised capital by NT$16,400 million. The proceeds was then injected into its subsidiaries, including the bank and the venture capital company, to augment and strengthen their working capital and capital structure, and to assist them in their long term business developments. With regard to market expansion in China, First Financial Holding maintains its bank-centric

mode, bundled with its banking subsidiary, leasing services compliments, opened the Shanghai Branch on December 23, 2010. Following that, affiliated FCB Leasing Co., set up a subsidiary in Suzhou on March 30, 2011. Moreover, First group replicate this multi-channel model in building the second presence in China: Chengdu Branch, grand-opened in 2014 and affiliated Chengdu Leasing Company, established in 2012. At a pace of intensifying allocation of group’s capital, seeking better returns and diversifying financial services, In China, our Xiamen City came next to be the third spotlight to explore branch and leasing network as Xiamen Leasing Ltd. was grand-opened in April, 2014, whereas Xiamen Branch, scheduled to be set on April 30, 2015. In ASEAN region, two sub-branches under the Phnom Penh Branch are in place and Vientiane Branch at Liao started operation on March 31, 2015, make us the very first pioneer to explore the business opportunities among peers.

Sticking to the commitment of “Customer First, Service Foremost”, First Financial Holding will proactively tap the opportunities arisen from emerging Asia with NT$2.36 trillion in assets, over five million clientele base and long-lasting relationships. It has always been our goal to act as a highly competitive financial institution both in Taiwan and Pan-Asia region, then we can create sustainable long-term value for clients, shareholders and employees.


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First BankIFRS Compliant

Net Income in NT$ mn2014 2013

13,381 10,645

Our Businesses FFHC currently owns eight subsidiaries. Based on our channels, we are committed to providing clients with a comprehensive suite of products and services. The coverage of banking, broker, insurance, wealth management, venture capital and consulting completed groups’ financial “one-stop shopping” picture and to fully deploy cross-sale synergies among subsidiaries, we initiated with flagship subsidiary First Bank’s wide-spreading branch network, totaled 393 cross-sale counters among group, in which 190 bank branches affiliated with insurance sales, 131 bank branches equipped with securities counters and 26 securities houses equipped with bank and insurance services.

First Bank was founded in 1899 under the name of “Savings Bank of Taiwan”. Later in the period of 1912 to 1923, three local banks merged with the then First Bank to become the foundations of the present company. In 1945, the bank became government-owned after Taiwan’s restoration from Japan’s rule. It was renamed “First Commercial Bank” in 1976, commonly known as First Bank. On January 22, 1998, First Bank became the largest private-owned bank in Taiwan after privatization. Five years later, it formed the backbone of newly-established First Financial Holding on January 2, 2003 through a share swap. First Bank has secured leadership positions in selected areas as the SME business, mortgages, mutual-fund distribution, trade finance, deposit and lending. To further penetrate into overseas market, Shanghai Branch launched in 2010, Chengdu Branch and sub-branch at Shanghai free-trade zone launched in 2014, while Xiamen Branch is scheduled to grand-open in 2015. In Asean countries, Yangon Representative office (Myanmar) has re-started operations in April, 2013 and 2 sub-branches (Chamkar Mon and Tuol Kouk) under Phnom Penh Branch in Cambodia grand-opened in June of 2014. The latest footprint is Vientiane Branch (at capital of Laos) was set up on March 31, 2015. First Bank now owns 190 branches at Taiwan and 31 overseas business spots (17 branches, 5 sub-branches and 2 representative offices including the U.S. subsidiary of First Commercial Bank (USA) (7 branches).


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First SecuritiesIFRS Compliant


74 140

First Securities Investment TrustIFRS Compliant


79 103

First-Aviva Life InsuranceIFRS Compliant


(15) (24)

First Securities, formerly known as First Taisec Securities, was established on August 15, 1988 as a retail brokerage firm. Over the years, it has expanded its services to include proprietary trading, underwriting and research, investment advisory, margin trading, options and futures. On July 31, 2003, Taisec Securities merged with the stock-brokerage unit of First Bank and altogether they became the security arm of First Financial Holding operating through 26 branches and 131 counters domestically. Effective from December 31, 2008, in order to integrate external image of First as a compacted group, intensify the corporate identity of each subsidiary, and further converge employees’ consensus, First Taisec Securities was renamed as First Securities. In 2011, Shanghai representative office opened to assist China-based Taiwan Companies to list in Taiwan. Meanwhile, consulting business for futures was set up in 2012 for more diversified and customized market.

First Securities Investment Trust, formerly known as National Investment Trust, was incorporated on February 15, 1986. Currently, FSITC manages a total assets of NT$74.1 bn under management. FSITC has been consistently recognized for its superior investment performance with its strong research team and 25 wins of “Taiwan Fund Performance Awards”. Through a share swap on July 31, 2003, FSITC became a wholly owned subsidiary of First Financial Holding. To integrate external image of First as a compacted group, intensify the corporate identity of each subsidiary, and further converge employees’ consensus, National Investment Trust was renamed as First Securities Investment Trust effective from December 31, 2008.

On December 11, 2007, First Financial Holding and Aviva, the UK’s largest insurance services provider, jointly established First-Aviva in Taiwan, the first joint venture of a local financial holding company and a leading foreign insurance group. First Financial Holding owns 51%, while Aviva owns 49% of the company. Mainly focusing on life insurance business, First-Aviva initiated its operating activities on January 2, 2008. Through First Bank’s 190 domestic branches, First-Aviva exclusively offers our customers specially-designed retirement plans and comprehensive insurance products. Leveraging Aviva Group’s experiences in global bancassurance and First Group’s extensive local channels, First-Aviva will continue to focus on insurance service and ultimately to develop comprehensive products that satisfy different customers’ needs.


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First Financial AMCIFRS Compliant


263 151

Founded on May 31, 2004, First Financial AMC is a wholly owned subsidiary of First Financial Holding that engages in the acquisition and management of non-performing loans for financial institutions. Currently, it serves mainly as a debt collector for First Bank and gradually expands its businesses to acquire and manage non-performing loans for other financial institutions. In addition, in order to earn stable rental revenue from property market, it continues to search for appropriate commercial real-estate for investment, transforming into a property investor. And to further explore China’s leasing business, on January 5, 2012, subsidiary company First Financial Leasing (Chengdu) Co., was established, another milestone for First Financial AMC.

First Venture Capital Founded on June 2, 2004, First Venture Capital is a wholly owned subsidiary of First Financial Holding. It targets distressed companies to initiate restructuring processes designed to engineer successful corporate turnaround and invests in expanding or mature companies to capitalize the growth and development potentials. Up to end of 2013, First Venture Capital engaged in 62 cases with a total of NT$1,453 million in its investment portfolios.

First ConsultingFounded on June 10, 2004, First Financial Management Consulting is a 100%-owned subsidiary of First Financial Holding. It provides consulting and management services to venture capital funds that invest equity capital in distressed businesses and potentially undervalued companies. In 2014, it successfully consulted FVC for investing a total of NT$ 266 million and accumulated 63 companies with investment.

First P&C Insurance Agency Founded on September 16, 2004, First P&C Insurance Agency is a wholly owned subsidiary of First Financial Holding. It acts as a broker to sell and distribute property & casualty insurance products.


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Group StructureFFHC Subsidiaries & AffiliatesData as of April 28, 2015

Corporate Governance

First Commercial Bank (U.S.A.)

100% owned

100% owned

100% owned

100% owned

100% owned

100% owned

100% owned

100% owned

51% owned

100% owned 100% owned

100% owned



100% owned

100% owned

100% owned

First Financial Holding Co., Ltd.

First Securities Investment Trust Co., Ltd.

First Financial Assets Management Co., Ltd.

First Venture Capital Co., Ltd.

First Financial Management Consulting Co., Ltd.

First-Aviva Life Insurance Co., Ltd.

First Property & Casualty Insurance Agency Co., Ltd.

First Commercial Bank

First Capital Management Inc.

FCB Leasing Co., Ltd.

FSC Asia Investment Limited First Worldsec Securities Limited

First Insurance Agency Co., Ltd.

First Securities Inc.

First Financial Assets Management (B.V.I.) Ltd.

First Financial Leasing (Chengdu) Ltd.,

FCBL Capital Int’l(B.V.I.) Ltd.

FCB International Leasing

FCB Lease(Xiamen) Ltd.


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FFHC Operational StructureData as of April 28, 2015

Board Structure and CompositionThe board of First Financial Holding is comprised of 3 independent directors and 12 directors. They serve for a three-year term and are eligible for re-election. Of the incumbent board, 7 directors represent the Taiwan government’s shareholding. To better structure of the board composition and improve the efficiency of the board, 3 current board members are female, representing 25% of participation and gender diversification. Selected by the Governmental Share Ownership Management Committee of the Ministry of Finance (MOF), these delegates are high-level officials and professors of national universities who have proven expertise in their respective fields of banking, insurance, securities, auditing and information technology, and achieve prominence in their professional activities. A regular review on their ability to adequately discharge duties and exercise independent judgment is conducted by Governmental Share Ownership Management Committee.

General Meeting of Shareholders

Board of Directors

Chairman & Director

President

Executive Vice PresidentExecutive Vice PresidentChief Compliance Officer

AuditingDepartment

AuditCommittee

RemunerationCommittee

AdministrationManagement Dept.

Compliance & Legal Dept.

RiskManagement Dept.

InformationTechnology Dept.

Business Development Dept.

Strategy Planning Dept.

Chief Auditor

Strategic Development Committee

Risk ManagementCommittee

Corporate SocialResponsibility Committee

Business DecisionsCommittee

IT DevelopmentCommittee

Marketing IntegrationCommittee


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Board of Directors Data as of April 28, 2015, term until June 21, 2015

Delegate of MOFChairman Ching-Nain Tsai

Male, Nationality: Taiwan, R.O.C. 2010/07/01 on board, now serves as Chairman of First Commercial Bank and First Education Foundation. M.S., Industrial Management, National Cheng

Kung University. Chairman, Taiwan Futures Exchange; Chairman, Taiwan Business Bank; President, Taiwan Land Bank; Director-General of National Treasury Administration of MOF.

Delegate of MOFDirector & President Grace M.L Jeng

Female, Nationality: Taiwan, R.O.C.2014/12/25 on board, now serves as Director of FCB; Director of Taiwan Asset Management Corp and First Education Foundation. B.A., National Taiwan University EVP, First Commercial Bank; Chairman, First Commercial Bank (USA); SVP & GM, Yuan-Shan Branch, First Commercial Bank.

Delegate of MOFDirector Po-chiao Chou

Male, Nationality: Taiwan, R.O.C. 2014/12/25 on board, now serves as President & Managing Director of First Commercial Bank; Chairman of First Commercial Bank (USA); Vice Chairman of First Education Foundation. B.S., Accounting, National Cheng Kung University EVP, First Commercial Bank; SVP & GM, Accounting Dept. & General Affairs Dept., First

Commercial Bank; VP & GM, Si Tainan Branch, First Commercial Bank.

Delegate of MOFDirector Hsien-Feng Lee

Male, Nationality: Taiwan, R.O.C. 2006/01/02 on board, now serves as Managing Director of FCB. Ph. D., Economics, Bielefeld University,

Germany. Advisory Committee Consultant of Council for Economic

Planning and Development, Executive Yuan; Director, Farmers Bank of China.

Current as Associate Professor, Dept. of Economics, National Taiwan University; CEO, Public Economics Research Center, NTU.

Delegate of MOFDirector Yi-Hsin Wang

Female, Nationality: Taiwan, R.O.C. 2008/09/26 on board, now serves as Independent Director of Transcend Information Inc. & Bestcom Infotech Corp.. Ph. D., Accounting, University of Kentucky. Dean of Library, National Taipei University; Chairman, The Institute of Internal Auditors; VP, National Taipei University. Current as Professor, Dept of Accounting, National Taipei

University.

Delegate of MOFDirector Shang-Wu Yu

Male, Nationality: Taiwan, R.O.C. 2009/07/23 on board, now serves as Director of FCB; Director of TWSE; Independent Director of TXC Corporation. Ph. D., Finance, University of Birmingham,

U.K. VP, Dean of College of Mgt., Tungnan University; Chief Secretary for Chairperson, Fair Trade Commission,

Executive Yuan. Current as Dean of College of Business Management, Jinwen

University of Science and Technology.

Delegate of MOFDirector Hung-Chi Huang

Male, Nationality: Taiwan, R.O.C. 2011/08/12 on board, now serves as Director of First-Aviva Life Insurance Co., Ph. D., Actuarial Science, Heriot-Watt

University, UK Consultant, Public Service Pension Fund Management Board; Advisory Committee Consultant of Risk Management,

Chunghwa Post; Reviewer of Insurance products, Financial Supervisory

Commission, Executive Yuan. Dean, College of Risk Management and Insurance, National

Chengchi University. Current as Professor, Dept. of Risk Management and Insurance,

National Chengchi University.


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Independent Directors

Yophy Huang

Male/ Taiwan, R.O.C. Independent Managing Director, FCB;Supervisor, GreTai Securities Market. Ph. D., Economics, Indiana University. Supervisor, Taipei Fubon Bank; Research Fellow, Taxation Tariff Committee, MOF; Member, Taxation Revolution Committee, Executive Yuan. Current as Professor, Dept. of Public Finance and Tax Admin.,

National Taipei College of Business.

Tay-Chang Wang

Male/ Taiwan, R.O.C. Ph.D. Finance, The Wharton School,

University Pennsylvania. Director, TacBright Optronics Corporation. Current as Professor, Dept. of Accounting,

National Taiwan University.

Shyan-Yuan Lee

Male/ Taiwan, R.O.C. Independent Director, Transasia Airways Corporation. Ph.D. Finance, Columbia University at NYC. Commissioner, Financial Supervisory

Commission. Current as Professor, Dept. of Finance, National Taiwan

University.

Delegate of Bank of TaiwanDirector Hsien-Heng Lee

Male, Nationality: Taiwan, R.O.C. 2009/09/23 on board. Ph. D., Geotechnical, Civil Engineering,

University of Texas Austin. Commissioner, Public Works Dept. of Taipei City Government; Chairman, Taiwan Construction Research Institute; Division Head, National Center for Research on Earthquake

Engineering; Dean, Dept. of Civil Engineering, National Chi Nan University. Current as Professor of Dept. of Civil & Construction

Engineering, National Taiwan University of Science and Technology.

Delegate of Bank of TaiwanDirector Hsiu-Chuan Ko

Female, Nationality: Taiwan, R.O.C. 2013/05/31 on board, now serves as Deputy Director-General of National Treasury Administration of MOF. B.S. Public Finance, National Chung Hsing University. Chief Secretary, National Treasury Administration of MOF; Supervisor, Chang Hwa Bank

Delegate of Golden Garden Investment Co.Director Tien-Yuan Chen

Male, Nationality: Taiwan, R.O.C. 2003/01/02 on board, now serves as Managing Director of FCB; Chairman, Golden Garden Investment Co & Golden Gate Motor Co; Director of First Education Foundation. B.A., Foreign Languages and Literature, Tamkang University. Chairman, Taiwan Coca-Cola Co.

Director Chi-Hsun Chang

Male, Nationality: Taiwan, R.O.C. 2006/01/02 on board, now serves as Chairman and President, Magna Central Company. B.S., International Trade, Tamkang University. Supervisor, Optimum Care International Tech. Inc.

Delegate of Global Investment Co., LtdDirector An-Fu Chen

Male, Nationality: Taiwan, R.O.C. 2009/05/22 on board, now serves as Chairman, Global Investment Co., Ltd. B.S., Pharmacy, Taipei Medical University. EVP, Transamerica Occidental Life Insurance Co; EVP, TransGlobe Life Insurance Inc., Director, Mintai Fire & Marine Insurance Company.


20

Shares Holding of Directors

Title NameShareholdingWhen Elected

CurrentShareholding

Spouse & Minor Shareholding

Shares % Shares % Shares %

Chairman Ching-Nain Tsai(Delegate of MOF) 1,023,487,545 13.35 1,236,294,144 13.35 155,625 0.00

Director & President

Grace M.L. Jeng(Delegate of MOF) 1,023,487,545 13.35 1,236,294,144 13.35 0 0.00

Director Po-Chiao Chou(Delegate of MOF) 1,023,487,545 13.35 1,236,294,144 13.35 223 0.00

Director Hsien-Feng Lee(Delegate of MOF) 1,023,487,545 13.35 1,236,294,144 13.35 0 0.00

Director Yi-Hsin Wang(Delegate of MOF) 1,023,487,545 13.35 1,236,294,144 13.35 0 0.00

Director Shang-Wu Yu(Delegate of MOF) 1,023,487,545 13.35 1,236,294,144 13.35 0 0.00

Director Hung-Chi Huang(Delegate of MOF) 1,023,487,545 13.35 1,236,294,144 13.35 0 0.00

Director Hsien-Heng Lee(Delegate of Bank of Taiwan) 592,110,363 7.72 715,223,724 7.72 0 0.00

Director Hsiu-Chuan Ko(Delegate of Bank of Taiwan) 592,110,363 7.72 715,223,724 7.72 0 0.00

DirectorTien-Yuan Chen(Delegate of Golden Garden Investment Co.,)

2,018,077 0.03 2,437,680 0.03 0 0.00

Director Chi-Hsun Chang 1,125,028 0.01 1,177,046 0.01 0 0.00

DirectorAn-Fu Chen(Delegate of Global Investment Co., Ltd)

3,714,105 0.05 4,486,351 0.05 1,354,035 0.00

Independent Director Yophy Huang 0 0.00 0 0.00 17,223 0.00

Independent Director Tay-Chang Wang 0 0.00 0 0.00 0 0.00

Independent Director Shyan-Yuan Lee 0 0.00 0 0.00 0 0.00


21

Criteria

Name

Meet one of the Following Professional Qualification requirements, Together with at Least five Years Work Experience

Independence Criteria(Note)

Number of Other Public Co., in which the individual is Concurrently Serving as an Independent Director

An instructor of higher position in Commerce, Law, Finance, Account. or other academic dept. related to the business of the Co., at public or private junior college, college or university.

A judge, public prosecutor, attorney, certified public accountant or other professional or technical specialist who has passed a national exam. And been awarded a certificate in a professional necessary for the business of the Co.

Have work experience in Commerce, Law, Finance or Accounting or other necessary for the business of the Co.

1 2 3 4 5 6 7 8 9 10

Ching-Nain Tsai 9 9 9 9 9 9 9 9 9

Grace M.L. Jeng 9 9 9 9 9 9 9 9

Po-Chiao Chou 9 9 9 9 9 9 9 9

Hsien-Feng Lee 9 9 9 9 9 9 9 9 9 9

Yi-Hsin Wang 9 9 9 9 9 9 9 9 9 9 2

Shang-Wu Yu 9 9 9 9 9 9 9 9 9 9 1

Hung-Chi Huang 9 9 9 9 9 9 9 9 9 9

Hsien-Heng Lee 9 9 9 9 9 9 9 9 9 9

Hsiu-Chuan Ko 9 9 9 9 9 9 9 9 9

Tien-Yuan Chen 9 9 9 9 9 9 9 9

Chi-Hsun Chang 9 9 9 9 9 9 9 9 9 9

An-Fu Chen 9 9 9 9 9 9 9 9 9

Yophy Huang 9 9 9 9 9 9 9 9 9 9 9 9

Tay-Chang Wang 9 9 9 9 9 9 9 9 9 9 9 9

Shyan-Yuan Lee 9 9 9 9 9 9 9 9 9 9 9 9 1

Professional Qualification and Independence Analysis of DirectorsData as of April 28, 2015

Note: Please tick the corresponding boxes if directors have been any of the following during the two years prior to being elected or during the term of office.1. Not an employee of the Company or any of its affiliates.2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an


22

independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.

4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three subparagraphs.

5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.

6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.

7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.

8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.9. Not been a person of any conditions defined in Article 30 of the Company Law.10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

Board MeetingThe board of directors convenes every month to approve financial and other reporting, discuss the management’s performance, monitor the internal compliance and control system, and review the development of corporate strategies and performance objectives, which reflect changes in the competitive environment. All board members receive written material on the proposals in advance and meetings of the board of directors shall be convened by the chairman of the board of directors. Unless otherwise provided for in the Company Charter, resolutions of the board of directors shall be passed by one-half of the directors at a meeting attended by one-half of the directors.

Independence & Transparency Since the year of 2009, 3 independent directors are appointed at board and these delegates are specialized in taxation, financial, and economic fields, with their academic expertise, they serve the roles of assisting the board and shareholders in carrying out the internal and external auditing and advise top management.

To further enhance the transparency of information disclosure, “Nomination System” (the board of directors reviews the qualifications of each candidate nominated by either the board itself or any shareholder holding one percent or more of the company’s outstanding shares, and then provides the final roster of candidates together with their profiles to shareholders prior to the meeting. ) was approved for the election of directors and independent directors on AGM meeting on June 22, 2012, and will be employed from the year of 2015’s board election. Furthermore, the electronic voting platform for AGM meeting was launched in 2013, casting group’s commitment for the best practice of corporate governance among peers.

Attendance at Board MeetingsDuring 2014, there were 12 board of director meetings held. The number of meetings attended by each director was as follows:


23

Directors Meeting Attendance

Name Attendancein Person (B)

Attendance by Proxy

Attendance Rate (%)(B/A) Notes

Ching-Nain Tsai, Chairman Delegate of Ministry of Finance 12 0 100.00

Jin-Der Chiang, Director Delegate of Ministry of Finance 11 0 100.00 Before discharged on 12/25/2014, total

11 meetings were held. (A)

Grace M.L. Jeng, Director Delegate of Ministry of Finance 1 0 100.00 Newly assigned on 12/25/2014, total 1

meeting was held. (A)

Ming-Ren Chien, Director Delegate of Ministry of Finance 11 0 100.00 Before discharged on 12/25/2014, total

11 meetings were held. (A)

Po-Chiao Chou, Director Delegate of Ministry of Finance 1 0 100.00 Newly assigned on 12/25/2014, total 1

meeting was held. (A)

Hsien-Feng Lee, Director Delegate of Ministry of Finance 12 0 100.00

Yi-Hsin Wang, Director Delegate of Ministry of Finance 11 1 91.67

Shang-Wu Yu, Director Delegate of Ministry of Finance 11 1 91.67

Hung-Chi Huang, Director Delegate of Ministry of Finance 9 3 75.00

Hsien-Heng Lee, Director Delegate of Bank of Taiwan 12 0 100.00

Hsiu-Chuan Ko, Director Delegate of Bank of Taiwan 12 0 100.00

Yophy Huang, Independent Director 12 0 100.00

Tay-Chang Wang, Independent Director 12 0 100.00

Shyan-Yuan Lee, Independent Director 12 0 100.00

Tien-Yuan Chen, Director Delegate of Golden Garden Investment Co.

11 1 91.67

Chi-Hsun Chang, Director 11 1 91.67

An-Fu Chen, Director Delegate of Global Investment Co., Ltd 12 0 100.00

Note: Any circumstances referred to in Article in Article 14-3 of Securities and Exchange Act and resolutions of the directors’ meetings objected to by Independent Directors or subject to qualified opinion and recorded or declared in writing, the dates of meetings, sessions, contents of motions, all independents’ opinion and the Company’s response to independent directors’ opinion should be specified: None.


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Audit Committee & Remuneration CommitteeTo further strengthen corporate governance and improve proficiency at board, an Audit committee was established on June 22, 2012 to replace Supervisors System. All three incumbent independent directors with finance, accounting and tax background and expertise are members at Audit Committee. Meanwhile, Remuneration Committee has been set on August 25, 2011, running by independent directors to practice company’s compensation policies. Up to the end of 2014, 8 meetings have been held in Audit Committee and 4 meetings in Remuneration Committee. Both Committees play important roles on setting up and monitoring auditing functions, compensation policies, regulations, standards and structures.

Audit Committee Meeting AttendanceTotal 8 meetings (A) were held in 2014


Attendance by Proxy


Tay-Chang Wang, Convener Independent Director 8 0 100.00


Yophy Huang, Independent Director 6 2 75.00

Remuneration Committee Meeting AttendanceTotal 4 meetings (A) were held in 2014


Attendance by Proxy


Yophy Huang, Convener Independent Director 4 0 100.00

Tay-Chang Wang, Independent Director 4 0 100.00



25

Elements of Compensation of Directors

Items Delivery Policy

Base Compensation

Cash Monthly

Each director of First Financial Holding receives a monthly cash retainer of NT$20,000. The FHC’s chairman receives a cash retainer 1.25 times that paid to the president.

Traditionally, chairman of First Financial Holding acts as chairman of subsidiary First Bank. As is the common practice, the chairman receives compensation for his/her service at First Bank, but waives receipt of the monthly cash retainer for his/her service as chairman of First Financial Holding.

Total monthly cash paid to directors is capped at NT$ 2,400,000. Effective from September 1, 2011, independent directors receive a monthly

cash retainer of NT$60,000, an increase of NT$10,000 per month for the operation of Remuneration Committee.

Bonus Cash Annually and subject to

shareholders’ approval

Directors also receive annual incentives based on First Financial Holding’s profit performance.

Where First Financial Holding reports earnings at the end of the operating year, after paying all applicable taxes, offsetting losses of previous year, setting aside a legal reserve and special reserve, First Financial Holding shall be in compliance with Article 34 of the Company Charter to appropriate no more than 1% of the balance for the bonus of directors.

Benefits in kind Severance pay R e i mbu r s e d a s p e r

actual

First Financial Holding reimburses its directors for transportation expenses incurred in attending board meetings and health check fees of no more than NT$35,000 per person.

First Financial Holding provides expenses allowance for directors for their performing other services in their capacities as directors or supervisors.

Directors who are senior executives of First Financial Holding, in addition to director’s compensation, also receive base salary, etc. for management. As some directors also act as directors, supervisors, or senior executives of First Financial Holding’s subsidiaries, their compensation comprises a component awarded exclusively by the parent company, First Financial holding, and a component awarded by the consolidated group. The following tables summarize the directors’ annual remuneration at First Financial Holding alone and at First Group.


26

Remuneration

Directors’ Annual Remuneration at First Financial Holding and GroupData as of Dec. 31, 2014, in NT$ and %

Delegates

Remuneration Ratio of (A+B+C+D) to net

income (%)Base Compensation(A) Severance Pay(B) Bonus(C) Reimbursed Pay(D)

FHC FHC Group FHC FHC

Group FHC FHC Group FHC FHC Group FHC FHC

Group

Total Directors (including Independent Directors)

4,800,000 18,622,421 0 0 126,764,413 126,764,413 48,968 1,751,802 0.9344 1.0449

(to be continued)

Delegates

Relevant remuneration received by directors who are also employeesRatio of

(A+B+C+D+E+F+G) to net income (%) Compensation paid

to directors from invested co., other

than group

Salary, Bonus and Allowance(E) Severance Pay(F) Profit-sharing from

Employee Bonus(G)Stock

Option(H)

FHC FHC Group FHC FHC Group

FHC FHC GroupFHC FHC

Group FHC FHC GroupCash Stock Cash Stock

Total Directors (including Independent Directors)

5,670,200 6,327,204 814,272 10,635,392 0 0 0 0 0 0 0.9805 1.1654 60,000


27

Bracket

Name of Directors

Total of (A+B+C+D) Total of (A+B+C+D+E+F+G)


Under 2,000,000

Po-Chiao Chou, Ming-Ren Chien, Yi-Hsin Wang, Shang-Wu Yu, Hung -Chi Huang, Hsien-Heng Lee, Hsiu-Chuan Ko, Yophy Huang, Tay-Chang Wang, Shyan -Yuan Lee

Grace M.L. Jeng, Jin-Der Chiang, Po-Chiao Chou, Hsien-Feng Lee, Yi-Hsin Wang, Shang-Wu Yu, Hung-Chi Huang , Hsien-Heng Lee, Hsiu-Chuan Ko, Yophy Huang, Tay-Chang Wang, Shyan-Yuan Lee, Tien- Yuan Chen

Grace M. L. Jeng, Po-Chiao Chou, Ming-Ren Chien, Yi-Hsin Wang, Shang-Wu Yu, Hung-Chi Huang, Hsien-Heng Lee, Hsiu-Chuan Ko, Yophy Huang, Tay-Chang Wang, Shyan-Yuan Lee

Grace M. L. Jeng, Po-Chiao, Hsien-Feng Lee, Yi-Hsin Wang, Shang-Wu Yu, Hung-Chi Huang , Hsien-Heng Lee, Hsiu-Chuan Ko, Yophy Huang, Tay-Chang Wang, Shyan-Yuan Lee, Tien-Yuan Chen

2,000,000~5,000,000 — — — —

5,000,000~10,000,000

Golden Garden Investment Co., Global Investment Co., Ltd., Chi-Hsun Chang

Ching-Nain Tsai, Ming-Ren Chien, Golden Garden Investment Co., Global Investment Co., Ltd., Chi-Hsun Chang

Jin-Der Chiang, Golden Garden Investment Co., Global Investment Co., Ltd., Chi-Hsun Chang

Ching-Nain Tsai, Ming-Ren Chien, Golden Garden Investment Co., Global Investment Co., Ltd., Chi-Hsun Chang

10,000,000~15,000,000 — — — —

15,000,000~30,000,000 Bank of Taiwan Bank of Taiwan Bank of Taiwan Bank of Taiwan, Jin-Der Chiang

30,000,000~50,000,000 — — — —

50,000,000~100,000,000 MOF MOF MOF MOF

Over 100,000,000 — — — —

Total 15 20 17 20

Comparison of Remuneration for Directors in the Most Recent Two Fiscal Years in NT$ and %

YearRatio of total remuneration paid to directors and supervisors to net income

FHC FHC Group

2014 0.9805% 1.1654%

2013 0.9990% 1.2331%

For 2014, First Financial Holding alone awarded to its directors a total compensation of 0.9805% of the net income of parent company (NT$14,084,934,792). The compensation awarded to First Financial Holding’s directors on the group basis is 1.1654% of the net income of the consolidated group results. Compared to prior year, improving earnings result made the reward basis higher, however, the distribution ratios were lower than prior year, indicating our remuneration system is reasonably connected to the company’s performance at the end.

FIRST FINANCIAL HOLDING CO., LTD.

28

FFHC Management Team


29

FFHC Management TeamData as of April 28, 2015

PresidentGrace M.L Jeng

2014/12/25 on board, now serves as Director of FCB; Director of Taiwan Asset Management Corp and First Education Foundation.Female, Nationality: Taiwan, R.O.C. B.A., National Taiwan University EVP, First Commercial Bank; Chairman, First Commercial Bank (USA); SVP & GM, Yuan-Shan Branch, First Commercial Bank.

EVP & Head of Strategy Planning DepartmentYao-Tien Shih

2013/11/7 on board, now serves as Director of FS. Male, Nationality: Taiwan, R.O.C. B.A, Department of History, Tamkang University. SVP & Head of Corporate Banking Business Admin. Division,

FCB SVP & Head of Credit Approval Division, FCB

EVP & Head of Admin. Mgt. Dept./SpokespersonJennifer M. C. Liao

2014/10/23 on board, now serves as Director of FSITC. Female, Nationality: Taiwan, R.O.C. B.A., Banking , National Chengchi University. SVP, Chief Secretary of FFHC & First Bank Boards; Supervisor, First-Aviva Life Insurance Co., Ltd.

EVP & Chief Compliance OfficerSheng-Shi Lu

2014/10/24 on board, now serves as EVP of FCB and Supervisor of FCB Leasing Co., Ltd. Male, Nationality: Taiwan, R.O.C. B.A., Banking & Insurance, Tamkang University. SVP & Head of Taichung District Center, FCB; SVP & GM, Nanking-East-Road Branch, FCB.

Chief AuditorChien-Hao Lin

2014/12/11 on board, now serves as Supervisor of FS. Male, Nationality: Taiwan, R.O.C. Bachelor of Laws, National Taiwan University. SVP & GM, Hong Kong Branch, FCB; SVP & Head of Business Planning & Admin. Division, FCB.

Advisor & Head of Risk Mgt. Dept.Huey-Chin Hung

2014/7/18 on board, now serves as EVP of FCB. Female, Nationality: Taiwan, R.O.C. B.A., Accounting, National Chengchi University Senior Vice President & Division Chief, Kaohsiung Regional

Center, FCB; SVP and Head of Credit Approval Division, FCB.

VP & Head of Auditing Dept.Ding-Ming Liao

2009/10/1 on board, now serves as Head of Auditing Dept, FCB and Supervisor of First VC and First Consulting. Male, Nationality: Taiwan, R.O.C. B.A., Economics, Soochow University. Head of Taichung Regional Center of FCB.

Head of IT Dept.Chin-Fu Lee

2011/1/27 on board, now serves as SVP of IT division of FCB. Male, Nationality: Taiwan, R.O.C. B.A., National Chung Hsing University. SVP of IT division; Manager of IT Planning Dept. of FCB.

SVP & Head of Compliance & Legal Dept.Hui-Lin Yu

2014/10/24 on board, now serves as SVP of Compliance & Legal Division of FCB. Female, Nationality: Taiwan, R.O.C. Bachelor of Laws, National Taiwan University. SVP & GM, Shih-Mao Branch, FCB; SVP & GM, Head of Operation Planning & Admin. Division,

FCB.

VP & Acting Head of Business Development Dept.Jen-Yu Lai

2013/10/25 on board, now serves as Director of FSITC Co. Male, Nationality: Taiwan, R.O.C. M.S., Risk Management & Insurance, National Chengchi

University VP & General Manager. Yungho Branch, FCB. VP & General Manager, Singapore Branch, FCB.


30

Executives’ Annual RemunerationThe executive management of First Financial Holding includes the president, vice president and chief auditor. Because senior executives also act as president, vice president and chief auditor of subsidiaries, the total compensation to the executive officers comprises a component awarded exclusively by the parent company, First Financial Holding, and a component awarded by the consolidated group. The following tables summarize the executive’s annual remuneration at First Financial Holding alone and at First Group.

Executives’ Annual Remuneration at First Financial Holding and Group Data as of Dec. 31, 2014, in NT$ and %

Title

Salary(A) Severance Pay(B) Bonus and Allowance(C) Profit-sharing Employee Bonus(D)

FHC FHCGroup FHC FHC

Group FHC FHC Group

FHC FHC Group

Cash Stock Cash Stock

President & EVP & Chief Auditor 8,215,934 9,581,109 814,272 10,635,392 4,933,558 5,886,097 694,401 0 744,443 0

(to be continued)

Title

Ratio of (A+B+C+D) to net income(%)

Exercisable Employee Stock Option Any compensation from

an invested Co. other than group


President & EVP & Chief Auditor 0.1041 0.1906 0 0 60,000


31

BracketName of President and Executive Officers

FHC FHC Group

Under 2,000,000Grace M. L. Jeng, Jennifer M.C. Liao,

Hann-Chyi Lin, Chung-Huei Yeh, Sheng-Shi Lu, Chien- Hao Lin

Grace M. L. Jeng, Jennifer M.C. Liao, Hann-Chyi Lin, Sheng-Shi Lu, Chien-

Hao Lin

2,000,000~5,000,000 Yao-Tien Shih Chung-Huei Yeh, Yao-Tien Shih

5,000,000~10,000,000 Jin-Der Chiang —

10,000,000~15,000,000 — —

15,000,000~30,000,000 — Jin-Der Chiang

30,000,000~50,000,000 — —

50,000,000~100,000,000 — —

Over 100,000,000 — —

Total 8 8

Comparison of Remuneration for Executives in the Most Recent Two Fiscal Years in NT$ and %

YearRatio of Total Remuneration paid to executives to net income

FHC FHC Group

2014 0.1041% 0.1906%

2013 0.1437% 0.3068%

For 2014, First Financial Holding alone awarded its executives a total compensation of 0.1041% of the net income of parent company (NT$14,084,934,792). The compensation ratios awarded to First Financial Holding’s executives on FHC and group basis were lower than prior year mainly due to lower executives’ retirement payment and improving earnings result.


32

Share CapitalAs of April 28, 2015, First Financial Holding’s paid-in capital totaled NT$92,592,548,180 with 9,259,254,818 shares outstanding issued at a par value of NT$10. For the year of 2014, NT$6,057,456,420 of 2014 earnings were capitalized simultaneously with the issue of 605,745,642 common shares.

FFHC Ownership StructureFirst Financial Holding continues to monitor the development of its ownership structure based on the share register as of record date, monthly filing of ownership reports by corporate insiders and major shareholders as well as reports of changes in ownership of shareholders who have more than 10%, 25%, 50% and 75% of outstanding common stock. As of April 28, 2015, top 10 shareholders at First Financial Holding are listed below.

Shareholders Breakdown by Owners TypeData as of April 28, 2015

Shareholders Number Share-held Holding %

Government Agencies 6 1,799,756,560 19.44

Financial Institutions 20 1,311,502,362 14.16

Other Institutions 774 581,797,527 6.28

Individuals 234,742 3,327,362,282 35.94

Foreign Institutions & Foreigners 652 2,238,836,087 24.18

Total Shares 236,194 9,259,254,818 100.00

Major ShareholdersTop 10 Shareholders at First Financial HoldingData as of April 28, 2015

Shareholders Share-held Holding %

Ministry of Finance 1,236,294,144 13.35

Bank of Taiwan 715,223,724 7.72

Hua Nan Bank 267,857,459 2.89

Civil Servants’ Retirement Fund 219,108,598 2.37

Labor Insurance Fund 190,274,548 2.05

China Life Insurance 136,325,063 1.47

Vanguard Emerging Markets Stock Index Fund 135,375,074 1.46

Dimensional Emerging Markets Value Fund 123,812,630 1.34

Government of Singapore 120,169,943 1.30

Chunghwa Post Co., Ltd. 106,257,703 1.15

Capital Overview


33

Share Price InformationFirst Financial Holding was incorporated on January 2, 2003 and became the holding company of First Bank through a share-for-share swap. On the same date, First Financial Holding’s common shares were listed on the Taiwan Stock Exchange under the ticker 2892, the common stocks of First Bank (ticker: 2802) were delisted from the Taiwan Stock Exchange. On August 1, 2003, First Financial Holding’s global depositary receipts were listed on the Luxemburg Stock Exchange (now the “Euro MTF market of the Luxembourg Stock Exchange”) with each GDR unit equivalent to 20 common shares. As of Feb. 28 2015, there were 546,396 GDRs outstanding, representing 10,927,920 of outstanding common shares.

Share Price Information on Taiwan Stock Exchange* Data as of February 28, 2015 and in NT$

2010 2011 2012 2013 2014 2015*

High 27.35 27.55 19.70 19.40 20.90 18.85

Low 15.80 16.10 16.20 16.80 17.70 18.40

Average 20.31 22.75 17.62 17.98 18.66 18.51

GDR Price Information on the Luxembourg Stock Exchange* Data as of February 28, 2015 and in US$

2010 2011 2012 2013 2014 2015*

High 18.43 18.87 13.21 12.96 13.87 11.96

Low 9.83 10.60 10.95 11.29 11.49 11.38

Average 12.10 15.60 11.91 12.13 12.18 11.73

Dividend First Financial Holding’s board of directors has the right to propose an annual dividend, which becomes effective after being approved by the shareholders’ meeting. The dividend scheme takes into account the operating and investment requirements of the company, the profit performance of the current year, cost of capital, taxation, the overall financial industry development and the movement of the money market, and shareholders’ interests.

To finance new capital investments, enhance earnings capacity and comply with local regulations, First Financial Holding uses the residual dividend policy. If First Financial Holding reports a net income at the end of the operating year, the net income shall be used to pay relevant taxes, offset cumulative losses of previous years (if any), and set aside a legal reserve and special capital reserve as required by local regulations. After the distribution of the aforementioned items, the balance shall be appropriated as follows:

(1) 0.02%~0.16% for bonuses to employees;(2) no more than 1% for compensation for directors and supervisors;


34

The remainder after deducting employee bonuses and directors’ compensation, plus cumulative undistributed earnings of the previous year, make up the total amount available for the distribution of shareholder dividends. The board has the discretion to propose shareholder dividends equivalent to 30%-100% of that available amount, pending the approval of shareholders’ meeting. Subjects eligible to participate in the employee stock bonus plan may include employees of First Financial Holding’s affiliated companies, with the stock bonus plan set forth by the board.

According to First Financial Holding’s operating scheme, the amount of cash dividend must exceed 10% of the total amount available for the distribution of shareholder dividends. A cash dividend of less than NT$0.1 per share need not be distributed unless otherwise provided for in the resolution of the shareholder’s meeting.

For the fiscal year 2012 and 2013, First Financial Holding’s dividend payout ratio was 93.22% and 101.69%, respectively. Retroactively adjusted for cash dividend payout ratio would be 38.13% and 41.67%.

Dividend Payout Historyin NT$ or %

2010 2011 2012 2013 2014*

EPS 0.96 1.01 1.18 1.18 1.52

Cash dividend 0.30 0.40 0.45 0.50 0.70

Stock dividend 0.60 0.60 0.65 0.70 0.65

Total dividend 0.90 1.00 1.10 1.20 1.35

Cash dividend payout ratio 31.25% 39.60% 38.13% 41.67% 46.05%

Dividend payout ratio 93.75% 99.01% 93.22% 101.69% 88.82%

* 2014 dividend proposal is subject to shareholders’ final approval at the 2015 annual shareholders’ meeting on June 26, 2015.


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2014 marked a year for First Bank to celebrate broadened scope and earnings growth. The operating environment was characterized by a modest recovery, and countries around the world continued their monetary policy actions to stimulate growth. The U.S., Japan and the eurozone dealt with idiosyncratic issues affecting their economies while China faced a deceleration in growth amid its structural transition. Taiwan, by contrast, was able to sustain its pace of growth against a challenging environment. During 2014, exports set a record high of US$3,137 billion. Consumption remained on a solid footing, as evidenced by credit card transactions and other indicators. Government data showed that the Taiwan economy expanded by 3.74% in 2014, its fastest pace since 2010. Within the financial industry, local banks’ profit from foreign markets as a percentage of total profit rose strongly, and earnings gained momentum in their domestic operations underpinned by increased lending activity.

First Bank, the flagship banking subsidiary of First Financial Holdings, achieved net revenue of NT$37,520 billion and net profit of NT$13,381 billion, representing increases of 14.5% and 25.7%, respectively. The bank’s return on equity and return on assets stood at 9.39% and 0.60%, separately. Net interest income, net fee income and net gains from treasury business all registered double-digit growth. First Bank continued its China expansion efforts by opening a new branch office in Chengdu and a sub-branch in the Shanghai Free-Trade Zone, and Xiamen Branch was set up on April 30, 2015. During the same year, the bank opened two sub-branches(Chamkar Mon and Tuol Kouk) under the Phnom Penh branch in Cambodia and Vientiane Branch(the capital of Laos) grand-opened on March 31, 2015, further strengthening its extensive network in Asia. Through an expanded geographic coverage, First Bank has rooted the groundwork for faster and more profitable growth over the next five years.

2014 Net Revenue Breakdownin NT$ mn and %

Net interest income Net fee income Other income

27,138 6,190 4,192

72.33% 16.50% 11.17%

Financial Highlights Non-consolidated basis, data as of December 31, 2013 and 2014

2013 2014

Income statements (in NT$ mn)

Net interest income 24,865 27,138

Net fee income 5,397 6,190

Subsidiaries Overview

First Bank Overview


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2013 2014

Other income 2,514 4,192

Net revenue 32,776 37,520

Provision expenses (3,922) (3,921)

Operating expenses (16,270) (17,736)

Income before tax 12,584 15,862

Income tax expenses (1,940) (2,481)

Cumulative effect of change in accounting principles 0 0

Net income 10,645 13,381


Total assets 2,190,460 2,279,947

Total liabilities 2,058,872 2,126,736

Total shareholders’ equity 131,588 153,211

Ratios (%)

ROAE 8.35 9.40

ROAA 0.50 0.60

Tier-1 ratio 8.31 9.02

Capital adequacy ratio 10.90 11.50

Credit Ratings

Taiwan Ratings twAA/twA-1+/Stable

Standard & Poor’s BBB+/A-2/Stable

Moody’s A3/P-2/Stable

* Figures may not match due to rounding.* 2013 & 2014 are stated in accordance with IFRS.* There are currently eight subsidiaries under the First Financial Holding umbrella. In this section, only four primary subsidiaries are

introduced as their combined net income for 2013 constituting the major portion of the First Group’s profits.

During 2014, First Bank set out “Be First with Us, Your Bank of Choice for Connecting the World” as its annual strategic initiative and focused on five priorities, including: expanding into China and Southeast Asia to capture cross-border banking opportunities; strengthening cross-border connectivity with a broadened regional platform for service delivery; integrating products, services and channels to drive further market penetration and to boost fees and interest income; optimizing asset-liability allocation to improve the return on capital; and making care for the environment and the society a core corporate value. The 2014 summary results of First Bank’s lines of business are discussed below:


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In terms of the deposit and loans business, First Bank’s average deposit and lending balances rose 7.14% and 2.59%, respectively. Net interest income rose steadily, and net fee income and net gains from treasury showed significant growth. Meanwhile, First Bank continued to balance its pursuit of profit with risk management. The bank’s non-performing loans ratio set a multi-year low of 0.2% and its loan loss coverage ratio climbed to 680.71% at the end of 2014, reflecting the bank’s excellent asset quality.

During 2014, First Bank maintained its expansionary pace in China and ASEAN to capture banking opportunities in these markets, with foreign branches and OBUs contributing 44.81% of its total profit. The bank also strengthened its capacity to serve customers across borders with diverse offerings that span from lending, the renminbi business to SME banking. First Bank remained as Taiwan’s top SME lender for four years in a row, with its strong leadership recognized by the Ministry of Economic Affairs with awards of “Best Credit Guarantee Partner for Small and Medium Enterprises,” “Excellence in Direct Credit Guarantee,” “Excellence in Loan Underwriting” and “Contribution to Start-up Entrepreneurs from Young People.”

In 2014, First Bank launched the third-party payment service as an easy and convenient way for individuals and businesses to transact and accept payments. It also offered a payment processing service specifically for small vendors to facilitate their e-commerce activity. Other digital innovations included a mobile point of sale solution, which transforms mobile devices into POS terminals and enables UnionPay card acceptance; wireless payment with QR codes; and credit card and debit card payments processed on mobile devices. Moreover, First Bank’s iPASS co-branded card received Excellence Award from Visa in recognition of the bank’s contribution to advanced payment technology. These accomplishments demonstrate First Bank’s commitment to staying at the forefront of innovation to enhance customer experience.

First Bank Business Units & Functional CentersData as of March, 2015

First Bank

President

Compliance & Legal Affairs Compliance & Legal Division

Corporate Banking BUCorporate Banking Business Administration Division

Electronic Banking Division

International Business BUInternational Banking Division

Overseas Business Admin. Division


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Personal Banking BU

Consumer Banking Business Administration Division

Credit Card Division

Trust Division

Personal Banking Business Administration Division

Operation Planning & Admin. Division

Financial Markets BUTreasury Division

Financial Markets Business Administration Division

Risk Management Center

Credit Approval Division

Risk Management Division

Credit Analysis Division

Special Asset Management Division

Information Technology & General Administration Center

Information Technology Division

Accounting Division

General Affair Division

Human Resource Division

Public Relations Office

Regional Center

To enhance further efficiency and productivity gains, First Bank changed its corporate structure in 2014. It built up two

Taipei Regional Centers in Taipei district to support business growth in northern Taiwan. The Overseas Business Planning

Department was established with the responsibility of planning, managing and overseeing foreign operations. The Urban

Renewal Department was merged into the SME Banking Department in order to streamline business processes and improve

efficiency.

In order to support the regional growth strategy and to ensure compliance with the Basel III capital adequacy framework,

First Bank shifted its focus to fee-based businesses and treasury products that consume limited capital. Moreover, it took a

disciplined managerial approach to the return on capital and risk mitigation, underscoring the importance of considering the

cost of capital and achieving a reasonable level of profit margin in all corporate activities. Going forward, the bank looks to

bolster its capital position via the issue of stock dividend as a means to distribute accumulated profit, or through issuance of

common stock and financial debentures.


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First Bank Capital Adequacy Data as of December 31, 2013 and 2014; in NT$ mn or %, consolidated basis

2013 2014

Tier-1 capital 115,002 131,181

Tier-2 capital 35,761 36,040

Total capital 150,762 167,220

Total risk-weighted assets 1,383,110 1,453,729

Tier-1 capital ratio 8.31 9.02

Capital adequacy ratio 10.90 11.50

First Bank has, over the years, been implementing environmentally sound practices to reduce the carbon footprint of its operations. Among them are increasing the adoption of e-statements, making meetings paperless and installing water- and electricity-efficient fixtures. In 2014, the bank received from the Ministry of Economic Affair the Energy Conservation Outstanding Award, won the top prize in Taipower’s first energy efficiency competition for SMEs, and was named by New Taipei City an exemplary leader in energy conservation. In its long-standing commitment to corporate social responsibility, First Bank continued its charitable works and encouraged employees to volunteer in activities such as volunteer medical trips, beach cleaning and after-school care-giver for economically disadvantaged children. Having been a long-time sponsor of the national women’s weightlifting team, the bank shared the excitement with the team after it scored excellent results at the 2014 Asian Games.

Looking ahead to 2015, First Bank will continue working towards its goal of establishing a meaningful presence in Asia. The bank will launch a branch office in Xiamen, and look into the possibility of setting up a second sub-branch in Shanghai and its fourth branch in China. These plans are part of the bank’s efforts to accelerate its scale and reach by connecting dispersed locations in southern China (Pearl River Delta and Fujian province), eastern China (Yantze River Delta), northern China (Henan province) and western China (Sichuan province) under one comprehensive platform. In Southeast Asia, after the new branch in Vientiane, the capital of Laos, opening in March, 2015, First Bank will take advantage of the relaxing regulatory environment and consider extending further into ASEAN through branch/sub-branch presence in Myanmar, the Philippines, Thailand and Indonesia.

First Bank’s strategies and actions in 2014 have laid the foundation for a promising decade. The bank is in a stronger position than ever to achieve its vision of being a leading Asia-Pacific regional bank, a niche player with unique capabilities and, at the same time, a caring bank that fulfills the aspirations of its customers and employees.


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Taiwan’s stock market kicked off 2014 on a positive note and finished the year higher than where it started. On the front of the economy, strong sales of mobile devices and a pick-up in notebook PC demand boosted orders for local contract manufacturers and their supply chains, sending Taiwan’s full-year exports to a record level of US$313.84 billion. As a result, the Directorate General of Budget, Accounting and Statistics raised its GDP growth forecast for 2014 from 2.98% to 3.41%. The Taiwan Stock Exchange Capitalization Weighted Stock Index opened the year at 8,618.6, climbed to an intra-year high of 9,593.68 in July but slipped back down to 8,642.41 in October on fund outflows as Europe’s deflation risk and Ebola cases diagnosed in the U.S. fueled global growth worries. Foreign funds later returned to Taiwan due to expectations of Taiwan’s central bank continuing its monetary easing. The benchmark index closed the year at 9,307.26 with a gain of 7.99%, or 688.66.

During 2014, First Securities posted net profit of NT$74 million, or NT$0.12 per share. Its return on equities and return on assets stood at 1.14% and 0.40%, respectively.

2014 Net Revenue Breakdownin NT$ mn

Net brokerage commissions Net principle transaction gains Net interest income Other income

803 187 335 101

Financial Highlights First SecuritiesConsolidated basis, data as of December 31, 2013 and 2014

2013 2014

Income statement (inNT$ mn)

Net brokerage commissions 683 803

Net interest income 278 335

Net underwriting commissions 76 38

Net principle transaction gains 277 187

Other net operating income 25 63

Operating income 1,339 1,426

Operating expenses (1,275) (1,367)

Non-operating income 93 54

Income before tax 156 114

Income tax expenses (17) (40)


Net income 140 74

First Securities Overview


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2013 2014


Total assets 17,627 19,191

Total liabilities 11,166 12,598

Total shareholders’ equity 6,461 6,593

Ratios (%)

ROAE 2.19 1.14

ROAA 0.80 0.40

Credit Ratings

Taiwan Ratings twA+/twA-1/Stable

* Figures may not match due to rounding.* Data are stated in accordance with IFRS.

Major nations on diverging pathsIn 2014, the world economy was still struggling to gain momentum as many countries continued to grapple with legacies of the global financial crisis. Policymakers around the world made structural reform efforts aimed at boosting growth in their attempt to reduce the use of extraordinary monetary stimulus. In the U.S., the world’s largest economy, improving employment and revived consumer spending kept the recovery on track. The U.S. Federal Reserve ended its monthly bond purchases as widely expected under the leadership of Fed Chairwoman Janet Yellen. Buoyed by upbeat earnings reports, U.S. stocks surged past their pre-financial crisis peak with key indexes setting fresh record highs. In December 2014, the S&P 500 hit an all-time high of 2,094 while the Dow Jones Industrial Average rose to a record 18,100, with the indexes closing the year 11% and 7% higher, respectively.

In Japan, the economy recovered briefly on Prime Minister Shinzo Abe’s stimulus policies before unexpected slipping back into recession as consumer spending and business investment dropped following a sales tax hike last April. Oil prices tumbled in the second half of 2014 and the sharp weakening in the yen, which fell to 120 per U.S. dollar, made Japanese goods more competitive on global markets. The Bank of Japan moved to ramp up its monetary easing program, sending Japanese stocks soaring. The Nikkei-225 Stock Average finished the year up 7%.

In Europe, the hope was on Germany to lead the continent out of two consecutive years of contraction. Yet growth wobbled throughout 2014, compounded by escalating tensions between Russia and Ukraine, diverging pace of economic activities among eurozone countries, and concerns over the debt-ridden Spain, Portugal and Greece. Falling prices combined with


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sluggish consumer spending and corporate investment across the eurozone heightened deflation risk and raised fears that the currency bloc would eventually disintegrate.

Overall, stocks rose in most global markets in 2014, with a particularly strong performance in the U.S. European stock markets were lackluster, with the benchmark index of Germany, the strongest economy in Europe, edging up 2.64%. Among the four BRIC countries, Brazil ended the year 0.6% lower. China’s benchmark Shanghai Composite Index was the best performer in 2014 with a rally of over 53%.

A year of strong performance despite challenging environmentDespite the challenging operating environment, First Securities continued its growth path and delivered solid results in 2014 thanks to its dedicated, hardworking staff.

◆ Retail brokerageFirst Securities saw its market share in retail brokerage decline to 1.622% from 1.667% in the prior year, impacted by a higher share of institutional trades and clients’ rising demand for wealth management services. To respond to the changing market and customer dynamics, the company manages to create a unit in 2015 dedicated to delivering institutional services and expanding institutional brokerage business in Taiwan and abroad. It also looks to build up a wealth management unit, under which First Securities provides financial planning, asset-allocation advice and investment products tailored to clients’ specific goals through its comprehensive service platform.

◆ UnderwritingFirst Securities lead-managed one IPO and two SPOs in 2014. It entered into 19 IPO advisory and lead management contracts during the year, bringing the number of such contracts signed to date to 56. For 2015, First Securities will continue developing business with domestic companies and China-based, Taiwanese-owned corporations seeking listings in Taiwan. Additionally, Thailand will be one of its target markets to drive IPO advisory services. First Securities is currently managing the IPO process of seven foreign-domiciled companies.

◆ Investment products Tumbling oil prices in the last quarter of 2014 eased inflationary concerns but raised deflationary prospects around the world. Central banks in most major economies moved to ease their monetary policies, with the European Central Bank launching unprecedented government bond purchases. The stimulus program caused international hot money to flood global markets, in turn suppressing bond yields. In 2014, First Securities continued to earn spreads between bond yields and repo rates through repurchase agreements as well as commissions from transactions of convertible bond asset swaps. Moreover, it managed a total of eight corporate bond issues and made plans to enter the market for foreign currency-denominated bonds, which include the Formosa bonds. It achieved breakthrough growth over the past two years in its derivative business, whether measured by the number of stock warrants listed or the nominal value they represent. Furthermore, a product platform for structured investments was put in place to enable sales of principal guarantee notes and equity-linked notes. The amount of transactions rose month after month, which not only generated profit but also set First Securities as an expert in structured products.


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◆ Proprietary trading and research In 2014, First Securities lifted its proprietary portfolio limit and raised its investment position with a focus on high-yield stocks so as to maintain steady profit performance and to reduce volatility. For 2015, the company will continue developing its research capabilities and apply for quota for investment in China and Hong Kong in order to extend its market coverage and diversifying risk.

In addition to managing a database for 200 core holdings in portfolio, First Securities’ research team added one analyst to strengthen its coverage of China and Hong Kong equities given increased investment flows between Taiwan and China. Moreover, a new team dedicated to the research of global economic and industry issues was established in the fourth quarter of 2014 to help First Securities deliver solutions that build, preserve and manage clients’ overseas assets. This action took place against a backdrop of government initiatives that aim to develop innovative, market-specific financial services and to relax regulation of offshore investment. It also aligned with the growing needs for global transactions and investment services and the trend of investors allocating more of their assets into foreign markets.

Globalization has transformed the world economy, making national boundaries less important and accelerating international funds flows. Confronting the ever-evolving marketplace, Asian countries are implementing reforms over the financial systems and capital markets in their transition into a more open economy. At the same time, Taiwan’s financial regulators are loosening market access restrictions with the infrastructure of offshore securities units as well as financial activities in the free economic pilot zone, where it applies a tiered governance approach that recognizes the differences in products, services and market participants – all with the goal of enhancing the competitiveness of Taiwan’s capital market. In 2014, the Taiwan government’s market-friendly actions provided a more relaxed environment, and local stocks gained traction as a result.

In the year ahead, First Securities will stick to its commitment to operating sustainably. To remain at the forefront of market trends, it will build and strengthen its core competencies under a number of strategic priorities, including: expanding advisory services for foreign-based, Taiwanese-owned corporations that seek listings in Taiwan; introducing Chinese capital via the QDII system; developing the international brokerage business; and collaborating with First Bank to achieve greater economies of scale and to create value for the parent holding company. The goal of First Securities is to capture synergies and leverage resources that exist within its organization and across First Financial Holding’s subsidiaries. In the long term, the company aspires to be a leading full-service securities firm – one that not only helps individuals reach their financial goals, but also facilitates corporations’ access to capital.


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The performance of Taiwan’s asset management industry has a close correlation with the global economy. In 2014, the U.S. recovery remained on track while the Eurozone continued to struggle and China faced a deceleration in growth. Despite the diverging growth paths, a reduced level of global systematic risk led to opportunities for investors. In Taiwan, renminbi-denominated money market funds and bond funds gained popularity as investor clamored for Renminbi assets amid the renminbi’s rise to global prominence. The theme of multi-currency investment also contributed significantly to the growth in local fund assets, supported by money flows into assets denominated in a variety of foreign currencies and allowing local asset managers to reduce their issue costs. Given this favorable backdrop, FSITC delivered robust results with net profit of NT$79 million, or NT$1.32 per share.

Financial HighlightsNon-consolidated basis, data as of December 31, 2013 and 2014

2013 2014

Income statement (in NT$ mn)

Management fee 485 513

Sales service fee 1 1

Operating income 486 514

Operating expenses (370) (433)


Income before tax 124 95

Income tax expenses (21) (16)


Net income 103 79



Total liabilities 126 174

Total shareholders’ equity 994 978

Asset under management

AUM(in NT$ mn) 74,577 73,259

AUM rank 10

* Figures may not match due to rounding.* Data are stated in accordance with IFRS.

First Securities Investment Trust Overview


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First Securities Investment Trust Overview

Discretionary mandates put under spotlight in 2014Public-offering fund assets in Taiwan reached NT$1.9748 trillion at the end of 2014, an increase of NT$7.6 billion, or 0.4%, reflecting growth in the balanced fund category. Assets of domestic and international equity funds decreased by NT$11.8 billion, or 2.1%, to NT$537.3 billion. Assets of balanced funds rose by NT$32.7 billion, or 96.5%, to NT$66.6 billion. Assets of money market funds declined by NT$63 billion, or 7.7%, to NT$759.2 billion. Assets of other types of funds, including bond funds, fixed-income funds, fund of funds, principal guaranteed funds and exchange-traded funds, grew by NT$49.7 billion, or 8.8%, to NT$611.7 billion. Assets managed by 59 private equity funds increased by NT$1.1 billion, or 9.1%, to NT$13.2 billion compared to the prior year. Investors’ growing penchant to entrust funds to investment managers and the popularity of ILP funds drove discretionary mandate assets up by NT$318 billion, or 33.9%, to NT$1.2564 trillion. However, the total number of fund beneficiaries fell by 73,817, or 4.5%, to 1,550,684.

Domestic Mutual Fund Marketin NT$100 mn and %

Type 2013 2014 Change

Equity funds1 5,491 5,373 -2.1%

Bond funds 8,560 8,258 -3.5%

Others2 5,621 6,117 8.8%

Total public-offering funds 19,672 19,748 0.4%

Private-placement funds 121 132 9.1%

Funds under discretionary management 9,384 12,564 33.9%

1. Including balanced funds2. Including fund of funds, index funds and securitization funds


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At FSITC, assets under management were NT$74.1 billion in 2014, ranking 13th among the local fund industry. Public-offering funds accounted for NT$72.7 billion of assets, a decrease of NT$1.5 billion, or 2%. By asset class, assets of non-money market funds that include equity funds, balanced funds and others increased by NT$200 million, or 0.7%, to NT$27.5 billion. Assets of money market funds were NT$45.2 billion, a decrease of NT$1.7 billion, or 3.6%. Client assets managed on a discretionary basis were NT$600 million, an increase of NT$200 million, or 50%. Assets of private equity funds were NT$800 million, an increase of NT$200 million, or 33.3%. In 2014, FSITC continued to apply its four principles of business – professionalism, discipline, integrity and philanthropy to all its activities. The average performance of its funds set a six-year high, surpassing its previous five-year record. The company also saw its revenue reach a seven-year high of NT$514 million.

First Securities Investment Trust’s Asset under Managementin NT$100 mn and %

Type 2013 2014 Change

Equity funds1 273 275 0.7%

Bond funds 469 452 -3.6%

Total public-offering funds 742 727 -2.0%

Private-placement funds 6 8 33.3%

Funds under discretionary management 4 6 50.0%

Total asset under management 752 741 -1.5%

1. Including balanced funds

The 2014 summarized results of FSITC’s domestic and international funds are as follows:

Domestic funds: FSITC’s domestic funds achieved their best ranking in six years with an average return of 34.11% over a two-year period. They also moved to their best position in six years in the ranking of one-year return.

International funds: Since 2nd quarter of 2014, FSITC’s China Century Fund consistently ranked among the top three in its peer group of 13 A-share funds and Hong Kong equity funds. Specifically, it ranked third place for the year-to-date period ending December 2014. FSITC Global REITs Fund ranked No. 2 in its peer group for the fourth quarter of 2014.

Fixed-income funds: FSITC’s Global High-Yield Bond Fund topped all its peers with a three-year Sharpe ratio of 0.29, reflecting its ability to deliver higher risk-adjusted returns.

Discretionary mandates: As of December 31, 2014, discretionary mandate assets invested in Taiwan equity under contracts longer than six months averaged a 2.7% return. Discretionary mandates of longer than 12 months generated an annualized return of 14.57%. Under a partnership established between FSCI and First-Aviva Life Insurance in July 2014, FSCI was responsible for managing the underlying sub-fund of First-Aviva Life’s ILP, which has distributed interest payment six times to date since its launch.


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Goals and outlook for 2015A focus on multi-currency, non-money market and offshore investment strategies: In view of China’s relaxed restrictions on the capital market and the attractive yield and low volatility offered by Chinese fixed-income securities, FSITC plans to launch a renminbi money market funds and a renminbi bond fund (new Taiwan dollar and renminbi share classes available for both funds) during the first three quarters of 2015. FSITC also plans to offer a renminbi share class for its Global High-Yield Bond Fund in 2015.

Promotion of existing fund lineup: FSITC will continue to help its clients form portfolios consisting of a balanced mix of equity and bonds based on their specific financial goals. Selective equity funds, bond funds and multi-asset solutions will be featured each quarter to assist investors in identifying the most suitable investments.

Expansion of client coverage: FSITC’s efforts to enlarge the scale and leverage expertise of its direct sales team will continue in 2015 so as to cultivate new customer relationships and strengthen existing ties. The company also aims to expand its sale channels, to enhance the delivery of services and to implement key performance indicators that help it define and measure progress towards the goals set for fund distribution. With respect to discretionary mandates, FSITC will seek opportunities to manage government funds with the aim of boosting discretionary mandate assets and enhancing public awareness of the company.

FSITC will be taking a major step forward in 2015 as it partners with China Universal Asset Management, the largest investment management company in Shanghai with client assets equivalent to NT$1 trillion. FSITC expects this to be the first of many cross-border partnerships to come as it accelerates tapping renminbi-related asset management opportunities. In addition, given expected rate hikes by the U.S. Federal Reserve, FSITC will make it a priority to lead clients navigate through a rising interest rate cycle with insight-driven advice and asset allocation. As a member company of First Financial Holdings, FSITC will support the group’s advocacy for equality in all aspects of life, whether it is fair treatment for people with disabilities and unusual appearance, or equal access to quality medical and financial services. FSITC will continue to demonstrate commitment to clients, shareholders and employees as it makes progress towards its goal of being a leading and indispensible partner for investors in the Greater China region.


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First-Aviva Life Insurance was incorporated in 2008 as a joint venture between First Financial Holding Company (FHC) and Aviva International Holdings. During 2014, in addition to providing life insurance to customers of its parent group, First-Aviva made strong progress in investment-linked policies (ILPs) with sub-funds professionally managed by selected fund managers, which boosted premium income and further deepened its market penetration. At the same time, First-Aviva improved public awareness of insurance with its wide choice of protection-type products and ILPs, as part of its commitment to operating sustainably and adapting to the changing needs of those it serves. In 2014, First-Aviva moved one step closer to break even with net loss of NT$15 million, or NT-$0.07 per share. First FHC recognized its share of loss of NT$8 million based on its 51% stakeholding in First-Aviva.

Financial HighlightsNon-consolidated basis, data as of December 31, 2013 and 2014

2013 2014

Income statement (in NT$ mn)

Premium income 9,301 13,436

Other insurance income 82 136

Net investment income 955 1,331

Operating Cost (9,979) (14,506)

Gross Revenue 359 397

Operating Expense (383) (422)


Income before tax (24) (14)

Income tax expenses 0 (1)


Net income (24) (15)



Total liabilities 27,645 29,506

Total shareholders’ equity 973 881

Ratios (%)

ROAE (2.21) (1.60)

ROAA (0.09) (0.05)

* Figures may not match due to rounding.

* Data are stated in accordance with IFRS.

First-Aviva Life Insurance Overview


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Providing protection against unexpected losses remains a vital function of insurance. In recent years, the Taiwan regulator has sought to educate people about mitigating risk through the purchase of insurance, rather than treating it as a savings tool. Since late 2013, the regulator has adopted rules under which insurers must perform cash flow testing to determine the profitability of their interest-sensitive policies. Moreover, in September 2014, the regulator imposed tougher restrictions on the highly popular interest-sensitive single premium whole life product. By limiting the sales of savings products, the regulator sought to increase oversight of insurers’ risk exposure, to guide them toward financial sustainability and to restore their role in supporting social stability. In August 2014, the Taiwan government placed Global Life Insurance and Singfor Life Insurance into its receivership, and Cathay Life Insurance in March 2015 took over these two troubled insurers in a move that solved their insolvency.

During 2014, bancassurance remained a major distribution channel in the life insurance sector, generating 52% of total new business for the first nine months of the year and leading the agent force (43% of market share) by a narrowing margin compared to the year-ago period. This was attributed to Cathay Life Insurance, Taiwan’s largest life insurer, driving the ILP business through its agents, in turn leading to insurance agents’ higher contribution to new business. Nonetheless, bancassurance continued to be the dominant channel given local banks’ sizable, loyal customer bases and their national coverage of branch networks. First Bank’s sales network, including its telemarketing force, contributed 89.6%, or NT$11,158 billion, of first-year premium income for First-Aviva in 2014. Trailing behind was the channel of agents and brokers, which contributed 5.6%, or NT$704 million, of first-year premium income. First-Aviva’s own telemarketing operation generated new premium income of NT$118 million, an increase of 24% compared to the prior year. Ever since First-Aviva signed on Hwatai Bank as its first external distributor, the number of extra bancassurance partnerships has increased to five (Taichung Cota Commercial Bank, Hwatai Bank, Agricultural Bank of Taiwan, Concord Securities and Jih Sun Bank), bringing in NT$581 million of first-year premium income in 2014, up by 147% from a year earlier.

Looking ahead to 2015, First-Aviva plans to strengthen tie-ups with existing partners and seeking new ones in order to enlarge scale and market share of its bancassurance business.

ILPs have become a large and key part of bancassurance sales. At First-Aviva, its main offerings include variable universal life insurance, which covers both protection and investments, whereas variable annuities, are widely used as retirement planning tools. Over the years, First-Aviva has earned a reputation for its prudent screening of fund managers and

a strong record of performance for ILP sub-funds that are managed under discretionary agreements. As a result, first-year premium income of ILPs rose to NT$10,216 billion in 2014, up 75% from NT$5,825 billion in the prior year, against a volatile and challenging market environment. First-year premium income of mortgage insurance also experienced solid growth, up 49% to NT$644 million from NT$431 million in 2013, as First-Aviva extended its target audience beyond retail to corporate. In terms of the company’s highly competitive protection products, which have won widespread recognition among customers and bancassurance partners, new business totaled NT$178 million, an increase of 6.5% over 2013.

FIRST FINANCIAL HOLDING CO., LTD. 2014 ANNUAL REPORTFIRST FINANCIAL HOLDING CO., LTD. 2014 ANNUAL REPORT

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FYP (million NT) Percent (%)

Investment-linked products 11,499 92.4%

Mortgage insurance products 644 5.2%

Traditional life products 301 2.4%

Others(Savings products) 3 0.0%

For the 13th time in a row, First-Aviva was awarded by the Financial Supervisory Commission for its contribution to raising public awareness of the importance of adequate insurance coverage. The ageing of Taiwan’s population is bringing profound demographic changes while highlighting the urgency of preparing for retirement. Annuities that provide income during retirement are fast gaining popularity, with their target market expanding from the wealth management clientele to middle-class customers. In the year ahead, First-Aviva will continue to build and strengthen its product platform for ILPs that meet the ever-evolving needs of its policyholders. Additionally, the insurer will maintain its disciplined approach to the investment of ILP sub-funds and the oversight of fund managers as it looks to grow and protect clients’ assets in an environment of increasing life expectancy. It plans to roll-out more foreign currency-denominated policies to respond to customers’ needs for foreign currency solutions. Transforming the mindset of individual that insurance actually stands for long-term care.

The advantage of First FHC’s extensive distribution network, complemented by Aviva’s global market knowledge, has enabled First-Aviva to execute its brand strategy and enhance customer satisfaction with a customer-centric focus. Going forward, the insurer will keep First Bank’s clients and the public informed about its news, events and product updates through exposure in the media, email newsletters and other marketing efforts leveraged through resources at First Bank. Even more importantly, First-Aviva seeks to raise the awareness of its brand and to position itself as one of the market leaders in bancassurance – one that not only helps customers achieve financial success, but also enjoy the peace of mind. This commitment forms part of First-Aviva’s mission to build the most profitable bancassurance model in Taiwan.

2014 ANNUAL REPORT

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2014 ANNUAL REPORT

Corporate Social Responsibilities

In 2014, we were honored by ‘Securities & Futures Institute” the prize of grade A++ of “The 11th Listed Corporations Information Disclosure Evaluation”. This award reveals our hard-work toward information transparency and disclosure for our related parties.

In our “Year of 2012 CSR Report”, we delivered our long-term efforts on society caring, environmental protection and corporate governance. This report also verified by The British Standards Institution (BSI) certification. Followed by Year of 2013 CSR report, scheduled to publish this year, we upgrade our disclosure standards from Grade B+ to Grade A+, and to comply with the Global Reporting Initiative G3.1 guidance, which ranked us top one among state-owned financial institutions.

Looking ahead, all members in FFHC together will extend our persistent care for the clients and give back to the society through a variety of innovative services. We will also deliver our English version CSR Report within this year to help our global investors understand what we achieved and how we fill our mission and our commitments to make a better future for the society as a whole.


52

First Financial Holding pursues corporate profits with strict compliance with the laws, regulations and rules. Moreover, we extol the virtues of corporate citizenship and fulfill our social responsibility by putting clients, staffs and people first to ensure group’s sustainable growth.

CSR CommitteeThe CSR Committee was formed in 2011 and outlined the guidance including the “Code of Practice for Corporate Social Responsibility” and “Corporate Social Responsibility Policy” to be followed within the group. The committee also conducts and oversees the annual targets set out by all subsidiaries on their implementation relating to corporate social responsibilities and report to the Board on a yearly basis.

Our EmployeesTraining and Working Environment We continue to focus on employee training and talent development programs. We include product research, development and marketing courses into our internal training programs for subsidiaries. We also provide education programs for many key certificate examinations of financial professionals. Moreover, to strengthen our staffs’ knowledge and perception to better adapt to the business expansion, we deliver external training projects for their overall development. In 2014, we conducted a total of 813 internal training sessions with 48,621 participants. We also encourage further education within staffs’ leisure time, where 1,304 participants joined with a total of subsidizing cost of NT$6,514,009. Meanwhile, a total of NT$5,553,159 was charged in 2014 to support our external training initiatives, where 6,400 participants joined.

It is our responsibility to provide a safe and sound working environment for our employees. We provide regular health checks or reimburse health examination fee, hold sports, fitness programs and recreational events to ensure the physical well-being of employees. Meanwhile, to provide a secure and friendly environment for customers and staffs, subsidiary First Bank held carbon oxide tests in premises every six months. Subsidiary First Bank, First Securities and First Securities Investment Trust each has its own “Employee Welfare Committee” that supports, sponsors and organizes various events and programs for the benefit of its employees.



53

We trust the balance of work and family-caring should be the key factor to support our employees, by conducting various measures such as “subsidy for longer holiday break”, which totaled NT$26 mn in the year of 2014, as well as an optional unpaid-leave for employees when family members caring is needed. These are the benefits that we share with our employees, allowing them to look after both working and family.

Finally, our Personnel Committee also reviews matters involving personnel policies that affect employees, including against sexual-harassment policy that communicates a zero-tolerance approach and takes every action to correct any sexual harassment behavior within the workplace.

Employees—our important assetsWe provide employees with the opportunities to maximize their potential, a safe workplace to work in, and a culture that values integrity and superior products and services to customers. We believe in that only quality employees can deliver foremost service to our clients. We share company’s profits with our employees and adopt a fair KPI method to assess their performances. We hope our employees to advance with our clients, society and the most fast-growing financial industry, so we provide them with various opportunities for getting access to updated technology and knowledge for their positions and to adopt themselves for being a better staff.

Number of Employees* Data as of February 28, 2015

2015* 2014 2013

First Financial Holding 64 62 58

First Bank 7,298 7,286 7,207

First Securities 936 933 912

First Securities Investment Trust 139 137 146

First-Aviva Life Insurance 212 214 210

Other Subsidiaries 92 92 91

Total: First Group 8,741 8,724 8,624

2014 ANNUAL REPORT


54

Our CustomersPrivacy protectionTo infuse the concept of consumer protection into corporate culture, First Financial Holding’s subsidiaries continue to conduct training, via written programs or verbal communication, to emphasize to all employees the importance of confidentiality of customer information. The group also announces “FFHC Group marketing firewall policy and discipline” to ensure that each subsidiary disclose the privacy policy on the website page. A related training program is periodically conducted through education activity to protect customer information. Every employee within the group has the obligation to safeguard customer information. Contracts between the group and clients must ensure compliance with the law in recognition of customers’ legitimate interest. All subsidiaries have telephone complaint service systems in place to handle any complaints and answer inquiries.

Our ESG – Environment, Social & Corporate Governance

Environment The group is dedicated to environmental protection and social welfare stemming from the consensus of sustainability and energy saving. Subsidiary First Bank headquarter was certified as Green Building in 2012, representing the pioneer architecture of its kind in Taiwan. Moreover, First Bank’s IT division headquarter also certified as the Diamond-Green Building. Recently, a number of premises among our group were awarded as “ ISO50001 Energy-Management System” and “ ISO14064-1 Greenhouse Gas” certifications respectively. Our ongoing movements toward environmental protection include:

Energy Saving:

◆ Reduce Electricity and Water Usage: keep on replacing lighting devices to LED lamps, water-saving faucets and flush toilets were installed widely at the premises of group’s subsidiaries and bank branches.

◆ Global Earth Hour in 2014: group followed the activity held by “World Wide Fund for Nature”, shutting down power for 1 hour on April, 22, 2014, continue to make progress towards being the “Green Enterprise”.

Environmental Protection:

◆ Reduce Paper Usage: group stuck to e-Commerce guidance with paperless meetings or training courses.

◆ Reduce Petroleum and Carbon Usage: carpooling or taking public transportation for business visits; air-conditioning temperature controls; properly recycle printer cartridges and photocopiers.

◆ Everyone’s Daily Life: “A Day without Red-Meat” was implemented at group’s cafeteria restaurant on the first business day of each month.


55

Social As we share common duty to alleviate global warming, the group is devoted to fulfilling the environmental protection mission by way of corporate procurements, business operations, and campaigns that trickle down to every employee, client, and the community.

Since 2013, subsidiary First Bank has adopted “Equator Principles” on setting up “Green-Loan Evaluation Rule” for lending business, any enterprises involving labor disputes, environmental-unfriendly or harmful product issues will be rejected for loan under the principles.

Each freshman employee of First Bank will be arranged to participate the community welfare activities and to visit organic tea factory to fully understand the social responsibilities that we should bear and achieve.

FFHC Group and other subsidiaries jointly serve our community in many ways, as we continue to focus on social responsibilities towards our home towns, and more importantly, we gain more as we share more.

Corporate Governance

CSR Awards

British Standards Institution (BSI)The BSI has verified First Financial Holding’s 2014 CSR Report in Core Track of G4 version.

Securities & Futures Institute (SFI)The SFI evaluated A++ to First Financial Holding on “12th Listed and OTC-listed Companies Information Disclosure”.

GreatVision MagazineFirst Financial Holding was awarded by GreatVision Magazine for “11th GreatVision CSR Award” & “ Environmental-Friendly Award” in 2015

Taiwan Corporate Sustainability AwardsAwarded the “7th Taiwan Top 50 Corporate Sustainability Report Awards” as the category of Large Enterprises, Financial Industry.

Taiwan Stock Exchange CorporationAwarded the “1st Corporate Governance Evaluation for Top 5% among Listed Companies”.


56

Financial Information2 0 1 4 A N N U A L R E P O R T

2014 ANNUAL REPORT

57


AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AND REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE YEARS ENDED

DECEMBER 31, 2014 AND 2013

----------------------------------------------------------------------------------------------------------------------------- ---------

For the convenience of readers and for information purpose only, the 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. In the event of any discrepancy between the English version and the

original Chinese version or any differences in the interpretation of the two versions, the Chinese-language

auditors’ report and financial statements shall prevail.


58

(103)PWCR14000271

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and stockholders of First Financial Holding Co., Ltd

We have audited the accompanying consolidated balance sheets of First Financial Holding Co., Ltd. (the “Company”) and its subsidiaries (collectively the “First Group”) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, of changes in equity and cash flows for the year ended December 31, 2014 and 2013. These consolidated financial statements are the responsibility of the First Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the ”Regulations Governing Auditing and Certification of Financial Statements of Financial Institutions by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Group as of December 31, 2014 and 2013 and the results of its operations and its cash flows for the years ended December 31, 2014 and 2013 in conformity with the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”, “Regulations Governing the Preparation of Financial Reports by Public Banks”, “Regulations Governing the Preparation of Financial Reports by Securities Firms”, “Regulations Governing the Preparation of Financial Reports by Insurance Companies”, “Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants” and International Financial Reporting Standards (“IFRS”), International Accounting Standards (“IAS”), IFRS Interpretations Committee (“IFRIC”), and Standing Interpretations Committee (“SIC”), as endorsed by the Financial Supervisory Commission (“FSC”). March 19, 2015 The accompanying consolidated financial statements are not intended to present the financial position and results of operations and of cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

2014 ANNUAL REPORT

59

(103)PWCR14000271

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and stockholders of First Financial Holding Co., Ltd

We have audited the accompanying consolidated balance sheets of First Financial Holding Co., Ltd. (the “Company”) and its subsidiaries (collectively the “First Group”) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, of changes in equity and cash flows for the year ended December 31, 2014 and 2013. These consolidated financial statements are the responsibility of the First Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the ”Regulations Governing Auditing and Certification of Financial Statements of Financial Institutions by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Group as of December 31, 2014 and 2013 and the results of its operations and its cash flows for the years ended December 31, 2014 and 2013 in conformity with the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”, “Regulations Governing the Preparation of Financial Reports by Public Banks”, “Regulations Governing the Preparation of Financial Reports by Securities Firms”, “Regulations Governing the Preparation of Financial Reports by Insurance Companies”, “Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants” and International Financial Reporting Standards (“IFRS”), International Accounting Standards (“IAS”), IFRS Interpretations Committee (“IFRIC”), and Standing Interpretations Committee (“SIC”), as endorsed by the Financial Supervisory Commission (“FSC”). March 19, 2015 The accompanying consolidated financial statements are not intended to present the financial position and results of operations and of cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of New Taiwan dollars)

December 31, 2014 December 31, 2013

ASSETS Notes Amount % Amount %

Cash and cash equivalents 6(1) $ 62,282,631 3 $ 56,683,394 3

Due from the Central Bank and call loans to banks 6(2) 181,176,379 8 162,586,971 7

Financial assets at fair value through profit or loss 6(3) 55,800,157 2 46,428,396 2

Available-for-sale financial assets 6(8) 84,980,455 4 97,397,287 4

Securities purchased under resell agreements 6(4) 1,882,206 - 3,469,271 -

Receivables, net 6(5) 64,860,600 3 69,439,025 3

Current tax assets 1,471,426 - 2,294,922 -

Loans discounted, net 6(6) 1,497,260,653 64 1,431,075,270 63

Reinsurance contract assets, net 6(7) 912 - 4,690 -

Held-to-maturity financial assets 6(9) 307,625,308 13 304,110,961 14

Investments accounted for using equity method, net 6(10) 3,148,788 - 1,819,442 -

Other financial assets, net 6(11) 51,548,266 2 44,970,823 2

Investment property, net 6(12) 9,437,666 - 8,790,550 1

Property and equipment, net 6(13) 28,299,057 1 28,464,750 1

Intangible assets, net 430,110 - 345,807 -

Deferred income tax assets, net 1,688,887 - 1,665,697 -

Other assets, net 6(14) 3,815,182 - 3,838,096 -

Total Assets $ 2,355,708,683 100 $ 2,263,385,352 100

(Continued)


60




LIABILITIES AND EQUITY Notes Amount % Amount %

Deposits from the Central Bank and banks 6(15) $ 126,095,434 5 $ 141,375,782 6

Due to the Central Bank and banks 80,968 - 69,243 -

Financial liabilities at fair value through profit or

loss

6(16)

23,387,572 1 15,013,079 1

Derivative financial liabilities for hedging 6(17) - - 7,973 -

Securities sold under repurchase agreements 6(18) 8,723,114 - 14,215,809 1

Commercial papers issued, net 6(19) 10,693,042 1 5,791,670 -

Payables 6(20) 68,733,743 3 63,210,669 3

Current tax liabilities 1,680,981 - 2,302,121 -

Deposits 6(21) 1,823,298,294 78 1,731,889,637 77

Bonds payable 6(22) 41,900,000 2 49,700,000 2

Other borrowings 6(23) 7,528,630 - 2,718,078 -

Provisions 6(24)

Provisions for insurance 6,919,954 - 13,972,124 1

Provisions for employee benefits 5,062,443 - 5,217,358 -

Provisions for guarantee liabilities 795,376 - 558,614 -

Other provisions 69,658 - 8,694 -

Other financial liabilities 66,239,808 3 66,717,864 3

Deferred tax liabilities 5,772,703 - 5,763,392 -

Other liabilities 4,350,409 - 3,647,092 -

Total Liabilities 2,201,332,129 93 2,122,179,199 94

Equity attributable to owners of the parent

Capital

Common stock 92,592,548 4 86,535,092 4

Capital surplus 18,200,167 1 18,200,167 1

Retained earnings

Legal reserve 9,355,102 1 8,266,238 -

Special reserve 4,128,990 - 4,128,990 -

Unappropriated earnings 22,068,989 1 19,446,949 1

Other equity interest 7,598,954 4,151,813

Non-controlling interests 431,804 - 476,904 -

Total Equity 154,376,554 7 141,206,153 6

TOTAL LIABILITIES AND EQUITY $ 2,355,708,683 100 $ 2,263,385,352 100

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

2014 ANNUAL REPORT

61




LIABILITIES AND EQUITY Notes Amount % Amount %

Deposits from the Central Bank and banks 6(15) $ 126,095,434 5 $ 141,375,782 6

Due to the Central Bank and banks 80,968 - 69,243 -

Financial liabilities at fair value through profit or

loss

6(16)

23,387,572 1 15,013,079 1

Derivative financial liabilities for hedging 6(17) - - 7,973 -

Securities sold under repurchase agreements 6(18) 8,723,114 - 14,215,809 1

Commercial papers issued, net 6(19) 10,693,042 1 5,791,670 -

Payables 6(20) 68,733,743 3 63,210,669 3

Current tax liabilities 1,680,981 - 2,302,121 -

Deposits 6(21) 1,823,298,294 78 1,731,889,637 77

Bonds payable 6(22) 41,900,000 2 49,700,000 2

Other borrowings 6(23) 7,528,630 - 2,718,078 -

Provisions 6(24)

Provisions for insurance 6,919,954 - 13,972,124 1

Provisions for employee benefits 5,062,443 - 5,217,358 -

Provisions for guarantee liabilities 795,376 - 558,614 -

Other provisions 69,658 - 8,694 -

Other financial liabilities 66,239,808 3 66,717,864 3

Deferred tax liabilities 5,772,703 - 5,763,392 -

Other liabilities 4,350,409 - 3,647,092 -

Total Liabilities 2,201,332,129 93 2,122,179,199 94

Equity attributable to owners of the parent

Capital

Common stock 92,592,548 4 86,535,092 4

Capital surplus 18,200,167 1 18,200,167 1

Retained earnings

Legal reserve 9,355,102 1 8,266,238 -

Special reserve 4,128,990 - 4,128,990 -

Unappropriated earnings 22,068,989 1 19,446,949 1

Other equity interest 7,598,954 4,151,813

Non-controlling interests 431,804 - 476,904 -

Total Equity 154,376,554 7 141,206,153 6

TOTAL LIABILITIES AND EQUITY $ 2,355,708,683 100 $ 2,263,385,352 100


FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

For the years ended December 31,

Change

Percentage

2014 2013

Notes Amount % Amount %

Interest income $ 42,879,260 126 $ 38,131,760 106 12

Interest expense ( 14,601,666 ) ( 43 ) ( 12,199,328 ) ( 35 ) 20

Net interest income 6(30) and 7 28,277,594 83 25,932,432 71 9

Net income except interest

Net service fee and commission income 6(31) and 7 7,427,518 22 6,631,884 18 12

Net (loss) gains from insurance operations 6(32) ( 6,532,668 ) ( 19 ) 688,025 2 ( 1049 )

Gains on financial assets (liabilities) at fair

value through profit or loss

6(3)(33)

1,372,734 4 858,780 3 60

Gains on investment property 171,830 - 87,857 - 96

Realized gains on available-for-sale financial

assets

6(34)

416,584 1 314,828 1 32

Foreign exchange gains 2,171,638 6 1,368,237 4 59

(Impairment loss) Reversal of impairment

loss on assets

6(35)

( 5,510 ) - 3,046 - ( 281 )

Share of profit of associates accounted for

using equity method

6(10)

( 25,805 ) - 96,810 - ( 127 )

Net other non-interest income 6(36) 912,540 3 484,333 1 88

Net income 34,186,455 100 36,466,232 100 ( 6 )

Bad debt expense and guarantee liability

provisions

( 4,015,000 ) ( 12 ) ( 4,046,506 ) ( 11 ) ( 1 )

Net change in provisions for insurance

liabilities

6(37)

7,100,719 21 ( 397,078 ) ( 1 ) ( 1888 )

Operating expenses

Employee benefits expense 6(38) ( 13,776,282 ) ( 40 ) ( 12,870,019 ) ( 35 ) 7

Depreciation and amortization expenses 6(39) ( 971,182 ) ( 3 ) ( 880,711 ) ( 3 ) 10

Other general and administrative expenses 6(40) and 7 ( 6,041,665 ) ( 18 ) ( 5,222,764 ) ( 14 ) 16

Income from continuing operations 16,483,045 48 13,049,154 36 26

Income tax expense 6(41) ( 2,405,399 ) ( 7 ) ( 2,172,180 ) ( 6 ) 11

Profit 14,077,646 41 10,876,974 30 29

(Continued)


62




Change

Percentage

2014 2013


Other comprehensive income 6(29)

Exchange differences on translation $ 2,579,511 8 $ 695,783 2 271

Unrealized gains (losses) on valuation of

available-for-sale financial assets

688,633 2 398,307 1 73

Actuarial gains on defined benefit plans 12,263 - 75,861 - ( 84 )

Share of other comprehensive income of

associates accounted for using equity method

146,337 - 87,027 - 68

Income tax related to components of

comprehensive income

( 7,235 ) - 4,614 - ( 257 )

Other comprehensive income, net of tax 3,419,509 10 1,261,592 3 171

Total comprehensive income $ 17,497,155 51 $ 12,138,566 33 44

Profit, attributable to:

Profit, attributable to owners of parent $ 14,084,936 41 $ 10,888,641 30 29

Loss, attributable to non-controlling interests ( 7,290 ) - ( 11,667 ) - ( 38 )

$ 14,077,646 41 $ 10,876,974 30 29

Comprehensive income attributable to:

Comprehensive income, attributable to owners

of parent

$ 17,542,255 51 $ 12,242,170 33 43

Comprehensive loss, attributable to

non-controlling interests

( 45,100 ) - ( 103,604 ) - ( 56 )

$ 17,497,155 51 $ 12,138,566 33 44

Earnings per share 6(42)

Basic and diluted earnings per share from

continuing operations, net of income tax

$ 1.52 $ 1.18


2014 ANNUAL REPORT

63




Change

Percentage

2014 2013


Other comprehensive income 6(29)

Exchange differences on translation $ 2,579,511 8 $ 695,783 2 271

Unrealized gains (losses) on valuation of

available-for-sale financial assets

688,633 2 398,307 1 73

Actuarial gains on defined benefit plans 12,263 - 75,861 - ( 84 )

Share of other comprehensive income of

associates accounted for using equity method

146,337 - 87,027 - 68

Income tax related to components of

comprehensive income

( 7,235 ) - 4,614 - ( 257 )

Other comprehensive income, net of tax 3,419,509 10 1,261,592 3 171

Total comprehensive income $ 17,497,155 51 $ 12,138,566 33 44

Profit, attributable to:

Profit, attributable to owners of parent $ 14,084,936 41 $ 10,888,641 30 29

Loss, attributable to non-controlling interests ( 7,290 ) - ( 11,667 ) - ( 38 )

$ 14,077,646 41 $ 10,876,974 30 29

Comprehensive income attributable to:

Comprehensive income, attributable to owners

of parent

$ 17,542,255 51 $ 12,242,170 33 43

Comprehensive loss, attributable to

non-controlling interests

( 45,100 ) - ( 103,604 ) - ( 56 )

$ 17,497,155 51 $ 12,138,566 33 44

Earnings per share 6(42)

Basic and diluted earnings per share from

continuing operations, net of income tax

$ 1.52 $ 1.18


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64

FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


For the years ended December 31, 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations before tax $ 16,483,045 $ 13,049,154 Adjustments to reconcile income before tax to net cash provided by

operating activities Income and expenses having no effect on cash flows

Depreciation of investment property 15,929 12,198 Depreciation of property and equipment 735,451 715,353 Amortization expense 219,802 165,358 Provision for bad debt expense 6,308,204 7,214,906 Interest income ( 42,879,260 ) ( 38,131,760 ) Interest expense 14,601,666 12,199,328 Dividend income ( 817,712 ) ( 760,515 ) Net change in insurance liability ( 7,083,924 ) 400,614 Net change in provisions for foreign exchange price fluctuation 18,588 4,440 Share of loss of associates accounted for using equity method 25,805 ( 96,810 ) (Gain) loss on disposal of investment property ( 103,798 ) 22,704 Loss on disposal of property and equipment 5,789 147 Impairment loss (reversal of impairment loss) on assets 5,510 ( 3,046 )

Changes in operating assets and liabilities Changes in operating assets

Increase in due from the Central Bank ( 2,548,291 ) ( 2,742,552 ) Increase in financial assets at fair value through profit or loss ( 9,371,761 ) ( 27,337,093 ) Decrease (increase) in available-for-sale financial assets 13,036,838 ( 12,807,468 ) Decrease (increase) in receivables 4,895,278 ( 5,325,860 ) Increase in loans discounted ( 72,295,570 ) ( 1,441,874 ) Increase in held-to-maturity financial assets ( 3,514,347 ) ( 25,573,798 ) Decrease (increase) in reinsurance assets 766 ( 834 ) Increase in other financial assets ( 6,606,769 ) ( 23,134,347 ) Decrease in other assets 244,714 10,970

Changes in operating liabilities Decrease in deposits from the Central Bank and banks ( 15,280,348 ) ( 11,805,915 ) Increase (decrease) in financial liabilities at fair value through

profit or loss 8,374,493 ( 6,851,886 ) Decrease in derivative financial liabilities for hedging ( 7,973 ) ( 36,611 ) Increase (decrease) in payables 5,441,505 ( 2,665,288 ) Increase in deposits and remittances 91,408,657 109,890,687 Decrease in provisions ( 68,748 ) ( 122,807 ) (Decrease) increase in other financial liabilities ( 478,056 ) 26,472,682 Increase in other liabilities 703,317 297,018 Cash flows provided by operations 1,468,800 11,617,095

Interest received 42,531,065 37,743,458 Interest paid ( 14,520,097 ) ( 12,171,414 ) Dividend received ` 818,028 760,831 Income tax paid ( 2,224,157 ) ( 1,719,366 ) Net cash flows provided by operating activities 28,073,639 36,230,604

(Continued)

2014 ANNUAL REPORT

65



For the years ended December 31, 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations before tax $ 16,483,045 $ 13,049,154 Adjustments to reconcile income before tax to net cash provided by

operating activities Income and expenses having no effect on cash flows

Depreciation of investment property 15,929 12,198 Depreciation of property and equipment 735,451 715,353 Amortization expense 219,802 165,358 Provision for bad debt expense 6,308,204 7,214,906 Interest income ( 42,879,260 ) ( 38,131,760 ) Interest expense 14,601,666 12,199,328 Dividend income ( 817,712 ) ( 760,515 ) Net change in insurance liability ( 7,083,924 ) 400,614 Net change in provisions for foreign exchange price fluctuation 18,588 4,440 Share of loss of associates accounted for using equity method 25,805 ( 96,810 ) (Gain) loss on disposal of investment property ( 103,798 ) 22,704 Loss on disposal of property and equipment 5,789 147 Impairment loss (reversal of impairment loss) on assets 5,510 ( 3,046 )

Changes in operating assets and liabilities Changes in operating assets

Increase in due from the Central Bank ( 2,548,291 ) ( 2,742,552 ) Increase in financial assets at fair value through profit or loss ( 9,371,761 ) ( 27,337,093 ) Decrease (increase) in available-for-sale financial assets 13,036,838 ( 12,807,468 ) Decrease (increase) in receivables 4,895,278 ( 5,325,860 ) Increase in loans discounted ( 72,295,570 ) ( 1,441,874 ) Increase in held-to-maturity financial assets ( 3,514,347 ) ( 25,573,798 ) Decrease (increase) in reinsurance assets 766 ( 834 ) Increase in other financial assets ( 6,606,769 ) ( 23,134,347 ) Decrease in other assets 244,714 10,970

Changes in operating liabilities Decrease in deposits from the Central Bank and banks ( 15,280,348 ) ( 11,805,915 ) Increase (decrease) in financial liabilities at fair value through

profit or loss 8,374,493 ( 6,851,886 ) Decrease in derivative financial liabilities for hedging ( 7,973 ) ( 36,611 ) Increase (decrease) in payables 5,441,505 ( 2,665,288 ) Increase in deposits and remittances 91,408,657 109,890,687 Decrease in provisions ( 68,748 ) ( 122,807 ) (Decrease) increase in other financial liabilities ( 478,056 ) 26,472,682 Increase in other liabilities 703,317 297,018 Cash flows provided by operations 1,468,800 11,617,095

Interest received 42,531,065 37,743,458 Interest paid ( 14,520,097 ) ( 12,171,414 ) Dividend received ` 818,028 760,831 Income tax paid ( 2,224,157 ) ( 1,719,366 ) Net cash flows provided by operating activities 28,073,639 36,230,604

(Continued)




For the years ended December 31, 2014 2013

CASH FLOWS FROM INVESTING ACTIVITIES

Increase in investments using the equity method ( $ 1,208,814 ) $ -

Acquisition of investment property ( 368,012 ) ( 1,741,880 )

Proceeds from disposal of investment property 396,991 -

Acquisition of property and equipment ( 1,146,226 ) ( 1,246,788 )

Proceeds from disposal of property and equipment 7 2,164

Acquisition of intangible assets ( 300,993 ) ( 201,985 )

Proceeds from capital reduction of other financial assets - 750,000

Increase in other assets ( 222,238 ) ( 311,624 )

Net cash flows used in investing activities ( 2,849,285 ) ( 2,750,113 )

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in due to the Central Bank and banks 11,725 ( 8,908 )

(Decrease) increase in bills and bonds sold under repurchase agreements ( 5,492,695 ) 6,784,657

Increase in commercial papers payable 4,901,372 1,988,873

Decrease in financial bonds payable ( 7,800,000 ) -

Increase in other borrowings 4,810,552 1,560,008

Distribution of cash dividends ( 4,326,754 ) ( 3,656,412 )

Net cash flows (used in) provided by financing activities ( 7,895,800 ) 6,668,218

Effect of exchange rate changes on cash and cash equivalents 2,724,735 752,402

Net increase in cash and cash equivalents 20,053,289 40,901,111

Cash and cash equivalents at beginning of period 177,331,417 136,430,306

Cash and cash equivalents at end of period $ 197,384,706 $ 177,331,417

The components of cash and cash equivalents：

Cash and cash equivalents as per consolidated balance sheet $ 62,282,631 $ 56,683,394

Due from the Central Bank and call loans to banks qualified as cash and

cash equivalents as defined by IAS No. 7 133,219,869 117,178,752

Securities purchased under resell agreements qualified as cash and cash

equivalent as defined by IAS No. 7 1,882,206 3,469,271

Cash and cash equivalents at end of period $ 197,384,706 $ 177,331,417


66

FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2014 and 2013 (Expressed in thousands of New Taiwan Dollars, except as otherwise indicated)

1. Organization and business

(1) First Financial Holding Co., Ltd. (the “Company” or “FFHC”) was incorporated as a company limited by shares under the provisions of the Company Law of the Republic of China (R.O.C.). FFHC commenced the preparation for its incorporation on November 27, 2001. On January 2, 2003, the Company was established through a share swap with First Commercial Bank Co., Ltd. (“FCB”) in accordance with the Financial Holding Company Act and other related regulations, whereby FCB became its wholly-owned subsidiary with the approval from the Securities and Futures Commission (“SFC”), renamed as the Securities and Futures Bureau, Financial Supervisory Commission R.O.C. (“SFB”). The Company was listed on the Taiwan Stock Exchange (“TSE”) on the same date. On July 31, 2003, the Company acquired First Securities Inc. (“FS”), Mingtai Fire & Marine Insurance Co., Ltd. (“MFMI”) and First Securities Investment Trust Co., Ltd. (FSIT), as wholly-owned subsidiaries. On May 31, June 2, June 10, September 16, 2004 and November 19, 2007, the Company established subsidiaries namely First Financial Asset Management Co., Ltd., (“FFAM”), First Venture Capital Co., Ltd., (“FVC”), First Financial Management Consulting Co., Ltd. (“FFMC”), First P&C Insurance Agency Co., Ltd. (“FPCIA”) and First-Aviva Life Insurance Co., Ltd. (“FALI”), respectively. The Company engages mainly in the investment and management of financial institutions as approved by the authorities.

(2) On September 2, 2005, the Company completed the sale of all its common stocks in Mingtai Fire & Marine Insurance Co., Ltd. to Mitsui Sumitomo Insurance Co., Ltd.

2. The date of authorization for issuance of the consolidated financial statements and procedures for authorization

These consolidated financial statements were authorized for issuance by the Board of Directors on March 19, 2015.

3. Application of new standards, amendments and interpretations

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

None.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group

According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued on April 3, 2014, commencing 2015, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9) , ‘Financial instruments’ but including the following standards effective January 1, 2015: “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”, “Regulations Governing the Preparation of Financial Reports by Public Banks”, “Regulations Governing the Preparation of Financial Reports by Securities Firms”, and “Regulations for the

2014 ANNUAL REPORT

67

FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2014 and 2013 (Expressed in thousands of New Taiwan Dollars, except as otherwise indicated)

1. Organization and business

(1) First Financial Holding Co., Ltd. (the “Company” or “FFHC”) was incorporated as a company limited by shares under the provisions of the Company Law of the Republic of China (R.O.C.). FFHC commenced the preparation for its incorporation on November 27, 2001. On January 2, 2003, the Company was established through a share swap with First Commercial Bank Co., Ltd. (“FCB”) in accordance with the Financial Holding Company Act and other related regulations, whereby FCB became its wholly-owned subsidiary with the approval from the Securities and Futures Commission (“SFC”), renamed as the Securities and Futures Bureau, Financial Supervisory Commission R.O.C. (“SFB”). The Company was listed on the Taiwan Stock Exchange (“TSE”) on the same date. On July 31, 2003, the Company acquired First Securities Inc. (“FS”), Mingtai Fire & Marine Insurance Co., Ltd. (“MFMI”) and First Securities Investment Trust Co., Ltd. (FSIT), as wholly-owned subsidiaries. On May 31, June 2, June 10, September 16, 2004 and November 19, 2007, the Company established subsidiaries namely First Financial Asset Management Co., Ltd., (“FFAM”), First Venture Capital Co., Ltd., (“FVC”), First Financial Management Consulting Co., Ltd. (“FFMC”), First P&C Insurance Agency Co., Ltd. (“FPCIA”) and First-Aviva Life Insurance Co., Ltd. (“FALI”), respectively. The Company engages mainly in the investment and management of financial institutions as approved by the authorities.

(2) On September 2, 2005, the Company completed the sale of all its common stocks in Mingtai Fire & Marine Insurance Co., Ltd. to Mitsui Sumitomo Insurance Co., Ltd.

2. The date of authorization for issuance of the consolidated financial statements and procedures for authorization

These consolidated financial statements were authorized for issuance by the Board of Directors on March 19, 2015.

3. Application of new standards, amendments and interpretations

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

None.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group

According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued on April 3, 2014, commencing 2015, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9) , ‘Financial instruments’ but including the following standards effective January 1, 2015: “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”, “Regulations Governing the Preparation of Financial Reports by Public Banks”, “Regulations Governing the Preparation of Financial Reports by Securities Firms”, and “Regulations for the

Preparation of Financial Reports by Insurance Companies” and “Regulations Governing the Preparationof Financial Reports by Futures Commision Merchants” snd the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations (collecting referred herein as “IFRSs”) as endorsed by the FSC in preparing the consolidated financial statements. The related new standards, interpretations and amendments are listed below:

New Standards, Interpretations and Amendments

Effective Date by International Accounting Standards

Board(“IASB”) Limited exemption from comparative IFRS 7 disclosures for first-time adopters (amendment to IFRS 1)

July 1, 2010

Severe hyperinflation and removal of fixed dates for first-time adopters (amendment to IFRS 1)

July 1, 2011

Government loans (amendment to IFRS 1) January 1, 2013

Disclosures－Transfers of financial assets (amendment to IFRS 7) July 1, 2011

Disclosures－Offsetting financial assets and financial liabilities (amendment to IFRS 7)

January 1, 2013

IFRS 10, ‘Consolidated financial statements’ January 1, 2013 (Investment entities:

January 1, 2014)

IFRS 11,‘Joint arrangements’ January 1, 2013

IFRS 12,‘Disclosure of interests in other entities’ January 1, 2013

IFRS 13, ‘Fair value measurement’ January 1, 2013

Presentation of items of other comprehensive income (amendment to IAS 1) July 1, 2012

Deferred tax: recovery of underlying assets (amendment to IAS 12) January 1, 2012

IAS 19 (revised), ‘Employee benefits’ January 1, 2013

IAS 27,‘Separate financial statements’ (as amended in 2011) January 1, 2013

IAS 28,‘Investments in associates and joint ventures’(as amended in 2011) January 1, 2013

Offsetting financial assets and financial liabilities (amendment to IAS 32) January 1, 2014

IFRIC 20, ‘Stripping costs in the production phase of a surface mine’ January 1, 2013

Improvements to IFRSs 2010 January 1, 2011

Improvements to IFRSs 2009－2011 January 1, 2013


68

Based on the First Group’s assessment, the adoption of the 2013 version of IFRS has no significant impact on the consolidated financial statements of the Group, except for the following:

A. IAS 19 (revised), ‘Employee benefits’

The revised standard eliminates the corridor approach and requires actuarial gains and losses to be recognised immediately in other comprehensive income. Past service cost will be recognized immediately in the period incurred. Net interest expense or income, calculated by applying the discount rate to the net defined benefit asset or liability, replace the finance charge and expected return on plan assets. The return of plan assets, excluding net interest expenses, is recognised in other comprehensive income. An entity is required to recognise termination benefits at the earlier of when the entity can no longer withdraw an offer of those benefits and when it recognises any related restructuring costs. Additional disclosures are required to present how defined benefit plans may affect the amount, timing and uncertainty of the entity’s future cash flows.

Based on the Group’s preliminary evaluation, it was noted that above-mentioned affected amounts are immaterial, and additional disclosures will be made in accordance with the standard.

B. IAS 1, ‘Presentation of financial statements’

The amendment requires entities to separate items presented in OCI classified by nature into two groups on the basis of whether they are potentially reclassifiable to profit or loss subsequently when specific conditions are met. If the items are presented before tax then the tax related to each of the two groups of OCI items (those that might be reclassified and those that will not be reclassified) must be shown separately. Accordingly, the Group will adjust its presentation of the statement of comprehensive income.

C. IFRS 13, ‘Fair value measurement’

The standard defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements. Based on the Group’s assessment, the adoption of the standard has no significant impact on its consolidated financial statements, and the Group will disclose additional information about fair value measurements accordingly.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the 2013 version of IFRS as endorsed by the FSC:

New Standards, Interpretations and Amendments Effective Date by IASB IFRS 9, ‘Financial instruments' Sale or contribution of assets between an investor and its associate or joint venture (amendments to IFRS 10 and IAS 28) Accounting for acquisition of interests in joint operations (amendments to IFRS 11)

January 1, 2018 January 1, 2016

January 1, 2016

Investment entities: applying the consolidation exception (amendmentsto IFRS 10, IFRS 12 and IAS 28)

January 1, 2016

IFRS 14, 'Regulatory deferral accounts IFRS 15, ‘Revenue from contracts with customers' Disclosure initiative (amendments to IAS 1) Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16 and IAS 38) Agriculture: bearer plants (amendments to IAS 16 and IAS 41)

January 1, 2016 January 1, 2017 January 1, 2016 January 1, 2016

January 1, 2016

2014 ANNUAL REPORT

69

Based on the First Group’s assessment, the adoption of the 2013 version of IFRS has no significant impact on the consolidated financial statements of the Group, except for the following:

A. IAS 19 (revised), ‘Employee benefits’

The revised standard eliminates the corridor approach and requires actuarial gains and losses to be recognised immediately in other comprehensive income. Past service cost will be recognized immediately in the period incurred. Net interest expense or income, calculated by applying the discount rate to the net defined benefit asset or liability, replace the finance charge and expected return on plan assets. The return of plan assets, excluding net interest expenses, is recognised in other comprehensive income. An entity is required to recognise termination benefits at the earlier of when the entity can no longer withdraw an offer of those benefits and when it recognises any related restructuring costs. Additional disclosures are required to present how defined benefit plans may affect the amount, timing and uncertainty of the entity’s future cash flows.

Based on the Group’s preliminary evaluation, it was noted that above-mentioned affected amounts are immaterial, and additional disclosures will be made in accordance with the standard.

B. IAS 1, ‘Presentation of financial statements’

The amendment requires entities to separate items presented in OCI classified by nature into two groups on the basis of whether they are potentially reclassifiable to profit or loss subsequently when specific conditions are met. If the items are presented before tax then the tax related to each of the two groups of OCI items (those that might be reclassified and those that will not be reclassified) must be shown separately. Accordingly, the Group will adjust its presentation of the statement of comprehensive income.

C. IFRS 13, ‘Fair value measurement’

The standard defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements. Based on the Group’s assessment, the adoption of the standard has no significant impact on its consolidated financial statements, and the Group will disclose additional information about fair value measurements accordingly.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the 2013 version of IFRS as endorsed by the FSC:

New Standards, Interpretations and Amendments Effective Date by IASB IFRS 9, ‘Financial instruments' Sale or contribution of assets between an investor and its associate or joint venture (amendments to IFRS 10 and IAS 28) Accounting for acquisition of interests in joint operations (amendments to IFRS 11)

January 1, 2018 January 1, 2016

January 1, 2016

Investment entities: applying the consolidation exception (amendmentsto IFRS 10, IFRS 12 and IAS 28)

January 1, 2016

IFRS 14, 'Regulatory deferral accounts IFRS 15, ‘Revenue from contracts with customers' Disclosure initiative (amendments to IAS 1) Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16 and IAS 38) Agriculture: bearer plants (amendments to IAS 16 and IAS 41)

January 1, 2016 January 1, 2017 January 1, 2016 January 1, 2016

January 1, 2016

New Standards, Interpretations and Amendments Effective Date by IASB Defined benefit plans: employee contributions (amendments to IAS 19R) Equity method in separate financial statements (amendments to IAS 27)

July 1, 2014

January 1, 2016

Recoverable amount disclosures for non-financial assets (amendments to IAS 36)

January 1, 2014

Novation of derivatives and continuation of hedge accounting (amendments to IAS 39)

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014 Improvements to IFRSs 2010-2012 July 1, 2014 Improvements to IFRSs 2011-2013 Improvements to IFRSs 2012-2014

July 1, 2014 January 1, 2016

The First Group is assessing the potential impact of the new standards, interpretations and amendments above and has not yet been able to reliably estimate their impact on the consolidated financial statements.

4. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the period presented, unless otherwise stated.

(1) Compliance statement

The consolidated financial statements of the First Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Statements by Financial Holding Companies” , “Regulations Governing the Preparation of Financial Reports by Public Banks”, “Regulations Governing the Preparation of Financial Reports by Securities Firms”, “Regulations Governing the Preparation of Financial Reports by Insurance Companies”, “Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants”, ‘Interim Financial Reporting’ as endorsed by the FSC.

(2) Basis of preparation

A. Except for the financial assets or financial liabilities (including derivative instruments) at fair value through profit or loss, insurance liabilities reserve are set aside according to letter or rule of insurance enterprises, reinsurance contract assets, reserve for foreign exchange price fluctuation, and foreclosed asset (which are stated at the lower of its carrying amount or fair value less costs to sell at the end of period) these consolidated financial reports have been prepared under the historical cost convention.

B. The analysis of expense is classified based on the nature of expenses.

C. The preparation of financial statements in conformity with International Financial Reporting Standards (IFRSs) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the First Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.


70

(3) Basis of consolidation

A. Principles for preparation of consolidated financial statements

(A) The First Group prepares the consolidated financial statements by aggregating the First Group’s assets, liabilities, revenues and expenses, which have been eliminated versus owners’ equity during the consolidation. In addition, the financial statements of the First Group are made in the same reporting period. (Item included in the consolidated financial statements are not classified as current and non-current items.) Relevant items are arranged in order based on current and non-current nature.

(B) Subsidiaries are all entities over which the First Group has the power to govern the financial and operating policies. In general, control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. The existence and effect of potential voting rights that are currently exercisable or convertible have been considered when assessing whether the First Group controls another entity.

(C) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the First Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the First Group.

B. The consolidated financial statements include the following directly and indirectly owned subsidiaries:

Investor Subsidiary Business activities Percentage of holding shares (%)(Note (11)) Note

FFHC FCB Note (1) 100 Note (1) FFHC FS Note (2) 100 Note (2) FFHC FSIT Note (3) 100 Note (3) FFHC FALI Note (4) 51 Note (4) FFHC FFAM Note (5) 100 Note (5) FFHC FVC Note (6) 100 Note (6) FFHC FFMC Note (7) 100 Note (7) FFHC FPCIA Note (8) 100 Note (8) FCB First Commercial Bank

(USA) Banking services 100 -

FCB FCBL Leasing(Note (9)) 100 Note (9) FCB FIA Insurance

agency(Note (10)) 100 Note (10)

FS First Capital Management Co., Ltd. (“FCMI”)

Securities investment consulting service

100 -

FS First Taisec Securities (Asia) Limited (“FTSL”)

Securities investment holding

100 -

2014 ANNUAL REPORT

71

(3) Basis of consolidation

A. Principles for preparation of consolidated financial statements

(A) The First Group prepares the consolidated financial statements by aggregating the First Group’s assets, liabilities, revenues and expenses, which have been eliminated versus owners’ equity during the consolidation. In addition, the financial statements of the First Group are made in the same reporting period. (Item included in the consolidated financial statements are not classified as current and non-current items.) Relevant items are arranged in order based on current and non-current nature.

(B) Subsidiaries are all entities over which the First Group has the power to govern the financial and operating policies. In general, control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. The existence and effect of potential voting rights that are currently exercisable or convertible have been considered when assessing whether the First Group controls another entity.

(C) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the First Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the First Group.

B. The consolidated financial statements include the following directly and indirectly owned subsidiaries:


FFHC FCB Note (1) 100 Note (1) FFHC FS Note (2) 100 Note (2) FFHC FSIT Note (3) 100 Note (3) FFHC FALI Note (4) 51 Note (4) FFHC FFAM Note (5) 100 Note (5) FFHC FVC Note (6) 100 Note (6) FFHC FFMC Note (7) 100 Note (7) FFHC FPCIA Note (8) 100 Note (8) FCB First Commercial Bank

(USA) Banking services 100 -

FCB FCBL Leasing(Note (9)) 100 Note (9) FCB FIA Insurance

agency(Note (10)) 100 Note (10)

FS First Capital Management Co., Ltd. (“FCMI”)

Securities investment consulting service

100 -

FS First Taisec Securities (Asia) Limited (“FTSL”)

Securities investment holding

100 -


FTSL First Worldsec Securities Limited (‘FWSL”)

Securities brokerage, investment consultancy

100 -

Note (1) FCB was established in 1899 and had been a listed company since February 9, 1962. It was privatized on January 22, 1998. On January 2, 2003, FCB became the subsidiary of First Financial Holding Co., Ltd. through a share swap and was de-listed from the TSE to become a public company in accordance with the related regulations set forth by the SFB. As of December 31, 2013, FCB comprises various divisions, including Operation Division, Trust Division, International Business Division, Offshore Banking Unit, domestic and overseas branches, and representative offices. FCB engages mainly in the following business activities:(1)Business activities provided by the Banking Law (2)Trust business as authorized by the authorities (3)Establishing overseas branches to engage in those business activities as approved by the respective local governments (4)Other business activities approved by the authorities.

Note (2) FS was established in August of 1988 and became a subsidiary of FFHC on July 31, 2003. FS is authorized to engage in the following business activities:

1) Brokerage and proprietary trading of marketable securities at the securities exchange markets;

2) Underwriting of marketable securities;

3) Registration and transfer agency service for securities;

4) Margin and stock loans of marketable securities trading;

5) Futures introducing broker business; and

6) Other securities-related businesses as approved by the competent authorities.

FS founded a futures dealing department to perform futures business in September 2005. With the approval from the former FSCEY on October 29, 2010, FS started futures brokerage as a side business and terminated the business of introducing futures brokers on April 21, 2011. As FCB and FS are both wholly-owned subsidiaries of the Company, the Board of Directors of FS resolved to acquire securities brokerage business of FCB at book value to leverage the synergies of the First Group, effective on December 1, 2003.

Note (3) FSIT became the wholly-owned subsidiary of the Company through a share swap on July 31, 2003. FSIT engages mainly in the management of securities investment trust funds and private funds business.

Note (4) First-Aviva Life Insurance Co., Ltd. (“FALI”) is a joint venture between the Company and Aviva International Holdings Limited with a holding ownership of 51% and 49%, respectively. FALI obtained its Insurance License issued by the


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FSC in December 2007. FALI commenced its business activities mainly engaged in the life insurance business effective from January 2, 2008 and officially changed its name to FALI from September 17, 2009 under the approval of competent authorities.

Note (5) First Financial Asset Management Co., Ltd., (“FFAM”) was established under approval on May 31, 2004 and its business activities mainly engaged in financial institution creditor’s right, accounts receivable purchase and real estate transaction businesses.

Note (6) First Venture Capital Co., Ltd., (“FVC”) was established under approval on June 2, 2004 and its business activities mainly engaged in providing fund for investees and consultancy services for enterprise operation management.

Note (7) First Financial Management Consulting Co., Ltd. (“FFMC”) was established under approval on June 10, 2004 and its business activities mainly engaged in venture capital business management consultancy, investment consultancy and enterprise operation management consultancy.

Note (8) First P&C Insurance Agency Co., Ltd. (“FPCIA”) was established under approval on September 16, 2004 and its business activities mainly engaged in various insurance products agency.

Note (9) FCBL was approved to establish in May 1998. The main business includes chattel secured and repo trade, lease business and receivable factoring.

Note (10) FIA was approved to establish on December 13, 2001. The main business is the agency of various life insurance products of other insurance enterprises.

Note (11) The stock ownership ratio remained consistent as of December 31, 2014 and 2013.

C. Unconsolidated entities：

Investor Subsidiary Business activities

Percentage of the Company’s

direct/indirect holding ownership (%) Note

FFAM First Financial Assets Management (B.V.I) Ltd.

Note 4 100 Note 1

FCBL FCBL Capital International (B.V.I) Ltd. Leasing(Note 3) 100 Note 1

Note 1: As the individual total assets or net revenues do not materially affect the consolidated financial statement presentation taken as a whole, the Company deems that such investee companies should not be included in the consolidated financial statements.

Note 2: The stock ownership ratio remained consistent as of December 31, 2014 and 2013.

Note 3: The main business includes chattel secured and repo trade, lease business and receivable factoring.

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FSC in December 2007. FALI commenced its business activities mainly engaged in the life insurance business effective from January 2, 2008 and officially changed its name to FALI from September 17, 2009 under the approval of competent authorities.

Note (5) First Financial Asset Management Co., Ltd., (“FFAM”) was established under approval on May 31, 2004 and its business activities mainly engaged in financial institution creditor’s right, accounts receivable purchase and real estate transaction businesses.

Note (6) First Venture Capital Co., Ltd., (“FVC”) was established under approval on June 2, 2004 and its business activities mainly engaged in providing fund for investees and consultancy services for enterprise operation management.

Note (7) First Financial Management Consulting Co., Ltd. (“FFMC”) was established under approval on June 10, 2004 and its business activities mainly engaged in venture capital business management consultancy, investment consultancy and enterprise operation management consultancy.

Note (8) First P&C Insurance Agency Co., Ltd. (“FPCIA”) was established under approval on September 16, 2004 and its business activities mainly engaged in various insurance products agency.

Note (9) FCBL was approved to establish in May 1998. The main business includes chattel secured and repo trade, lease business and receivable factoring.

Note (10) FIA was approved to establish on December 13, 2001. The main business is the agency of various life insurance products of other insurance enterprises.

Note (11) The stock ownership ratio remained consistent as of December 31, 2014 and 2013.

C. Unconsolidated entities：

Investor Subsidiary Business activities

Percentage of the Company’s

direct/indirect holding ownership (%) Note

FFAM First Financial Assets Management (B.V.I) Ltd.

Note 4 100 Note 1

FCBL FCBL Capital International (B.V.I) Ltd. Leasing(Note 3) 100 Note 1

Note 1: As the individual total assets or net revenues do not materially affect the consolidated financial statement presentation taken as a whole, the Company deems that such investee companies should not be included in the consolidated financial statements.

Note 2: The stock ownership ratio remained consistent as of December 31, 2014 and 2013.

Note 3: The main business includes chattel secured and repo trade, lease business and receivable factoring.

Note 4: The main business engaged in financial institution creditor’s right, accounts receivable purchase and real estate transaction businesses.

D. Adjustment on different accounting periods of the subsidiaries: None.

E. Information with respect to the subsidiaries’ significant restriction to transfer its funds to the parent company: None.

F. Specific operation risks of the foreign subsidiaries: None.

G. Restrictions on earnings distribution of subsidiaries: None.

(4) Foreign currency translation

A. Functional and presentation currency

Financial statements of the entities in the First Group are presented by the currency of the primary economic environment in which the entities operate (that is the “functional currency”). The consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and the First Group’s presentation currency.

B. Transactions and balances

Foreign currency transactions denominated in a foreign currency or required to settle in a foreign currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

Foreign currency monetary items should be reported using the closing rate (market exchange rate) at the date of each balance sheet. When multiple exchange rates are available for use, they should be reported using the rate that would be used to settle the future cash flows of the foreign currency transactions or balances at the measurement date. Foreign currency non-monetary items measured at historical cost should be reported using the exchange rate at the date of the transaction. Foreign currency non-monetary items measured at fair value should be reported at the rate that existed when the fair values were determined.

Exchange differences arising when foreign currency transactions are settled or when monetary items are translated at rates different from those at which they were translated when initially recognized or in previous financial statements are reported in profit or loss in the period, with one exception. The exception is that exchange differences associated with the gains or losses of the parts of effective hedges of cash flow hedges or hedges of net investments in foreign operations are recognized in other comprehensive income.

If a gain or loss on a non-monetary item is recognized in other comprehensive income, any foreign exchange component of that gain or loss is also recognized in other comprehensive income. Conversely, if a gain or loss on a non-monetary item is recognized in profit or loss, any foreign exchange component of that gain or loss is also recognized in profit or loss.

C. Entities in the consolidated financial statements

If the entity has a functional currency (not in an economy with high inflation) that is different from presentation currency in the consolidated financial statements, its operating results and


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financial position is translated into presentation currency using the following procedures:

(A) At the balance sheet date, all assets and liabilities are translated by the closing exchange rate of the First Group;

(B) The profit and loss is translated by the average exchange rate in the period (unless the exchange rate fluctuate rapidly, the exchange rate on the trade date shall be adopted); and

(C) All gains and losses arising from translation are recognized in other comprehensive income.

The exchange difference is recognized in “exchange difference on translation of foreign financial statements” of equity item.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations and a portion of currency instruments designated as hedges of such investments, are recognized in other comprehensive income. When a foreign operat on is partially disposed of or sold, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss.

(5) Cash and cash equivalents

“Cash and cash equivalents” in the consolidated balance sheet includes cash on hand, due from other banks, short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. For the consolidated statement of cash flows, cash includes cash and cash equivalents, due from Central Bank and call loans to other banks, securities purchased under resell agreements qualified as cash and cash equivalents as defined by IAS 7.

(6) Securities purchased or sold under resell or repurchase agreements

The transactions of bills and bonds with a condition of repurchase agreement or resell agreement are accounted for under the financing method. The interest expense and interest income are recognized as incurred at the date of sale and purchase and the agreed period of sale and purchase. The repo trade liabilities, bond liabilities, reverse repo trade bills and bond investments are recognized at the date of sale or purchase.

(7) Financial assets and financial liabilities

The financial assets and liabilities of the First Group including derivatives are recognized in the consolidated balance sheet and are properly classified in accordance with IFRSs as endorsed by FSC.

A. Financial assets

All financial assets held by the First Group are in compliance with IFRSs as endorsed by FSC, classified into following four categories: “loans and receivables”, “financial assets at fair value through profit and loss”, “available-for-sale financial assets”, “financial assets held to maturity” and “other financial assets”.

(A) Regular way purchase or sale

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financial position is translated into presentation currency using the following procedures:

(A) At the balance sheet date, all assets and liabilities are translated by the closing exchange rate of the First Group;

(B) The profit and loss is translated by the average exchange rate in the period (unless the exchange rate fluctuate rapidly, the exchange rate on the trade date shall be adopted); and

(C) All gains and losses arising from translation are recognized in other comprehensive income.

The exchange difference is recognized in “exchange difference on translation of foreign financial statements” of equity item.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations and a portion of currency instruments designated as hedges of such investments, are recognized in other comprehensive income. When a foreign operat on is partially disposed of or sold, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss.


“Cash and cash equivalents” in the consolidated balance sheet includes cash on hand, due from other banks, short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. For the consolidated statement of cash flows, cash includes cash and cash equivalents, due from Central Bank and call loans to other banks, securities purchased under resell agreements qualified as cash and cash equivalents as defined by IAS 7.

(6) Securities purchased or sold under resell or repurchase agreements

The transactions of bills and bonds with a condition of repurchase agreement or resell agreement are accounted for under the financing method. The interest expense and interest income are recognized as incurred at the date of sale and purchase and the agreed period of sale and purchase. The repo trade liabilities, bond liabilities, reverse repo trade bills and bond investments are recognized at the date of sale or purchase.

(7) Financial assets and financial liabilities

The financial assets and liabilities of the First Group including derivatives are recognized in the consolidated balance sheet and are properly classified in accordance with IFRSs as endorsed by FSC.

A. Financial assets

All financial assets held by the First Group are in compliance with IFRSs as endorsed by FSC, classified into following four categories: “loans and receivables”, “financial assets at fair value through profit and loss”, “available-for-sale financial assets”, “financial assets held to maturity” and “other financial assets”.

(A) Regular way purchase or sale

Acquisition or disposal of financial assets under general transaction practices are accounted for using trade date accounting or settlement date accounting. Treatment for acquisition and disposal of financial assets of the same category should be consistent. Financial assets held by the First Group are all accounted for using trade date accounting.

(B) Loans and receivables

The loans and receivables are the non-derivative financial assets with no quoted prices in an active market. Such financial assets with fixed or determinable receivable amounts include those originated and those not originated by the First Group. The former originated directly from money, product or service that the First Group provides to the debtors, while the latter refers to all the other loans and receivables.

Loans and receivables are measured at initial fair value as the transaction price, and are recognized on the basis of fair value plus significant transaction cost, expense or significant service fee charge, discount or premium. Subsequently, the loans and receivables shall be measured using effective interest method.

Interest income generated from loans and receivables is recognized under “interest income”. If there is any objective evidence of impairment, impairment is recognized as impairment losses. The impairment loss is recognized in the credit side of the financial assets, which is recognized as “bad debt expense and reserve for guarantee policy”.

(C) Financial assets at fair value through profit or loss

When the financial assets of the First Group are held to repurchase or resell or when the portfolio belongs to derivative instruments, or are held in a short-term profit seeking model, then they should be classified as financial assets at fair value through profit and loss and measured by fair value at initial recognition.

Criteria to designate financial assets and financial liabilities as at fair value through profit or loss at initial recognition are as follows:

a. The designation can eliminate or significantly mitigate a measurement or recognition inconsistency as a result of different measuring basis of assets or liabilities; or

b. The performance of financial instruments is assessed by fair value; or

c. Hybrid instruments include embedded derivatives.

Any change in fair value of financial assets at fair value through profit and loss and financial asset designated at fair value through profit and loss at initial recognition are recognized under “ Gain or loss on financial assets and financial liabilities at fair value through profit and loss” in the consolidated statements of comprehensive income.

(D) Held-to-maturity financial assets

Held-to-maturity financial assets are the non-derivative financial assets with fixed or determinable payments and fixed maturities and the First Group have positive intention and ability to hold to maturity, excluding loans and receivables, assets designated as available-for-sale financial assets and financial assets designated as at fair value through


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profit and loss upon initial recognition which shall not be treated as held-to-maturity financial assets.

Interest income generated from held-to-maturity financial assets are recognized under “interest income”. If there is any objective evidence of impairment, the impairment is recognized in the credit side of the financial assets’ carrying amount as “asset impairment loss”.

(E) Available-for-sale financial assets

Available-for-sale financial assets include assets designated as available-for-sale, financial assets not held to maturity, financial assets at fair value through profit and loss, non-derivative financial assets such as loans and receivables. Equity or debt investments are initially recognized at fair value plus the transaction cost of acquisition or issuance.

Available-for-sale financial assets are measured at fair value with changes in fair value recognized in other comprehensive income. When the financial asset is no longer recognized, the cumulative unrealized gain or loss that was previously recognized in other comprehensive income is recognized in profit or loss.

Impairment loss is recognized when there is objective evidence of impairment of available-for-sale financial assets. If the financial asset has not been derecognized, cumulative loss is reclassified from ‘other comprehensive income’ to ‘profit or losses’. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed through profit or loss and any subsequent change in equity is recognized in other comprehensive income. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognized, then such impairment loss is reversed through profit or loss.

Equity instruments with no quoted price in an active market are initially recognized at fair value plus acquisition or issuance cost. The fair value can be reasonably estimated when the following criteria are met at the balance sheet date: (a) the variance of the reasonable estimate on instrument’s fair value is insignificant; or (b) the possibility of the estimate in the interval can be reasonably evaluated and used to estimate fair value.

(F) Other financial assets

Other financial assets include bonds investment without active market, financial assets measured at cost, investment-linked life products and customer margin account.

a. Bond investments with no active market

Such financial instruments are initially recognized at fair value plus acquisition or issuance cost. Gains or losses are recognized when the investments are derecognized. Bond investments with no active market shall be subsequently measured at amortized cost using the interest method.

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profit and loss upon initial recognition which shall not be treated as held-to-maturity financial assets.

Interest income generated from held-to-maturity financial assets are recognized under “interest income”. If there is any objective evidence of impairment, the impairment is recognized in the credit side of the financial assets’ carrying amount as “asset impairment loss”.

(E) Available-for-sale financial assets

Available-for-sale financial assets include assets designated as available-for-sale, financial assets not held to maturity, financial assets at fair value through profit and loss, non-derivative financial assets such as loans and receivables. Equity or debt investments are initially recognized at fair value plus the transaction cost of acquisition or issuance.

Available-for-sale financial assets are measured at fair value with changes in fair value recognized in other comprehensive income. When the financial asset is no longer recognized, the cumulative unrealized gain or loss that was previously recognized in other comprehensive income is recognized in profit or loss.

Impairment loss is recognized when there is objective evidence of impairment of available-for-sale financial assets. If the financial asset has not been derecognized, cumulative loss is reclassified from ‘other comprehensive income’ to ‘profit or losses’. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed through profit or loss and any subsequent change in equity is recognized in other comprehensive income. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognized, then such impairment loss is reversed through profit or loss.

Equity instruments with no quoted price in an active market are initially recognized at fair value plus acquisition or issuance cost. The fair value can be reasonably estimated when the following criteria are met at the balance sheet date: (a) the variance of the reasonable estimate on instrument’s fair value is insignificant; or (b) the possibility of the estimate in the interval can be reasonably evaluated and used to estimate fair value.

(F) Other financial assets

Other financial assets include bonds investment without active market, financial assets measured at cost, investment-linked life products and customer margin account.

a. Bond investments with no active market

Such financial instruments are initially recognized at fair value plus acquisition or issuance cost. Gains or losses are recognized when the investments are derecognized. Bond investments with no active market shall be subsequently measured at amortized cost using the interest method.

b. Financial assets measured at cost

Equity instruments with no active market initially are recognized at fair value plus the acquisition or issuance cost. At the balance sheet date, if the interval of reasonable fair value estimates could be significant and the possibility of different estimates cannot be reasonably evaluated, cost is adopted for measurement. For financial assets measured at cost, an impairment loss shall be recognized if there is an objective evidence of impairment. The impairment loss shall not be reversed.

c. Investment-linked life products

Premiums from these products are deposited to a separate and independent account, net of expenses, and invested as stipulated under the contracts. The value of this independent account’s assets is determined based on the market price at the evaluation date, and the net asset value is calculated in accordance with related regulations and in compliance with IFRSs. In accordance with the “Regulations Governing the Preparation of Financial and Business Reports by Insurance Industry”, the assets and liabilities of this separate account which are created by insurance contract or investment contract should be classified as Investment-Linked Product Assets and Investment-Linked Product Liabilities. The revenue and expense of this separate account are presented as Investment-Linked Product Income and Investment-linked Product Expense which is required to meet the definition of the sum of Investment-linked products revenue and expense.

d. Customer margin account

Securities business is engaged in futures brokerage as a side business and the received margin, loyalty received from futures dealers and the difference of market settlement prices are recognized under “customer margin account” (“Other financial assets - net”) and “futures dealers equity” (“Other financial liabilities”); and adjusted based on the difference of market settlement prices and related commission.

(G) Margin loans, stock loans and refinancing

Securities business conducts margin loan business to provide funds to its customers to purchase securities. The margin loans given to customers are recorded as “margin loans receivable” (“Receivables-net”) and are collateralized by the securities that the customers purchase. The collateral securities are recorded through memorandum accounts and are returned to customers when the loans are repaid.

Securities business conducts stock loan business to lend securities to its customers to sell short. The deposits received from customers are recorded as “deposits received on securities lending” (“Payables”). Proceeds from sales of securities lent to customers less any securities exchange taxes, dealer’s commissions, and financing charges are used as the collateral for securities lent and are recorded under “collateralized proceeds payable from securities lending” (“Payables”). The securities lent to customers to sell short are recorded through memorandum accounts. When the customers return the securities, the securities business gives the deposits received and the proceeds from securities sold back to customers.


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The “refinancing of margin loans” refers to refinancing to borrow funds from securities finance companies when there are insufficient funds to conduct margin loan business. The refinancing of margin loans is recorded as “refinancing borrowing” (“Payables”) and is collateralized by the securities purchased by customers on margin loans.

The “refinancing of stock loans” refers to refinancing to borrow securities from securities finance companies when there are insufficient securities to conduct securities lending business. The deposits or collateral given to securities finance companies by FS are recorded as “refinancing margin deposits” (“Receivables-net”). The proceeds from securities lent to customers to sell short are given to the securities finance companies as the collateral and are recorded as “collateralized proceeds payable from securities lending” (“Payables”) and “refinancing deposits receivable” (“Receivables-net”), respectively.

B. Financial liabilities

Financial liabilities held by the First Group include financial liabilities at fair value through profit and loss (financial liabilities designated at fair value through profit and loss), financial liabilities measured at amortized cost and hedging derivatives.

(A) Financial liabilities at fair value through profit and loss

These includes financial liabilities at fair value through profit and loss and those designated as financial liabilities at fair value through profit and loss at initial recognition.

Such as financial liabilities incurred with a purpose of repurchasing in a short period of time, identifiable portion of financial instruments in the portfolio belonging to the consolidated management at initial recognition with evidence indicating that its latest operating model is in a short-term profit seeking, are classified as held for trading purpose. Derivative instruments are designated as held for trading excluding those designated as effective hedging instrument or financial guarantee contract. Financial liabilities held for trading also include the obligation of the financial assets borrowed from short seller. Above financial liabilities are recognized in “financial liabilities at fair value through profit and loss” in the consolidated balance sheet.

At initial recognition, it is not revocable if a debt instrument is designated at fair value through profit and loss. When the fair value method is adopted, the main contract and the embedded derivative need not be recognized respectively.

In relation to financial liabilities at fair value through profit and loss and those designated as financial liabilities at fair value through profit and loss at initial recognition, any change in fair value is recognized as “gain and loss on financial assets and liabilities at fair value through profit and loss” in the statement of comprehensive income.

(B) Financial liabilities carried at amortized cost

Financial liabilities carried at amortized cost include liabilities not classified as financial liabilities at fair value through profit and loss, financial guarantee contracts, loan commitment with a lower-than-market interest rate and the financial liabilities incurred

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The “refinancing of margin loans” refers to refinancing to borrow funds from securities finance companies when there are insufficient funds to conduct margin loan business. The refinancing of margin loans is recorded as “refinancing borrowing” (“Payables”) and is collateralized by the securities purchased by customers on margin loans.

The “refinancing of stock loans” refers to refinancing to borrow securities from securities finance companies when there are insufficient securities to conduct securities lending business. The deposits or collateral given to securities finance companies by FS are recorded as “refinancing margin deposits” (“Receivables-net”). The proceeds from securities lent to customers to sell short are given to the securities finance companies as the collateral and are recorded as “collateralized proceeds payable from securities lending” (“Payables”) and “refinancing deposits receivable” (“Receivables-net”), respectively.

B. Financial liabilities

Financial liabilities held by the First Group include financial liabilities at fair value through profit and loss (financial liabilities designated at fair value through profit and loss), financial liabilities measured at amortized cost and hedging derivatives.

(A) Financial liabilities at fair value through profit and loss

These includes financial liabilities at fair value through profit and loss and those designated as financial liabilities at fair value through profit and loss at initial recognition.

Such as financial liabilities incurred with a purpose of repurchasing in a short period of time, identifiable portion of financial instruments in the portfolio belonging to the consolidated management at initial recognition with evidence indicating that its latest operating model is in a short-term profit seeking, are classified as held for trading purpose. Derivative instruments are designated as held for trading excluding those designated as effective hedging instrument or financial guarantee contract. Financial liabilities held for trading also include the obligation of the financial assets borrowed from short seller. Above financial liabilities are recognized in “financial liabilities at fair value through profit and loss” in the consolidated balance sheet.

At initial recognition, it is not revocable if a debt instrument is designated at fair value through profit and loss. When the fair value method is adopted, the main contract and the embedded derivative need not be recognized respectively.

In relation to financial liabilities at fair value through profit and loss and those designated as financial liabilities at fair value through profit and loss at initial recognition, any change in fair value is recognized as “gain and loss on financial assets and liabilities at fair value through profit and loss” in the statement of comprehensive income.

(B) Financial liabilities carried at amortized cost

Financial liabilities carried at amortized cost include liabilities not classified as financial liabilities at fair value through profit and loss, financial guarantee contracts, loan commitment with a lower-than-market interest rate and the financial liabilities incurred

due to continuing engagement or that the transferring of a financial asset does not meet the requirement of derecognition.

C. Derecognition of financial instruments

A financial liability is derecognised when the obligation under the liability specified in the contract is discharged or cancelled or expires.

The First Group derecognises a financial asset when one of the following conditions is met:

(A) The contractual rights to receive the cash flows from the financial asset expire.

(B) The contractual rights to receive cash flows of the financial asset have been transferred and the First Group has transferred substantially all risks and rewards of ownership of the financial asset.

(C) The contractual rights to receive cash flows of the financial asset have been transferred; however, the First Group has not retained control of the financial asset.

(8) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet only when (1) there is a legally enforceable right to offset the recognized amounts; and (2) there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

(9) Impairment evaluation and provision of loans and receivables

If there is any objective evidence indicating that an individual or a group of financial assets are impaired from estimated future cash flow after initial recognition, impairment exists and is recognized as impairment losses.

Impairment of loans and receivables is evaluated based on individual or group classification; loans and receivables are evaluated based on whether objective evidence of significant impairment exists or whether they belong to significant monitored cases. When objective evidence of significant impairment does not exist, the assets shall be included in group of financial assets with similar characteristics and evaluate the impairment losses.

The criteria that the Group uses to determine whether there is objective evidence of animpairment loss is as follows:

(A) There is no principal or interest payment after the lapse of 3 full months, or with regard to which the Credit Cooperative has sought payment from primary/subordinate debtors or has disposed of collateral.

(B) If a restructured loan meets payment terms agreement, the loan may be exempted from reporting as a non-performing loan.

(C) If a loan’s negotiated terms meet regulations by the Bankers Association of the Republic of China in 2006, the loan may be exempted from reporting as a non-performing loan.

(D) Cases approved and signed in the negotiations in accordance with the Statute for Consumer


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Debt Clearance.

(E) Cases that are in clearance or settlement proceedings by the court’s ruling.

(F) Cases that have begun being reorganized by the court’s ruling.

(G) Cases that have been declared for bankruptcy by the court.

(H) Cases that meet the self-made evaluation items of the First Group.

In the subsequent period, if the amount of the impairment loss decreases due to an event occurring after the impairment was originally recognized (for example, the upgraded credit rating of the debtor), the previously recognized impairment loss is reversed through the allowance for bad debt to the extent that the carrying amounts do not exceed the amortized cost that would have been determined had no impairment loss been recognized in prior years. The reversal is recognized as current profit and loss.

Above-mentioned impairment evaluation and provision of loans and receivables is in conformity with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” issued by the Financial Supervisory Commission.

(10) Derivative instruments

Derivative instruments are initially recognized at fair value at the contract date and subsequently measured by fair value. The fair value includes the public quoted price in an active market or the latest trade price (such as options traded in Stock Exchange Corporation), and evaluation techniques such as cash flow discounting model or option pricing model (such as swap contract and foreign exchange transaction). All derivative assets are recognized as assets when the fair value is positive and as liabilities when the fair value is negative.

Hybrid contracts refer to financial instruments embedded with derivatives. Economic characteristics and risks of the embedded derivatives and the economic characteristics of the main contract should be examined. If the two are not closely related and the main contract is not a financial asset or liability at fair value through profit and loss, the main contract and embedded derivatives should be respectively recognized unless the overall hybrid contract is designated as assets or liabilities at fair value through profit and loss. The embedded derivatives are the financial assets or liabilities at fair value through profit and loss.

(11) Derivative financial assets and financial liabilities held for hedging

Derivative financial assets and financial liabilities held for hedging are those derivative financial assets and financial liabilities that are designated as effective hedging instruments under hedge accounting and are measured at fair value.

The First Group is currently adopting fair value hedge. When all the criteria of fair value hedge accounting are met, it recognizes the offsetting effects on gains or losses of changes in the fair values of the hedging instrument and the hedged item. Any gain or loss from re-measuring the hedging instrument at fair value or the foreign currency component of its carrying amount shall be recognized immediately in the statement of comprehensive income. Any gain or loss attributable to the hedged risk shall be adjusted in the carrying amount of the hedged item and be recognized immediately in the statement of comprehensive income.

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Debt Clearance.

(E) Cases that are in clearance or settlement proceedings by the court’s ruling.

(F) Cases that have begun being reorganized by the court’s ruling.

(G) Cases that have been declared for bankruptcy by the court.

(H) Cases that meet the self-made evaluation items of the First Group.

In the subsequent period, if the amount of the impairment loss decreases due to an event occurring after the impairment was originally recognized (for example, the upgraded credit rating of the debtor), the previously recognized impairment loss is reversed through the allowance for bad debt to the extent that the carrying amounts do not exceed the amortized cost that would have been determined had no impairment loss been recognized in prior years. The reversal is recognized as current profit and loss.

Above-mentioned impairment evaluation and provision of loans and receivables is in conformity with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” issued by the Financial Supervisory Commission.

(10) Derivative instruments

Derivative instruments are initially recognized at fair value at the contract date and subsequently measured by fair value. The fair value includes the public quoted price in an active market or the latest trade price (such as options traded in Stock Exchange Corporation), and evaluation techniques such as cash flow discounting model or option pricing model (such as swap contract and foreign exchange transaction). All derivative assets are recognized as assets when the fair value is positive and as liabilities when the fair value is negative.

Hybrid contracts refer to financial instruments embedded with derivatives. Economic characteristics and risks of the embedded derivatives and the economic characteristics of the main contract should be examined. If the two are not closely related and the main contract is not a financial asset or liability at fair value through profit and loss, the main contract and embedded derivatives should be respectively recognized unless the overall hybrid contract is designated as assets or liabilities at fair value through profit and loss. The embedded derivatives are the financial assets or liabilities at fair value through profit and loss.

(11) Derivative financial assets and financial liabilities held for hedging

Derivative financial assets and financial liabilities held for hedging are those derivative financial assets and financial liabilities that are designated as effective hedging instruments under hedge accounting and are measured at fair value.

The First Group is currently adopting fair value hedge. When all the criteria of fair value hedge accounting are met, it recognizes the offsetting effects on gains or losses of changes in the fair values of the hedging instrument and the hedged item. Any gain or loss from re-measuring the hedging instrument at fair value or the foreign currency component of its carrying amount shall be recognized immediately in the statement of comprehensive income. Any gain or loss attributable to the hedged risk shall be adjusted in the carrying amount of the hedged item and be recognized immediately in the statement of comprehensive income.

(12) Investments accounted for under the equity method

Investment of the First Group accounted for under the equity method refers to investments in associates.

A. Associates are all entities over which the First Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for under the the equity method and are initially recognised at cost. The First Group’s investments in associates include goodwill identified on acquisition, net of any accumulated impairment loss arising through subsequent assessments.

B. The First Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the First Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the First Group does not recognise further losses, unless it has incurred statutory/constructive obligations or made payments on behalf of the associate.

C. Unrealised gains on transactions between the First Group and its associates are eliminated to the extent of the First Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the First Group.

(13) Property and equipment

The property and equipment of the First Group are recognized on the basis of the historical cost less accumulated depreciation. The historical cost includes any cost directly attributable to the acquisition of the asset.

If the future economic benefit generated from subsequent cost of the asset can be measured reliably and is very likely to flow into the First Group, the subsequent cost of property and equipment including the carrying amount may be individually recognized as asset. Additonally, the carrying amounts of a replaced item are derecognized.

Major renewals and improvements incurred to increase the future economic benefits of the assets are capitalized and depreciated. Routine maintenance and repairs are charged to expense as incurred.

Land is not affected by depreciation. Depreciation for other assets is provided on a straight-line basis over the estimated service lives of the assets until salvage value. Service life is as follows:

Land and improvements 3 ~ 30 years Buildings 5 ~ 60 years Transportation equipment 3 ~ 15 years Machinery and equipment 3 ~ 4 years Miscellaneous assets 5 ~ 17 years Leasehold improvements are depreciated over the lease terms of the lease agreements or 2~5 years, whichever is shorter.


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On balance sheet date, the First Group assesses or appropriately adjusts the salvage value and service life of the asset. When there is an activity or change in the environment suggesting that the carrying amount may not be recovered, the First Group shall evaluate impairment on the asset. If the carrying amount of the asset is higher than the recoverable amount, the carrying amount shall be written off until it is equivalent to the recoverable amount. The recoverable amount is the higher of asset at fair value less disposal expense and value in use. Any gain or loss on disposal is calculated by the difference between the carrying amount and proceeds on disposal, and be recognized in the “Other non-interest income, net” in the statement of comprehensive income.

(14) Investment property

The properties held by the First Group, with an intention to obtain long-term rental profit or capital increase or both and not being used by other entities of the consolidated First Group, are classified as investment property. Investment property includes the office building and land rented in the form of an operating lease.

Part of the property may be held by the First Group and another part generates rental income or capital increase. If the property held by the First Group can be sold individually, then the accounting treatment should be made separately. IAS 16 as endorsed by FSC applies to the self-used property, and property used to generate rental income or capital increase or both is applicable for investment property set out in IAS 40 as endorsed by FSC. If each part of the property cannot be sold individually and the self-used proportion is not material, then the property is deemed as investment property in its entirety.

When the future economic benefit related to the investment property is very likely to flow into the First Group and the costs can be reliably measured, the investment property shall be recognized as assets. When the future economic benefit generated from subsequent costs is very likely to flow into the entity and the costs can be reliably measured, the subsequent expenses of the assets shall be capitalized. All maintenance cost are recognized as incurred in the consolidated statement of comprehensive income.

Investment property is subsequently measured by cost model. Depreciated cost is used to calculate amortization expense after initial measurement. The depreciation method, remaining useful life and residual value should apply the same rules as applicable for property and equipment. The fair value of investment property is disclosed in the financial statements at the balance sheet date, of which the valuation should be carried out by the appraisal segment of the First Group based on the internal appraisal guidelines.

(15) Foreclosed assets

Foreclosed properties are stated at the lower of its carrying amount or fair value less costs to sell at the end of period.

(16) Lease

When the First Group is the lessor, please refer to Note 4(14) for the accounting treatment of the leased assets satisfying investment property set out in IAS 40, “Investment Property”.

The lease contract of the First Group’s subsidiaries includes operating leases and finance leases.

A. Operating lease

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On balance sheet date, the First Group assesses or appropriately adjusts the salvage value and service life of the asset. When there is an activity or change in the environment suggesting that the carrying amount may not be recovered, the First Group shall evaluate impairment on the asset. If the carrying amount of the asset is higher than the recoverable amount, the carrying amount shall be written off until it is equivalent to the recoverable amount. The recoverable amount is the higher of asset at fair value less disposal expense and value in use. Any gain or loss on disposal is calculated by the difference between the carrying amount and proceeds on disposal, and be recognized in the “Other non-interest income, net” in the statement of comprehensive income.

(14) Investment property

The properties held by the First Group, with an intention to obtain long-term rental profit or capital increase or both and not being used by other entities of the consolidated First Group, are classified as investment property. Investment property includes the office building and land rented in the form of an operating lease.

Part of the property may be held by the First Group and another part generates rental income or capital increase. If the property held by the First Group can be sold individually, then the accounting treatment should be made separately. IAS 16 as endorsed by FSC applies to the self-used property, and property used to generate rental income or capital increase or both is applicable for investment property set out in IAS 40 as endorsed by FSC. If each part of the property cannot be sold individually and the self-used proportion is not material, then the property is deemed as investment property in its entirety.

When the future economic benefit related to the investment property is very likely to flow into the First Group and the costs can be reliably measured, the investment property shall be recognized as assets. When the future economic benefit generated from subsequent costs is very likely to flow into the entity and the costs can be reliably measured, the subsequent expenses of the assets shall be capitalized. All maintenance cost are recognized as incurred in the consolidated statement of comprehensive income.

Investment property is subsequently measured by cost model. Depreciated cost is used to calculate amortization expense after initial measurement. The depreciation method, remaining useful life and residual value should apply the same rules as applicable for property and equipment. The fair value of investment property is disclosed in the financial statements at the balance sheet date, of which the valuation should be carried out by the appraisal segment of the First Group based on the internal appraisal guidelines.

(15) Foreclosed assets

Foreclosed properties are stated at the lower of its carrying amount or fair value less costs to sell at the end of period.

(16) Lease

When the First Group is the lessor, please refer to Note 4(14) for the accounting treatment of the leased assets satisfying investment property set out in IAS 40, “Investment Property”.

The lease contract of the First Group’s subsidiaries includes operating leases and finance leases.

A. Operating lease

When the First Group is the lessor or the lessee, rental payable and receivable from the operating lease is calculated through straight-line method based on the lease term, which are recognized respectively as “other non-interest income, net” and “other business and administration expense”.

B. Finance lease

When the First Group is the lessor, the asset is derecognized when the finance lease contract is signed and the present value of lease payment is recognized as lease payable. The difference between the total lease payable and present value is recognized as unrealized interest income, and transferred to interest income as incurred at period end. Rental income is calculated based on remaining lease payment receivable using the embedded interest rate or incremental borrowing interest rate and recognized as current gain and loss.

When the First Group is the lessee, the lower of fair value of lease assets or the lowest present value of the lease payment is capitalized. Rental payment is amortized through financial leasing liabilities and recognized as interest income. Interest expense is calculated based on beginning balance of lease liabilities of each lease term using the embedded interest rate or incremental borrowing interest rate and recognized as current gain and loss. Financing lease liabilities are recognized as “other financial liabilities”. Property and equipment acquired through finance lease contracts are measured by cost model.

(17) Intangible assets

The intangible assets of the First Group consists of computer software expenditures, which are recognized by cost and amortized over its economic useful life. The maximum estimated useful life is three years.

Subsequent measurements are based on the cost model.

(18) Impairment of non-financial assets

When there is any evidence indicating a possible impairment, the First Group immediately performs impairment test in relation to the assets applicable for IAS 36, “Impairment of Assets”.

If the testing result of the cash-generating unit of an asset or an individual asset suggests that the recoverable amount is less than the carrying amount, impairment loss is recognized. Recoverable amount refers to the higher of an asset’s fair value less its cost or value in use. Reassess the recoverable amount of an asset when there is an indication that the impairment loss recognized in the prior period decreases or does not exist anymore. If there is any change in the estimated recoverable amount and result in an increase, asset impairment is reversed to the extent that the carrying amounts shall not exceed the amortized cost that would have been determined had no impairment loss been recognized in prior periods.

(19) Provisions, contingent liabilities and contingent assets

A. The First Group recognizes liabilities when all of the following three conditions are met：

(A) present obligation (legal or constructive) has arisen as a result of past event; and

(B) the outflow of economic benefits is highly probable upon settlement; and


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(C) the amount is reliably measurable.

The outflow of economic benefit as a result of settlement is determined based on the overall obligation when there are several similar obligations. Contingent assets should be recognized when the outflow of economic benefits is probable in order to settle the obligation as a whole even if the outflow of economic benefits from any one of the obligation is remote.

Measurements for provisions are at discounted present value of expenditure for settlement obligation using a pre-tax discount rate with timely adjustment made that reflects the current market assessments of the time value of money and the risks specific to the liabilities.

B. Contingent liability is a possible obligation that arises from a past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the First Group. Or it could be a present obligation as a result of a past event but the payment is not probable or the amount cannot be measured reliably. The First Group did not recognize any contingent liabilities but made appropriate disclosure in compliance with relevant regulations.

C. Contingent asset is a possible obligation that arises from a past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the First Group. The First Group did not recognize any contingent assets and made appropriate disclosure in compliance with relevant regulations when the economic inflow is probable.

D. With regard to insurance contracts of FALI and financial instruments with or without participation discretion feature, the reserves are set aside according to “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises”. Even though part of the insurance contracts of FALI do have a participation discretion feature and guarantee element, FALI did not separately recognize but categorize the whole contract as a liability. The following liability reserves do not adopt discounting method other than policy reserve, premium deficiency reserve and liability adequacy reserve. Details of provision basis are summarized below:

(A) Unearned premium reserve:

The policy reserve of unearned premium of any valid contract with less than one-year insured period should be set aside based on the calculation guide book of Insurance Bureau and “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises”.

(B) Claim reserve:

Reserves are provided for “Claims Reported but Not Paid” and “Claims Incurred But Not Reported.” For “Claims Reported but Not Paid,” a reserve has been provided on a per-policy-claim-report basis for each type of insurance. Additonally, for “Claims Incurred but Not Reported,” a reserve has been provided using the following methods:

a. According to “Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises”, the claim reserve for contracts, of which the insured period is less than 1 year, is calculated and set aside based on past claim experience and expenses

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(C) the amount is reliably measurable.

The outflow of economic benefit as a result of settlement is determined based on the overall obligation when there are several similar obligations. Contingent assets should be recognized when the outflow of economic benefits is probable in order to settle the obligation as a whole even if the outflow of economic benefits from any one of the obligation is remote.

Measurements for provisions are at discounted present value of expenditure for settlement obligation using a pre-tax discount rate with timely adjustment made that reflects the current market assessments of the time value of money and the risks specific to the liabilities.

B. Contingent liability is a possible obligation that arises from a past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the First Group. Or it could be a present obligation as a result of a past event but the payment is not probable or the amount cannot be measured reliably. The First Group did not recognize any contingent liabilities but made appropriate disclosure in compliance with relevant regulations.

C. Contingent asset is a possible obligation that arises from a past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the First Group. The First Group did not recognize any contingent assets and made appropriate disclosure in compliance with relevant regulations when the economic inflow is probable.

D. With regard to insurance contracts of FALI and financial instruments with or without participation discretion feature, the reserves are set aside according to “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises”. Even though part of the insurance contracts of FALI do have a participation discretion feature and guarantee element, FALI did not separately recognize but categorize the whole contract as a liability. The following liability reserves do not adopt discounting method other than policy reserve, premium deficiency reserve and liability adequacy reserve. Details of provision basis are summarized below:

(A) Unearned premium reserve:

The policy reserve of unearned premium of any valid contract with less than one-year insured period should be set aside based on the calculation guide book of Insurance Bureau and “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises”.

(B) Claim reserve:

Reserves are provided for “Claims Reported but Not Paid” and “Claims Incurred But Not Reported.” For “Claims Reported but Not Paid,” a reserve has been provided on a per-policy-claim-report basis for each type of insurance. Additonally, for “Claims Incurred but Not Reported,” a reserve has been provided using the following methods:

a. According to “Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises”, the claim reserve for contracts, of which the insured period is less than 1 year, is calculated and set aside based on past claim experience and expenses

and through the formula assigned or approved by FSC.

b. To date, the subsidiary, FALI has operated for approximately 5 years, and the losses experience of life insurance and health insurance is still developing. 17% self-retained earned premium of life insurances and 9% self-retained earned premium of health insurances should be respectively set aside as claim reserve for the life insurances and health insurances of FALI for the period from January 1, 2010 till January 1, 2013 according to Jin-Guan-Pao-Tsai No. 09802225020. Starting from January 1, 2013, claim reserve needed to be set aside should be calculated by loss development triangle method formulated by past experience and expenses in compliance with (102) FALI Zong-Jing-Qi Letter No. 00262 as approved by FSC.

c. Injury insurance is processed according to (100) FALI Zong-Jing-Qi Letter No. 00693, and claim reserve is calculated based on “Claims reserve for injury insurance set aside by loss development triangle method” formulated by past experience and expenses.

(C) Policy reserve:

Policy reserve of life insurance is calculated on the basis of life expectancy table rectified by competent authorities upon each application approval and the estimated interest rates, and is set aside according to the method set out in revised Article 12 of “Regulation Governing the Setting Aside of Various Reserve for Insurance Enterprises” and calculation method reviewed and approved by the authorities.

(D) Premium deficiency reserve:

If the premium of a contract is less than the reserve as calculated, then the portion of the balance of premium that has not exceeded its due date should be recorded as premium deficiency reserve. This applies to life, health, and annuity insurance contracts issued, with coverage over one year. Additionally, for an unexpired effective policy with coverage less than one year, the Company should recognize the premium deficiency reserve based on the difference between claim reserves/expenses, and unearned premium reserve and the expected premium income in the future.

(E) Liability adequacy reserve:

Liabilities adequacy test is based on the overall contract of the whole entity in compliance with regulations announced by The Actuarial Institute of the Republic of China, of which the long-term and short-term insurance is evaluated respectively by total premium method and loss ratio. The testing is the net carrying amount of insurance liabilities less deferred acquisition cost and related intangible assets at each balance sheet date, if insufficient when comparing with the present estimate of insurance contract future cash flow, all insufficient amount is recognized as liabilities adequacy reserve. According to the liability adequacy testing result, the reserve needed to be set aside is the liability adequacy reserve.

(20) Reserve for foreign exchange fluctuation

According to the “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises,” with respect to foreign exchange fluctuation held by First- Aviva Life Insurance, reserve for foreign exchange fluctuation, related accumulative reserve limits set aside by First-


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Aviva Life Insurance under liability accounts as well as provisions, methods of writing-off and others should be based on “Reserve for Foreign Exchange Fluctuation of Life Insurance Enterprises Required to Attend To” starting from March 1, 2012.

According to Article 23.2, “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises,” life insurance enterprises should transfer catastrophe risk reserve and risk- volatility reserve of various insurances under liabilities to the initial amount of reserve for foreign exchange fluctuation starting from March 1, 2012. First- Aviva Life Insurance has not yet adopted the conversion, hence there is no reserve for foreign exchange fluctuation.

(21) Financial guarantee contract

A financial guarantee contract is a contract that requires the First Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when they are due in accordance with the original or modified terms of a debt instrument.

The First Group initially recognizes financial guarantee contracts at fair value on the date of issuance granted. The First Group charges a service fee when the contract is signed and therefore the service fee income charged is the fair value at the date that the financial guarantee contract is signed. Service fee received in advance is recognized in deferred accounts and amortized through straight-line method during the contract term.

Subsequently, the First Group should measure the contract at the higher of:

A. the amount determined in accordance with IAS 37; and

B. the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18, “Revenue”.

The best estimate of the liability amount requires management to exercise their judgment and historical loss data based on the similar transaction experiences.

The increase in liabilities due to financial guarantee contract is recognized in “bad debt expenses and guaranty policy reserve”.

(22) Employee benefits

A. Short-term employee benefits

The First Group recognizes undiscounted short-term employee benefits due in the future as expense during the period that the service is provided.

B. Employee preferential interest rate

FCB provides preferential interest rate for employees, including flat preferential savings rate for current employees and retired employees. The difference gap compared to market interest rate is deemed as employee benefits.

According to “Regulations Governing the Preparation of Financial Statements by Public Banks”, the preferential interest paid to current employees is calculated based on accrual basis,

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Aviva Life Insurance under liability accounts as well as provisions, methods of writing-off and others should be based on “Reserve for Foreign Exchange Fluctuation of Life Insurance Enterprises Required to Attend To” starting from March 1, 2012.

According to Article 23.2, “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises,” life insurance enterprises should transfer catastrophe risk reserve and risk- volatility reserve of various insurances under liabilities to the initial amount of reserve for foreign exchange fluctuation starting from March 1, 2012. First- Aviva Life Insurance has not yet adopted the conversion, hence there is no reserve for foreign exchange fluctuation.

(21) Financial guarantee contract

A financial guarantee contract is a contract that requires the First Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when they are due in accordance with the original or modified terms of a debt instrument.

The First Group initially recognizes financial guarantee contracts at fair value on the date of issuance granted. The First Group charges a service fee when the contract is signed and therefore the service fee income charged is the fair value at the date that the financial guarantee contract is signed. Service fee received in advance is recognized in deferred accounts and amortized through straight-line method during the contract term.

Subsequently, the First Group should measure the contract at the higher of:

A. the amount determined in accordance with IAS 37; and

B. the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18, “Revenue”.

The best estimate of the liability amount requires management to exercise their judgment and historical loss data based on the similar transaction experiences.

The increase in liabilities due to financial guarantee contract is recognized in “bad debt expenses and guaranty policy reserve”.

(22) Employee benefits

A. Short-term employee benefits

The First Group recognizes undiscounted short-term employee benefits due in the future as expense during the period that the service is provided.

B. Employee preferential interest rate

FCB provides preferential interest rate for employees, including flat preferential savings rate for current employees and retired employees. The difference gap compared to market interest rate is deemed as employee benefits.

According to “Regulations Governing the Preparation of Financial Statements by Public Banks”, the preferential interest paid to current employees is calculated based on accrual basis,

and the difference between the preferential interest and the market interest is recognized under “employee benefit expense”. According to Article 28 of “Regulations Governing the Preparation of Financial Statements by Public Banks”, the interest rate upon retirement agreed with the employees which exceeds general market interest rate is actualized in accordance with IAS 19, Defined Benefit Plan, as endorsed by FSC. However, various parameters should be in compliance with competent authorities if indicated otherwise.

Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate derived from the actuarial valuation at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events. Additionally, the related information is disclosed accordingly.

C. Termination benefit

Termination benefit is paid to the employee being terminated who is eligible for retirement or as a result of voluntary termination in exchange of termination benefit. The First Group has made commitments in the formal detailed employment termination plan which is irrevocable, and recognizes liabilities when providing termination benefit to employees who voluntarily resign. Termination benefit paid 12 months after the financial reporting date should be discounted.

D. Post-employment benefit

The First Group adopts both defined benefit plan and defined contribution plan. Overseas branches and subsidiaries adopt defined benefit plans based on regulations of the country in which the entities operate.

The First Group adopted the defined contribution plan from July 1, 2005, the date that Labor Pension Act takes effect. Employees may choose to apply the pension policy of the First Group or the policy of the Act and retain their work seniority before the Act. For employees who are eligible for the Act, the Company and its domestic subsidiaries should set aside 6% of their monthly salaries. The Company and its subsidiaries have no other legal or constructive obligation to set aside additional reserve. Additionally, the pension in each period is recognized as pension cost in the period as incurred. Prepaid pension assets can only be recognized when there is a cash refund or deductible future pension payable.

Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.


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Any actuarial gains and losses on pension of the defined benefit plan are all recognized in other comprehensive income.

E. Employees’ bonus and directors’ and supervisors’ remuneration

Employees’ bonus and directors’ and supervisors’ remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal obligation or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees’ bonus and directors’ and supervisors’ remuneration are different from the actual distributed amounts as resolved by the stockholders at their stockholders’ meeting subsequently, the differences should be recognised based on the accounting for changes in estimates.

(23) Income and expense

Income and expense of the First Group are recognized as incurred. Expense consists of employee benefit expense, depreciation and amortization expense and other business and administration expenses. However, interest income is recognized on a cash basis upon receiving the interest when (1) reclassified as non- accrual loans; and (2) interest from restructured loans whose maturities have been extended is not recognized as interest income but recorded in the memo accounts.

A. Other than those classified as financial assets and liabilities at fair value through profit and loss, all the interest income and interest expense generated from interest-bearing financial assets are calculated by effective interest according to relevant regulation and recognized as “interest income” and “interest expense” in the consolidated statements of comprehensive income.

B. Handling fees and expenses are recognized when cash is received, or the earning process is substantially completed; service fee earned from performing significant items shall be recognized upon the completion of the service, such as syndication loan service fee received from sponsor, handling fees and expenses of subsequent services of loans are amortized or included in the calculation of effective interest rate of loans and receivables during the service period. However, according to the “Regulation Governing the Preparation of Financial Reports by Public Banks”, the loans and receivables may be measured by the initial amounts if the effects on discount are insignificant.

C. For more details on rental income of operating lease and unrealized interest income of finance lease in relation to lease business, please refer to Note 4(16).

D. Income and expense of insurance business

The first and subsequent premium of FALI’s insurance contracts and financial instruments with discretionary participation features is recognized when completing insurance procedures and when receiving payments. Costs incurred in acquiring a policy, such as commission expenses, are recognized as expenses in the period the insurance contracts become effective.

In addition to the “Income and Expense of Insurance Business”, FALI recognizes its income according to IAS No. 18, “Revenue”. Interest is recognized based on interest rate method over time and dividends income is recognized when the stockholders’ right of receipt is confirmed.

E. Income and expenses of FS is recognized on an accrual basis. The main components are as follows:

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Any actuarial gains and losses on pension of the defined benefit plan are all recognized in other comprehensive income.

E. Employees’ bonus and directors’ and supervisors’ remuneration

Employees’ bonus and directors’ and supervisors’ remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal obligation or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees’ bonus and directors’ and supervisors’ remuneration are different from the actual distributed amounts as resolved by the stockholders at their stockholders’ meeting subsequently, the differences should be recognised based on the accounting for changes in estimates.

(23) Income and expense

Income and expense of the First Group are recognized as incurred. Expense consists of employee benefit expense, depreciation and amortization expense and other business and administration expenses. However, interest income is recognized on a cash basis upon receiving the interest when (1) reclassified as non- accrual loans; and (2) interest from restructured loans whose maturities have been extended is not recognized as interest income but recorded in the memo accounts.

A. Other than those classified as financial assets and liabilities at fair value through profit and loss, all the interest income and interest expense generated from interest-bearing financial assets are calculated by effective interest according to relevant regulation and recognized as “interest income” and “interest expense” in the consolidated statements of comprehensive income.

B. Handling fees and expenses are recognized when cash is received, or the earning process is substantially completed; service fee earned from performing significant items shall be recognized upon the completion of the service, such as syndication loan service fee received from sponsor, handling fees and expenses of subsequent services of loans are amortized or included in the calculation of effective interest rate of loans and receivables during the service period. However, according to the “Regulation Governing the Preparation of Financial Reports by Public Banks”, the loans and receivables may be measured by the initial amounts if the effects on discount are insignificant.

C. For more details on rental income of operating lease and unrealized interest income of finance lease in relation to lease business, please refer to Note 4(16).

D. Income and expense of insurance business

The first and subsequent premium of FALI’s insurance contracts and financial instruments with discretionary participation features is recognized when completing insurance procedures and when receiving payments. Costs incurred in acquiring a policy, such as commission expenses, are recognized as expenses in the period the insurance contracts become effective.

In addition to the “Income and Expense of Insurance Business”, FALI recognizes its income according to IAS No. 18, “Revenue”. Interest is recognized based on interest rate method over time and dividends income is recognized when the stockholders’ right of receipt is confirmed.

E. Income and expenses of FS is recognized on an accrual basis. The main components are as follows:

(A) Brokerage commission, gains (losses) on sale of securities, futures commission expenses and related handling fee expenses are recognized on the transaction date.

(B) Interest income and interest expense attributable to margin loan business, stock loan business, and bills and bonds under repurchase or resale agreements are recognized on an accrual basis during the transaction periods.

(C) Underwriting commission income or expenses: Subscription handling fees are recognized when the amounts are received and underwriting commission income and related commission expenses are recognized at the completion of such underwriting contracts.

(D) Service fee income from providing registration and transfer agency service for securities are recognized monthly according to the contracts.

(E) Futures contract gains or losses: The margin of futures trading is recognized at cost and measured through mark-to-market accounting. The gains or losses from mark-to-market, reversed futures trading or settled contracts are recognized as gains or losses in the current period; dealer handling fee expenditures is recognized on the transaction date of futures trading.

(24) Reinsurance

In order to set a limit to losses and lower the risk of large claim policy to the minimum, FALI engages in reinsurance according to business demands and regulations. FALI shall not refuse to fulfill its obligation to the insured when the reinsurer does not fulfill its obligation.

Reinsurance ceded and inward standard, reinsurance expense, reinsurance premium income, reinsurance commission income and expense, claims recoverable from reinsurers and covered incidents are processed and recognized based on the reinsurance contracts signed with competitors and regular customers.

In terms of the classification of reinsurance contracts, FALI assesses if objective insurance risk shall be transferred to reinsurers. For reinsurance contracts that do not transfer significant risk, the contracts shall be recognized and measured using deposit accounting.

The subsidiary, FALI estimates unrecoverable amount according to IFRS No. 4, “Insurance Contracts” and with reference to “Regulations Governing the Procedures for Insurance Enterprises to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” as revised on December 29, 2010 and recognized appropriate allowance for doubtful debt, in relation to the claims recoverable from reinsurers and reinsurance receivable in the reinsurance contracts.

(25) Insurance contract classification

In an insurance contract, FALI accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a transferred uncertain future event (insured event) adversely affects the policyholder. Generally, FALI determines the existence of significant risks from the payments with or without the insured event taking place. An insurance contract also transfers financial risks of the insured.

A contract that qualifies as an insurance contract will remain an insurance contract until all rights and obligations are extinguished or expired, even if the insurance risk is lower significantly during


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the policy period. However, contracts originally set as non-insurance contracts based on the degree of insurance risks (e.g. insurance contracts with the nature of financial instrument) shall be reclassified as insurance contracts when significant insurance risks are transferred to FALI.

Insurance contract with the nature of financial instruments is the contract that transfers significant financial risks. Financial risks refer to the potential risks generated from one or various specified interest rates, financial instrument prices, product prices, exchange rates, price index, rate index, credit rating, credit index or other variables. If the abovementioned variables are non-financial, such variables are not held by any of the contract parties.

Insurance contract can be further classified if the contract has discretionary participation feature. Discretionary participation feature is a contractual right to receive additional benefit rather than guaranteed benefits and this kind of right will meet all the criteria shown below:

A. additional benefits likely occupy a significant percentage of total contractual benefits;

B. the amount or timing of additional benefits is contractually at the discretion of FALI; and

C. additional benefits are contractually based on:

(A) the performance of a specified pool of contracts or a specified type of contract;

(B) realized and/or unrealized investment returns on a specified pool of assets held by the issuer;

(C) the profit or loss of the company, fund or other entity that issues the contract.

An embedded derivative needs to be accounted separately if the embedded derivative (financial options and financial guarantee) does not have a closely related economic feature and risk; the embedded derivative shall be measured at fair value and the fair value movement shall be recognized as profit or loss of the period. An embedded derivative needs not be accounted separately if the embedded derivative meets the definition of an insurance contract, or the entire contract is measured at fair value and the fair value movement shall be recognized as profit or loss of the period.

(26) Income tax

A. Current tax

Income tax payable (refundable) is calculated on the basis of the tax laws enacted in the countries where the First Group operates and generates taxable income. Except for transactions or other matters that are directly recognized in other comprehensive income or equity, all the other transactions should be recognized as income or expense and recorded as gain and loss in the period. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

B. Deferred tax

Deferred income tax assets and liabilities are measured based on the tax rate of the anticipated period that the future assets realization or the liabilities settlement requires, which is based on the effective or existing tax rate at the consolidated balance sheet date. The carrying amount of

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the policy period. However, contracts originally set as non-insurance contracts based on the degree of insurance risks (e.g. insurance contracts with the nature of financial instrument) shall be reclassified as insurance contracts when significant insurance risks are transferred to FALI.

Insurance contract with the nature of financial instruments is the contract that transfers significant financial risks. Financial risks refer to the potential risks generated from one or various specified interest rates, financial instrument prices, product prices, exchange rates, price index, rate index, credit rating, credit index or other variables. If the abovementioned variables are non-financial, such variables are not held by any of the contract parties.

Insurance contract can be further classified if the contract has discretionary participation feature. Discretionary participation feature is a contractual right to receive additional benefit rather than guaranteed benefits and this kind of right will meet all the criteria shown below:

A. additional benefits likely occupy a significant percentage of total contractual benefits;

B. the amount or timing of additional benefits is contractually at the discretion of FALI; and

C. additional benefits are contractually based on:

(A) the performance of a specified pool of contracts or a specified type of contract;

(B) realized and/or unrealized investment returns on a specified pool of assets held by the issuer;

(C) the profit or loss of the company, fund or other entity that issues the contract.

An embedded derivative needs to be accounted separately if the embedded derivative (financial options and financial guarantee) does not have a closely related economic feature and risk; the embedded derivative shall be measured at fair value and the fair value movement shall be recognized as profit or loss of the period. An embedded derivative needs not be accounted separately if the embedded derivative meets the definition of an insurance contract, or the entire contract is measured at fair value and the fair value movement shall be recognized as profit or loss of the period.

(26) Income tax

A. Current tax

Income tax payable (refundable) is calculated on the basis of the tax laws enacted in the countries where the First Group operates and generates taxable income. Except for transactions or other matters that are directly recognized in other comprehensive income or equity, all the other transactions should be recognized as income or expense and recorded as gain and loss in the period. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

B. Deferred tax

Deferred income tax assets and liabilities are measured based on the tax rate of the anticipated period that the future assets realization or the liabilities settlement requires, which is based on the effective or existing tax rate at the consolidated balance sheet date. The carrying amount of

assets and liabilities included in the consolidated balance sheet are calculated through liability method and recognized as deferred income tax. The temporary difference of the First Group mainly occurs due to the revaluation on the depreciation of property and equipment and certain financial instruments (including derivatives) and provision and transferring of the reserve for pension and other post-employment benefits. Deductible temporary difference within the scope that it is probable to offset taxable income is recognized as deferred income tax.

Temporary difference related to the investees, branches and affiliated entities are recognized as deferred tax liabilities. However, when the First Group is capable of controlling the time length required to reverse the temporary difference and the temporary difference is unlikely to reverse in the foreseeable future, the temporary difference is not recognized.

The land revaluation appraisal occurred due to the revaluation assessment in line with relevant regulations, deemed as taxable temporary difference, and is recognized as deferred tax liabilities.

If the future taxable income is probable to be utilized as unused loss carryforwards or deferred income tax credit which can be realized in the future, the proportion of realization is deemed as deferred income tax assets.

Certain transactions of the First Group are recognized in other comprehensive income. The tax effects on these kinds of transactions are also recognized in other comprehensive income.

Current tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.

(27) Share capital

Incremental costs directly attributable to the issuance of new shares are shown as a deduction, net of tax, from equity. Common stock dividends distributed are recognized in equity in the year in which they are approved by the Group’s shareholders. If the date of dividends declared is later than the consolidated balance sheet date, common stocks are disclosed in the subsequent events.

(28) Operating segments

The First Group’s operating segment reports are consistent with the internal reports provided to the chief operating decision-maker (“CODM”). The CODM is a team that allocates resources to operating segments and evaluates their performance.

5. Critical accounting judgments, estimates and key source of assumption uncertainty

The consolidated financial statements of the First Group may be affected by the adoption of accounting policies, accounting estimates and assumptions. Therefore, adoption of the significant accounting policies in Note 4 requires the management’s judgment, estimate and assumption, which involves information of significant adjustment made on the carrying amount of assets and liabilities in the next financial statements due to lack of resources. Estimates and assumptions are made on the basis


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of past experience and other elements deemed to be relevant. However, the actual results may differ from the estimates. The First Group will continually monitor the estimates and assumptions and if the revision of estimate leaves an impact in the current period, the adjustment is recognized in the period. If a revision could affect both current and future periods, then the estimated revision shall be made in current and future periods.

Certain accounting policies and judgments of management could have significantly affected the recognized amounts in the consolidated financial statements. Details are as follows:

(1) Evaluation on financial instruments (including derivatives)

The First Group evaluates the financial instrument at fair value not traded in an active market or with no quoted price. The fair value may be estimated with reference to observable market price in the market if there is observable information of similar instruments. If not, fair value is calculated based on the appropriate evaluation models generally used in the market. The input used in the model should first primarily be based on the observable information in the market. However, in the event that certain information or input cannot be observed directly in the market and/or the model assumption itself is comparatively objective, then financial instrument at fair value can be retrieved from historical data or other information. Every valuation model of the First Group are assessed and tested on a regular basis to ensure the output can reflect actual information and the market price. Note 12(1) provides the main assumptions used in determining the financial instruments at fair value. The competent authorities recognize that the valuation models and assumptions chosen can be appropriately used to determine the fair value of financial instruments.

(2) Loan impairment loss

In addition to the compliance with the regulations from competent authorities, the First Group evaluates risk characteristics of clients and many other factors such as secured and non-secured loans to build modules and case assessments and evaluates cash flows to calculate impairment amount by month. Recognition for impairment loss is determined by observable evidence suggesting a probable impairment. The evidence could include the payment condition of the debtor, events related to overdue payment and national or local economic situation that have given rise to a significant adverse movement, etc. When evaluating the future cash flows, overdue payment of the debtor, current position of the borrower, collateral, guarantee from external institutions and historical data should all be considered. Impairment occurrence rate and impairment recovery rate used in the portfolio assessment is estimated through different product types and historical data. The First Group regularly examines the assumptions used and the reasonableness of input to ensure the appropriateness of various assumptions and inputs.

(3) Post-employment benefit

The present value of post-employment benefit obligation is based on actuarial result of various assumptions, through which any change could affect the carrying amount of post-employment benefit obligation.

Discount rate is included when determining the net pension cost (income), and the First Group decides the appropriate discount rate at the end of each year, which is used to calculate the estimated present value of future cash outflow of post-employment benefit obligation needed. The First Group should consider interest rate of government bonds of the same currency and maturity in order to determine the appropriate discount rate.

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of past experience and other elements deemed to be relevant. However, the actual results may differ from the estimates. The First Group will continually monitor the estimates and assumptions and if the revision of estimate leaves an impact in the current period, the adjustment is recognized in the period. If a revision could affect both current and future periods, then the estimated revision shall be made in current and future periods.

Certain accounting policies and judgments of management could have significantly affected the recognized amounts in the consolidated financial statements. Details are as follows:

(1) Evaluation on financial instruments (including derivatives)

The First Group evaluates the financial instrument at fair value not traded in an active market or with no quoted price. The fair value may be estimated with reference to observable market price in the market if there is observable information of similar instruments. If not, fair value is calculated based on the appropriate evaluation models generally used in the market. The input used in the model should first primarily be based on the observable information in the market. However, in the event that certain information or input cannot be observed directly in the market and/or the model assumption itself is comparatively objective, then financial instrument at fair value can be retrieved from historical data or other information. Every valuation model of the First Group are assessed and tested on a regular basis to ensure the output can reflect actual information and the market price. Note 12(1) provides the main assumptions used in determining the financial instruments at fair value. The competent authorities recognize that the valuation models and assumptions chosen can be appropriately used to determine the fair value of financial instruments.

(2) Loan impairment loss

In addition to the compliance with the regulations from competent authorities, the First Group evaluates risk characteristics of clients and many other factors such as secured and non-secured loans to build modules and case assessments and evaluates cash flows to calculate impairment amount by month. Recognition for impairment loss is determined by observable evidence suggesting a probable impairment. The evidence could include the payment condition of the debtor, events related to overdue payment and national or local economic situation that have given rise to a significant adverse movement, etc. When evaluating the future cash flows, overdue payment of the debtor, current position of the borrower, collateral, guarantee from external institutions and historical data should all be considered. Impairment occurrence rate and impairment recovery rate used in the portfolio assessment is estimated through different product types and historical data. The First Group regularly examines the assumptions used and the reasonableness of input to ensure the appropriateness of various assumptions and inputs.

(3) Post-employment benefit

The present value of post-employment benefit obligation is based on actuarial result of various assumptions, through which any change could affect the carrying amount of post-employment benefit obligation.

Discount rate is included when determining the net pension cost (income), and the First Group decides the appropriate discount rate at the end of each year, which is used to calculate the estimated present value of future cash outflow of post-employment benefit obligation needed. The First Group should consider interest rate of government bonds of the same currency and maturity in order to determine the appropriate discount rate.

Other significant assumptions on post-employment benefit are made based on the current market situation.

(4) Income tax

The First Group needs to pay income tax in different countries and significant estimates are required when estimating the global income tax after a series of transactions and calculations to determine the ultimate tax amount. The First Group recognizes additional income tax liabilities arising from tax issues based on the subsequent development of stringent evaluation and assessment on tax issues. The difference between the ultimate tax amount and the initial recognition, if any, will affect the recognition for income tax in the period and deferred income tax account.

(5) Insurance contract liabilities

Aviva’s insurance contract liabilities are based on assumptions for the period or assumptions when the contract is effective to reflect the best estimate of the period. Liability adequacy tests are performed on all contracts to reflect the best estimate of future cash flows by the management.

Major assumptions include mortality rate, morbidity rate, return on investment rate, expense rate and withdrawal rate. The assumptions are in accordance with Chapter 3 Actuarial Assumption of Reserve Adequacy of “Practice Principles of Personal Insurance Actuarial Personnel” to reflect the FALI’s risk exposure, product characteristics, target market and claim experience.

Estimate of investment return of insurance contracts is based on the estimated return of a company’s asset pool and future economic and financial development forecast. Future expenses’ assumption is based on current expenses and is adjusted with inflation from estimated expenses.

The withdrawal rate is based on FALI’s experience; therefore, the assumptions provided by Aviva PLC will be referred to.

6. Summary of significant accounts



Cash on hand $ 13,066,745 $ 11,888,583 Checks for clearance 14,971,201 8,174,408 Short-term bills 256,598 224,711 Due from other banks 33,988,087 36,395,692 Total $ 62,282,631 $ 56,683,394


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


Reserve for deposits-account A $ 29,585,291 $ 29,458,215 Reserve for deposits-account B 46,153,702 44,265,163 Inter-Bank clearing fund 5,602,492 3,230,015 Deposits of national treasury account 93,407 88,412 Deposits of overseas branches with foreign Central Banks 3,064,672 2,728,855 Reserve for deposits- foreign currency 323,034 288,865 Call loans and overdrafts to other banks 96,353,781 82,527,446 Total $ 181,176,379 $ 162,586,971

The FCB and its subsidiaries’ reserve for deposits is required by the Banking Law and is determined by applying the reserve ratios set by the Central Bank to the monthly average balance of each type of deposit. The reserve amount is deposited in the reserve deposit account at the Central Bank. According to the regulations, such reserve for deposits - account B cannot be withdrawn except for monthly adjustments of the reserve for deposits.

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


Financial assets held for trading Short-term bills $ 15,440,631 $ 15,760,410 Stocks 1,832,309 872,832 Bonds (government, financial and corporate bonds) 13,710,689 16,098,517 Beneficiary securities 206,868 1,521,802 Derivative financial instruments 9,395,571 4,656,336 Valuation adjustment for financial assets held for trading 18,150 134,345 Subtotal 40,604,218 39,044,242

Financial assets designated as at fair value through profit or loss

Bonds 15,079,342 7,334,073 Valuation adjustment for designated financial assets at

fair value through profit or loss 116,597 50,081 Subtotal 15,195,939 7,384,154

Total $ 55,800,157 $ 46,428,396

A. Details of gains (losses) on financial assets and liabilities at fair value through profit or loss for the years ended December 31, 2014 and 2013 are as follows:

For the year ended December 31, 2014


Net gain on financial assets and liabilities held for trading $ 937,400 $ 906,364

Net gain (loss) on financial assets designated as at fair value through profit or loss 435,334 ( 47,584 )

Total $ 1,372,734 $ 858,780

B. Financial instruments designated at fair value through profit or loss of the First Group are the hybrid instruments and products to eliminate the inconsistency of accounting recognition.

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


Reserve for deposits-account A $ 29,585,291 $ 29,458,215 Reserve for deposits-account B 46,153,702 44,265,163 Inter-Bank clearing fund 5,602,492 3,230,015 Deposits of national treasury account 93,407 88,412 Deposits of overseas branches with foreign Central Banks 3,064,672 2,728,855 Reserve for deposits- foreign currency 323,034 288,865 Call loans and overdrafts to other banks 96,353,781 82,527,446 Total $ 181,176,379 $ 162,586,971

The FCB and its subsidiaries’ reserve for deposits is required by the Banking Law and is determined by applying the reserve ratios set by the Central Bank to the monthly average balance of each type of deposit. The reserve amount is deposited in the reserve deposit account at the Central Bank. According to the regulations, such reserve for deposits - account B cannot be withdrawn except for monthly adjustments of the reserve for deposits.

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


Financial assets held for trading Short-term bills $ 15,440,631 $ 15,760,410 Stocks 1,832,309 872,832 Bonds (government, financial and corporate bonds) 13,710,689 16,098,517 Beneficiary securities 206,868 1,521,802 Derivative financial instruments 9,395,571 4,656,336 Valuation adjustment for financial assets held for trading 18,150 134,345 Subtotal 40,604,218 39,044,242

Financial assets designated as at fair value through profit or loss

Bonds 15,079,342 7,334,073 Valuation adjustment for designated financial assets at

fair value through profit or loss 116,597 50,081 Subtotal 15,195,939 7,384,154

Total $ 55,800,157 $ 46,428,396

A. Details of gains (losses) on financial assets and liabilities at fair value through profit or loss for the years ended December 31, 2014 and 2013 are as follows:



Net gain on financial assets and liabilities held for trading $ 937,400 $ 906,364

Net gain (loss) on financial assets designated as at fair value through profit or loss 435,334 ( 47,584 )

Total $ 1,372,734 $ 858,780

B. Financial instruments designated at fair value through profit or loss of the First Group are the hybrid instruments and products to eliminate the inconsistency of accounting recognition.

C. As of December 31, 2014 and 2013, the above financial assets for trading purposes undertaken for repurchase agreements were $1,438,350 and $1,279,699, respectively.

D. As of December 31, 2014 and 2013, details of the First Group’s financial assets at fair value through profit or loss pledged to others as collateral are provided in Note 8.

(4) Securities purchased under resell agreements


Government bonds $ 1,882,206 $ 3,469,271

As of December 31, 2014 and 2013, the First Group is obliged to sell the above bonds at purchase price plus a mark-up based on the resale agreement, and such resale amounts were $1,884,175 and $3,473,000, respectively.

(5) Receivables, net


Spot exchange receivable $ 23,732,422 $ 19,788,919 Factoring receivable 9,758,089 15,651,840 Interest receivable 4,255,469 3,907,274 Acceptances receivable 6,421,115 8,665,481 Margin loans receivable 6,444,469 5,785,567 Credit card accounts receivable 5,502,474 4,881,236 Other receivables 9,711,517 11,732,461 Sub-total 65,825,555 70,412,778 Less: Allowance for doubtful accounts ( 964,955 ) ( 973,753 ) Net amount $ 64,860,600 $ 69,439,025

(6) Loans discounted, net


Bills discounted $ 5,450,725 $ 6,487,589 Overdrafts 1,105,803 1,217,405 Short-term loans 456,242,287 404,333,405 Medium-term loans 428,183,728 421,639,708 Long-term loans 620,068,663 607,064,351 Import-export negotiations 2,523,346 1,207,030 Loans transferred to non-accrual loans 3,777,651 6,972,351 Insurance policy loans 253,745 153,025 Sub-total 1,517,605,948 1,449,074,864 Less: allowance for doubtful accounts ( 20,345,295 ) ( 17,999,594 ) Net amount $ 1,497,260,653 $ 1,431,075,270

A. As of December 31, 2014 and 2013, gains from hedge evaluation were $0 and $7,973, respectively. The fair values of fixed-rate loans held by overseas branches may fluctuate with changes in interest rates. Please refer to Note 6(17) for details of relevant hedge information.

B. As of December 31, 2014 and 2013, please see Note 12(2)4 for the explanation on impaired financial assets of the First Group for the loans discounted.


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C. The First Group assessed the appropriate amount of allowance for doubtful accounts; the details and movements of the allowance for doubtful accounts balance for loans discounted and receivables for the years ended December 31, 2014 and 2013 were as follows:



Loans discounted (including other related receivable derived from loans) Beginning balance $ 18,198,602 $ 16,417,952 Provision 5,899,935 6,779,170 Write-off ( 3,774,530 ) ( 5,054,778 ) Foreign exchange and other movements 210,252 56,258 Ending balance $ 20,534,259 $ 18,198,602

Receivables Beginning balance $ 1,258,101 $ 911,301 Provision 168,269 429,622 Write-off ( 427,325 ) ( 83,152 ) Foreign exchange and other movements ( 55,708 ) 330 Ending balance $ 943,337 $ 1,258,101

(7) Reinsurance contract assets – net


Claims recoverable from reinsurers $ 126 $ 892 Reinsurance reserve assets

Ceded unearned premium reserve 415 535 Ceded claims reserve 371 3,263

Total $ 912 $ 4,690

A. Change in allowance for doubtful debts of claims recoverable from reinsurers:



Beginning balance $ - $ 4 Transfers - ( 4 ) Ending balance $ - $ -

B. Please see Note 6 (24) 2 for the changes in reinsurance reserve assets.

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C. The First Group assessed the appropriate amount of allowance for doubtful accounts; the details and movements of the allowance for doubtful accounts balance for loans discounted and receivables for the years ended December 31, 2014 and 2013 were as follows:



Loans discounted (including other related receivable derived from loans) Beginning balance $ 18,198,602 $ 16,417,952 Provision 5,899,935 6,779,170 Write-off ( 3,774,530 ) ( 5,054,778 ) Foreign exchange and other movements 210,252 56,258 Ending balance $ 20,534,259 $ 18,198,602

Receivables Beginning balance $ 1,258,101 $ 911,301 Provision 168,269 429,622 Write-off ( 427,325 ) ( 83,152 ) Foreign exchange and other movements ( 55,708 ) 330 Ending balance $ 943,337 $ 1,258,101

(7) Reinsurance contract assets – net


Claims recoverable from reinsurers $ 126 $ 892 Reinsurance reserve assets

Ceded unearned premium reserve 415 535 Ceded claims reserve 371 3,263

Total $ 912 $ 4,690

A. Change in allowance for doubtful debts of claims recoverable from reinsurers:



Beginning balance $ - $ 4 Transfers - ( 4 ) Ending balance $ - $ -

B. Please see Note 6 (24) 2 for the changes in reinsurance reserve assets.

(8) Available-for-sale financial assets


Stocks - listed $ 6,573,885 $ 8,273,467 Stocks - unlisted 1,436,050 1,459,724 Bonds 69,932,613 81,105,607 Beneficiary securities 302,316 528,935 Other marketable securities 2,057,977 2,084,303 Valuation adjustment for available-for-sale financial

assets 5,164,986 4,456,602 85,467,827 97,908,638 Less: Refundable deposits ( 348,138 ) ( 347,557 )

Accumulated impairment ( 139,234 ) ( 163,794 ) Total $ 84,980,455 $ 97,397,287

Please refer to Note 8 for details of the above available-for-sale financial assets pledged as collateral as of December 31, 2014 and 2013.

(9) Held-to-maturity financial assets - net


Certificates of deposits purchased $ 247,465,000 $ 249,045,000 Bonds 58,585,504 54,150,322 Short-term bills 1,574,804 915,639 Total $ 307,625,308 $ 304,110,961

Please refer to Note 8 for details of the above held-to-maturity financial assets pledged as collateral as of December 31, 2014 and 2013.

(10) Investments accounted for under the equity method, net

A. Investments accounted for under the equity method:


Amount Percentage

of ownership (%) Amount Percentage

of ownership (%) East Asia Real Estate

Management Co., Ltd. $ 2,926 30% $ 2,926 30% FCBL Capital International

(B.V.I) Ltd. 2,069,133 100% 853,699 100% First Financial Assets

Management (B.V.I) Ltd. 1,076,729 100% 962,817 100% $ 3,148,788 $ 1,819,442

B. The affiliated enterprises invested by the First Group have no quoted price. The affiliated enterprises’ capacity to transfer capital through the distribution of cash dividends, loan repayment or advances is not significantly restricted.


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C. For the years ended December 31, 2014 and 2013, investment income(loss) from equity investments accounted for under the equity method were ($25,805) and $96,810, respectively.

(11) Other financial assets – net


Bond investments with no active market $ 2,577,236 $ 2,058,031 Investment in time deposits without active market 20,696,846 23,223,751 Bills purchased 4,500 6,475 Claims receivable purchased 257,123 290,398 Financial assets carried at cost 5,498,349 5,479,248 Separate account product assets

Securities 21,431,518 12,635,594 Bank deposits 551,493 676,880 Other receivables 49,248 12,535

Non-accrual loans transferred from other accounts (excluding loans) 62,240 499,709

Customer margin accounts 587,059 571,558

Subtotal 51,715,612 45,454,179 Less: Allowance for doubtful accounts - overdue

receivable ( 64,890 ) ( 462,435 ) Allowance for doubtful accounts - claims

receivable purchased ( 102,456 ) ( 20,921 ) $ 51,548,266 $ 44,970,823

A. As the First Group’s investments in unlisted stocks lack quoted marked price and their fair values cannot be measured reliably; those financial assets are accounted for at cost.

B. For methods and assumptions used to measure fair value of debt instruments with no active market, please refer to Note 12 (1) D.

C. The Bank’s overdue notes and debts securities affected by the financial crisis of Iceland and Washington Mutual, U.S.A. are recognized as other financial assets –overdue receivables, and the balance as of December 31, 2014 and 2013 were $15,807 and $58,394, respectively, with balances for allowance for doubtful loans of $2,371 and $6,696, respectively. The abovementioned overdue notes and debts securities have been included in debts security and prosecution procedures.

D. As of December 31, 2014 and 2013, details of the First Group’s other financial assets pledged to others as collateral are provided in Note 8.

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C. For the years ended December 31, 2014 and 2013, investment income(loss) from equity investments accounted for under the equity method were ($25,805) and $96,810, respectively.

(11) Other financial assets – net


Bond investments with no active market $ 2,577,236 $ 2,058,031 Investment in time deposits without active market 20,696,846 23,223,751 Bills purchased 4,500 6,475 Claims receivable purchased 257,123 290,398 Financial assets carried at cost 5,498,349 5,479,248 Separate account product assets

Securities 21,431,518 12,635,594 Bank deposits 551,493 676,880 Other receivables 49,248 12,535

Non-accrual loans transferred from other accounts (excluding loans) 62,240 499,709

Customer margin accounts 587,059 571,558

Subtotal 51,715,612 45,454,179 Less: Allowance for doubtful accounts - overdue

receivable ( 64,890 ) ( 462,435 ) Allowance for doubtful accounts - claims

receivable purchased ( 102,456 ) ( 20,921 ) $ 51,548,266 $ 44,970,823

A. As the First Group’s investments in unlisted stocks lack quoted marked price and their fair values cannot be measured reliably; those financial assets are accounted for at cost.

B. For methods and assumptions used to measure fair value of debt instruments with no active market, please refer to Note 12 (1) D.

C. The Bank’s overdue notes and debts securities affected by the financial crisis of Iceland and Washington Mutual, U.S.A. are recognized as other financial assets –overdue receivables, and the balance as of December 31, 2014 and 2013 were $15,807 and $58,394, respectively, with balances for allowance for doubtful loans of $2,371 and $6,696, respectively. The abovementioned overdue notes and debts securities have been included in debts security and prosecution procedures.

D. As of December 31, 2014 and 2013, details of the First Group’s other financial assets pledged to others as collateral are provided in Note 8.

(12) Investment property– net

Please see below table for the investment property of the First Group for the years ended December 31, 2014 and 2013:

Lands and land improvements Buildings Total

Cost At January 1, 2014 $ 8,030,605 $ 914,438 $ 8,945,043 Additions 253,170 114,842 368,012 Transfers 580,338 10,065 590,403 Disposals ( 198,090 ) ( 85,124 ) ( 283,214 ) At December 31, 2014 8,666,023 954,221 9,620,244

Accumulated depreciation At January 1, 2014 - ( 138,377 ) ( 138,377 ) Additions - ( 15,929 ) ( 15,929 ) Transfers - ( 20,770 ) ( 20,770 ) Disposals - 4,970 4,970 At December 31, 2014 - ( 170,106 ) ( 170,106 )

Accumulated impairment At January 1, 2014 ( 13,166 ) ( 2,950 ) ( 16,116 ) Disposals 2,549 1,095 3,644 At December 31, 2014 ( 10,617 ) ( 1,855 ) ( 12,472 ) Investment property– net $ 8,655,406 $ 782,260 $ 9,437,666

Lands and land improvements Buildings Total

Cost At January 1, 2013 $ 6,405,379 $ 428,239 $ 6,833,618 Additions 1,271,323 470,557 1,741,880 Disposals 353,903 15,642 369,545 At December 31, 2013 8,030,605 914,438 8,945,043

Accumulated depreciation At January 1, 2013 - ( 114,176 ) ( 114,176 ) Additions - ( 12,198 ) ( 12,198 ) Disposals - ( 12,003 ) ( 12,003 ) At December 31, 2013 - ( 138,377 ) ( 138,377 )

Accumulated impairment At January 1, 2013 ( 14,857 ) ( 3,423 ) ( 18,280 ) Disposals 1,691 473 2,164 At December 31, 2013 ( 13,166 ) ( 2,950 ) ( 16,116 ) Investment property– net $ 8,017,439 $ 773,111 $ 8,790,550

A. As of December 31, 2014 and 2013, the investment property at fair value of the First Group was $17,914,898 and $14,543,915, respectively. All the investment properties of the First Group are assessed by the internal appraisal expert, and market approach was adopted for all assessments.


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B. For the years ended December 31, 2014 and 2013, the rental income from investment property were $121,917 and $114,791, respectively, the operating expenses from investment property were $84,765 and $68,302, respectively.

C. As of December 31, 2014 and 2013, details of the First Group’s Investment property pledged to others as collateral are provided in Note 8.

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B. For the years ended December 31, 2014 and 2013, the rental income from investment property were $121,917 and $114,791, respectively, the operating expenses from investment property were $84,765 and $68,302, respectively.

C. As of December 31, 2014 and 2013, details of the First Group’s Investment property pledged to others as collateral are provided in Note 8.

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pmen

t T

otal

Cos

t At J

anua

ry 1

, 201

419

,948

,099

$

11

,825

,254

$

2,

758,

680

$

82

0,94

9$

2,

646,

930

$

1,10

4,44

6$

40

4,53

4$

39

,508

,892

$

Add

ition

s-

37

5,19

5

269,

829

45,0

70

10

8,01

9

61,5

84

28

6,52

9

1,

146,

226

Tra

nsfe

rs12

3,54

6

77,1

72

35

1,10

5

4,

970

31

2,48

0)(

30,2

43

27

1,29

3)(

3,

263

Tra

nsfe

r int

o in

vest

men

t

pro

pert

y58

0,33

8)(

22,7

60)

(

-

58

0)(

-

-

4,

831)

(

608,

509)

(

Dis

posa

ls3,

063)

(

14

,376

)(

11

1,55

5)(

45

,027

)(

50,9

42)

(

9,61

3)(

-

23

4,57

6)(

Fo

reig

n ex

chan

ge-

77

1)(

3,

937

1,

520

2,

867

17,7

48

-

25,3

01

At D

ecem

ber 3

1, 2

014

19,4

88,2

44

12,2

39,7

14

3,27

1,99

6

826,

902

2,39

4,39

4

1,

204,

408

414,

939

39,8

40,5

97

Acc

umul

ated

dep

reci

atio

n

At J

anua

ry 1

, 201

42,

872)

(

5,

172,

627)

(

2,22

5,66

2)(

686,

230)

(

1,99

9,00

0)(

95

7,75

1)(

-

11

,044

,142

)(

Dep

reci

atio

n-

27

8,42

2)(

240,

775)

(

40,5

85)

(

12

0,07

1)(

55,5

98)

(

-

73

5,45

1)(

Tra

nsfe

rs-

-

24

7,90

1)(

1,

684)

(

24

9,58

5

-

-

-

Tra

nsfe

r int

o in

vest

men

t

pro

pert

y-

20

,770

2

579

-

-

-

21

,351

Dis

posa

ls2,

872

14,1

06

11

1,04

2

44

,545

50,1

36

9,

613

-

23

2,31

4

Fo

reig

n ex

chan

ge-

-

3,

574)

(

1,

468)

(

2,

421)

(

8,

149)

(

-

15,6

12)

(

At D

ecem

ber 3

1, 2

014

-

5,41

6,17

3)(

2,

606,

868)

(

68

4,84

3)(

1,

821,

771)

(

1,01

1,88

5)(

-

11,5

41,5

40)

(

Net

19,4

88,2

44$

6,82

3,54

1$

66

5,12

8$

14

2,05

9$

57

2,62

3$

192,

523

$

41

4,93

9$

28

,299

,057

$


102

Lan

d an

d

impr

ovem

ents

Bui

ldin

gs

Mac

hine

ry a

nd

equi

pmen

t

Tra

nspo

rtat

ion

equi

pmen

t O

ther

equ

ipm

ent

Lea

seho

ld

impr

ovem

ents

Con

stru

ctio

n in

prog

ress

and

prep

aym

ents

for

equi

pmen

t T

otal

Cos

t At J

anua

ry 1

, 201

320

,246

,027

$

11

,368

,779

$

2,

712,

437

$

84

0,54

0$

2,

592,

907

$

1,10

9,50

4$

15

0,78

0$

39

,020

,974

$

Add

ition

s55

,975

279,

973

23

3,80

4

40

,219

122,

878

27

,567

486,

372

1,24

6,78

8

Tra

nsfe

rs-

19

2,14

4

-

3,

344

14

,051

20,8

50

23

0,38

9)(

-

Dis

posa

ls35

3,90

3)(

15,6

42)

(

-

-

-

-

2,22

9)(

37

1,77

4)(

Fore

ign

exch

ange

-

-

187,

931)

(

63,1

39)

(

83

,992

)(

55

,705

)(

-

390,

767)

(

At D

ecem

ber 3

1, 2

013

-

-

370

15)

(

1,

086

2,23

0

-

3,67

1

Acc

umul

ated

dep

reci

atio

n19

,948

,099

11

,825

,254

2,

758,

680

82

0,94

9

2,

646,

930

1,10

4,44

6

40

4,53

4

39

,508

,892

At J

anua

ry 1

, 201

3

Dep

reci

atio

n2,

872)

(

4,

922,

151)

(

2,21

4,47

6)(

707,

617)

(

1,93

3,05

9)(

94

1,56

7)(

-

10

,721

,742

)(

Tra

nsfe

rs-

26

2,47

9)(

198,

847)

(

40,9

84)

(

14

8,89

6)(

64,1

47)

(

-

71

5,35

3)(

Tra

nsfe

r int

o in

vest

men

t

pro

pert

y-

12

,003

-

-

-

-

-

12

,003

Dis

posa

ls-

-

18

7,61

5

62

,480

83,7

32

49

,009

-

38

2,83

6

Fo

reig

n ex

chan

ge-

-

46

10

9)(

77

7)(

1,

046)

(

-

1,88

6)(

At D

ecem

ber 3

1, 2

013

2,87

2)(

5,17

2,62

7)(

2,

225,

662)

(

68

6,23

0)(

1,

999,

000)

(

957,

751)

(

-

11,0

44,1

42)

(

Net

19,9

45,2

27$

6,65

2,62

7$

53

3,01

8$

13

4,71

9$

64

7,93

0$

146,

695

$

40

4,53

4$

28

,464

,750

$

A.

The

re w

as n

o in

tere

st c

apita

lize

d on

pro

pert

y an

d eq

uipm

ent a

cqui

red

for

the

year

s en

ded

Dec

embe

r 31

, 201

4 an

d 20

13.

B.

Plea

se r

efer

to N

ote

8 fo

r de

tails

of

the

prop

erty

and

equ

ipm

ent p

ledg

ed a

s co

llate

ral a

s of

Dec

embe

r 31

, 201

4 an

d 20

13.

2014 ANNUAL REPORT

103

(14) Other assets - net


Leased assets $ 1,901,816 $ 1,580,854

Less: Accumulated depreciation ( 593,024 ) ( 494,299 ) Leased assets - net 1,308,792 1,086,555 Foreclosed assets

Cost 76,446 100,019 Less: Accumulated impairment ( 76,446 ) ( 93,740 ) Net foreclosed assets - 6,279

Refundable deposits 688,959 609,983 Operating guarantee deposits and settlement

clearing funds 1,272,298 1,293,303 Prepayments 466,443 553,732 Others 78,690 288,244 Total $ 3,815,182 $ 3,838,096

Please refer to Note 8 for details of other assets pledged as collateral as of December 31, 2014 and 2013.

(15) Deposits from the Central Bank and banks


Call loans from other banks $ 119,991,671 $ 136,678,173 Transfer deposits from Chunghwa Post Co. 1,878,109 2,834,591 Overdrafts from other banks 646,929 1,309,760 Due to other banks 3,538,403 475,780 Due to the Central Bank 40,322 77,478 Total $ 126,095,434 $ 141,375,782

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


Financial liabilities for trading purpose Derivative instruments $ 5,383,425 $ 3,800,839 Others - 448,805

Financial liabilities designated at fair value through profit or loss Bonds 17,801,000 10,300,000 Valuation adjustment 203,147 463,435

Total $ 23,387,572 $ 15,013,079

A. The financial instruments of the First Group at fair value through profit or loss were designated to eliminate or significantly reduce recognition inconsistency.

B. For the years ended December 31, 2014 and 2013, the changes in fair value belonging to financial debentures designated at fair value through profit and loss by the Company were $35,060 and $34,511, respectively.


104

C. FCB sold the financial debentures at the face value. As of December 31, 2014 and 2013, the carrying amounts exclusive of valuation adjustment and the amounts payable to the creditors are identical.

(17) Derivative financial liabilities for hedging


Derivative financial liabilities for hedging $ - $ 7,973

Derivative financial liabilities held for hedging and related information were as follows:

Fair values of fixed-rate loans held by overseas branches of FCB may fluctuate with changes in interest rates. FCB had assessed that the risk may be significant, so FCB hedged such risk by entering into interest rate swap contracts.

Designated hedging instruments Designated hedging

instruments Fair value

Hedged item December 31, 2014

December 31, 2013 Fixed-rate loans Interest rate swap contracts $ - ( $ 7,973 )

(18) Securities sold under repurchase agreements


Bonds payable under repurchase agreements $ 8,723,114 $ 14,165,980 Bills payable under repurchase agreements - 49,829 Total $ 8,723,114 $ 14,215,809

The First Group is obliged to repurchase the above bonds at original sale price plus a mark-up pursuant to the repurchase agreement. The repurchase agreement amounts for such bonds and bills were $8,738,481 and $14,232,215 as of December 31, 2014 and 2013, respectively.

(19) Commercial papers issued - net

Details of commercial papers issued not yet due are stated as follows:

Guarantor

December 31, 2014

December 31, 2013

Commercial papers

issued Mega Bills Finance Co.,

Ltd. $ 5,300,000

$ 1,868,000

China Bills Finance

Corporation

1,110,000

989,000

Taishin Bank

1,057,000

1,200,000

Taiwan Finance

Corporation

371,000

180,000

Dah Chung Bill Finance

Corporation

300,000

300,000

International Bills Finance

Corporation

200,000

200,000

Grand Bills Finance

Corporation

535,000

445,000

Taching Bills Finance Co.,

Ltd.

573,000

322,000

Taiwan Cooperative Bills

200,000

290,000

2014 ANNUAL REPORT

105

C. FCB sold the financial debentures at the face value. As of December 31, 2014 and 2013, the carrying amounts exclusive of valuation adjustment and the amounts payable to the creditors are identical.

(17) Derivative financial liabilities for hedging


Derivative financial liabilities for hedging $ - $ 7,973

Derivative financial liabilities held for hedging and related information were as follows:

Fair values of fixed-rate loans held by overseas branches of FCB may fluctuate with changes in interest rates. FCB had assessed that the risk may be significant, so FCB hedged such risk by entering into interest rate swap contracts.

Designated hedging instruments Designated hedging

instruments Fair value

Hedged item December 31, 2014

December 31, 2013 Fixed-rate loans Interest rate swap contracts $ - ( $ 7,973 )

(18) Securities sold under repurchase agreements


Bonds payable under repurchase agreements $ 8,723,114 $ 14,165,980 Bills payable under repurchase agreements - 49,829 Total $ 8,723,114 $ 14,215,809

The First Group is obliged to repurchase the above bonds at original sale price plus a mark-up pursuant to the repurchase agreement. The repurchase agreement amounts for such bonds and bills were $8,738,481 and $14,232,215 as of December 31, 2014 and 2013, respectively.

(19) Commercial papers issued - net

Details of commercial papers issued not yet due are stated as follows:

Guarantor

December 31, 2014

December 31, 2013

Commercial papers

issued Mega Bills Finance Co.,

Ltd. $ 5,300,000

$ 1,868,000

China Bills Finance

Corporation

1,110,000

989,000

Taishin Bank

1,057,000

1,200,000

Taiwan Finance

Corporation

371,000

180,000

Dah Chung Bill Finance

Corporation

300,000

300,000

International Bills Finance

Corporation

200,000

200,000

Grand Bills Finance

Corporation

535,000

445,000

Taching Bills Finance Co.,

Ltd.

573,000

322,000

Taiwan Cooperative Bills

200,000

290,000

Guarantor

December 31, 2014

December 31, 2013

Finance Corporation

Commercial papers issued

Union Bank

1,051,000

-

Subtotal

10,697,000

5,794,000

Less: discount on

commercial papers issued

( 3,958 ) ( 2,330 )

Net commercial papers issued

$ 10,693,042

$ 5,791,670

Interest rate (%)

0.650%~0.950%

0.700%~0.960%

(20) Payables


Accounts payable $ 22,813,587 $ 18,676,094 Spot exchange payable 23,734,833 19,793,282 Bank acceptances 6,585,298 8,774,484 Interest payable 2,244,243 2,162,673 Accrued expenses 5,457,050 4,614,055 Deposits received from securities borrowers 702,057 690,304 Guaranteed price deposits received from securities

borrowers 785,620 804,363 Collections for others 513,114 389,947 Other payables 5,897,941 7,305,467 Total $ 68,733,743 $ 63,210,669

(21) Deposits and remittances


Checking accounts $ 38,781,304 $ 37,107,045 Demand deposits 463,722,140 437,199,048 Time deposits 381,125,480 359,912,370 Negotiable certificates of deposits 9,856,200 11,967,500 Savings deposits 927,506,490 883,643,756 Inward remittances 2,198,734 2,033,271 Others 107,946 26,647 Total $ 1,823,298,294 $ 1,731,889,637

(22) Bonds payable

A. Corporate bonds payable

In order to improve the Company’s financial structure, strengthen its capital adequacy ratio, and raise funds for mid-to-long-term operation, the Company’s Board of Directors resolved on April 29, 2010, to issue unsecured corporate bonds of $5 billion, and senior corporate bonds of $2 billion approved by the FSC. The holders of the subordinated corporate bonds shall take precedence over shareholders but would rank below other creditors in the event of


106

liquidation. The detailed terms of issuance are as follows:

First issue, 2010(A B) Issue date July 22, 2010 Issue amount NT$7 billion Issue price At par Coupon rate A:Fixed rate 1.6%;B: Fixed rate 2.25% Interest and repayment

terms Interest is paid annually. The principal is to be paid pursuant to face

value at maturity. Maturity period A:5 years;B:7 years

As of December 31, 2014 and 2013, the above mentioned corporate bonds were unsecured subordinated bonds of $5 billion, unsecured senior bonds of $2 billion, respectively.

For the years ended December 31, 2014 and 2013, the range of interest rates of the above mentioned corporate bonds was 1.60% ~2.25% for both periods.

B. Financial bonds payable

On June 24, 2005, August 18, 2006, February 29, 2008, June 25, 2010, February 25, 2011, February 24, 2012, February 22, 2013, and February 27, 2014, and October 16, 2014, the Board of Directors resolved to issue senior and subordinated financial bonds with the quota of $20, $20, $20, $8, $10, $15, $12, $15 and $9.501 (US $300 million) billion New Taiwan dollars, respectively, to strengthen FCB's capital adequacy ratio and to raise capital for long-term operating purposes. The issuances of the financial bonds had been approved by the Ministry of Finance, R.O.C. and Financial Supervisory Commission, Executive Yuan. The subordinated creditors have a right to repayment that is higher than that of a shareholder's but would rank below other creditors in the event of liquidation. The detailed terms of each issuance are as follows:

First to Third issues, 2006 Issue date April 24, July 27 and December 4, 2006 Issue amount NT$14 billion (NT$13 billion has been paid back) Issue price At par Coupon rate 2.24%~2.75% Interest and repayment


value at maturity. Maturity period 5 years and 6 months to 10 years

2014 ANNUAL REPORT

107

liquidation. The detailed terms of issuance are as follows:

First issue, 2010(A B) Issue date July 22, 2010 Issue amount NT$7 billion Issue price At par Coupon rate A:Fixed rate 1.6%;B: Fixed rate 2.25% Interest and repayment


value at maturity. Maturity period A:5 years;B:7 years

As of December 31, 2014 and 2013, the above mentioned corporate bonds were unsecured subordinated bonds of $5 billion, unsecured senior bonds of $2 billion, respectively.

For the years ended December 31, 2014 and 2013, the range of interest rates of the above mentioned corporate bonds was 1.60% ~2.25% for both periods.

B. Financial bonds payable

On June 24, 2005, August 18, 2006, February 29, 2008, June 25, 2010, February 25, 2011, February 24, 2012, February 22, 2013, and February 27, 2014, and October 16, 2014, the Board of Directors resolved to issue senior and subordinated financial bonds with the quota of $20, $20, $20, $8, $10, $15, $12, $15 and $9.501 (US $300 million) billion New Taiwan dollars, respectively, to strengthen FCB's capital adequacy ratio and to raise capital for long-term operating purposes. The issuances of the financial bonds had been approved by the Ministry of Finance, R.O.C. and Financial Supervisory Commission, Executive Yuan. The subordinated creditors have a right to repayment that is higher than that of a shareholder's but would rank below other creditors in the event of liquidation. The detailed terms of each issuance are as follows:

First to Third issues, 2006 Issue date April 24, July 27 and December 4, 2006 Issue amount NT$14 billion (NT$13 billion has been paid back) Issue price At par Coupon rate 2.24%~2.75% Interest and repayment


value at maturity. Maturity period 5 years and 6 months to 10 years

First to Third issues, 2007 Issue date March 9, June 25 and December 24, 2007 Issue amount NT$14 billion(NT$10.5 billion has been paid back) Issue price At par Coupon rate Partial interest rate is fixed (2.4%~3.16%) and partial is floating rate.

Interest rate index is average interest rate of NTD 90-day commercial paper in secondary market provided by Reuters.

Interest and repayment terms

Floating rate: Interest is accrued quarterly and paid annually. The principal is to be paid pursuant to face value at maturity.

Fixed rate: Interest is paid annually. The principal is to be paid pursuant to face value at maturity.

Maturity period 7~10 years

First to Third issues, 2008 Issue date June 23, October 21, December 24, 2008 Issue amount NT$8.7 billion Issue price At par Coupon rate Partial is fixed interest rate (3.0%~3.10%) and partial is floating rate.

Interest rate index is average interest rate of NTD 90-day commercial paper in secondary market provided by Reuters.

Interest and repayment terms

Floating rate: Interest is accrued quarterly and paid annually. The principal is to be paid pursuant to face value at maturity.

Fixed rate: Interest is paid annually. The principal is to be paid pursuant to face value at maturity.

Maturity period 7 years First to Second issues, 2010 Issue date September 28, 2010 Issue amount NT$8 billion Issue price At par Coupon rate 1.5%/1.92% Interest and repayment


value at maturity. Maturity period 7 years

First to Second issues, 2011 Issue date March 30, June 24, 2011 Issue amount NT$6.3 billion Issue price At par Coupon rate Fixed rate:1.65% /1.72% Interest and repayment


value at maturity. Maturity period 7 /10 years


108

First to Second issues, 2012 Issue date September 25, December 27, 2012 Issue amount NT$15 billion Issue price At par Coupon rate Fixed rate:1.43%/1.47%/1.59% Interest and repayment



First issues, 2014 Issue date September 26, 2014 Issue amount NT$1 billion Issue price At par Coupon rate Fixed rate:3.5% Interest and repayment

terms Interest is paid annually. After the expiration of five years. Early redemption would be possible if it has approval from authority.

Maturity period

No expiry date

Second issues, 2014 Issue date November 26, 2014 Issue amount NT$9.501 billion (US $300 million) Issue price At par Coupon rate A:This is a zero-coupon bond with the implicit interest rate is 4.10%

B: This is a zero-coupon bond with the implicit interest rate is 4.07% Interest and repayment terms

A:The bond can be redeemed after five years from the issue date. The principal is to be paid pursuant to face value at maturity and

interest is paid. B: The bond can be redeemed after two years from the issue date. The principal is to be paid pursuant to face value at maturity and

interest is paid. Maturity period 20 years For the years ended December 31, 2014 and 2013, the range of interest rates of the above mentioned corporate bonds was 1.11%~4.10% and 1.11%~3.16%, respectively.

As of December 31, 2014 and 2013, the outstanding balances of the above mentioned financial bonds amounted to $53.001 and $53 billion New Taiwan dollars, respectively. Among the preceding mentioned financial bonds, the senior and the subordinate financial bonds with face value of $9.501 billion and $0 billion, $8.6 billion and $10.3 billion New Taiwan dollars were designated as held for trading financial liabilities and hedged by interest rate swap contracts. As such interest rate swap contracts were valued at fair value with changes in fair value recognized as profit or loss, the financial bonds stated above were designated as financial liabilities at fair value through profit or loss in order to eliminate or significantly reduce recognition inconsistency.

2014 ANNUAL REPORT

109

First to Second issues, 2012 Issue date September 25, December 27, 2012 Issue amount NT$15 billion Issue price At par Coupon rate Fixed rate:1.43%/1.47%/1.59% Interest and repayment



First issues, 2014 Issue date September 26, 2014 Issue amount NT$1 billion Issue price At par Coupon rate Fixed rate:3.5% Interest and repayment

terms Interest is paid annually. After the expiration of five years. Early redemption would be possible if it has approval from authority.

Maturity period

No expiry date

Second issues, 2014 Issue date November 26, 2014 Issue amount NT$9.501 billion (US $300 million) Issue price At par Coupon rate A:This is a zero-coupon bond with the implicit interest rate is 4.10%

B: This is a zero-coupon bond with the implicit interest rate is 4.07% Interest and repayment terms

A:The bond can be redeemed after five years from the issue date. The principal is to be paid pursuant to face value at maturity and

interest is paid. B: The bond can be redeemed after two years from the issue date. The principal is to be paid pursuant to face value at maturity and

interest is paid. Maturity period 20 years For the years ended December 31, 2014 and 2013, the range of interest rates of the above mentioned corporate bonds was 1.11%~4.10% and 1.11%~3.16%, respectively.

As of December 31, 2014 and 2013, the outstanding balances of the above mentioned financial bonds amounted to $53.001 and $53 billion New Taiwan dollars, respectively. Among the preceding mentioned financial bonds, the senior and the subordinate financial bonds with face value of $9.501 billion and $0 billion, $8.6 billion and $10.3 billion New Taiwan dollars were designated as held for trading financial liabilities and hedged by interest rate swap contracts. As such interest rate swap contracts were valued at fair value with changes in fair value recognized as profit or loss, the financial bonds stated above were designated as financial liabilities at fair value through profit or loss in order to eliminate or significantly reduce recognition inconsistency.

(23) Other borrowings


Credit borrowings $ 7,528,630 $ 2,718,078 Interest rate (%) 0.992%~1.500% 1.040%~2.050%

(24) Provisions


Insurance liability $ 6,919,954 $ 13,972,124 Employee benefit liabilities reserve 5,062,443 5,217,358 Reserve for guarantees 795,376 558,614 Other reserves 69,658 8,694 Total $ 12,847,431 $ 19,756,790

A. Details of FALI’s provisions for insurance as of December 31, 2014 and 2013, were as follows:


Policy reserve $ 6,860,410 $ 13,932,888 Unearned premium reserve 36,580 19,901 Claim reserve 15,308 9,750 Reserve for premium insufficiency 7,656 9,585 Total $ 6,919,954 $ 13,972,124

B. Details of FALI’s liability reserves for insurance contracts and financial instruments issued with a discretionary participation feature were as follows:

(A) Policy reserve:

For the years ended December 31, 2014 and 2013, the policy reserves were all generated by insurance contract, and the contractual liabilities measured on a discounted basis to reflect the interest expense over time were $152,513 and $196,390, respectively.

Insurance Contracts For the years ended December 31 2014 2013 Beginning balance $ 13,932,888 $ 13,448,446 Provision 1,530,492 2,529,135 Recovery ( 8,613,381 ) ( 2,019,491 ) Income of surrender ( 24,105 ) ( 29,773 ) Foreign currency exchange gains and

losses 34,516 4,571 Ending balance $ 6,860,410 $ 13,932,888


110

(B) Unearned premium reserve and deduction of unearned premium reserve fluctuation:

Insurance Contracts For the years ended December 31 2014 2013 Unearned premium reserve

Beginning balance $ 19,901 $ 16,588 Change in the period 36,576 19,901 Recovery ( 19,901 ) ( 16,588 ) Foreign currency exchange losses 4 - Ending balance $ 36,580 $ 19,901

Deduction of unearned premium reserve Beginning balance $ 535 $ 757 Change in the period ( 120 ) ( 222 ) Ending balance $ 415 $ 535

Deduction of unearned premium reserve was listed under “reinsurance contract assets-net”.

(C) Claim reserve fluctuation:

Insurance Contracts For the years ended December 31 2014 2013 Claim reserve

Beginning balance $ 9,750 $ 5,028 Change in the period 37,271 13,313 Recovery ( 31,713 ) ( 8,593 ) Foreign currency exchange losses - 2 Ending balance $ 15,308 $ 9,750

Deduction of claim reserve Beginning balance $ 3,263 $ 551 Change in the period ( 2,892 ) 2,712 Ending balance $ 371 $ 3,263

The reported but not yet paid insurance claims is processed by case by the claim segment, of which the committed insured amount is estimated based on the policy details. The reported but yet paid insurance claims, which is appropriately assessed, should be able to reflect the actual claim paid. Reserve for the claim unreported is calculated by the actuarial segment based on the methods for recognizing unreported claim reserve used by FALI. Deduction of claim reserve was listed under “reinsurance contract assets- net”.

2014 ANNUAL REPORT

111

(B) Unearned premium reserve and deduction of unearned premium reserve fluctuation:

Insurance Contracts For the years ended December 31 2014 2013 Unearned premium reserve

Beginning balance $ 19,901 $ 16,588 Change in the period 36,576 19,901 Recovery ( 19,901 ) ( 16,588 ) Foreign currency exchange losses 4 - Ending balance $ 36,580 $ 19,901

Deduction of unearned premium reserve Beginning balance $ 535 $ 757 Change in the period ( 120 ) ( 222 ) Ending balance $ 415 $ 535

Deduction of unearned premium reserve was listed under “reinsurance contract assets-net”.

(C) Claim reserve fluctuation:

Insurance Contracts For the years ended December 31 2014 2013 Claim reserve

Beginning balance $ 9,750 $ 5,028 Change in the period 37,271 13,313 Recovery ( 31,713 ) ( 8,593 ) Foreign currency exchange losses - 2 Ending balance $ 15,308 $ 9,750

Deduction of claim reserve Beginning balance $ 3,263 $ 551 Change in the period ( 2,892 ) 2,712 Ending balance $ 371 $ 3,263

The reported but not yet paid insurance claims is processed by case by the claim segment, of which the committed insured amount is estimated based on the policy details. The reported but yet paid insurance claims, which is appropriately assessed, should be able to reflect the actual claim paid. Reserve for the claim unreported is calculated by the actuarial segment based on the methods for recognizing unreported claim reserve used by FALI. Deduction of claim reserve was listed under “reinsurance contract assets- net”.

(D) Reserves for premium insufficiency fluctuation:

Insurance Contracts For the years ended December 31 2014 2013 Reserve for premium insufficiency

Beginning balance $ 9,585 $ 94,386 Change in the period ( 2,175 ) ( 84,801 ) Foreign currency exchange losses 246 - Ending balance $ 7,656 $ 9,585

C. Reserves for foreign exchange price (shown under other reserves) fluctuation:

For the years ended December 31 2014 2013 Beginning balance $ 4,440 $ - Withdrawal in current period

Compulsory deposits 1,859 1,125 Additional deposits 31,983 19,687 Subtotal 33,842 20,812

Recovered cash ( 15,254 ) ( 16,372 ) Ending balance $ 23,028 $ 4,440

D. Liability reserve for employee benefit of actuarial value was as follows:


Consolidated balance sheet: Defined benefit plans $ 4,288,267 $ 4,452,915 Preferential saving plan for employees 716,177 704,315

Total $ 5,004,444 $ 5,157,230

(A) Defined contribution plans

Effective from July 1, 2005, the First Group established a funded defined contribution plan pursuant to the Labor Pension Act, which covers the employees with R.O.C. nationality and those who choose to or are required to follow the Labor Pension Act. The contributions are made monthly based on not less than 6% of the employees’ monthly salaries and are deposited in the employee’s individual pension fund account at the Bureau of Labor Insurance. The payment of pension benefits is based on the employee’s individual pension fund accounts and the cumulative profit in such accounts, and the employees can choose to receive such pension benefits monthly or in lump sum. For the years ended December 31, 2014 and 2013, the pension costs of the First Group under the defined contribution plan were $181,417 and $169,370, respectively. For employees working overseas, pension expenses under defined contribution plans are recognized according to the local regulations. For the years ended December 31, 2014 and 2013, pension expenses of current period were $16,382 and $15,270, respectively.


112

(B) Defined benefit plans

The First Group has a defined benefit pension plan set up in accordance with the Labor Standards Law of the R.O.C., covering all regular employees for their services prior to the implementation of the Labor Pension Act on July 1, 2005 and those employees who choose continuously to be applicable to the Labor Standards Law for the services after the implementation of the Labor Pension Act. The payment of pension benefits is based on the length of the service period and average monthly compensation in the last six months prior to retirement. Under the defined benefit plan, employees are granted two points for each year of service for the first 15 years and are granted one point for each additional year of service from the 16th year, but are subject to a maximum of 45 points. Monthly contributions made by the First Group to the pension fund that are deposited in the designated pension account at the Bank of Taiwan were based on 10% of the total monthly salaries and wages. The net pension costs under defined contribution pension plans of the first group for the third quarter of 2014 and 2013, as well as the years ended December 31, 2014 and 2013 were $415,003 and $422,162, respectively.

a. The amounts recognised in the balance sheet are determined as follows:

December 31, 2014 December 31, 2013 Present value of funded obligations $ 10,603,240 $ 10,499,220 Fair value of plan assets ( 6,315,144 ) ( 6,054,807 ) Deficit in the plan $ 4,288,096 $ 4,444,413 Unrecognised past service cost $ 171 $ 8,502 Net liability in the balance sheet $ 4,288,267 $ 4,452,915

b. Changes in present value of funded obligations are as follows:

2014 2013 Present value of funded obligations At January 1 $ 10,499,221 $ 10,536,093 Current service cost 341,209 355,517 Interest cost 181,478 155,591 Actuarial profit and loss 23,377 ( 89,819 ) Benefits paid ( 442,045 ) ( 458,162 ) At December 31 $ 10,603,240 $ 10,499,220

c. Changes in fair value of plan assets are as follows:

2014 2013 Fair value of plan assets At January 1 $ 6,054,807 $ 5,876,227 Expected return on plan assets 108,186 89,655 Actuarial profit and loss 35,640 ( 13,958 ) Employer contributions 559,402 561,045 Benefits paid ( 442,891 ) ( 458,162 ) At December 31 $ 6,315,144 $ 6,054,807

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(B) Defined benefit plans

The First Group has a defined benefit pension plan set up in accordance with the Labor Standards Law of the R.O.C., covering all regular employees for their services prior to the implementation of the Labor Pension Act on July 1, 2005 and those employees who choose continuously to be applicable to the Labor Standards Law for the services after the implementation of the Labor Pension Act. The payment of pension benefits is based on the length of the service period and average monthly compensation in the last six months prior to retirement. Under the defined benefit plan, employees are granted two points for each year of service for the first 15 years and are granted one point for each additional year of service from the 16th year, but are subject to a maximum of 45 points. Monthly contributions made by the First Group to the pension fund that are deposited in the designated pension account at the Bank of Taiwan were based on 10% of the total monthly salaries and wages. The net pension costs under defined contribution pension plans of the first group for the third quarter of 2014 and 2013, as well as the years ended December 31, 2014 and 2013 were $415,003 and $422,162, respectively.

a. The amounts recognised in the balance sheet are determined as follows:

December 31, 2014 December 31, 2013 Present value of funded obligations $ 10,603,240 $ 10,499,220 Fair value of plan assets ( 6,315,144 ) ( 6,054,807 ) Deficit in the plan $ 4,288,096 $ 4,444,413 Unrecognised past service cost $ 171 $ 8,502 Net liability in the balance sheet $ 4,288,267 $ 4,452,915


2014 2013 Present value of funded obligations At January 1 $ 10,499,221 $ 10,536,093 Current service cost 341,209 355,517 Interest cost 181,478 155,591 Actuarial profit and loss 23,377 ( 89,819 ) Benefits paid ( 442,045 ) ( 458,162 ) At December 31 $ 10,603,240 $ 10,499,220


2014 2013 Fair value of plan assets At January 1 $ 6,054,807 $ 5,876,227 Expected return on plan assets 108,186 89,655 Actuarial profit and loss 35,640 ( 13,958 ) Employer contributions 559,402 561,045 Benefits paid ( 442,891 ) ( 458,162 ) At December 31 $ 6,315,144 $ 6,054,807

d. Amounts of expenses recognised in comprehensive income statements are as follows:

2014 2013 Current service cost $ 341,210 $ 355,517 Interest cost 181,478 155,591 Expected return on plan assets ( 108,507 ) ( 89,655 ) Current pension costs $ 414,181 $ 421,453

e. Amounts recognised under other comprehensive income are as follows:

2014 2013 Recognition for current period ( $ 12,263 ) ( $ 75,861 ) Accumulated amount $ 124,585 $ 136,848

f. The Bank of Taiwan was commissioned to manage the Fund of the Company’s and domestic subsidiaries’ defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, afeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. The constitution of fair value of plan assets as of December 31, 2014 and 2013 is given in the Annual Labor Retirement Fund Utilisation Report published by the government. Expected return on plan assets was a projection of overall return for the obligations period, which was estimated based on historical returns and by reference to the status of Labor Retirement Fund utilisation by the Labor Pension Fund Supervisory Committee and taking into account the effect that the Fund’s minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. The actual return on plan assets for the years ended December 31, 2014 and 2013 was $143,826 and $75,697, respectively.

g. The principal actuarial assumptions used were as follows:

2014 2013 Discount rate 1.30%~2.05% 1.60%~2.00% Future salary increases 1.50%~2.00% 1.50%~2.00% Expected return on plan assets 1.30%~2.05% 1.60%~2.00% Future death rate 4th~5th 4th~5th Assumption on future death rate is based on the historical life chart by the Taiwan life insurance enterprises.


114

h. Historical information of experience adjustments was as follows:

2014 2013 2012 Present value of defined benefit obligations $ 10,603,240 $ 10,499,220 $ 10,536,093

Fair value of plan assets ( 6,315,144 ) ( 6,054,807 ) ( 5,876,227 ) Deficit in the plan $ 4,288,096 $ 4,444,413 $ 4,659,866 Experience adjustments on plan liabilities $ 55,565 $ 202,182 $ 64,754

Experience adjustments on plan assets $ 35,640 ( $ 13,958 ) ( $ 35,926 )

i. Expected contributions to the defined benefit pension plans of the Group within one year from December 31, 2014 amounts to $510,173.

(C) Employee preferential savings plan

The subsidiary, FCB, complies with the internal policy and the allotment savings after retirement for retired and current employees which is subject to a limit of NT$480,000 with 13% interest rate. Under the employee preferential savings plan, the Group recognized pension cost of $364,548 and $335,761 for the years ended December 31, 2014 and 2013, respectively. Please see Note 4(22)2 for details.

a. As of December 31, 2014 and 2013, net liability in the balance sheet was $716,177 and $704,315, respectively.


2014 2013 Present value of funded obligations At January 1 $ 704,315 $ 708,976 Interest cost 26,310 26,519 Actuarial profit and loss 191,724 172,239 Benefits paid ( 206,172 ) ( 203,419 ) At December 31 $ 716,177 $ 704,315


2014 2013 Employer contributions $ 206,172 $ 203,419 Benefits paid ( 206,172 ) ( 203,419 ) Fair value of plan assets At December 31 $ - $ -


2014 2013 Interest cost $ 26,310 $ 26,519 Expected return on plan assets 191,724 172,239 Current pension costs $ 218,034 $ 198,758

e. For the years ended December 31, 2014 and 2013, there are no actuarial loss, recognized in other comprehensive income.

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h. Historical information of experience adjustments was as follows:

2014 2013 2012 Present value of defined benefit obligations $ 10,603,240 $ 10,499,220 $ 10,536,093

Fair value of plan assets ( 6,315,144 ) ( 6,054,807 ) ( 5,876,227 ) Deficit in the plan $ 4,288,096 $ 4,444,413 $ 4,659,866 Experience adjustments on plan liabilities $ 55,565 $ 202,182 $ 64,754

Experience adjustments on plan assets $ 35,640 ( $ 13,958 ) ( $ 35,926 )

i. Expected contributions to the defined benefit pension plans of the Group within one year from December 31, 2014 amounts to $510,173.

(C) Employee preferential savings plan

The subsidiary, FCB, complies with the internal policy and the allotment savings after retirement for retired and current employees which is subject to a limit of NT$480,000 with 13% interest rate. Under the employee preferential savings plan, the Group recognized pension cost of $364,548 and $335,761 for the years ended December 31, 2014 and 2013, respectively. Please see Note 4(22)2 for details.

a. As of December 31, 2014 and 2013, net liability in the balance sheet was $716,177 and $704,315, respectively.


2014 2013 Present value of funded obligations At January 1 $ 704,315 $ 708,976 Interest cost 26,310 26,519 Actuarial profit and loss 191,724 172,239 Benefits paid ( 206,172 ) ( 203,419 ) At December 31 $ 716,177 $ 704,315


2014 2013 Employer contributions $ 206,172 $ 203,419 Benefits paid ( 206,172 ) ( 203,419 ) Fair value of plan assets At December 31 $ - $ -


2014 2013 Interest cost $ 26,310 $ 26,519 Expected return on plan assets 191,724 172,239 Current pension costs $ 218,034 $ 198,758

e. For the years ended December 31, 2014 and 2013, there are no actuarial loss, recognized in other comprehensive income.

f. The actuarial assumptions of employee preferential savings plan are as follows:

2014 2013 Discount rate 4.00% 4.00% Return on capital deposited 2.00% 2.00% Annual decreasing ratio of account

balance 1.00% 1.00% Variable ratio of preferential savings

program 50.00% 50.00% Assumption on future death rate is based on the 4th historical life chart by the Taiwan

life insurance enterprises.

g. Historical information of experience adjustments was as follows:

2014 2013 2012 Present value of defined

benefit obligations $ 716,177 $ 704,315 $ 708,976 Fair value of plan assets - - - Deficit in the plan $ 716,177 $ 704,315 $ 708,976

h. Expected contributions to the defined benefit pension plans of the subsidiary, FCB within one year from December 31, 2014 amounts to $95,392.

E. Movements in reserve for guarantees were as follows:

For the years ended December 31 2014 2013 Beginning balance $ 558,614 $ 553,478 Reversal of provision 240,000 6,118 Foreign exchange and other movements ( 3,238 ) ( 982 ) Ending balance $ 795,376 $ 558,614

(25) Other financial liabilities


Received principal of structured notes $ 43,534,601 $ 52,680,145 Separate account product liabilities–sinking reserve

for investment-linked insurance 22,032,258 13,325,009 Others 672,949 712,710 Total $ 66,239,808 $ 66,717,864

(26) Other liabilities


Deposits received $ 2,111,005 $ 1,898,769 Collections in advance 1,791,262 1,324,719 Others 448,142 423,604 Total $ 4,350,409 $ 3,647,092


116

(27) Equity

A. Common stock

(A) As of December 31, 2014, the Company’s authorized capital and paid-in capital were $100,000,000 and $ 92,592,548, respectively, consisting of 9,259,255 thousand shares of common stock outstanding with a par value of $10 (in dollars) per share. After the consent of the Board of Directors on April 24, 2014, the stockholders at their stockholders’ meeting on June 20, 2014 adopted a resolution to capitalize unappropriated earnings amounting to $6,057,456 with the effective date set on August 9, 2014. The capital increase was approved by Explanatory Letter Jin-Guan-Jen-Fa No. 1030025141 of the FSC. After the capital was increased, the Company’s authorized capital and paid-in capital amounted to $100,000,000 and $92,592,548, respectively, consisting of 9,259,255 thousand shares of common stock outstanding with a par value of $10 (in dollars) per share.

(B) Capital surplus

As required by the Companies Act, additional paid-in capital resulting from the amount received in excess of par value of the issuance of capital stock and donated income may not only be used to offset the accumulated losses but also to issue new shares or distribute cash dividends in proportion to the number of shares being held by original shareholders. In addition, according to the Securities and Exchange Act, the additional paid-in capital used for capital increase shall not exceed 10% of total issued capital stock. A company should not use the capital surplus to cover its capital loss, unless the surplus reserve is insufficient.

(C) Legal reserve and special reserve

a. Legal reserve

According to the Company Law of the R.O.C., legal reserve can be used only to recover accumulated deficits or to increase capital stock and shall not be used for any other purposes. However, it is permitted that the legal reserve be used to increase capital stock if the balance of the legal reserve has reached twenty five percent of the issued capital stock, and only half of the legal reserve can be capitalized.

b. Special reserve

Upon the first-time adoption of IFRSs, Jin-Guan-Zheng-Fa Letter No. 1010012865 dated April 6, 2012 requires the Company to reverse special earnings reserve in the proportion of the original recognition when the Company subsequently uses, disposes or reclassifies related assets. If the above related assets belong to investment properties, reversal of land is made when being disposed or reclassified and others are reversed during the periods of being used. In addition, the “trading loss reserve” and “default loss reserve” have been abolished in “Regulations Governing Securities Firms”. The “trading loss reserve” and “default loss reserve” set aside before the end of December 2010 should be transferred to “special earnings reserve” according to Jin-Guan-Zeng-Chung Letter No. 0990073857 dated November 11, 2011. Moreover, the additional special reserve should be transferred to “special earnings reserve” by the net of tax after the annual closing. On the other hand, if the special reserve is insufficient to write-off or to recover the amount that could be written-off or recovered, the insufficiency may be recovered or written-off through the “special earnings reserve”.

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(27) Equity

A. Common stock

(A) As of December 31, 2014, the Company’s authorized capital and paid-in capital were $100,000,000 and $ 92,592,548, respectively, consisting of 9,259,255 thousand shares of common stock outstanding with a par value of $10 (in dollars) per share. After the consent of the Board of Directors on April 24, 2014, the stockholders at their stockholders’ meeting on June 20, 2014 adopted a resolution to capitalize unappropriated earnings amounting to $6,057,456 with the effective date set on August 9, 2014. The capital increase was approved by Explanatory Letter Jin-Guan-Jen-Fa No. 1030025141 of the FSC. After the capital was increased, the Company’s authorized capital and paid-in capital amounted to $100,000,000 and $92,592,548, respectively, consisting of 9,259,255 thousand shares of common stock outstanding with a par value of $10 (in dollars) per share.

(B) Capital surplus

As required by the Companies Act, additional paid-in capital resulting from the amount received in excess of par value of the issuance of capital stock and donated income may not only be used to offset the accumulated losses but also to issue new shares or distribute cash dividends in proportion to the number of shares being held by original shareholders. In addition, according to the Securities and Exchange Act, the additional paid-in capital used for capital increase shall not exceed 10% of total issued capital stock. A company should not use the capital surplus to cover its capital loss, unless the surplus reserve is insufficient.

(C) Legal reserve and special reserve

a. Legal reserve

According to the Company Law of the R.O.C., legal reserve can be used only to recover accumulated deficits or to increase capital stock and shall not be used for any other purposes. However, it is permitted that the legal reserve be used to increase capital stock if the balance of the legal reserve has reached twenty five percent of the issued capital stock, and only half of the legal reserve can be capitalized.

b. Special reserve

Upon the first-time adoption of IFRSs, Jin-Guan-Zheng-Fa Letter No. 1010012865 dated April 6, 2012 requires the Company to reverse special earnings reserve in the proportion of the original recognition when the Company subsequently uses, disposes or reclassifies related assets. If the above related assets belong to investment properties, reversal of land is made when being disposed or reclassified and others are reversed during the periods of being used. In addition, the “trading loss reserve” and “default loss reserve” have been abolished in “Regulations Governing Securities Firms”. The “trading loss reserve” and “default loss reserve” set aside before the end of December 2010 should be transferred to “special earnings reserve” according to Jin-Guan-Zeng-Chung Letter No. 0990073857 dated November 11, 2011. Moreover, the additional special reserve should be transferred to “special earnings reserve” by the net of tax after the annual closing. On the other hand, if the special reserve is insufficient to write-off or to recover the amount that could be written-off or recovered, the insufficiency may be recovered or written-off through the “special earnings reserve”.

The special earnings reserve can only be used in offsetting an entity’s deficit or 50% of such reserve can be transferred to capital given that such reserve is equivalent to 50% of the paid-in capital or more. No other purpose is permitted.

(28) Unappropriated earnings

A. Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be used to pay all taxes and offset prior years’ operating losses and then set aside legal reserve and special reserve in accordance with regulations and actual business needs. The remainder, if any, is then distributed as follows: (1)0.02% to 0.16% as bonuses to employees, (2) not more than 1% as remuneration to directors and supervisors, and (3) the remaining earnings plus prior year’s accumulated unappropriated earnings as the distributable amount for stock dividends and bonus. Then 30% to 100% of the distributable amount shall be proposed as a distribution plan by the Board of Directors and then submitted to the stockholders’ meeting for approval. The distribution of employee stock bonus includes employees of affiliated companies. Rules governing the distribution of employee stock bonus are set by the Board of Directors separately. Cash dividends and stock dividends are distributed according to the Company’s operational planning. However, cash dividends shall account for at least 10% of the total stock dividends and bonus distributed and the remaining will be accounted for as stock dividends. In case cash dividend per share is less than $0.1, cash dividends and stock dividends are not distributed unless otherwise resolved by the stockholders at their stockholders’ meeting.

B. The appropriation of 2013 and 2012 earnings were resolved by the stockholders at the stockholders’ meeting dated June 20, 2014 and June 21, 2013, respectively. Relevant information is as follows: 2013 2012 Earnings

distribution Dividend per

share (NT dollar) Earnings

distribution Dividend per

share (NT dollar) Legal reserve $ 1,088,864 $ - $ 1,017,384 $ - Cash dividends on common stock 4,326,754 0.50 3,656,412 0.45 Stock dividends on common stock (including stock dividends from capital surplus) 6,057,456 0.70 5,281,485 0.65 $ 11,473,074 $ 1.20 $ 9,955,281 $ 1.10

C. The Company estimated employees’ bonus and supervisors’ and directors’ remunerations amounting to $133,081 and $103,973 were recognized as operating expense for the years ended December 31, 2014 and 2013, respectively. After taking into account the legal reserve and other factors, the amount was arrived at by multiplying the net income after tax with the percentage stipulated in the Articles of Incorporation of the Company.

D. The Board meeting of 2014 and 2013 resolved that the actual amounts distributed as employees’ bonus and directors’ and supervisors’ remuneration for 2013 and 2012 to be $102,241 and $95,960, which reduced by $1,732 and $806 the amounts recognised in the 2013 financial statements. The amount represents difference in estimation, which should be recognised based on the accounting for changes in estimates and adjusted in the 2014 statement of comprehensive income upon stockholders’ resolution for distribution. Information on the appropriation of the Company’s earnings as resolved by the Board of Directors will be posted on the Market Observation Post System website of the Taiwan Stock Exchange.


118

(29) Other equity interest

Exchange difference on translation of foreign financial

statements

Unrealized gain or loss on

available-for-sale financial assets Total

Balance, January 1, 2014 ( $ 220,040 ) $ 4,371,853 $ 4,151,813 Available-for-sale financial assets

- Valuation adjustment - 721,293 721,293 Exchange difference on the

financial statements of foreign entities 2,579,511 - 2,579,511

Share of the profit or loss of associates accounted for using the equity method 146,337 - 146,337

Balance, December 31, 2014 $ 2,505,808 $ 5,093,146 $ 7,598,954


statements



Balance, January 1, 2013 ( $ 1,002,850 ) $ 3,864,098 $ 2,861,248 Available-for-sale financial assets


financial statements of foreign entities 695,783 - 695,783


Balance, December 31, 2013 ( $ 220,040 ) $ 4,371,853 $ 4,151,813

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(29) Other equity interest


statements



Balance, January 1, 2014 ( $ 220,040 ) $ 4,371,853 $ 4,151,813 Available-for-sale financial assets


financial statements of foreign entities 2,579,511 - 2,579,511


Balance, December 31, 2014 $ 2,505,808 $ 5,093,146 $ 7,598,954


statements



Balance, January 1, 2013 ( $ 1,002,850 ) $ 3,864,098 $ 2,861,248 Available-for-sale financial assets


financial statements of foreign entities 695,783 - 695,783


Balance, December 31, 2013 ( $ 220,040 ) $ 4,371,853 $ 4,151,813

(30) Net interest income

2014 2013 Interest income Interest income on loans discounted $ 33,383,642 $ 31,477,285 Interest income on deposits and call loans 4,072,259 1,510,743 Interest income on securities investment 4,507,759 4,266,358 Revolving interest income on credit cards 204,107 208,935 Interest income on margin trading and short selling 345,144 282,512

Interest income on repo trade 68,128 62,200 Other interest income 298,221 323,727 Subtotal 42,879,260 38,131,760 Interest expense Interest expense for deposits ( 11,824,538 ) ( 10,060,616 ) Interest expense for deposits of Central Banks and others ( 1,497,478 ) ( 920,275 )

Coupon payment on financial bonds ( 655,641 ) ( 702,194 ) Coupon payment on corporate bonds ( 144,500 ) ( 144,500 ) Interest expense of bonds payable under repurchase agreements ( 132,023 ) ( 75,608 )

Interest expense on structured notes ( 243,418 ) ( 215,919 ) Other interest expense ( 104,068 ) ( 80,216 ) Subtotal ( 14,601,666 ) ( 12,199,328 ) Total $ 28,277,594 $ 25,932,432


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(31) Net service fee and commission income

2014 2013 Service fee income Trust business $ 1,716,082 $ 1,536,729 Custodian business 468,897 454,166 Insurance agency 1,783,184 1,223,418 Foreign exchange 971,346 959,596 Credit extension 982,922 945,244 Credit card 715,181 625,397 Brokerage 873,861 739,996 Management fee and sales income 514,399 486,181 Other service fee income on deposits and

remittances 861,506 965,781 Subtotal 8,887,378 7,936,508 Service fee expense Trust business ( 113,780 ) ( 119,644 ) Custodian business ( 100,935 ) ( 103,642 ) Insurance agency ( 331,993 ) ( 250,476 ) Foreign exchange ( 24,491 ) ( 24,867 ) Credit extension ( 54,343 ) ( 49,886 ) Credit card ( 329,509 ) ( 271,896 ) Brokerage ( 70,753 ) ( 57,190 ) Other service fee expense on deposits and

remittances ( 434,056 ) ( 427,023 ) Subtotal ( 1,459,860 ) ( 1,304,624 ) Total $ 7,427,518 $ 6,631,884

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(31) Net service fee and commission income

2014 2013 Service fee income Trust business $ 1,716,082 $ 1,536,729 Custodian business 468,897 454,166 Insurance agency 1,783,184 1,223,418 Foreign exchange 971,346 959,596 Credit extension 982,922 945,244 Credit card 715,181 625,397 Brokerage 873,861 739,996 Management fee and sales income 514,399 486,181 Other service fee income on deposits and

remittances 861,506 965,781 Subtotal 8,887,378 7,936,508 Service fee expense Trust business ( 113,780 ) ( 119,644 ) Custodian business ( 100,935 ) ( 103,642 ) Insurance agency ( 331,993 ) ( 250,476 ) Foreign exchange ( 24,491 ) ( 24,867 ) Credit extension ( 54,343 ) ( 49,886 ) Credit card ( 329,509 ) ( 271,896 ) Brokerage ( 70,753 ) ( 57,190 ) Other service fee expense on deposits and

remittances ( 434,056 ) ( 427,023 ) Subtotal ( 1,459,860 ) ( 1,304,624 ) Total $ 7,427,518 $ 6,631,884

(32) Net income and expenses from insurance operations

2014 2013 Income on insurance business Direct premium $ 2,098,592 $ 2,717,017 Reinsurance premium expense ( 19,945 ) ( 13,119 ) Net change in unearned premium reserve ( 16,795 ) ( 3,535 ) Self-retained matured premium income 2,061,852 2,700,363 Expenditure on insurance stabilization fund 12,370,000 7,215,393 Subtotal 14,431,852 9,915,756 Expense on insurance business Policy claims and payment ( 8,595,202 ) ( 2,017,626 ) Claims recovered from reinsurers 3,314 8,199 Self-retained claims and payment ( 8,591,888 ) ( 2,009,427 ) Underwriting expenses ( 314 ) ( 194 ) Expense on insurance stabilization fund ( 2,318 ) ( 2,717 ) Invested insurance goods income ( 12,370,000 ) ( 7,215,393 ) Subtotal ( 20,964,520 ) ( 9,227,731 ) Total ( $ 6,532,668 ) $ 688,025


122

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

2014 2013 Gain and loss from disposal of financial assets at

fair value through profit or loss Short-term bills ( $ 51,749 ) ( $ 17,289 ) Bonds 65,845 ( 34,725 ) Stocks 62,785 98,715 Beneficiary certificates 4,444 11,806 Interest rate ( 146,056 ) 317,102 Exchange rate 732,950 811,120 Options ( 31,660 ) 294,956 Futures ( 92,318 ) ( 29,285 ) Others 34 3,463 Other securities ( 856 ) ( 611 ) Subtotal 543,419 1,455,252 Evaluation gain and loss on financial assets at

fair value through profit or loss Short-term bills ( 7 ) ( 2,868 ) Bonds 276,972 199,540 Stocks ( 26,452 ) 103,428 Beneficiary certificates ( 4,564 ) 263 Interest rate ( 98,626 ) ( 489,548 ) Exchange rate 66,639 ( 422,251 ) Options ( 2,299 ) ( 13,592 ) Futures 7,413 ( 4,805 ) Others ( 131 ) ( 767 ) Other securities 86 ( 15 ) Subtotal 219,031 ( 630,615 ) Interest income on financial assets at fair value

through profit or loss 868,750 350,963 Interest expense on financial liabilities at fair

value through profit or loss ( 328,667 ) ( 342,144 ) Coupon payment and bonus income on financial

assets at fair value through profit or loss 70,201 25,324 Total $ 1,372,734 $ 858,780 Net income on exchange rate instruments are realized and unrealized gain and loss on spot and forward exchange contracts, FX options and FX futures. Financial assets and liabilities denominated in foreign currencies that are not designed for hedging and are measured at fair value through profit and loss, the translation gains and losses are also included under the net income of exchange rate instruments.

Interest-linked instruments include interest rate swaps, money market instruments, interest-linked options and other interest related instruments.

When the First Group designates a financial instrument to be measured at fair value through profit and loss, any change in fair value of the derivative managed with the financial instrument is recognized in “gain and loss on financial assets and liabilities at fair value through profit and loss”.

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

2014 2013 Gain and loss from disposal of financial assets at

fair value through profit or loss Short-term bills ( $ 51,749 ) ( $ 17,289 ) Bonds 65,845 ( 34,725 ) Stocks 62,785 98,715 Beneficiary certificates 4,444 11,806 Interest rate ( 146,056 ) 317,102 Exchange rate 732,950 811,120 Options ( 31,660 ) 294,956 Futures ( 92,318 ) ( 29,285 ) Others 34 3,463 Other securities ( 856 ) ( 611 ) Subtotal 543,419 1,455,252 Evaluation gain and loss on financial assets at

fair value through profit or loss Short-term bills ( 7 ) ( 2,868 ) Bonds 276,972 199,540 Stocks ( 26,452 ) 103,428 Beneficiary certificates ( 4,564 ) 263 Interest rate ( 98,626 ) ( 489,548 ) Exchange rate 66,639 ( 422,251 ) Options ( 2,299 ) ( 13,592 ) Futures 7,413 ( 4,805 ) Others ( 131 ) ( 767 ) Other securities 86 ( 15 ) Subtotal 219,031 ( 630,615 ) Interest income on financial assets at fair value

through profit or loss 868,750 350,963 Interest expense on financial liabilities at fair

value through profit or loss ( 328,667 ) ( 342,144 ) Coupon payment and bonus income on financial

assets at fair value through profit or loss 70,201 25,324 Total $ 1,372,734 $ 858,780 Net income on exchange rate instruments are realized and unrealized gain and loss on spot and forward exchange contracts, FX options and FX futures. Financial assets and liabilities denominated in foreign currencies that are not designed for hedging and are measured at fair value through profit and loss, the translation gains and losses are also included under the net income of exchange rate instruments.

Interest-linked instruments include interest rate swaps, money market instruments, interest-linked options and other interest related instruments.

When the First Group designates a financial instrument to be measured at fair value through profit and loss, any change in fair value of the derivative managed with the financial instrument is recognized in “gain and loss on financial assets and liabilities at fair value through profit and loss”.

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

2014 2013 Dividends income $ 454,380 $ 282,613 Gain on disposal Bonds 76,447 37,827 Securities 244,995 194,801

Beneficiary certificate 9,417 33,482 Subtotal 330,859 266,110 Loss on disposal Bonds ( 3,344 ) ( 53,417 )

Securities ( 356,214 ) ( 178,683 ) Beneficiary certificate ( 9,097 ) ( 1,795 ) Subtotal ( 368,655 ) ( 233,895 ) Total $ 416,584 $ 314,828

(35) Impairment losses of assets

2014 2013 Impairment loss of other financial assets $ 52,209 $ - Foreclosed collaterals and other ( 57,719 ) 3,046 ( $ 5,510 ) $ 3,046

(36) Net other non-interest income

2014 2013 Net gain (loss) on sale of foreclosed collaterals ( $ 5,789 ) ( $ 147 ) Income from sale of non-performing loans 295,895 202,979 Net income and losses from rent 191,047 143,146 Gain on disposal of property 2,266 ( 16,890 ) Loss on retired assets ( 2,255 ) ( 7,973 ) Net gain on financial assets carried at cost 293,491 446,141 Net change in provisions for foreign exchange price fluctuation ( 18,589 ) ( 4,440 )

Other net income and losses 156,474 ( 278,483 ) Total $ 912,540 $ 484,333

(37) Net change in provisions for insurance liabilities

2014 2013 Net change in claim reserve $ 8,450 $ 2,008 Net change in liabilities reserve ( 7,106,994 ) 479,871 Net change in insufficient premium reserve ( 2,175 ) ( 84,801 ) Total ( $ 7,100,719 ) $ 397,078


124

(38) Employee benefit expense

2014 2013 Short-term employee benefit $ 11,980,706 $ 1,135,048 Post-employment benefit 608,257 591,690 Termination benefit 974,633 948,712 Other employee benefit 212,686 194,569 Total $ 13,776,282 $ 12,870,019

The calculation for the employee benefit expense is based on the number of employee of 9,031

and 8,901 for the years of 2014 and 2013, repectively.

(39) Depreciation and amortization

2014 2013 Depreciation $ 751,380 $ 715,353 Amortization 219,802 165,358 Total $ 971,182 $ 880,711

(40) Business and administrative expenses

2014 2013 Taxes $ 1,783,151 $ 1,110,507 Rental 1,043,779 1,008,346 Insurance premium 626,823 612,493 Post and electricity 290,802 282,730 Water, electricity and gas 205,089 200,785 Stationery 127,439 126,101 Maintenance 231,699 233,134 Others 1,732,883 1,648,668 Total $ 6,041,665 $ 5,222,764

(41) Income tax

A. Income tax expense

(A)

2014 2013 Current tax

Current tax expense $ 2,082,277 $ 2,162,247 Income tax of overseas branches and

adjustments for over provisions of prior years’ income tax expense 344,236 15,769

Total current tax 2,426,513 2,178,016 Origination and reversal of temporary

differences ( 21,114 ) ( 5,836 ) Income tax expense $ 2,405,399 $ 2,172,180

2014 ANNUAL REPORT

125

(38) Employee benefit expense

2014 2013 Short-term employee benefit $ 11,980,706 $ 1,135,048 Post-employment benefit 608,257 591,690 Termination benefit 974,633 948,712 Other employee benefit 212,686 194,569 Total $ 13,776,282 $ 12,870,019

The calculation for the employee benefit expense is based on the number of employee of 9,031

and 8,901 for the years of 2014 and 2013, repectively.

(39) Depreciation and amortization

2014 2013 Depreciation $ 751,380 $ 715,353 Amortization 219,802 165,358 Total $ 971,182 $ 880,711

(40) Business and administrative expenses

2014 2013 Taxes $ 1,783,151 $ 1,110,507 Rental 1,043,779 1,008,346 Insurance premium 626,823 612,493 Post and electricity 290,802 282,730 Water, electricity and gas 205,089 200,785 Stationery 127,439 126,101 Maintenance 231,699 233,134 Others 1,732,883 1,648,668 Total $ 6,041,665 $ 5,222,764

(41) Income tax

A. Income tax expense

(A)

2014 2013 Current tax Current tax expense $ 2,082,277 $ 2,162,247 Income tax of overseas branches and

adjustments for over provisions of prior years’ income tax expense 344,236 15,769

Total current tax 2,426,513 2,178,016 Origination and reversal of temporary

differences ( 21,114 ) ( 5,836 ) Income tax expense $ 2,405,399 $ 2,172,180

(B)The tax under other comprehensive income:

2014 2013 Changes in fair value of available-for-

sale financial assets ( $ 5,150 ) $17,511 Actuarial gain of funded obligations ( 2,085 ) ( 12,897 )

B. Details of reconciliation between income tax expense and accounting profit

2014 2013 Income tax from pretax income calculated at

regulated tax rate $ 2,802,118 $ 2,322,342 Adjustments of items not recognized under

relevant regulations ( 34,153 ) ( 43,557 ) Income tax of overseas branches and

adjustments for over provisions of prior years’ income tax expense 344,236 ( 88,217 )

Adjusted effects on income tax exemption and other income tax ( 706,802 ) ( 18,388 )

Income tax expense $ 2,405,399 $ 2,172,180


126

C. Amounts of deferred tax assets or liabilities as a result of temporary difference, loss carryforward and investment tax credit are as follows:

2014

January 1

Recognised in profit or loss

Recognised in other

comprehensive income December 31

Deferred tax assets:

Temporary differences

The excess of allowance for doubtful accounts

$ 493,152 $ 225,491 $ - $ 718,643

Impairment loss of foreclosed assets

21,626 ( 1,385 ) - 20,241

Unappropriated employee benefit liabilities reserve

777,793 ( 26,714 ) ( 2,085 ) 748,994

Others

351,377 ( 151,707 ) - 199,670 Loss carryforwards

21,749 ( 20,410 ) - 1,339

Subtotal $ 1,665,697 $ 25,275 ( $ 2,085 ) $ 1,688,887

Deferred tax liabilities:


Increment tax on land value

5,713,259 - - 5,713,259 Unrealized gain of

available-for-sale assets

4,662 - 5,150 9,812 Others

45,471 4,161 - 49,632

Subtotal $ 5,763,392 $ 4,161 $ 5,150 $ 5,772,703

Total ( $ 4,097,695 ) $ 21,114 ( $ 7,235 ) ( $ 4,083,816 )

2013

January 1


Recognised in other





$ 482,954 $ 10,198 $ - $ 493,152


21,626 - - 21,626


811,860 ( 21,749 ) ( 12,318 ) 777,793

Others

312,354 39,023 - 351,377 Loss carryforwards

26,438 ( 4,689 ) - 21,749

Subtotal $ 1,655,232 $ 22,783 ( $ 12,318 ) $ 1,665,697




5,713,259 - - 5,713,259

Unrealized gain of available -for-sale assets

22,173 - ( 17,511 ) 4,662

Others

27,945 16,947 579 45,471 Subtotal

$ 5,763,377 $ 16,947 ( $ 16,932 ) $ 5,763,392

Total ( $ 4,108,145 ) $ 5,836 $ 4,614 ( $ 4,097,695 )

2014 ANNUAL REPORT

127

C. Amounts of deferred tax assets or liabilities as a result of temporary difference, loss carryforward and investment tax credit are as follows:

2014

January 1


Recognised in other





$ 493,152 $ 225,491 $ - $ 718,643


21,626 ( 1,385 ) - 20,241


777,793 ( 26,714 ) ( 2,085 ) 748,994

Others

351,377 ( 151,707 ) - 199,670 Loss carryforwards

21,749 ( 20,410 ) - 1,339

Subtotal $ 1,665,697 $ 25,275 ( $ 2,085 ) $ 1,688,887




5,713,259 - - 5,713,259 Unrealized gain of

available-for-sale assets

4,662 - 5,150 9,812 Others

45,471 4,161 - 49,632

Subtotal $ 5,763,392 $ 4,161 $ 5,150 $ 5,772,703

Total ( $ 4,097,695 ) $ 21,114 ( $ 7,235 ) ( $ 4,083,816 )

2013

January 1


Recognised in other





$ 482,954 $ 10,198 $ - $ 493,152


21,626 - - 21,626


811,860 ( 21,749 ) ( 12,318 ) 777,793

Others

312,354 39,023 - 351,377 Loss carryforwards

26,438 ( 4,689 ) - 21,749

Subtotal $ 1,655,232 $ 22,783 ( $ 12,318 ) $ 1,665,697




5,713,259 - - 5,713,259

Unrealized gain of available -for-sale assets

22,173 - ( 17,511 ) 4,662

Others

27,945 16,947 579 45,471 Subtotal

$ 5,763,377 $ 16,947 ( $ 16,932 ) $ 5,763,392

Total ( $ 4,108,145 ) $ 5,836 $ 4,614 ( $ 4,097,695 )

D. Expiration dates of unused net operating loss carryfoward and amounts of unrecognised deferred tax assets are as follows:

December 31, 2014

Year incurred

Amount filed/ assessed

Unused amount

Unrecognised deferred tax assets

Usable until year

2007 $ 122,530

$ 122,530

$ 122,530

2017

2008

629,211

629,211

629,211

2018 2009

258,853

258,853

258,853

2019

2010

139,289

139,289

139,289

2020 2011

204,350

204,350

204,350

2021

2012

161,036

161,036

161,036

2022 2013

89,816

89,816

89,816

2023

December 31, 2013

Year incurred Amount filed/

assessed Unused amount Unrecognised

deferred tax assets Usable until year 2004 $ 4,513

$ 4,513

$ 4,513

2014

2007

122,530

122,530

122,530

2017 2008

629,211

629,211

629,211

2018

2009

258,853

258,853

258,853

2019 2010

167,677

140,092

139,289

2020

2011

204,350

204,350

204,350

2021 2012

288,168

288,168

161,036

2022

2013 (Note)

100,982

100,982

100,982

2023

Note: The amount is an estimation on financial statements.

E. The amounts of deductible temporary difference that are not recognised as deferred tax assets are as follows:

2014 2013 Deductible temporary differences $ - $ 5,568

F. As of December 31, 2014, information on the First Group’s income tax returns assessed by the Tax Authority were as follows:

(A) The Company’s income tax returns through 2009 have been assessed and approved by the Tax Authority. The Company has recognized the income tax expense relating to the additional income tax payable.

(B) FCB’s income tax returns through 2009 have been assessed and approved by the Tax Authority. However, FCB disagreed with the assessments related to “interest income increase from bond premium amortization” for income tax returns of 2007 , “allocation of Head Office’s management fees to Offshore Banking Unit” for income tax returns of 2008 and “Recognition of revenue from overseas branches and investment tax credit for personnel training” in 2009, and had filed for reexamination for income tax returns (2007-2008) in accordance with the regulations. Besides, FCB disagreed with the assessments related to occurrence of “loss offset” for income tax returns of 2003, and had filed for administrative appeals in accordance with the regulations. On October 29, 2014, the Ministry of Finance decided to revoke the original ruling and remand the case to the original action agency for another proper action.


128

(C) The Tax Authority has assessed First Securities’ income tax returns for 2007 and requested First Securities to pay an overdue tax amounted to $30,986. The Company disagreed with the related revenue and expenses calculated based on amortisation of the tax exempted amount assessed by the National Taxation Bureau along with the taxable entertainment expense that exceed the limit for tax purpose and thus filed for reassessment in accordance with the Tax Collection Law Article 35. The administrative lawsuit for the 2007 income tax return is still on-going. First Securities has paid the overdue tax and recognised the amount based on conservatism principle. The Tax Authority has assessed First Securities’ income tax returns for 2009 and requested First Securities to pay an overdue tax amounted to $19,848. First Securities disagreed with the related revenue and expenses calculated based on amortisation of the tax exempted amount assessed by the National Taxation Bureau and thus filed for reassessment in accordance with the Tax Collection Law Article 35. The administrative lawsuit for the 2009 income tax return is still on-going. First Securities has recognised the amount based on conservatism principle.

(D) The Tax Authority has assessed income tax returns of FALI and FCMI through 2012 and 2013.

(E) The Tax Authority has assessed income tax returns of FSIT, FFAM, FVC, FFMC, and FPCIA through 2009.

(F) Income tax returns of FCBL and FIA through 2012 have been respectively assessed and approved by the Tax Authority.

G. The balance of unappropriated earnings were as follows:

As of December 31, 2014 and 2013, the balance of unappropriated earnings is generated on and after January 1, 1998.

H. As of December 31, 2014 and 2013, the balance of the imputation tax credit account was $1,180,440 and $708,509, respectively. The creditable tax rate was 12.60% for 2013 and is estimated to be 5.34% for 2014

2014 ANNUAL REPORT

129

(C) The Tax Authority has assessed First Securities’ income tax returns for 2007 and requested First Securities to pay an overdue tax amounted to $30,986. The Company disagreed with the related revenue and expenses calculated based on amortisation of the tax exempted amount assessed by the National Taxation Bureau along with the taxable entertainment expense that exceed the limit for tax purpose and thus filed for reassessment in accordance with the Tax Collection Law Article 35. The administrative lawsuit for the 2007 income tax return is still on-going. First Securities has paid the overdue tax and recognised the amount based on conservatism principle. The Tax Authority has assessed First Securities’ income tax returns for 2009 and requested First Securities to pay an overdue tax amounted to $19,848. First Securities disagreed with the related revenue and expenses calculated based on amortisation of the tax exempted amount assessed by the National Taxation Bureau and thus filed for reassessment in accordance with the Tax Collection Law Article 35. The administrative lawsuit for the 2009 income tax return is still on-going. First Securities has recognised the amount based on conservatism principle.

(D) The Tax Authority has assessed income tax returns of FALI and FCMI through 2012 and 2013.

(E) The Tax Authority has assessed income tax returns of FSIT, FFAM, FVC, FFMC, and FPCIA through 2009.

(F) Income tax returns of FCBL and FIA through 2012 have been respectively assessed and approved by the Tax Authority.

G. The balance of unappropriated earnings were as follows:

As of December 31, 2014 and 2013, the balance of unappropriated earnings is generated on and after January 1, 1998.

H. As of December 31, 2014 and 2013, the balance of the imputation tax credit account was $1,180,440 and $708,509, respectively. The creditable tax rate was 12.60% for 2013 and is estimated to be 5.34% for 2014

(42) Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares in issue during the period.

2014 2013 Gain and loss attributable to the common stock

of the First Group (in thousand dollars) $ 14,084,936 $ 10,888,641 Outstanding weighted average common stock (in

thousand of shares) 9,259,255 9,259,255 Earnings per share (in dollars) 1.52 1.18 Note: Effects on earnings transferred to capital increase in 2013 has been retrospectively adjusted.

Also, basic earnings per share and diluted earnings per share for the years ended December 31, 2014 and 2013 are the same.

7. Related party transactions

(1) Details of the related parties

Names of related parties Relationship with the Company Ministry of Finance, R.O.C. Director of Company Bank of Taiwan Director of Company Jin Yuan Investment Co.,Ltd Director of Company Global Investment Co.,Ltd Director of Company FCBL Capital International (B.V.I.) Co., Ltd Subsidiary of FCBL FCB International Leasing Co., Ltd Subsidiary of FCBL Capital International

(B.V.I.) Co., Ltd First Financial AMC Capital International (B.V.I) Ltd.

Subsidiary of First Financial AMC (“FFAMC”)

First Financial of Leasing(Chengda)Ltd. Subsidiary of FFAM Capital International (B.V.I.) Co., Ltd

East-Asia Real Estate Management Co., Ltd. (“EAREM”)

FCB’s investee accounted for under the equity method

Mutual Funds managed by First Securities Investment Trust Co., Ltd. (“MF”)

Mutual funds managed by FSIT - subsidiary of the Company.

First Commercial Bank Education Foundation (“ FCBEF”)

More than one-third of total fund was donated by FCB

Waterland Financial Holdings Co., Ltd. FCB is one of its Directors Taiwan Asset Management Corporation (TAMCO)

The Company is one of its Directors

Others Spouses and relatives of the First Group’s directors, supervisors, managers, chairman and president and related parties in substance.


130

(2) Major balances and transactions with related parties:

A. Call loans to banks

December 31, 2014

Highest balance Ending balance Annual interest rate (%)

Other related parties Bank of Taiwan $ 15,000,000 $ - 0.388~0.395

December 31, 2013



For the years ended December 31, 2014 and 2013, the interest income on above related

parties were $9,129 and $2,451, respectively.

Terms and conditions of the related party transactions are not significantly different from those of transactions with third parties.

B. Call loans from banks

December 31, 2014 Highest balance Ending balance Annual interest rate (%) Other related parties

Bank of Taiwan $ 3,800,000 $ - 0.388 December 31, 2013 Highest balance Ending balance Annual interest rate (%) Other related parties

Bank of Taiwan $ 5,000,000 $ - 0.388~0.41

For the years ended December 31, 2014 and 2013, the interest income on above related parties were $40 and $211, respectively.


2014 ANNUAL REPORT

131

(2) Major balances and transactions with related parties:

A. Call loans to banks

December 31, 2014



December 31, 2013



For the years ended December 31, 2014 and 2013, the interest income on above related

parties were $9,129 and $2,451, respectively.


B. Call loans from banks

December 31, 2014 Highest balance Ending balance Annual interest rate (%) Other related parties

Bank of Taiwan $ 3,800,000 $ - 0.388 December 31, 2013 Highest balance Ending balance Annual interest rate (%) Other related parties

Bank of Taiwan $ 5,000,000 $ - 0.388~0.41

For the years ended December 31, 2014 and 2013, the interest income on above related parties were $40 and $211, respectively.


C. Due from other banks

December 31, 2014

Ending balance

Percentage of total Due From other Banks(%)

Other related parties Bank of Taiwan $ 225,695 0.66

December 31, 2013

Ending balance

Percentage of total Due From other Banks(%)

Other related parties Bank of Taiwan $ 290,986 0.80

Terms and conditions of the related party transactions are not significantly different from those of transactions with third parties

D. Deposits

December 31, 2014

Ending balance

Percentage of total Deposits(%)

Other related parties Others (Note) $ 1,291,115 0.07

December 31, 2013

Ending balance

Percentage of total Deposits(%)

Other related parties Others (Note) $ 1,180,466 0.07

For the years ended December 31, 2014 and 2013, the interest income on above related parties were $44,725 and $6,154, respectively. Note: Staff savings accounts of FCB are provided to the above related parties with interest

rate of 13% p.a. and limited to a balance of $480. Deposits exceeding $480 is calculated at demand savings deposit rate. Interest rates for others are the same as those offered to other customers.


132

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2014 ANNUAL REPORT

133

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134

G. Financial assets at fair value through profit or loss

December 31, 2014

Ending balance Percentage (%)

Other related parties Mutual funds managed by FSIT $ 219 -

December 31, 2013


Other related parties Mutual funds managed by FSIT $ 100,745 0.22

H. Available-for-sale financial assets

December 31, 2014



December 31, 2013



I. Management fee and marketing service fee receivable

December 31, 2014



December 31, 2013




J. Handling charges income and other income

2014 2013

Other related parties

Mutual funds managed by FSIT (Note) $ 511,548 $ 483,578 Others 2,926 2,874

$ 514,474 $ 486,452

Note: The above amounts represent income from management charges and trust handling

charges.

The above amounts are collected based on the contracts signed among the related parties.

2014 ANNUAL REPORT

135

G. Financial assets at fair value through profit or loss

December 31, 2014


Other related parties Mutual funds managed by FSIT $ 219 -

December 31, 2013



H. Available-for-sale financial assets

December 31, 2014



December 31, 2013



I. Management fee and marketing service fee receivable

December 31, 2014



December 31, 2013




J. Handling charges income and other income

2014 2013

Other related parties

Mutual funds managed by FSIT (Note) $ 511,548 $ 483,578 Others 2,926 2,874

$ 514,474 $ 486,452

Note: The above amounts represent income from management charges and trust handling

charges.

The above amounts are collected based on the contracts signed among the related parties.

K. Rent expense and other expenses

2014 2013

Other related parties First Commercial Bank Education Foundation $ 9,000

$ 8,150

Others 266 - $ 9,266 $ 8,150

L. Information on salaries and remunerations to the Company’s directors, supervisors, president,

vice-president and others:

2014 2013

Salaries and other short-term employee benefits $ 365,718 $ 311,278

Post-employment benefits 16,165 6,189 Severance pay 219 214 Other long-term employee benefits 2,302 2,326 Total $ 384,404 $ 320,007

8. Pledged assets

Pledged assets provided by the First Group as of December 31, 2014 and 2013 were as follows:

Items December 31, 2014 Purpose of Pledge Available-for-sale financial assets – bonds

$ 1,959,883 Guarantees deposited with the court for the provisional seizure, guarantees for trust business reserves, foreign branch’s guarantee deposited with Federal Reserve Bank and Federal Credit Bank

Held-to-maturity financial assets

88,978 Deposits with Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Bank (FRB)

Refundable deposits 688,959 Operating guarantee deposits of consignment trading business, performance bond of discretionary business, operating guarantee deposits of offshore funds business, and so on.

Other assets-time deposits

11,500 Guarantees for line of settlement advance

Operating guarantee deposits

1,133,138 Operating guarantee deposits for securities, fully consigned businesses and offshore funds, and performance guarantee deposits for insurances.

Property and equipment Land 92,073 Overdraft loan guarantee. There was no overdraft loan. Buildings 46,317 Property investments

572,213 The pledge for property investment. However, the balance of borrowing was $0.

$ 4,593,061


136

Items December 31, 2013 Purpose of Pledge Held-to-trading financial assets-bonds

$ 10,376 Bid bond for Central Government Bonds

Available-for-sale financial assets – bonds

2,350,478 Guarantees deposited with the court for the provisional seizure, guarantees for trust business reserves, foreign branch’s guarantee deposited with Federal Reserve Bank and Federal Credit Bank








Property and equipment

Land 92,073 Overdraft loan guarantee. There was no overdraft loan. Buildings 46,317 Property investments 572,162 The pledge for property investment. However, the balance of

borrowing was $0. $ 5,035,563

9. Significant contingent liabilities and unrecognized contractual commitments

(1) FCB has the following commitments as of December 31, 2014 and 2013:

December 31, 2014 Unused loan commitments $ 135,195,659 Unused credit commitments for credit cards 60,425,196 Unused letters of credit issued 31,040,109 Guarantees 79,865,265 Collections receivable for customers 140,823,599 Collections payable for customers 186,527,417 Travelers’ checks consignment-in 373,388 Guaranteed notes payable 58,151,193 Trust assets 706,940,964 Customers’ securities under custody 361,215,423 Book-entry for government bonds under management 162,378,800 Depository for short-term marketable securities under management 75,172,132

December 31, 2013 Unused loan commitments $ 126,835,001 Unused credit commitments for credit cards 57,267,299 Unused letters of credit issued 31,159,643 Guarantees 78,343,237 Collections receivable for customers 138,977,461 Collections payable for customers 116,423,187

2014 ANNUAL REPORT

137

Items December 31, 2013 Purpose of Pledge Held-to-trading financial assets-bonds

$ 10,376 Bid bond for Central Government Bonds

Available-for-sale financial assets – bonds

2,350,478 Guarantees deposited with the court for the provisional seizure, guarantees for trust business reserves, foreign branch’s guarantee deposited with Federal Reserve Bank and Federal Credit Bank









Land 92,073 Overdraft loan guarantee. There was no overdraft loan. Buildings 46,317 Property investments 572,162 The pledge for property investment. However, the balance of

borrowing was $0. $ 5,035,563

9. Significant contingent liabilities and unrecognized contractual commitments

(1) FCB has the following commitments as of December 31, 2014 and 2013:

December 31, 2014 Unused loan commitments $ 135,195,659 Unused credit commitments for credit cards 60,425,196 Unused letters of credit issued 31,040,109 Guarantees 79,865,265 Collections receivable for customers 140,823,599 Collections payable for customers 186,527,417 Travelers’ checks consignment-in 373,388 Guaranteed notes payable 58,151,193 Trust assets 706,940,964 Customers’ securities under custody 361,215,423 Book-entry for government bonds under management 162,378,800 Depository for short-term marketable securities under management 75,172,132

December 31, 2013 Unused loan commitments $ 126,835,001 Unused credit commitments for credit cards 57,267,299 Unused letters of credit issued 31,159,643 Guarantees 78,343,237 Collections receivable for customers 138,977,461 Collections payable for customers 116,423,187

December 31, 2013 Travelers’ checks consignment-in 382,947 Guaranteed notes payable 55,537,158 Trust assets 735,784,130 Customers’ securities under custody 339,738,557 Book-entry for government bonds under management 156,157,300 Depository for short-term marketable securities under management 70,325,300

(2) Due to the collapse of the Tung Xin building caused by an earthquake on September 21, 1999,

the residents filed a civil lawsuit for compensation of tort damages against Hong Cheng Building Co., Ltd., Hong Ku Construction Co., Ltd., (including their directors and supervisors) and the Bank in 2000. The court of third instance dismissed the appeal on October 2, 2014. As for criminal liability, the Supreme Court has ruled that the employees of the Bank not guilty.

Besides, the residents of adjacent building, Hao Men Shi Jia, which was crushed due to the collapse of the Tung Xin building, also filed a civil lawsuit for compensation of tort damages against the Bank. The proceeding of the lawsuit was stayed in 2001, and reviewed under retrial of the Taipei District Court on July 29, 2014.

(3) As of December 31, 2014, FS had entered into an agreement to purchase properties and equipment amounting to $15,525, which has not been repaid.

As of December 31, 2014 and 2013, there were 360,810,200 and 337,229,800 shares, respectively, of clients’ stocks under the custody of FS as a result of margin loan and stock loan activities. FS had also lent 16,737,000 and 16,410,000 shares, respectively, to its clients as a result of securities lending activities and has received sufficient guarantee deposits for such activities.

10. Significant losses from disasters: None.

11. Significant subsequent events:

The Subsidiary, FCB

The subsidiary, FCB, holds ‘Series A Registered Convertible Preferred Stock’ issued by Taiwan High Speed Rail Corporation (“THSRC”). The total investment is NT$2 billion and is recognised as ‘bond investments without active market’. Despite the financial difficulties THSRC is currently facing, the financial reform plan submitted by the THSRC on January 7, 2015 has been declined by the authorities. It is possible that government will take over and nationalize THSRC in the near future, so whether or not the Bank’s preferred stock investment in THSRC will be recovered is uncertain. Therefore, the estimation of investment impairment loss will highly depend on the THSRC’s new financial reform plan and the negociation between THSRC and banks. As of the report date, the Bank could not reasonablely estimate the impairment loss due to material uncertainties.


138

12. Others:

(1)Fair value and hierarchy information on financial instruments

A.Scope

Fair value is the amount for which an asset could be exchanged or a liability can be settled between knowledgeable, willing parties in an arm’s length transaction. Financial instruments are initially recognized by fair value, which is transaction price in most cases. Subsequent recognitions are measured by fair value except that certain financial instruments are recognized by amortized cost. The best evidence of fair value is the quoted market price in an active market. If the market in which financial instruments traded is not active, the Company then adopts valuation technique or takes reference to Bloomberg or the fair value of financial instrument from counterparties.

B.Fair value information of financial instruments

The fair value information of financial instruments measured at fair value is provided in Note 12(1) C.

Except for those listed in the table below, the carrying amount of some of the Company’s financial instruments (e.g. cash and cash equivalents, due from Central Bank and call loans to other banks, receivables, loans discounted, refundable deposits, deposits from the Central Bank and banks, due to Central Bank and other banks, bills and bonds under repurchase agreements, payables, deposits and remittances, bonds payable, other financial liabilities and guarantee deposits) is approximate to their fair value. (Please refer to Note 12 (1)D)

December 31, 2014

Financial assets Book value Fair value Held-to-maturity financial assets 307,625,308 307,876,495 Other financial assets- bond instruments without

active market 23,274,082 23,269,299

December 31, 2013


active market 25,281,782 25,332,847

C.Financial instruments measured at fair value

(A)Determination of the fair value

Fair value is the amount for which an asset could be exchanged or liability could be settled between knowledgeable, willing parties in an arm’s length transaction.

The quoted market price is used as the fair value when the financial instruments have an active market, such as market prices provided by the Stock Exchange Corporation, Bloomberg and Reuters are all foundation of fair value for listed equity securities and debt instruments with a quoted market price in an active market.

2014 ANNUAL REPORT

139

12. Others:

(1)Fair value and hierarchy information on financial instruments

A.Scope

Fair value is the amount for which an asset could be exchanged or a liability can be settled between knowledgeable, willing parties in an arm’s length transaction. Financial instruments are initially recognized by fair value, which is transaction price in most cases. Subsequent recognitions are measured by fair value except that certain financial instruments are recognized by amortized cost. The best evidence of fair value is the quoted market price in an active market. If the market in which financial instruments traded is not active, the Company then adopts valuation technique or takes reference to Bloomberg or the fair value of financial instrument from counterparties.

B.Fair value information of financial instruments

The fair value information of financial instruments measured at fair value is provided in Note 12(1) C.

Except for those listed in the table below, the carrying amount of some of the Company’s financial instruments (e.g. cash and cash equivalents, due from Central Bank and call loans to other banks, receivables, loans discounted, refundable deposits, deposits from the Central Bank and banks, due to Central Bank and other banks, bills and bonds under repurchase agreements, payables, deposits and remittances, bonds payable, other financial liabilities and guarantee deposits) is approximate to their fair value. (Please refer to Note 12 (1)D)

December 31, 2014


active market 23,274,082 23,269,299

December 31, 2013


active market 25,281,782 25,332,847

C.Financial instruments measured at fair value

(A)Determination of the fair value

Fair value is the amount for which an asset could be exchanged or liability could be settled between knowledgeable, willing parties in an arm’s length transaction.

The quoted market price is used as the fair value when the financial instruments have an active market, such as market prices provided by the Stock Exchange Corporation, Bloomberg and Reuters are all foundation of fair value for listed equity securities and debt instruments with a quoted market price in an active market.

If the market quotation from Stock Exchange Corporation, commission merchants, underwriters or pricing service institutions can be frequently obtained on time, and the price represents the actual and frequent transactions at arm’s length, then a financial instrument is deemed to have an active market. If the above condition is not met, the market is deemed inactive. In general, significant price variance between the purchase price and selling price or significantly increasing price variance are both indicators of an inactive market.

In addition to above financial instruments with an active market, other financial instruments at fair value are assessed by evaluation technique with reference to other financial instruments at fair value with similar conditions and characteristics in actual practice, cash flow discounting method and other evaluation technique, including market information obtained by exercising the model at balance sheet date (such as yield curve used in OTC and average interest rate of commercial bill from Reuters).

When a financial instrument has no standardized evaluation and with less complexity involved, such as interest rate swap, currency swap and options. The First Group usually adopts the valuation generally accepted by market users. The inputs used in these financial instruments valuation usually are observable information in the market.

For financial instruments with higher complexity, the fair value is assessed through the valuation model developed by general valuation methods and techniques generally accepted by competitors. These kinds of valuation models are usually applicable for derivative instruments, debt instruments with no quoted market price (including debt instrument of embedded derivatives) or other debt instruments with low market liquidity. Certain inputs used in these valuation models are not observable in the market, and the First Group needs to make appropriate estimates based on the assumptions.

The output of the evaluation model is always an estimate, and the valuation technique may not reflect all the relevant factors of the financial instruments held by the First Group. As a result, the estimate generated by valuation model will be slightly adjusted based on additional inputs, such as model risk, liquidity risk or credit risk of counterparties. According to the First Group’s valuation model management and other related controlling procedures, the adjustment made is adequate and necessary and the balance sheet is believed to present fairly, in all material aspects, the fair value of financial instruments. The pricing information and input are prudently evaluated in the valuation process, and shall be timely adjusted by market condition.

Valuation on derivative instrument is based on the valuation model generally accepted by market users, such as discounting method and option pricing model. FX contract usually is valuated based on current FX rate. Structured-interest derivative contract is valuated based on option pricing model.

(B)Valuation methods by financial instruments of the First Group are shown by types and nature as follows:

a.NTD Central Government Bond: the latest transaction price announced by Electronic Bond Trading System of GTSM or SEC or the yield rates across different contract lengths bulletined by OTC are used.


140

b.NTD corporate bonds & financial bonds: fair value of different maturities announced by

GTSM is adopted. If the fair value is not available, yield rate curve of the corresponding credit rating provided by GTSM is used to compute the theory price. Securitization instruments: future cash flows discounted by market interest rate or the quotations provided by the counterparties are adopted for valuation.

c.Securitization instruments: future cash flows discounted by market interest rate or the quotations provided by the counterparties are adopted for valuation.

d.Convertible corporate bond: closing prices bulletined by the GTSM or the latest closing prices is adopted as valuation standard.

e.NTD short-term bills: future cash flows discounted by the mid price of TWD-T6165 provided by Reuters is used to estimate present valuation.

f.Foreign securities: prices quoted from Bloomberg, Reuters, or counterparties are adopted.

g.Listed stocks: the closing price listed in TSE or OTC is adopted.

h.Beneficiary certificates: closed-end funds use the closing price in an active market as the fair value and open-ended funds use the net asset value of the a fund as the fair value.

i.Financial bonds designated at fair value issued by the First Group: future cash flow discounted by the mid price of TWD-T6165 provided by Reuters is used to estimate present valuation.

j.Derivatives:

(a)Call (put) warrant, stock index futures, and stock index futures options: prices quoted from an active market are deemed the fair value.

(b)Forward FX, currency swap, interest swap and cross currency swap: discounted future cash flows is adopted.

(c)Options: Black-Scholes model is mainly adopted for valuation.

(d)Certain derivatives use the quoted price from counterparties.

D.Fair value of financial instruments not measured at fair value through income statement

The methods and assumption used by financial instruments not measured at fair value through income statement of the First Group are as follows:

(A)The book value of cash and cash equivalents, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, refundable deposits, due to Central Bank and banks, fund borrowed from Central Bank and banks, securities sold under repurchase agreements, commercial papers issued, payables, other borrowings, deposits, and other financial liabilities which have a short maturity period will be considered as their fair value.

2014 ANNUAL REPORT

141

b.NTD corporate bonds & financial bonds: fair value of different maturities announced by

GTSM is adopted. If the fair value is not available, yield rate curve of the corresponding credit rating provided by GTSM is used to compute the theory price. Securitization instruments: future cash flows discounted by market interest rate or the quotations provided by the counterparties are adopted for valuation.

c.Securitization instruments: future cash flows discounted by market interest rate or the quotations provided by the counterparties are adopted for valuation.

d.Convertible corporate bond: closing prices bulletined by the GTSM or the latest closing prices is adopted as valuation standard.

e.NTD short-term bills: future cash flows discounted by the mid price of TWD-T6165 provided by Reuters is used to estimate present valuation.

f.Foreign securities: prices quoted from Bloomberg, Reuters, or counterparties are adopted.

g.Listed stocks: the closing price listed in TSE or OTC is adopted.

h.Beneficiary certificates: closed-end funds use the closing price in an active market as the fair value and open-ended funds use the net asset value of the a fund as the fair value.

i.Financial bonds designated at fair value issued by the First Group: future cash flow discounted by the mid price of TWD-T6165 provided by Reuters is used to estimate present valuation.

j.Derivatives:

(a)Call (put) warrant, stock index futures, and stock index futures options: prices quoted from an active market are deemed the fair value.

(b)Forward FX, currency swap, interest swap and cross currency swap: discounted future cash flows is adopted.

(c)Options: Black-Scholes model is mainly adopted for valuation.

(d)Certain derivatives use the quoted price from counterparties.

D.Fair value of financial instruments not measured at fair value through income statement

The methods and assumption used by financial instruments not measured at fair value through income statement of the First Group are as follows:

(A)The book value of cash and cash equivalents, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, refundable deposits, due to Central Bank and banks, fund borrowed from Central Bank and banks, securities sold under repurchase agreements, commercial papers issued, payables, other borrowings, deposits, and other financial liabilities which have a short maturity period will be considered as their fair value.

(B)Loans discounted (including overdue receivables and assumed receivables from leasing

subsidiary): Considering the nature of the financial industry, the fair value is determined by the market rate (market price). The effective interest rates of loans are generally based on the benchmark interest rate plus or minus certain adjustment (equivalent to floating rate) to reflect the market interest rate. As a result, it is reasonable to assume that the carrying amount, after adjustments of estimated recoverability, approximates the fair value. Fair values for medium-term or long-term loans with fixed interest rates shall be estimated using their discounted values of expected future cash flows. However, as such loans account for only a small portion of all loans, book value was used to estimate the fair value.

(C)Held-to-maturity financial assets: When there is a quoted market price available in an active market, the fair value is determined using the market price. If there is no quoted market price for reference, a valuation technique or quoted price offered by the counterparties will be adopted to measure the fair value.

a. NTD Central Government Bond: fair value of bonds of different maturities bulletined by Over-The-Counter (hereinafter OTC).

b. NTD corporate bonds, financial bonds, government bonds and beneficiary bond certificates: future cash flow discounted by the yield curve of OTC is used to measure present valuation.

c. NTD and US short-term bills and NTD beneficiary securities: the average NTD and US commercial paper’s interest rate of Reuters (Fixing Rate) and mid-price of TWD-T6165 are used to discount the future cash flow for the present valuation.

(D)Deposits: Considering the nature of the financial industry, the fair value is determined by the market rate (market price) while the deposit transactions usually mature within one year. As a result, the carrying amount is a reasonable basis to estimate the fair value. Fair values of the long-term fixed rate deposits shall be estimated using discounted expected future cash flows. Additionally, as the maturities are less than three years, it is reasonable to use the carrying amount to estimate the fair value.

(E)Bonds payable: Since the coupon rates of the financial bonds issued by the Company approximate the market rates, the fair value based on the discounted value of expected future cash flow approximates the book value.

(F)Other financial assets- financial assets carried at cost: If a quoted price is available from a transaction or a market maker, the latest transaction price and quoted price is used as foundation for fair value measurement. If no quoted market price is available for reference, the valuation method is adopted. The estimate and assumption adopted are the discounted value of expected future cash flow used to estimate the fair value.

(G)Other financial assets- financial assets carried at cost: If a quoted price is available from a transaction or a market maker, the latest transaction price and quoted price is used as foundation for fair value measurement. If no quoted market price is available for reference, the valuation method is adopted. The estimate and assumption adopted are the discounted value of expected future cash flow used to estimate the fair value.


142

E.Hierarchy of fair value estimation of financial instruments

(A)Definition for the hierarchy classification of financial instruments measured at fair value

a. Level 1

This refers to the quoted prices in active markets for any identical instruments. An active market by definition has to satisfy all the following conditions: 1) the products traded in the market share a common nature; and 2) the willing buying and selling parties can be readily found in the market and the prices are observable for the public. The fair value of the investments of the Company, such as listed stocks investment, beneficiary certificates, popular Taiwan Government Bonds and the derivatives with a quoted price in an active market, are deemed as Level 1.

b. Level 2

Observable prices other than the quoted prices in an active market comprise direct (e.g. prices) or indirect (e.g. derived by prices) observable inputs obtained from an active market. For instance, investments of the First Group in non-popular corporate bonds, financial bonds, convertible bonds and most derivatives and financial bonds issued by the First Group.

c. Level 3

The inputs adopted for measuring fair value at this level are not based on available data from the markets. For instance, the derivatives and certain overseas securities invested by the First Group.

2014 ANNUAL REPORT

143

E.Hierarchy of fair value estimation of financial instruments

(A)Definition for the hierarchy classification of financial instruments measured at fair value

a. Level 1

This refers to the quoted prices in active markets for any identical instruments. An active market by definition has to satisfy all the following conditions: 1) the products traded in the market share a common nature; and 2) the willing buying and selling parties can be readily found in the market and the prices are observable for the public. The fair value of the investments of the Company, such as listed stocks investment, beneficiary certificates, popular Taiwan Government Bonds and the derivatives with a quoted price in an active market, are deemed as Level 1.

b. Level 2

Observable prices other than the quoted prices in an active market comprise direct (e.g. prices) or indirect (e.g. derived by prices) observable inputs obtained from an active market. For instance, investments of the First Group in non-popular corporate bonds, financial bonds, convertible bonds and most derivatives and financial bonds issued by the First Group.

c. Level 3

The inputs adopted for measuring fair value at this level are not based on available data from the markets. For instance, the derivatives and certain overseas securities invested by the First Group.

(B)Hierarchy of fair value estimation of financial instrument

Financial instruments measured at fair value

December 31, 2014 Total Level 1 Level 2 Level 3

Non-derivative financial instruments Assets Financial assets at fair value

through profit or loss Financial assets held for trading Stock investments $ 1,854,704 $ 1,854,704 $ - $ -

Bond investments 13,645,497 1,887,225 11,758,272 - Others 15,708,446 249,766 15,458,680 -

Financial assets designated as at fair value through profit or loss on initial recognition 15,195,939 - 15,195,939 -

Available-for-sale financial assets Stock investments 13,178,242 11,501,061 668,385 1,008,796 Bond investments 69,425,767 208,310 69,217,457 - Others 2,376,446 314,750 2,061,696 -

Liabilities Financial liabilities at fair value

through profit or loss Financial liabilities designated as

at fair value through profit or loss on initial recognition 18,004,147 - 18,004,147 -

Derivative financial instruments Assets Financial assets at fair value

through profit or loss 9,395,571 289,962 9,105,609 - Liabilities Financial liabilities at fair value

through profit or loss 5,383,425 127,157 5,256,268 - Total $ 164,168,184 $ 16,432,935 $ 146,726,453 $ 1,008,796


144

Financial instruments measured at

fair value December 31, 2013

Total Level 1 Level 2 Level 3 Non-derivative financial instruments

Assets Financial assets at fair value through

profit or loss Financial assets held for trading Stock investments $ 910,748 $ 643,223 $ - $ 267,525

Bond investments 16,184,924 926,096 15,258,828 - Others 17,292,234 1,523,485 15,768,749 -


Available-for-sale financial assets Stock investments 14,460,289 12,960,574 459,411 1,040,304



through profit or loss Financial liabilities held for

trading 448,805 - 448,805 - Financial liabilities designated as

at fair value through profit or loss on initial recognition

10,763,435 - 10,763,435 -

Derivative financial instruments Assets Financial assets at fair value through

profit or loss

4,656,336 200,932 3,799,758 655,646 Liabilities

Financial liabilities at fair value through profit or loss

3,800,839 15,284 3,129,909 655,646

Derivative liabilities of hedging 7,973 - 7,973 - Total $ 158,846,735 $ 22,779,760 $ 133,447,854 $ 2,619,121

2014 ANNUAL REPORT

145

Financial instruments measured at

fair value December 31, 2013

Total Level 1 Level 2 Level 3 Non-derivative financial instruments

Assets Financial assets at fair value through

profit or loss Financial assets held for trading Stock investments $ 910,748 $ 643,223 $ - $ 267,525

Bond investments 16,184,924 926,096 15,258,828 - Others 17,292,234 1,523,485 15,768,749 -


Available-for-sale financial assets Stock investments 14,460,289 12,960,574 459,411 1,040,304



through profit or loss Financial liabilities held for

trading 448,805 - 448,805 - Financial liabilities designated as

at fair value through profit or loss on initial recognition

10,763,435 - 10,763,435 -

Derivative financial instruments Assets Financial assets at fair value through

profit or loss

4,656,336 200,932 3,799,758 655,646 Liabilities

Financial liabilities at fair value through profit or loss

3,800,839 15,284 3,129,909 655,646

Derivative liabilities of hedging 7,973 - 7,973 - Total $ 158,846,735 $ 22,779,760 $ 133,447,854 $ 2,619,121

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1 $

6,84

0 ($

2,

233,

087)

($

730,

635)

$

1,00

8,79

6 Fo

r th

e ye

ar e

nded

Dec

embe

r 31

, 201

3

Item

s B

egin

ning

ba

lanc

e

Gai

n an

d lo

ss o

n va

luat

ion

Add

ition

R

educ

tion

End

ing

bala

nce

Am

ount

re

cogn

ized

in

gain

and

loss

Am

ount

rec

ogni

zed

in

othe

r co

mpr

ehen

sive

in

com

e

Pur

chas

ed

or is

sued

T

rans

ferr

ed

to L

evel

3

Sold

, dis

pose

d or

set

tled

Tra

nsfe

rred

fr

om L

evel

3

(Not

e)

Non

-der

ivat

ive

fina

ncia

l ins

trum

ents

Fi

nanc

ial a

sset

s at

fai

r va

lue

thro

ugh

prof

it or

loss

$

411,

490

$ -

$ -

$ 3,

445,

770

$ -

($

3,55

6,72

6) (

$ 33

,009

) $

267,

525

Ava

ilabl

e-fo

r-sa

le f

inan

cial

ass

ets

865,

048

- 17

4,91

5 14

3,28

4 46

,962

(

11,9

98)

(177

,907

) 1,

040,

304

Der

ivat

ive

fina

ncia

l ins

trum

ents

.

Fi

nanc

ial a

sset

s at

fai

r va

lue

thro

ugh

prof

it or

loss

1,

038,

523

7,73

9 -

494,

178

- (

857,

000)

(2

7,79

4)

655,

646

Tot

al

$ 2,

315,

061

$ 7,

739

$ 17

4,91

5 $

4,08

3,23

2 $

46,9

62 (

$ 4,

425,

724)

($

238,

710)

$

1,96

3,47

5 In

rel

atio

n to

the

abo

ve a

mou

nts

reco

gniz

ed i

n ga

in a

nd l

oss

in t

he p

erio

d, a

s of

Dec

embe

r 31

, 201

4 an

d 20

13, t

he c

arry

ing

amou

nts

of g

ains

on

ass

ets

wer

e $1

6,16

2 an

d $7

,739

, res

pect

ivel

y.

In r

elat

ion

to t

he a

bove

am

ount

s re

cogn

ized

in

othe

r co

mpr

ehen

sive

inc

ome

and

loss

in

the

peri

od,

as o

f D

ecem

ber

31,

2014

and

201

3, t

he

carr

ying

am

ount

s of

gai

ns o

n as

sets

wer

e $1

2,52

0 an

d $1

74,9

15, r

espe

ctiv

ely.

Not

e: S

tock

s ab

ove

wer

e tr

ansf

erre

d fr

om L

evel

3 a

s th

eir

quot

ed m

arke

t pr

ices

are

ava

ilab

le a

nd u

sed

as b

asis

for

fai

r va

lue

mea

sure

men

t. C

erta

in d

eriv

ativ

e po

siti

ons

at t

he e

nd o

f th

e pe

riod

wer

e tr

ansf

erre

d to

Lev

el 2

as

the

quot

ed p

rice

s fr

om t

heir

cou

nter

part

ies

are

avai

labl

e an

d th

e in

puts

use

d in

the

valu

atio

n m

odel

are

bas

ed o

n ob

serv

able

mar

ket d

ata.


146

b.

Mov

emen

ts o

f fi

nanc

ial l

iabi

liti

es c

lass

ifie

d in

to L

evel

3 o

f fa

ir v

alue

For

the

year

end

ed D

ecem

ber

31, 2

014

Item

s B

egin

ning

ba

lanc

e

Gai

n an

d lo

ss o

n va

luat

ion

Add

ition

R

educ

tion

End

ing

bala

nce

Am

ount

rec

ogni

zed

in g

ain

and

loss

Am

ount

rec

ogni

zed

in

othe

r co

mpr

ehen

sive

in

com

e

Pur

chas

ed

or is

sued

T

rans

ferr

ed

to L

evel

3

Sold

, dis

pose

d or

set

tled

Tra

nsfe

rred

fr

om L

evel

3

Der

ivat

ive

fina

ncia

l ins

trum

ents

Fi

nanc

ial l

iabi

litie

s at

fai

r va

lue

thro

ugh

prof

it or

loss

$

65

5,64

6 ($

11

,433

) $

- $

64,3

46 $

-

($

40

0,27

7)

($

30

8,28

2) $

-

For

the

year

end

ed D

ecem

ber

31, 2

013

Item

s B

egin

ning

ba

lanc

e

Gai

n an

d lo

ss o

n va

luat

ion

Add

ition

R

educ

tion

End

ing

bala

nce

Am

ount

rec

ogni

zed

in g

ain

and

loss

Am

ount

rec

ogni

zed

in

othe

r co

mpr

ehen

sive

in

com

e

Pur

chas

ed

or is

sued

T

rans

ferr

ed

to L

evel

3

Sold

, dis

pose

d or

set

tled

Tra

nsfe

rred

fr

om L

evel

3

Der

ivat

ive

fina

ncia

l ins

trum

ents

Fi

nanc

ial l

iabi

litie

s at

fai

r va

lue

thro

ugh

prof

it or

loss

$

75

6,01

1 $

32,2

61

$ -

$ 51

2,65

2 -

($

61

7,36

8) (

$ 27

,910

) $

655,

646

In r

elat

ion

to t

he a

bove

am

ount

s re

cogn

ized

in g

ain

and

loss

in

the

peri

od, a

s of

Dec

embe

r 31

, 201

4 an

d 20

13, t

he c

arry

ing

amou

nts

of lo

sses

on

liab

ilit

ies

wer

e $1

1,43

3 an

d $3

2,26

1, r

espe

ctiv

ely.

Not

e: D

eriv

ativ

e po

siti

ons

at th

e en

d of

the

peri

od w

ere

tran

sfer

red

from

Lev

el 3

to L

evel

2 a

s th

eir

quot

ed p

rice

s fr

om th

e co

unte

rpar

ties

are

avai

labl

e an

d th

e in

puts

use

d in

the

valu

atio

n m

odel

are

bas

ed o

n ob

serv

able

mar

ket d

ata.

2014 ANNUAL REPORT

147

b.

Mov

emen

ts o

f fi

nanc

ial l

iabi

liti

es c

lass

ifie

d in

to L

evel

3 o

f fa

ir v

alue

For

the

year

end

ed D

ecem

ber

31, 2

014

Item

s B

egin

ning

ba

lanc

e

Gai

n an

d lo

ss o

n va

luat

ion

Add

ition

R

educ

tion

End

ing

bala

nce

Am

ount

rec

ogni

zed

in g

ain

and

loss

Am

ount

rec

ogni

zed

in

othe

r co

mpr

ehen

sive

in

com

e

Pur

chas

ed

or is

sued

T

rans

ferr

ed

to L

evel

3

Sold

, dis

pose

d or

set

tled

Tra

nsfe

rred

fr

om L

evel

3

Der

ivat

ive

fina

ncia

l ins

trum

ents

Fi

nanc

ial l

iabi

litie

s at

fai

r va

lue

thro

ugh

prof

it or

loss

$

65

5,64

6 ($

11

,433

) $

- $

64,3

46 $

-

($

40

0,27

7)

($

30

8,28

2) $

-

For

the

year

end

ed D

ecem

ber

31, 2

013

Item

s B

egin

ning

ba

lanc

e

Gai

n an

d lo

ss o

n va

luat

ion

Add

ition

R

educ

tion

End

ing

bala

nce

Am

ount

rec

ogni

zed

in g

ain

and

loss

Am

ount

rec

ogni

zed

in

othe

r co

mpr

ehen

sive

in

com

e

Pur

chas

ed

or is

sued

T

rans

ferr

ed

to L

evel

3

Sold

, dis

pose

d or

set

tled

Tra

nsfe

rred

fr

om L

evel

3

Der

ivat

ive

fina

ncia

l ins

trum

ents

Fi

nanc

ial l

iabi

litie

s at

fai

r va

lue

thro

ugh

prof

it or

loss

$

75

6,01

1 $

32,2

61

$ -

$ 51

2,65

2 -

($

61

7,36

8) (

$ 27

,910

) $

655,

646

In r

elat

ion

to t

he a

bove

am

ount

s re

cogn

ized

in g

ain

and

loss

in

the

peri

od, a

s of

Dec

embe

r 31

, 201

4 an

d 20

13, t

he c

arry

ing

amou

nts

of lo

sses

on

liab

ilit

ies

wer

e $1

1,43

3 an

d $3

2,26

1, r

espe

ctiv

ely.

Not

e: D

eriv

ativ

e po

siti

ons

at th

e en

d of

the

peri

od w

ere

tran

sfer

red

from

Lev

el 3

to L

evel

2 a

s th

eir

quot

ed p

rice

s fr

om th

e co

unte

rpar

ties

are

avai

labl

e an

d th

e in

puts

use

d in

the

valu

atio

n m

odel

are

bas

ed o

n ob

serv

able

mar

ket d

ata.

(D)Transfers between Level 1 and Level 2

With regard to the financial instruments held by the First Group, no transfers between Level 1 and Level 2 occurred during this period.

(E)Fair value measurement to Level 3, and the sensitivity analysis of the substitutable appropriate assumption made on fair value

The fair value measurement that the First Group made for the financial instruments is deemed reasonable; however, different valuation models or inputs could result in different valuation results. Specifically, if the valuation input of financial instruments classified in Level 3 moves 0.2% (for example, the interest rate, etc.) and the valuation moves to 10%, the effects on gain and loss in the period or the effects on other comprehensive income are as follows:

September 30, 2014 Change in fair value recognized in profit

and loss in the period Change in fair value recognized in

other comprehensive income favorable unfavorable favorable unfavorable

Assets Financial assets at fair value

through profit or loss $ - $ - $ - $ - Available-for-sale financial

assets - - 100,880 ( 100,880) Liabilities Derivative financial liabilities - - - -

December 31, 2013 Change in fair value recognized in profit

and loss in the period Change in fair value recognized in

other comprehensive income favorable unfavorable favorable unfavorable

Assets Financial assets at fair value

through profit or loss $ 34,692 ($ 34,692) $ - $ - Available-for-sale financial

assets - - 104,030 ( 104,030)

Liabilities Derivative financial liabilities 7,940 ( 7,940) - -

Favorable and unfavorable movements of the First Group refer to the fluctuation of fair value, and the fair value is calculated through the valuation technique according to the non-observable inputs to different extent.

If the fair value of a financial instrument is affected by more than one input, the above table only illustrates the effect as a result of one single input, and the correlation and variance among multiple inputs are not listed here.

(2)Management objective and policy for financial risk

A. Scope

The First Group engages in risk management under the principles of not only serving customers but also conforming to the First Group operational goal, overall risk tolerance limits, and legal compliance to achieve risk diversification, risk transfer, and risk avoidance, and to create a trilateral win for all customers, shareholders, and employees. The First Group is mainly exposed


148

to credit risk, market risk (including the interest rate, foreign exchange rate, equity securities, and instrument risks), operation risk, and liquidity risk in or off balance sheets.

The First Group established written risk management policies and guidelines which have been approved by the Board of Directors in order to identify, measure, monitor and control credit risk, market risk, liquidity risk and operational risk.

B. Organization structure for risk management

The Board of Directors is the ultimate responsible unit for the Group’s overall risk management.

Under the command of the Board of Directors, there is a Risk Management Committee, headed by the Chairman as the chief commissioner. Additionally, the CEO (President), EVP, Head of audit department and the Chairman and Presidents of subsidiaries are assigned as the committee members. In line with the risk management policies and guiding principles as approved by the Board of Directors, the Risk Management Committee establishes risk managing system to coordinate and supervise risk relating matters. The main risk assumption limits and monitoring indicators must be approved by the Company’s Risk Management Committee.

In order to practice risk management, the Company and each and every significant subsidiary (FCB, FS, FSIT and FALI) set up “Risk Management Committee” to schedule risk management policies and risk management programs (including limit authorization, risk assumption limit, and risk controlling procedures such as various monitoring indicators and limit exceeding warnings). The Board of Directors and senior management of each subsidiary regularly monitors various risk exposure extent and reports the implementation of risk management policies to the Company.

The Company regularly evaluates and reviews the execution of risk management of each subsidiary and reports to the Board of Directors of the Company accordingly, including risk management program and risk controlling procedures, evaluation on the assumption and trend of major risk, and monitoring and management of capital adequacy ratio.

The auditing department and Board of Directors of the Company and every significant subsidiary within the First Group will regularly check on the risk management procedures and internal control to ensure that the risk management mechanism and the controlling procedures are operating effectively.

2014 ANNUAL REPORT

149

to credit risk, market risk (including the interest rate, foreign exchange rate, equity securities, and instrument risks), operation risk, and liquidity risk in or off balance sheets.

The First Group established written risk management policies and guidelines which have been approved by the Board of Directors in order to identify, measure, monitor and control credit risk, market risk, liquidity risk and operational risk.

B. Organization structure for risk management

The Board of Directors is the ultimate responsible unit for the Group’s overall risk management.

Under the command of the Board of Directors, there is a Risk Management Committee, headed by the Chairman as the chief commissioner. Additionally, the CEO (President), EVP, Head of audit department and the Chairman and Presidents of subsidiaries are assigned as the committee members. In line with the risk management policies and guiding principles as approved by the Board of Directors, the Risk Management Committee establishes risk managing system to coordinate and supervise risk relating matters. The main risk assumption limits and monitoring indicators must be approved by the Company’s Risk Management Committee.

In order to practice risk management, the Company and each and every significant subsidiary (FCB, FS, FSIT and FALI) set up “Risk Management Committee” to schedule risk management policies and risk management programs (including limit authorization, risk assumption limit, and risk controlling procedures such as various monitoring indicators and limit exceeding warnings). The Board of Directors and senior management of each subsidiary regularly monitors various risk exposure extent and reports the implementation of risk management policies to the Company.

The Company regularly evaluates and reviews the execution of risk management of each subsidiary and reports to the Board of Directors of the Company accordingly, including risk management program and risk controlling procedures, evaluation on the assumption and trend of major risk, and monitoring and management of capital adequacy ratio.

The auditing department and Board of Directors of the Company and every significant subsidiary within the First Group will regularly check on the risk management procedures and internal control to ensure that the risk management mechanism and the controlling procedures are operating effectively.


150

The Subsidiary, FCB

The Bank’s Board of Directors has the ultimate approval right in risk management. Major management risk items include overall risk management policy, risk tolerance limit, and authority wich must be approved by the Board of Directors.

Under the Board of Directors, there is a Risk Management Committee (RMC), which is headed by the Bank’s President and comprised of several committee members including Executive Vice President and Auditor General. Besides, heads of Risk Management Division, Credit Review Division, Credit Analysis Division, Loan Asset Management Division, and Legal Affairs Division are required to participate in the committee. Risk Management Division is a business line under Risk Management Committee. It is responsible for handling of overall affairs for the committee. RMC is responsible for integration of review, supervision, reporting and coordinating interaction between each division for firm-wide risk management. Besides, the committee needs to resolve affairs related to risk management policies and guidelines, risk authorized limits, risk tolerance limits, risk measurement methods, risk assessment procedures, risk monitoring system, and implementation report on risk management, and then deliver orders to each business segment in accordance with their responsibilities and approval procedures. RMC also submits regular reports about the risk evaluation of the Bank to the Board of Directors and supervisors.

The Auditing department regularly reviews the execution of risk management based on relevant internal control system to ensure the effective operation for risk management and assessment control, which should be reported to the Board of Directors regularly.

The subsidiary, FS

The Board of Directors of FS is responsible for the various risk management of various operations. In order to strengthen monitoring on various risks and effectively respond to the movement in financial market, FS has set up “Risk Management Committee” under the Board of Directors to assist and enhance the supervisory, prevention and control over the risk management. In addition, for risks that cannot be quantified, the Executive Secretary of Risk Management Committee shall assist the Board to assign risks to appropriate responsive segments and co-manage accordingly, inclusive of the establishment of emergency action, etc.

In addition to the Risk Management Committee, FS also establishes risk management system consisting of Risk Management Office, Audit Office, Compliance department, Finance department and RM Persons from various lines of businesses to ensure the effectiveness of risk management.

The subsidiary, FSIT

In order to effectively identify, evaluate, monitor and control various risks, as well as control risks incurred with the engagement of various business within durable extent and achieve reasonable goal of return and risk, the subsidiary, FIST sets up Risk Management Committee, which is in compliance with the risk managing policies and guiding principles as assessed by the Board of Directors of FSIT, to establish and supervise risk managing procedures, evaluate method and management indicators, coordinate risk-relating matters and hold regular meetings, review the implementation and exposure, and report it to the Board of FSIT.

2014 ANNUAL REPORT

151

The Subsidiary, FCB

The Bank’s Board of Directors has the ultimate approval right in risk management. Major management risk items include overall risk management policy, risk tolerance limit, and authority wich must be approved by the Board of Directors.

Under the Board of Directors, there is a Risk Management Committee (RMC), which is headed by the Bank’s President and comprised of several committee members including Executive Vice President and Auditor General. Besides, heads of Risk Management Division, Credit Review Division, Credit Analysis Division, Loan Asset Management Division, and Legal Affairs Division are required to participate in the committee. Risk Management Division is a business line under Risk Management Committee. It is responsible for handling of overall affairs for the committee. RMC is responsible for integration of review, supervision, reporting and coordinating interaction between each division for firm-wide risk management. Besides, the committee needs to resolve affairs related to risk management policies and guidelines, risk authorized limits, risk tolerance limits, risk measurement methods, risk assessment procedures, risk monitoring system, and implementation report on risk management, and then deliver orders to each business segment in accordance with their responsibilities and approval procedures. RMC also submits regular reports about the risk evaluation of the Bank to the Board of Directors and supervisors.

The Auditing department regularly reviews the execution of risk management based on relevant internal control system to ensure the effective operation for risk management and assessment control, which should be reported to the Board of Directors regularly.

The subsidiary, FS

The Board of Directors of FS is responsible for the various risk management of various operations. In order to strengthen monitoring on various risks and effectively respond to the movement in financial market, FS has set up “Risk Management Committee” under the Board of Directors to assist and enhance the supervisory, prevention and control over the risk management. In addition, for risks that cannot be quantified, the Executive Secretary of Risk Management Committee shall assist the Board to assign risks to appropriate responsive segments and co-manage accordingly, inclusive of the establishment of emergency action, etc.

In addition to the Risk Management Committee, FS also establishes risk management system consisting of Risk Management Office, Audit Office, Compliance department, Finance department and RM Persons from various lines of businesses to ensure the effectiveness of risk management.

The subsidiary, FSIT

In order to effectively identify, evaluate, monitor and control various risks, as well as control risks incurred with the engagement of various business within durable extent and achieve reasonable goal of return and risk, the subsidiary, FIST sets up Risk Management Committee, which is in compliance with the risk managing policies and guiding principles as assessed by the Board of Directors of FSIT, to establish and supervise risk managing procedures, evaluate method and management indicators, coordinate risk-relating matters and hold regular meetings, review the implementation and exposure, and report it to the Board of FSIT.

Audit team of the subsidiary, FSIT regularly reviews and checks the execution of risk management according to the related internal control to ensure the effective operation of evaluations and controlling procedures of risk management and to report to the Board of FSIT on a regular basis.

The subsidiary, FALI

The Board of Directors of the subsidiary, FALI is the final approving authority for risk management. The Board assesses the risk managing policies to ensure that the risks incurred from various businesses are within durable capacity and the reasonable goal of risk and return can be achieved given that the capital is exercised in an efficient manner, and takes the ultimate responsibility for the overall risk management. FALI sets up Risk Management Committee under the Board to supervise, report and coordinate risk management execution, to practice the promotion of risk managing policies and to assist with finance, insurance, operation and monitoring of strategic risks of each business unit to ensure that various risks are controlled within its capacity, the actual execution of which is regularly reported the Board of Directors.

FALI, on the other hand, sets up audit unit to investigate the soundness of risk managing structure and effectiveness of internal control in an independent and natural ground, and to review risk management of other segments.

C. Risk controlling procedures that the Company implemented for various risks of subsidiaries within the First Group

In order to effectively evaluate the risks involved in various business of the subsidiaries within the First Group, (including credit risk, market risk, liquidity risk, interest risk, insurance risk and operating risk, etc.) the Company has set up “Risk Managing Rules of First Financial Holdings Company and its subsidiaries” as the principle of risk managing policies and controlling procedures of every subsidiary.

The fundamental managing principle of the Company lies in the goal that various risks incurred due to the assets or liabilities held for a purpose of profit and business demand can be effectively controlled in consistency of relevant regulations of every competent authority.

Risk controlling procedures that the Company implemented for various risks of subsidiaries within the First Group are as follows:

(A) Authorization standards, monitoring indicators and methods of each subsidiary should be specifically defined and risk exposure is regularly escalated to the Board of Directors.

(B) When the monitoring indicator is breached, the risk management unit should assemble related business units, take necessary action and escalate the situation to the Company.

(C) Each subsidiary regularly submits the meeting minutes of the Committee with the risk monitored results to the Company.

(D) The Company retains the right to assign members to Risk Management Committee of each subsidiary.


152

D. Credit risk

(A) Source and definition of credit risk

Financial instruments held by the First Group may incur losses if counterparties are not able to fulfill their obligations at the maturity date. Credit risk may happen due to items in or off the balance sheet. For items in the balance sheet, credit risk exposure of the First Group mainly comprises of bill discounted and loans and credit card business, securities financing, leases, deposits and call loans from banks, debt instrument and derivatives, etc. Off balance sheet items include finance guarantee, bank acceptance, letter of credit, and loan commitment.

(B) Policy for credit risk management

Please refer to Note 12(2)C for risk management regulations and procedures of the subsidiaries within the First Group. In addition, each significant subsidiary of the First Group establishes credit risk controlling procedures and authorization standards, evaluation methods, controlling measures, and credit management in accordance with relevant regulations to control the credit risk in and off the balance sheet within the First Group.

Risk management program and procedures are as follows:

A. Establishing the qualification condition and credit limit of the counterparty and granting different credit limits by referring to information from domestic and foreign credit rating institutions or by establishing its own rating system before each transaction;

B. Avoiding the concentration risk, that is, through limiting the amount of financing to or investing in a single customer, single industry, single conglomerate, single stock, or related parties;

C. Monitoring credit risk by industry, counterparty (individual and group) and country through the limits;

D. Setting up loan approval and review procedure for credit extension business as well as specific review policy for complicated credit extension cases;

E. Establishing policy of loan percentage on collateral, collateral appraisal, management and disposal in relation to credit extension;

F. Reporting to the senior management with regard to the summary of credit risk information.

In addition, each foreign operating entity of the First Group sets aside the loss reserve and appraises the assets quality, unless otherwise indicated by competent authorities of the domestic countries in which the subsidiaries reside, in conformity with risk management policy of each operating entity.

The significant subsidiaries of the First Group classify debt instruments and credit assets into 5 categories by referring to internal ratings and external rating institutions. Comparisons between the internal rating and external long-term rating scales are as follows:

2014 ANNUAL REPORT

153

D. Credit risk

(A) Source and definition of credit risk

Financial instruments held by the First Group may incur losses if counterparties are not able to fulfill their obligations at the maturity date. Credit risk may happen due to items in or off the balance sheet. For items in the balance sheet, credit risk exposure of the First Group mainly comprises of bill discounted and loans and credit card business, securities financing, leases, deposits and call loans from banks, debt instrument and derivatives, etc. Off balance sheet items include finance guarantee, bank acceptance, letter of credit, and loan commitment.

(B) Policy for credit risk management

Please refer to Note 12(2)C for risk management regulations and procedures of the subsidiaries within the First Group. In addition, each significant subsidiary of the First Group establishes credit risk controlling procedures and authorization standards, evaluation methods, controlling measures, and credit management in accordance with relevant regulations to control the credit risk in and off the balance sheet within the First Group.

Risk management program and procedures are as follows:

A. Establishing the qualification condition and credit limit of the counterparty and granting different credit limits by referring to information from domestic and foreign credit rating institutions or by establishing its own rating system before each transaction;

B. Avoiding the concentration risk, that is, through limiting the amount of financing to or investing in a single customer, single industry, single conglomerate, single stock, or related parties;

C. Monitoring credit risk by industry, counterparty (individual and group) and country through the limits;

D. Setting up loan approval and review procedure for credit extension business as well as specific review policy for complicated credit extension cases;

E. Establishing policy of loan percentage on collateral, collateral appraisal, management and disposal in relation to credit extension;

F. Reporting to the senior management with regard to the summary of credit risk information.

In addition, each foreign operating entity of the First Group sets aside the loss reserve and appraises the assets quality, unless otherwise indicated by competent authorities of the domestic countries in which the subsidiaries reside, in conformity with risk management policy of each operating entity.

The significant subsidiaries of the First Group classify debt instruments and credit assets into 5 categories by referring to internal ratings and external rating institutions. Comparisons between the internal rating and external long-term rating scales are as follows:

No direct correlation between the internal rating of credit assets and external rating of debt investments has been shown in the following table, but merely shows two different rating scales of the same category.

Credit quality category

Internal rating of credit assets

The Debt investments External rating (Note) Taiwan rating

Low risk Level 1 to level 7 Above level BB Above level twBBB+

Medium risk Level 8 to level 9 Level BB- to level B+ (including the debt investments of non rating)

twBBB～twBB+

Medium-high risk Level 10 Level B twBB～twBB- High risk Level 11 to level 12 Level B- to level C twB+～twCCC+ Default Level 13 Level D (Note) These are ratings of Moody’s, Fitch and S&P.

Procedures and methods used in credit risk management for the core businesses of the First Group are as follows:

a. Credit business (including accounts receivable of lease business, loan commitments and guarantees of the lease subsidiaries):

Classification for credit assets and internal risk ratings are as follows:

(a) Credit asset classification

Credit assets are classified into five types. Other than normal credit assets shall be classified as Category One, the remaining unsound assets are assessed based on the collateral provided and the time period of overdue payment as follows: Category Two for assets requiring special mention. Category three for assets deemed recoverable. Category Four for assets that are doubtful. Category Five for assets that are not recoverable. In order to manage credit extension, the Bank and its subsidiaries established Operation Guidelines for Credit Extension Assets Risks, Regulations Governing the Setting Aside of Asset Losses Valuation and Non-Performing Loans, Guidelines for Claims Receivables, Standard Procedures for Collection of Overdue receivables as the principles for managing non-performing and overdue payments.

(b) Internal risk rating

In response to the characteristics and scale of business, the Bank and its subsidiaries implement a credit risk internal evaluation module or set up a credit rating table in order to management risk.

The Bank and its subsidiaries, mainly by the statistic and professional judgement of expertise and consideration of client information, developed an objective indicator for evaluating client’s credit risk. That is the “Borrower’s risk rating” of the Bank and its subsidiaries, among which 13 thresholds are set up based on the default possibility, and then divided into 5 sub-categories as follows:

I. Low risk: Level 1 to level 7 have a default rate lower than 2%. Clients in this threshold usually have ability to sustain the payment of interest and principal


154

even under the adverse impact of economic environment, and the default rate is low.

II. Medium risk: Level 8 to level 9 have a default rate ranging around 2-5%. Clients in this threshold usually have potential issues and adverse economic environment that could damage the borrower’s willingness and capacity to make the payment of interest and principal.

III. Medium-high risk: Level 10 has a default rate ranging around 5-10 . Clients’ ability to make the payment of interest and principal are relatively lower and easily affected by the economic fluctuation.

IV. High risk: Level 11 to level 12 have a default rate ranging from 10% and above to less than 100%. Clients’ ability the make the payment of interest and principal are extremely weak with a high possibility of default.

V. Default: Level 13 has a default rate of 100%. Definition of default includes interest or principal payments that have been overdue for more than 60 days, overdue or non-performing loans transferred, suspended interest, C Chart, debt negotiation records and others.

The Bank should perform credit rating to the corporations at least once a year and to those who sign a mid-long-term credit contract at least once a year during the contract term. Same applies to the collective credit extension. Credit rating mainly processed by investigation division and regional center that are independent from operating units and only cases with certain amount and below may be processed by operating units.

Petty loans and mortgage loans are assessed through internal credit rating module, and the rest of retail banking are assessed by experts. Methods used in rating credit for petty loans and mortgage loans are as follows:

I. Credit rating for petty loans:

The credit rating results, Possibility of Default (PD), Loss Given Default (LGD) and Expected Loss (EL) are assessed by credit evaluation module of the borrowers, from which 3 categories were divided as follows: “Passed the credit standard”, “Highly risky” and “Failed the credit rating standard”.

II. Credit rating for mortgage loans:

Possibility of default (PD), loss given default (LGD) and exposure at default (EAD) of the borrowers assessed by credit evaluation module are used to calculate the expected loss (EL). The expected loss (EL) together with cost of capital, operation cost, and service fee are integrated into information on cost aspect. In addition, information on income aspect such as interest income and service fee income are assessed based on the credit line and interest rate at the time the borrowers applied for loans to produce ‘expected profit’ (revenue minus cost) and expected loss. Based on the expected default frequency within the next year, the credit rating results are classified into four levels, which are ‘low risk’, ‘medium risk’, ‘medium-high risk’ and ‘high risk’, respectively.

2014 ANNUAL REPORT

155

even under the adverse impact of economic environment, and the default rate is low.

II. Medium risk: Level 8 to level 9 have a default rate ranging around 2-5%. Clients in this threshold usually have potential issues and adverse economic environment that could damage the borrower’s willingness and capacity to make the payment of interest and principal.

III. Medium-high risk: Level 10 has a default rate ranging around 5-10 . Clients’ ability to make the payment of interest and principal are relatively lower and easily affected by the economic fluctuation.

IV. High risk: Level 11 to level 12 have a default rate ranging from 10% and above to less than 100%. Clients’ ability the make the payment of interest and principal are extremely weak with a high possibility of default.

V. Default: Level 13 has a default rate of 100%. Definition of default includes interest or principal payments that have been overdue for more than 60 days, overdue or non-performing loans transferred, suspended interest, C Chart, debt negotiation records and others.

The Bank should perform credit rating to the corporations at least once a year and to those who sign a mid-long-term credit contract at least once a year during the contract term. Same applies to the collective credit extension. Credit rating mainly processed by investigation division and regional center that are independent from operating units and only cases with certain amount and below may be processed by operating units.

Petty loans and mortgage loans are assessed through internal credit rating module, and the rest of retail banking are assessed by experts. Methods used in rating credit for petty loans and mortgage loans are as follows:

I. Credit rating for petty loans:

The credit rating results, Possibility of Default (PD), Loss Given Default (LGD) and Expected Loss (EL) are assessed by credit evaluation module of the borrowers, from which 3 categories were divided as follows: “Passed the credit standard”, “Highly risky” and “Failed the credit rating standard”.

II. Credit rating for mortgage loans:

Possibility of default (PD), loss given default (LGD) and exposure at default (EAD) of the borrowers assessed by credit evaluation module are used to calculate the expected loss (EL). The expected loss (EL) together with cost of capital, operation cost, and service fee are integrated into information on cost aspect. In addition, information on income aspect such as interest income and service fee income are assessed based on the credit line and interest rate at the time the borrowers applied for loans to produce ‘expected profit’ (revenue minus cost) and expected loss. Based on the expected default frequency within the next year, the credit rating results are classified into four levels, which are ‘low risk’, ‘medium risk’, ‘medium-high risk’ and ‘high risk’, respectively.

b. Deposits and call loans

The Bank regularly reviews the limit (including limit of call loan) set up for every counterparty in the financial industry. The credit approval unit, with reference to credit risk limit granted based on long-term credit rating of external rating institutions, is responsible for individual assessment and implementation.

c. Debt investment and derivatives

The risk management of the Company’s and its subsidiaries’ debt instruments is based on credit rating of external institutions, credit quality of bonds, condition by geographical location and counterparty risk to identify the credit risk.

The counterparties of the derivative instruments are mostly financial institutions being rated at BB or above, and the credit extension (including the extension of call loan) granted to each financial institution counterparty is regularly reviewed and controlled by the credit granting segment. Those counterparties without credit rating or being rated below BB should apply risk limit to the credit granting segment by case which is then managed and controlled individually. If the counterparties are general clients, controlling is implemented through risk limits and conditions of derivatives as approved by general credit extension procedures to manage credit exposure of counterparties.

d. Margin trading and short selling

Credit risks of the subsidiary, FS are on margin trading and short selling, which are divided into clients’ credit extension and credit trade on highly risky securities. The credit facility on every client is assessed based on “Guidelines for Accounts Opening for Credit Trading and Investigation on Credit Management”. In addition, the corresponding facility in accordance with the client’s asset proof is granted through segregation, the trading limit on single client and single security are stringently defined.

The controlling mechanism in relation to the credit trading on high risk securities is processed in accordance with “Controlling Practice for Credit Trading Risks”, in which the definition of high risk securities as well as the controlling and authorization are detailed.

(C) Credit risk hedging and mitigation policy

a. Collateral

The banking subsidiary adopts a series of policies and measures to mitigate credit risks in relation to credit business, and one of the most common methods is requesting the borrower for the collateral. The Company sets up the scope of collateral that can be recovered and the appraisal, as well as the management and disposing procedures to ensure the credit right. On the other hand, the loan security, terms of collateral, conditions to writing-off are addressed in the credit extending contract. The reduced facility, shortened repayment period or whether or not a loan is deemed matured, writing-off the deposits of the borrower for his/her liabilities are all well defined to mitigate credit risk in case that the credit event does incur.


156

b. Credit risk limit and risk concentration control

The Bank complies with the Banking Act in relation to the provision of business credit to the same individual, the same related parties, or the same affiliated companies as well as residential architecture, corporate architecture. In order to effectively control credit risk concentration, the Bank sets up risk assumption limit by rating, industry types, groups, countries and listed securities based on risk management strategy, change in market environment, business complexity, and report to senior management regularly. Assessment and modification shall be performed to various credit risk assumption limit based on overall economic cycle, finance environment and business development strategy regularly (at least once a year) or irregularly.

c. Net settlement with gross agreement

The transactions of the Bank and its subsidiaries are usually carried out by gross settlement. Despite that, net settlement is signed in a form of agreement with some trading counterparties, and is executed when a default occurs and all transactions were to terminate in order to further mitigate credit risk.

(D) Maximum credit risk exposure and concentration of the First Group

Maximum credit risk exposure

The maximum risk exposure of assets in the consolidated balance sheet, without consideration of the collateral or other credit strengthening instruments, is equivalent to the carrying amount. The maximum credit risk exposure relating to accounts off the balance sheet (without consideration of collaterals or the maximum exposure of other credit enhancements) are the unused loan commitments, unused credit commitments for credit cards, unused letters of credit and other guaranteed commitments. As of December 31, 2014 and 2013, please see Note 9 for details.

The management of the First Group believes that through a series of stringent evaluation procedures and follow-up reviews afterwards, credit risk exposure off the balance sheet of the First Group can be minimized and continuously controlled.

Credit risk concentration of the credit assets in the balance sheet

The credit risks are deemed significantly concentrated when the financial instrument transactions significantly concentrate on a single person, or when there are multiple trading counterparties engaging in similar business activities with similar economic characteristics making the effects on their abilities of fulfilling the contractual obligation due to economy or other forces similar.

The credit risks of the First Group concentrate on accounts in and off balance sheet that occurs through obligation fulfilling or implementation of transactions (either products or services), or through trans-type exposure portfolio, including loans, placements and call loan from the banks, securities investment, receivables and derivatives. The nature that the debtor engages in could be a sign of credit risk concentration. The credit business of FCB and its subsidiaries is one of the core businesses; however, FCB does not significantly carry out transactions with single client or single counterparty, nor does any of total trading volume to a single client or a single counterparty account for more than 5% the balance of loans discounted and overdue receivable. The credit risk concentration of the bills discounted, overdue receivables and lease business of FCB and its subsidiaries by industry, location and collateral are shown as follows:

2014 ANNUAL REPORT

157

b. Credit risk limit and risk concentration control

The Bank complies with the Banking Act in relation to the provision of business credit to the same individual, the same related parties, or the same affiliated companies as well as residential architecture, corporate architecture. In order to effectively control credit risk concentration, the Bank sets up risk assumption limit by rating, industry types, groups, countries and listed securities based on risk management strategy, change in market environment, business complexity, and report to senior management regularly. Assessment and modification shall be performed to various credit risk assumption limit based on overall economic cycle, finance environment and business development strategy regularly (at least once a year) or irregularly.

c. Net settlement with gross agreement

The transactions of the Bank and its subsidiaries are usually carried out by gross settlement. Despite that, net settlement is signed in a form of agreement with some trading counterparties, and is executed when a default occurs and all transactions were to terminate in order to further mitigate credit risk.

(D) Maximum credit risk exposure and concentration of the First Group

Maximum credit risk exposure

The maximum risk exposure of assets in the consolidated balance sheet, without consideration of the collateral or other credit strengthening instruments, is equivalent to the carrying amount. The maximum credit risk exposure relating to accounts off the balance sheet (without consideration of collaterals or the maximum exposure of other credit enhancements) are the unused loan commitments, unused credit commitments for credit cards, unused letters of credit and other guaranteed commitments. As of December 31, 2014 and 2013, please see Note 9 for details.

The management of the First Group believes that through a series of stringent evaluation procedures and follow-up reviews afterwards, credit risk exposure off the balance sheet of the First Group can be minimized and continuously controlled.

Credit risk concentration of the credit assets in the balance sheet

The credit risks are deemed significantly concentrated when the financial instrument transactions significantly concentrate on a single person, or when there are multiple trading counterparties engaging in similar business activities with similar economic characteristics making the effects on their abilities of fulfilling the contractual obligation due to economy or other forces similar.

The credit risks of the First Group concentrate on accounts in and off balance sheet that occurs through obligation fulfilling or implementation of transactions (either products or services), or through trans-type exposure portfolio, including loans, placements and call loan from the banks, securities investment, receivables and derivatives. The nature that the debtor engages in could be a sign of credit risk concentration. The credit business of FCB and its subsidiaries is one of the core businesses; however, FCB does not significantly carry out transactions with single client or single counterparty, nor does any of total trading volume to a single client or a single counterparty account for more than 5% the balance of loans discounted and overdue receivable. The credit risk concentration of the bills discounted, overdue receivables and lease business of FCB and its subsidiaries by industry, location and collateral are shown as follows:

L

oans

dis

coun

ted,

ove

rdue

rec

eiva

ble

and

rece

ivab

le f

rom

lea

se b

usin

ess

of F

CB

and

its

sub

sidi

arie

s by

ind

ustr

y ar

e sh

own

as

follo

ws:

Dec

embe

r 31

, 201

4

D

ecem

ber

31, 2

013

In

dust

ry

A

mou

nt

%

Am

ount

%

Pri

vate

ent

erpr

ises

$

819,

954,

876

54.0

4 $

774,

338,

717

53.4

3 P

riva

te in

divi

dual

48

1,67

8,17

7 31

.74

468,

764,

649

32.3

5 O

vers

eas

and

othe

rs

175,

400,

546

11.5

6 13

2,65

2,67

0 9.

15

Gov

ernm

ent i

nsti

tuti

ons

35,4

65,8

31

2.34

64

,934

,855

4.

48

Sta

te-o

wne

d or

gani

zati

ons

3,00

6,13

2 0.

20

5,08

7,86

8 0.

35

Non

-pro

fit o

rgan

izat

ions

1,

688,

291

0.11

1,

858,

070

0.13

Fi

nanc

ial i

nsti

tuti

ons

15

8,35

0

0.01

1,62

3,01

0

0.11

T

otal

$

1,51

7,35

2,20

3

100.

00

$ 1,

449,

259,

839

10

0.00

L

oans

dis

coun

ted,

ove

rdue

rec

eiva

ble

and

rece

ivab

le f

rom

lea

se b

usin

ess

of t

he B

ank

and

its

subs

idia

ries

by

loca

tion

(N

ote)

are

sh

own

as f

ollo

ws:

Dec

embe

r 31

, 201

4

D

ecem

ber

31, 2

013

G

eogr

aphi

cal l

ocat

ion

A

mou

nt

%

Am

ount

%

Asi

a $

1,43

2,48

8,53

6 94

.41

$ 1,

370,

184,

404

94.5

5 N

orth

Am

eric

a 61

,865

,391

4.

08

56,4

38,3

21

3.89

E

urop

e

12,6

22,4

34

0.83

10

,860

,271

0.

75

Oce

ania

10,3

75,8

42

0.

68

11

,776

,843

0.81

T

otal

$

1,51

7,35

2,20

3

100.

00

$ 1,

449,

259,

839

10

0.00

Not

e: th

e ab

ove

geog

raph

ical

ana

lysi

s is

mad

e on

the

basi

s of

the

bran

ch o

f de

btor

.


158

L

oans

dis

coun

ted,

ove

rdue

rec

eiva

ble

and

rece

ivab

le f

rom

leas

e bu

sine

ss o

f th

e B

ank

and

its

subs

idia

ries

by

coll

ater

al a

re s

how

n as

fo

llow

s:

Dec

embe

r 31

, 201

4

D

ecem

ber

31, 2

013

C

olla

tera

l typ

e

Am

ount

%

A

mou

nt

%

U

nsec

ured

loan

s $

430,

905,

023

28.4

0 $

413,

044,

505

28.5

0 S

ecur

ed lo

ans

-Fin

anci

al c

olla

tera

l 24

,215

,254

1.

60

22,0

49,2

52

1.52

-R

ecei

vabl

es

34,6

87

- 15

,517

-

-Rea

l est

ate

748,

670,

286

49.3

4 72

0,64

4,13

3 49

.73

-Gua

rant

ee

87,6

41,7

02

5.77

85

,029

,337

5.

87

-Oth

er c

olla

tera

l 58

,226

,112

3.

84

60,5

04,6

80

4.17

O

vers

eas

and

othe

rs

16

7,65

9,13

9

11.0

5

147,

972,

415

10

.21

Tot

al

$ 1,

517,

352,

203

10

0.00

$

1,44

9,25

9,83

9

100.

00

(A

) A

naly

sis

on q

uali

ty a

nd o

verd

ue im

pair

men

t of

fina

ncia

l ass

ets

of th

e Fi

rst G

roup

:

Cer

tain

fin

anci

al a

sset

s he

ld b

y th

e Fi

rst

Gro

up s

uch

as c

ash

and

cash

equ

ival

ents

, fi

nanc

ial

asse

ts a

t fa

ir v

alue

thr

ough

pro

fit

and

loss

, bi

lls a

nd b

onds

und

er r

esal

e ag

reem

ent,

refu

ndab

le d

epos

its,

ope

rati

ng d

epos

its,

and

set

tlem

ent

fund

and

so

on,

whi

le t

he

coun

terp

artie

s ha

ve g

ood

cred

it r

atin

g, th

e cr

edit

ris

ks a

re d

eem

ed e

xtre

mel

y lo

w. A

s a

resu

lt, t

hese

fin

anci

al a

sset

s ar

e no

t inc

lude

d in

the

anal

ysis

on

cred

it r

isk

qual

ity.

2014 ANNUAL REPORT

159

L

oans

dis

coun

ted,

ove

rdue

rec

eiva

ble

and

rece

ivab

le f

rom

leas

e bu

sine

ss o

f th

e B

ank

and

its

subs

idia

ries

by

coll

ater

al a

re s

how

n as

fo

llow

s:

Dec

embe

r 31

, 201

4

D

ecem

ber

31, 2

013

C

olla

tera

l typ

e

Am

ount

%

A

mou

nt

%

U

nsec

ured

loan

s $

430,

905,

023

28.4

0 $

413,

044,

505

28.5

0 S

ecur

ed lo

ans

-Fin

anci

al c

olla

tera

l 24

,215

,254

1.

60

22,0

49,2

52

1.52

-R

ecei

vabl

es

34,6

87

- 15

,517

-

-Rea

l est

ate

748,

670,

286

49.3

4 72

0,64

4,13

3 49

.73

-Gua

rant

ee

87,6

41,7

02

5.77

85

,029

,337

5.

87

-Oth

er c

olla

tera

l 58

,226

,112

3.

84

60,5

04,6

80

4.17

O

vers

eas

and

othe

rs

16

7,65

9,13

9

11.0

5

147,

972,

415

10

.21

Tot

al

$ 1,

517,

352,

203

10

0.00

$

1,44

9,25

9,83

9

100.

00

(A

) A

naly

sis

on q

uali

ty a

nd o

verd

ue im

pair

men

t of

fina

ncia

l ass

ets

of th

e Fi

rst G

roup

:

Cer

tain

fin

anci

al a

sset

s he

ld b

y th

e Fi

rst

Gro

up s

uch

as c

ash

and

cash

equ

ival

ents

, fi

nanc

ial

asse

ts a

t fa

ir v

alue

thr

ough

pro

fit

and

loss

, bi

lls a

nd b

onds

und

er r

esal

e ag

reem

ent,

refu

ndab

le d

epos

its,

ope

rati

ng d

epos

its,

and

set

tlem

ent

fund

and

so

on,

whi

le t

he

coun

terp

artie

s ha

ve g

ood

cred

it r

atin

g, th

e cr

edit

ris

ks a

re d

eem

ed e

xtre

mel

y lo

w. A

s a

resu

lt, t

hese

fin

anci

al a

sset

s ar

e no

t inc

lude

d in

the

anal

ysis

on

cred

it r

isk

qual

ity.

O

ther

than

the

abov

emen

tion

ed it

ems,

cre

dit q

uali

ty a

naly

sis

for

the

rest

of

fina

ncia

l ass

ets

is a

s fo

llow

s:

a. T

he c

redi

t ris

k qu

alit

y of

loan

s di

scou

nted

(in

clud

ing

loan

s an

d de

riva

tive

rec

eiva

bles

), r

ecei

vabl

es (

incl

udin

g cl

aim

s re

cove

rabl

e fr

om r

eins

urer

s) a

nd s

ecur

ities

inve

stm

ent:

Dec

embe

r 31

, 201

4

Pos

ition

s th

at a

re n

eith

er p

ast d

ue n

or im

pair

ed

P

ositi

ons

that

are

pas

t du

e bu

t not

im

pair

ed(B

)

Impa

ired

am

ount

(C

)

Tot

al

Rec

ogni

zed

loss

es(D

) N

et

Low

ris

k M

ediu

m r

isk

Med

ium

- hig

h ri

sk

Hig

h ri

sk

Sub

tota

l (A

) (A

)+(B

)+(C

)

Wit

h in

divi

dual

im

pair

ed

evid

ence

Wit

h no

in

divi

dual

im

pair

ed

evid

ence

(A)+

(B)+

(C)-

(D)

Rec

eiva

bles

$

193,

761,

607

$ - $

- $

- $

19

3,76

1,60

7 $

91 $

1,

225,

809

$ 19

4,98

7,50

7 $

616,

221

$ 32

7,11

6 $

194,

044,

170

Loa

ns d

isco

unte

d 1,

060,

492,

861

412,

844,

165

23,1

49,0

87

17,1

42,6

61

1,51

3,62

8,77

4 5,

835,

880

21,8

34,5

41

1,54

1,29

9,19

5 4,

373,

088

16,1

61,1

71

1,52

0,76

4,93

6

Tot

al

$ 1,

254,

254,

468

$ 41

2,84

4,16

5 $

23,1

49,0

87 $

17

,142

,661

$

1,70

7,39

0,38

1 $

5,83

5,97

1 $

23,0

60,3

50 $

1,

736,

286,

702

$ 4,

989,

309

$ 16

,488

,287

$

1,71

4,80

9,10

6

Dec

embe

r 31

, 201

4

Pos

ition

s th

at a

re n

eith

er p

ast d

ue n

or im

pair

ed

P

ositi

ons

that

are

pas

t du

e bu

t not

im

pair

ed(B

)

Impa

ired

am

ount

(C

)

Tot

al

Rec

ogni

zed

loss

es(D

)

Net

Low

ris

k M

ediu

m r

isk

Med

ium

- hig

h ri

sk

Hig

h ri

sk

Sub

tota

l (A

) (A

)+(B

)+(C

) (A

)+(B

)+(C

)-(D

)

Ava

ilab

le-f

or-s

ale

fina

ncia

l ass

ets

-Bon

ds in

vest

men

t $

68,4

12,0

56 $

1,

013,

711

$ - $

- $

69

,425

,767

$

- $

- $

69,4

25,7

67 $

- $

69

,425

,767

-Oth

ers

2,26

4,06

1 -

- -

2,26

4,06

1 -

- 2,

264,

061

- 2,

264,

061

Hel

d-to

-mat

urit

y fi

nanc

ial a

sset

s

-Cer

tifi

cate

s of

tim

e de

posi

t pur

chas

ed

247,

465,

000

- -

- 24

7,46

5,00

0 -

- 24

7,46

5,00

0 -

247,

465,

000

- B

onds

inve

stm

ent

57,1

44,3

16

1,44

1,18

8 -

- 58

,585

,504

-

- 58

,585

,504

-

58,5

85,5

04

-Oth

ers

635,

019

939,

785

- -

1,57

4,80

4 -

- 1,

574,

804

- 1,

574,

804

Oth

er f

inan

cial

ass

ets

-Bon

ds in

vest

men

t 2,

277,

236

300,

000

- -

2,57

7,23

6 -

- 2,

577,

236

- 2,

577,

236

-Inv

estm

ent d

epos

its

20,6

96,8

46

-

20

,696

,846

20

,696

,846

20,6

96,8

46

Tot

al

$ 39

8,89

4,53

4 $

3,69

4,68

4 $

- $

- $

402,

589,

218

$ - $

- $

40

2,58

9,21

8 $

- $

402,

589,

218


160

Dec

embe

r 31

, 201

3

Pos

ition

s th

at a

re n

eith

er p

ast d

ue n

or im

pair

ed

Pos

ition

s th

at a

re p

ast

due

but n

ot

impa

ired

(B)

Impa

ired

am

ount

(C

)

Tot

al

Rec

ogni

zed

loss

es(D

) N

et

Low

ris

k M

ediu

m r

isk

Med

ium

-hig

h ri

sk

Hig

h ri

sk

Sub

tota

l (A

) (A

)+(B

)+(C

)

Wit

h in

divi

dual

im

pair

ed

evid

ence

Wit

h no

in

divi

dual

im

pair

ed

evid

ence

(A

)+(B

)+(C

)-(D

)

Rec

eiva

bles

$

178,

478,

965

$ - $

- $

- $

17

8,47

8,96

5 $

- $

1,74

4,98

5 $

180,

223,

950

$ 96

9,11

9 $

288,

982

$ 17

8,96

5,84

9

Loa

ns d

isco

unte

d 1,

013,

901,

952

378,

357,

309

31,7

40,1

34

14,8

60,3

29

1,43

8,85

9,72

4 4,

626,

658

36,7

73,6

29

1,48

0,26

0,01

1 7,

250,

103

10,9

48,4

99

1,46

2,06

1,40

9

Tot

al

$ 1,

192,

380,

917

$ 37

8,35

7,30

9 $

31,7

40,1

34 $

14

,860

,329

$

1,61

7,33

8,68

9 $

4,62

6,65

8 $

38,5

18,6

14 $

1,

660,

483,

961

$ 8,

219,

222

$ 11

,237

,481

$

1,64

1,02

7,25

8

Dec

embe

r 31

, 201

3

Pos

ition

s th

at a

re n

eith

er p

ast d

ue n

or im

pair

ed

P

ositi

ons

that

are

pas

t du

e bu

t not

im

pair

ed(B

)

Impa

ired

am

ount

(C

)

Tot

al

Rec

ogni

zed

loss

es(D

)

Net

Low

ris

k M

ediu

m r

isk

Med

ium

- hig

h ri

sk

Hig

h ri

sk

Sub

tota

l (A

) (A

)+(B

)+(C

) (A

)+(B

)+(C

)-(D

)

Ava

ilab

le-f

or-s

ale

fina

ncia

l ass

ets

-Bon

ds in

vest

men

t $

79,1

13,7

64 $

1,

195,

839

$ - $

- $

80

,309

,603

$

- $

- $

80,3

09,6

03 $

- $

80

,309

,603

-Oth

ers

2,34

7,50

0 -

- -

2,34

7,50

0 -

- 2,

347,

500

- 2,

347,

500

Hel

d-to

-mat

urit

y fi

nanc

ial a

sset

s

-Cer

tifi

cate

s of

tim

e de

posi

t pur

chas

ed

249,

045,

000

- -

- 24

9,04

5,00

0 -

- 24

9,04

5,00

0 -

249,

045,

000

- B

onds

inve

stm

ent

49,5

12,6

36

4,63

7,68

6 -

- 54

,150

,322

-

- 54

,150

,322

-

54,1

50,3

22

-Oth

ers

915,

639

- -

- 91

5,63

9 -

- 91

5,63

9 -

915,

639

Oth

er f

inan

cial

ass

ets

-Bon

ds in

vest

men

t 2,

058,

031

- -

- 2,

058,

031

- -

2,05

8,03

1 -

2,05

8,03

1

-Inr

estm

ent d

epos

its

23,2

23,7

51

- -

- 23

,223

,751

-

- 23

,223

,751

-

23,2

23,7

51

Tot

al

$ 40

6,21

6,32

1 $

5,83

3,52

5 $

- $

- $

412,

049,

846

$ - $

- $

41

2,04

9,84

6 $

- $

412,

049,

846

2014 ANNUAL REPORT

161

Dec

embe

r 31

, 201

3

Pos

ition

s th

at a

re n

eith

er p

ast d

ue n

or im

pair

ed

Pos

ition

s th

at a

re p

ast

due

but n

ot

impa

ired

(B)

Impa

ired

am

ount

(C

)

Tot

al

Rec

ogni

zed

loss

es(D

) N

et

Low

ris

k M

ediu

m r

isk

Med

ium

-hig

h ri

sk

Hig

h ri

sk

Sub

tota

l (A

) (A

)+(B

)+(C

)

Wit

h in

divi

dual

im

pair

ed

evid

ence

Wit

h no

in

divi

dual

im

pair

ed

evid

ence

(A

)+(B

)+(C

)-(D

)

Rec

eiva

bles

$

178,

478,

965

$ - $

- $

- $

17

8,47

8,96

5 $

- $

1,74

4,98

5 $

180,

223,

950

$ 96

9,11

9 $

288,

982

$ 17

8,96

5,84

9

Loa

ns d

isco

unte

d 1,

013,

901,

952

378,

357,

309

31,7

40,1

34

14,8

60,3

29

1,43

8,85

9,72

4 4,

626,

658

36,7

73,6

29

1,48

0,26

0,01

1 7,

250,

103

10,9

48,4

99

1,46

2,06

1,40

9

Tot

al

$ 1,

192,

380,

917

$ 37

8,35

7,30

9 $

31,7

40,1

34 $

14

,860

,329

$

1,61

7,33

8,68

9 $

4,62

6,65

8 $

38,5

18,6

14 $

1,

660,

483,

961

$ 8,

219,

222

$ 11

,237

,481

$

1,64

1,02

7,25

8

Dec

embe

r 31

, 201

3

Pos

ition

s th

at a

re n

eith

er p

ast d

ue n

or im

pair

ed

P

ositi

ons

that

are

pas

t du

e bu

t not

im

pair

ed(B

)

Impa

ired

am

ount

(C

)

Tot

al

Rec

ogni

zed

loss

es(D

)

Net

Low

ris

k M

ediu

m r

isk

Med

ium

-hig

h ri

sk

Hig

h ri

sk

Sub

tota

l (A

) (A

)+(B

)+(C

) (A

)+(B

)+(C

)-(D

)

Ava

ilab

le-f

or-s

ale

fina

ncia

l ass

ets

-Bon

ds in

vest

men

t $

79,1

13,7

64 $

1,

195,

839

$ - $

- $

80

,309

,603

$

- $

- $

80,3

09,6

03 $

- $

80

,309

,603

-Oth

ers

2,34

7,50

0 -

- -

2,34

7,50

0 -

- 2,

347,

500

- 2,

347,

500

Hel

d-to

-mat

urit

y fi

nanc

ial a

sset

s

-Cer

tifi

cate

s of

tim

e de

posi

t pur

chas

ed

249,

045,

000

- -

- 24

9,04

5,00

0 -

- 24

9,04

5,00

0 -

249,

045,

000

- B

onds

inve

stm

ent

49,5

12,6

36

4,63

7,68

6 -

- 54

,150

,322

-

- 54

,150

,322

-

54,1

50,3

22

-Oth

ers

915,

639

- -

- 91

5,63

9 -

- 91

5,63

9 -

915,

639

Oth

er f

inan

cial

ass

ets

-Bon

ds in

vest

men

t 2,

058,

031

- -

- 2,

058,

031

- -

2,05

8,03

1 -

2,05

8,03

1

-Inr

estm

ent d

epos

its

23,2

23,7

51

- -

- 23

,223

,751

-

- 23

,223

,751

-

23,2

23,7

51

Tot

al

$ 40

6,21

6,32

1 $

5,83

3,52

5 $

- $

- $

412,

049,

846

$ - $

- $

41

2,04

9,84

6 $

- $

412,

049,

846

b. In relation to loans discounted of the First Group that were neither past due nor impaired, the

credit quality analysis is based on the credit quality rating by client:

December 31, 2014 Positions that are neither past due nor impaired

Low risk Medium risk Medium-high

risk High risk Total

Receivables $ 193,761,607 $ - $ - $ - $ 193,761,607 Credit card business 4,058,246 595,839 378,918 237,541 5,270,544 Consumer banking 403,476,869 3,920,396 715,473 156,984 408,269,722 Corporate banking 635,235,543 268,149,868 22,054,696 16,748,136 942,188,243 Overseas and others 17,722,203 140,178,062 - - 157,900,265 Total $ 1,254,254,468 $ 412,844,165 $ 23,149,087 $ 17,142,661 $ 1,707,390,381

December 31, 2013 Positions that are neither past due nor impaired

Low risk Medium risk Medium-high

risk High risk Total

Receivables $ 178,478,965 $ - $ - $ - $ 178,478,965 Credit card business 3,474,124 515,546 417,454 234,274 4,641,398 Consumer banking 400,111,514 3,877,414 793,537 183,438 404,965,903 Corporate banking 594,792,060 256,131,951 30,529,143 14,442,617 895,895,771 Overseas and others 15,524,254 117,832,398 - - 133,356,652 Total $ 1,192,380,917 $ 378,357,309 $ 31,740,134 $ 14,860,329 $ 1,617,338,689

c. Aging analysis of overdue financial assets with no impairment of the First Group:

The delayed processing of the borrower and other administrative reasons may give rise to an overdue financial asset with no impairment. According to the internal risk management policy of the First Group, financial assets overdue for less than 90 days are usually not deemed impaired unless other evidence indicates otherwise.

Aging analysis of the overdue financial assets with no impairment of the First Group:

Items December 31, 2014

Overdue for less than 1 month

Overdue for 1~3 months Total

Receivables $ - $ 91 $ 91 Loans discounted

Credit card business 11,228 26,394 37,622 Consumer banking 2,013,252 515,694 2,528,946 Corporate banking 3,121,234 148,078 3,269,312

Total $ 5,145,714 $ 690,257 $ 5,835,971

Items December 31, 2013

Overdue for less than 1 month

Overdue for 1~3 months

Total

Loans discounted Credit card business $ 5,053 $ 30,227 $ 35,280 Consumer banking 2,612,908 580,279 3,193,187 Corporate banking 1,068,318 329,873 1,398,191

Total $ 3,686,279 $ 940,379 $ 4,626,658


162

d. A

naly

sis

of im

pair

ed f

inan

cial

ass

ets

of th

e Fi

rst G

roup

Item

s L

oans

dis

coun

ted

Impa

ired

am

ount

D

ecem

ber

31,

2014

D

ecem

ber

31,

2014

Wit

h in

divi

dual

ob

ject

ive

evid

ence

of

impa

irm

ent

Indi

vidu

al

asse

ssm

ent

Cor

pora

te lo

ans-

secu

red

$ 14

,449

,712

$

2,96

6,98

5 R

esid

enti

al m

ortg

age

loan

s 13

2,86

6 1,

346

Ove

rsea

s an

d ot

hers

(N

ote)

4,

344,

358

647,

551

Col

lect

ive

asse

ssm

ent

Cor

pora

te lo

ans-

secu

red

1,28

8,01

6 36

5,18

5 R

esid

enti

al m

ortg

age

loan

s 1,

352,

564

277,

204

Ove

rsea

s an

d ot

hers

(N

ote)

26

7,02

5 11

4,81

7 W

itho

ut in

divi

dual

ob

ject

ive

evid

ence

of

impa

irm

ent

Col

lect

ive

asse

ssm

ent

Cor

pora

te lo

ans-

secu

red

945,

387,

531

9,77

8,22

6 R

esid

enti

al m

ortg

age

loan

s 39

0,54

0,83

2 4,

837,

539

Ove

rsea

s an

d ot

hers

(N

ote)

18

3,53

6,29

1 1,

545,

406

Tot

al

1,54

1,29

9,19

5 20

,534

,259

Item

s L

oans

dis

coun

ted

Impa

ired

am

ount

D

ecem

ber

31,

2013

D

ecem

ber

31, 2

013

Wit

h in

divi

dual

ob

ject

ive

evid

ence

of

impa

irm

ent

Indi

vidu

al

asse

ssm

ent

Cor

pora

te lo

ans-

secu

red

$ 27

,113

,817

$

4,65

4,82

0 R

esid

enti

al m

ortg

age

loan

s 10

6,39

8 52

3 O

vers

eas

and

othe

rs (

Not

e)

5,23

0,50

8 1,

015,

856

Col

lect

ive

asse

ssm

ent

Cor

pora

te lo

ans-

secu

red

2,54

7,56

0 1,

135,

134

Res

iden

tial

mor

tgag

e lo

ans

1,45

2,80

5 32

1,37

7 O

vers

eas

and

othe

rs (

Not

e)

316,

300

122,

393

Wit

hout

indi

vidu

al

obje

ctiv

e ev

iden

ce o

f im

pair

men

t

Col

lect

ive

asse

ssm

ent

Cor

pora

te lo

ans-

secu

red

887,

445,

232

7,56

2,70

2 R

esid

enti

al m

ortg

age

loan

s 39

1,98

6,34

7 1,

990,

481

Ove

rsea

s an

d ot

hers

(N

ote)

16

4,06

1,04

4 1,

395,

316

Tot

al

1,48

0,26

0,01

1 18

,198

,602

N

ote

: Oth

er in

clud

ing

smal

l am

ount

of

cred

it lo

ans,

con

sum

er b

anki

ng, c

ash

card

and

cre

dit c

ard

and

cred

it c

ard

serv

ices

and

so

on.

2014 ANNUAL REPORT

163

Item

s T

otal

rec

eiva

bles

Im

pair

ed a

mou

nt

Dec

embe

r 31

, 20

13

Dec

embe

r 31

, 201

3 W

ith

indi

vidu

al o

bjec

tive

evi

denc

e of

im

pair

men

t In

divi

dual

ass

essm

ent

Rec

eiva

bles

$

10,6

62,0

21 $

61

3,41

1 O

vers

eas

and

othe

rs

19,1

40

2,81

0 W

itho

ut in

divi

dual

obj

ecti

ve e

vide

nce

of im

pair

men

t C

olle

ctiv

e as

sess

men

t R

ecei

vabl

es

129,

029,

197

163,

658

Ove

rsea

s an

d ot

hers

55

,277

,149

16

3,45

8 T

otal

$

194,

987,

507

$ 94

3,33

7

Item

s T

otal

rec

eiva

bles

Im

pair

ed a

mou

nt

Dec

embe

r 31

, 20

13

Dec

embe

r 31

, 201

3 W

ith

indi

vidu

al o

bjec

tive

evi

denc

e of

im

pair

men

t In

divi

dual

ass

essm

ent

Rec

eiva

bles

$

1,

394,

784

$

96

6,47

6

Ove

rsea

s an

d ot

hers

61,

369

2,

643

W

itho

ut in

divi

dual

obj

ecti

ve e

vide

nce

of im

pair

men

t C

olle

ctiv

e as

sess

men

t R

ecei

vabl

es

12

6,84

5,53

0

8

2,92

8

Ove

rsea

s an

d ot

hers

51,

922,

267

206,

054

T

otal

$

180,

223,

950

$

1,25

8,10

1

(F

) P

olic

y fo

r as

sum

ed c

olla

tera

l man

agem

ent

The

col

late

rals

ass

umed

by

the

Firs

t G

roup

on

Dec

embe

r 31

, 20

14 a

nd 2

013

are

of t

he n

atur

e of

lan

d an

d pr

oper

ty a

nd t

he c

arry

ing

amou

nts

wer

e $0

and

$6,

279,

res

pect

ivel

y.

The

ass

umed

col

late

ral

shal

l be

dis

pose

d on

ce i

t is

dis

posa

ble

and

the

proc

eeds

of

disp

osal

sha

ll b

e us

ed t

o of

fset

the

rem

aini

ng u

npai

d lo

an.

Col

late

rals

are

cla

ssif

ied

unde

r ot

her

asse

ts in

the

cons

olid

ated

bal

ance

she

et.


164

(G)D

iscl

osur

es m

ade

in a

ccor

danc

e w

ith th

e R

egul

atio

ns G

over

ning

the

Prep

arat

ion

of F

inan

cial

Rep

orts

by

Fina

ncia

l Hol

ding

s C

ompa

nies

a. A

sset

qua

lity

of

the

FCB

D

ate

& y

ear

Dec

embe

r 31

, 201

4 B

usin

ess

/ Ite

ms

Non

-per

form

ing

loan

s (N

ote

1)

Gro

ss lo

ans

Non

-per

form

ing

loan

ra

tio (

%)

(Not

e 2)

A

llow

ance

for

do

ubtf

ul a

ccou

nts

Cov

erag

e ra

tio

(Not

e 3)

C

orpo

rate

B

anki

ng

Secu

red

loan

s $

1,84

0,97

7 $

596,

935,

847

0.31

% $

7,

575,

359

411.

49%

U

nsec

ured

loan

s 41

5,14

9 49

6,97

4,85

6 0.

08%

5,

839,

080

1406

.50%

Con

sum

er

Ban

king

Res

iden

tial m

ortg

age

loan

s (N

ote

4)

678,

218

392,

081,

712

0.17

%

6,41

2,49

8 94

5.49

%

Cas

h ca

rds

36

6,05

4 0.

59%

28

9 80

2.78

%

Mic

ro c

redi

t loa

ns (

Not

e 5)

9,

351

4,94

6,69

2 0.

19%

72

,156

77

1.64

%

Oth

ers

(Not

e 6)

Secu

red

7,48

1 16

,116

,629

0.

05%

18

8,68

4 25

22.1

8%

Uns

ecur

ed

- 40

,374

-

997

- G

ross

loan

s bu

sine

ss

2,95

1,21

2 1,

507,

102,

164

0.20

%

20,0

89,0

63

680.

71%

Non

-per

form

ing

loan

s B

alan

ce o

f re

ceiv

able

s N

on-p

erfo

rmin

g lo

an

ratio

(%

) A

llow

ance

for

do

ubtf

ul a

ccou

nts

Cov

erag

e ra

tio

Cre

dit c

ard

serv

ices

10

,749

5,

500,

769

0.20

%

126,

444

1176

.33%

W

ithou

t rec

ours

e fa

ctor

ing

(Not

e 7)

-

4,82

9,87

4 -

97,5

81

-

D

ate

& y

ear

Dec

embe

r 31

, 201

3 B

usin

ess

/ Ite

ms

Non

-per

form

ing

loan

s (N

ote

1)

Gro

ss lo

ans

Non

-per

form

ing

loan

ra

tio (

%)

(Not

e 2)

A

llow

ance

for

do

ubtf

ul a

ccou

nts

Cov

erag

e ra

tio

(Not

e 3)

C

orpo

rate

B

anki

ng

Secu

red

loan

s $

3,98

8,31

7 $

555,

511,

630

0.72

% $

6,

076,

449

152.

36%

U

nsec

ured

loan

s 2,

118,

519

473,

357,

965

0.45

%

7,55

5,41

2 35

6.64

%

Con

sum

er

Ban

king

Res

iden

tial m

ortg

age

loan

s (N

ote

4)

640,

707

393,

822,

028

0.16

%

3,89

4,94

9 60

7.91

%

Cas

h ca

rds

36

8,42

3 0.

43%

32

5 90

2.78

%

Mic

ro c

redi

t loa

ns (

Not

e 5)

16

,771

5,

616,

870

0.30

%

89,9

97

536.

62%

Oth

ers

(Not

e 6)

Secu

red

5,03

5 11

,511

,479

0.

04%

11

1,13

2 22

07.1

9%

Uns

ecur

ed

5,03

2 53

,045

9.

49%

2,

176

43.2

4%

Gro

ss lo

ans

busi

ness

6,

774,

417

1,43

9,88

1,44

0 0.

47%

17

,730

,440

26

1.73

%

N

on-p

erfo

rmin

g lo

ans

Bal

ance

of

rece

ivab

les

Non

-per

form

ing

loan

ra

tio (

%)

Allo

wan

ce f

or

doub

tful

acc

ount

s C

over

age

ratio

Cre

dit c

ard

serv

ices

7,

794

4,88

1,14

4 0.

16%

13

6,48

8 17

51.1

9%

With

out r

ecou

rse

fact

orin

g (N

ote

7)

- 13

,618

,616

-

78,2

59

-

2014 ANNUAL REPORT

165

Exp

lana

tion:

(a)

The

am

ount

rec

ogni

zed

as n

on-p

erfo

rmin

g lo

ans

is in

com

plia

nce

with

the

“Reg

ulat

ions

Gov

erni

ng th

e Pr

oced

ures

for B

anki

ng In

stitu

tions

to E

valu

ate

Ass

ets

and

Dea

l w

ith

Non

-per

form

ing/

Non

-acc

rual

Loa

ns”.

The

am

ount

inc

lude

d in

ove

rdue

acc

ount

s fo

r cr

edit

card

s is

in

com

plia

nce

with

the

Ban

king

Bur

eau

(4)

Let

ter

No.

09

4400

0378

dat

ed J

uly

6, 2

005.

(b)

Non

-per

form

ing

loan

rat

io=

non-

perf

orm

ing

loan

s/gr

oss

loan

s. N

on-p

erfo

rmin

g lo

an r

atio

of

cred

it ca

rds

Non

-per

form

ing

loan

rat

io o

f cr

edit

card

s /b

alan

ce o

f ac

coun

ts r

ecei

vabl

e.

(c)

Cov

erag

e ra

tio

for

loan

s=al

low

ance

for

dou

btfu

l acc

ount

s of

loan

s/no

n-pe

rfor

min

g lo

ans.

Cov

erag

e ra

tio f

or a

ccou

nts

rece

ivab

le o

f cr

edit

card

sal

low

ance

for

dou

btfu

l ac

coun

ts f

or a

ccou

nts

rece

ivab

le o

f cr

edit

card

s/ N

on-p

erfo

rmin

g lo

an r

atio

of

cred

it ca

rds.

(d)

For

resi

dent

ial m

ortg

age

loan

s, th

e bo

rrow

er p

rovi

des

his/

her (

or s

pous

e’s

or m

inor

chi

ld’s

) hou

se a

s co

llate

ral i

n fu

ll an

d m

ortg

ages

it to

the

fina

ncia

l in

stit

utio

n fo

r th

e pu

rpos

e of

obt

aini

ng f

unds

to p

urch

ase

or a

dd im

prov

emen

ts to

ow

n ho

use.

(e)

Sm

all

amou

nt o

f cr

edit

loan

s ap

ply

to t

he n

orm

s of

the

Ban

king

Bur

eau

(4)

Let

ter

No.

094

4001

0950

dat

ed D

ecem

ber

19,

2005

, ex

clud

ing

cred

it ca

rd a

nd c

ash

card

se

rvic

es.

(f)

Oth

er c

onsu

mer

ban

king

is s

peci

fied

as

secu

red

or u

nsec

ured

con

sum

er lo

ans

othe

r th

an r

esid

entia

l m

ortg

age

loan

s, c

ash

card

ser

vice

s an

d sm

all a

mou

nt o

f cr

edit

loan

s,

and

excl

udin

g cr

edit

card

ser

vice

s.

(g)

Pur

suan

t to

the

Jin

-Gua

n-Y

i (5

) L

ette

r N

o. 0

9400

0494

dat

ed J

uly

19,

2005

am

ount

of

wit

hout

rec

ours

e fa

ctor

ing

will

be

reco

gniz

ed a

s ov

erdu

e ac

coun

ts w

ithi

n th

ree

mon

ths

afte

r th

e fa

ctor

or

insu

ranc

e co

mpa

ny r

esol

ves

not t

o co

mpe

nsat

e th

e lo

ss.


166

b.

Non

-per

form

ing

loan

s an

d ov

erdu

e re

ceiv

able

s ex

empt

ed f

rom

rep

ortin

g to

the

com

pete

nt a

utho

rity

Non

-per

form

ing

loan

s an

d ov

erdu

e re

ceiv

able

s ex

empt

ed f

rom

rep

ortin

g

D

ecem

ber

31, 2

014

T

otal

am

ount

of

non-

perf

orm

ing

loan

s ex

empt

ed f

rom

rep

ortin

g to

the

com

pete

nt a

utho

rity

Tot

al a

mou

nt o

f ov

erdu

e re

ceiv

able

s ex

empt

ed f

rom

re

port

ing

to th

e co

mpe

tent

aut

hori

ty

Am

ount

s ex

empt

ed f

rom

rep

ortin

g to

the

com

pete

nt a

utho

rity

un

der

debt

neg

otia

tion

and

the

cont

ract

(N

ote

(a))

$

3,21

3 $

49,6

55

Per

form

in a

ccor

danc

e w

ith

debt

liqu

idat

ion

prog

ram

and

re

stru

ctur

ing

prog

ram

(N

ote

(b))

50

,100

12

0,22

8 T

otal

$

53,3

13

$ 16

9,88

3

D

ecem

ber

31, 2

013

T

otal

am

ount

of

non-

perf

orm

ing

loan

s ex

empt

ed f

rom

rep

ortin

g to

the

com

pete

nt a

utho

rity

Tot

al a

mou

nt o

f ov

erdu

e re

ceiv

able

s ex

empt

ed f

rom

re

port

ing

to th

e co

mpe

tent

aut

hori

ty

Am

ount

s ex

empt

ed f

rom

rep

ortin

g to

the

com

pete

nt a

utho

rity

un

der

debt

neg

otia

tion

and

the

cont

ract

(N

ote

(a))

$

5,01

7 $

66,0

80

Per

form

in a

ccor

danc

e w

ith

debt

liqu

idat

ion

prog

ram

and

re

stru

ctur

ing

prog

ram

(N

ote

(b))

48

,793

11

8,32

2 T

otal

$

53,8

10

$ 18

4,40

2 E

xpla

nati

on:

(a)

The

Ban

k di

sclo

sed

the

tota

l am

ount

of

non-

perf

orm

ing

loan

s an

d ov

erdu

e re

ceiv

able

s ex

empt

ed f

rom

rep

ortin

g to

the

com

pete

nt a

utho

rity

as

deb

t neg

otia

tion

in a

ccor

danc

e w

ith th

e Ji

n-G

uan-

Yi L

ette

r (1

) N

o. 0

9510

0012

70 o

f th

e FS

C d

ated

Apr

il 2

5, 2

006.

(b)

The

Ban

k di

sclo

sed

the

tota

l am

ount

of

non-

perf

orm

ing

loan

s an

d ov

erdu

e re

ceiv

able

s ex

empt

ed f

rom

rep

ortin

g to

the

com

pete

nt a

utho

rity

as

deb

t li

quid

atio

n pr

ogra

m a

nd r

estr

uctu

ring

pro

gram

in

acco

rdan

ce w

ith t

he J

in-G

uan-

Yi

Let

ter

Jin-

Gua

n-Y

in (

1) N

o. 0

9700

3189

40 o

f th

e FS

C d

ated

Sep

tem

ber

15, 2

008.

2014 ANNUAL REPORT

167

c. Profile of concentration of credit risk and credit extensions of the FCB

December 31, 2014

Ranking (Note І) Type of industry (Note П)

Total outstanding loan amount (Note Ш)

Total outstanding loan amount/FCB net worth of the

current year (%)(Note IV)

1 A. Group Air Transportation $ 21,498,630 14.03% 2 B. Group Visual Display and Terminal

Service Manufacturing 15,037,812 9.82%

3 C. Group-Petroleum and Coal Products Manufacturing

14,946,777 9.76%

4 D. Group Liquid Crystal Panel and Components Manufacturing

13,678,530 8.93%

5 E. Group Iron and Steel Rolls over Extends and Crowding

10,311,498 6.73%

6 F. Group Unclassified Other Financial Intermediation

10,099,152 6.59%

7 G. Man-made fiber spinning industry 9,319,721 6.08% 8 H. Group Investment Consultation 9,078,442 5.93% 9 .I. Group Property leasing 8,474,639 5.53% 10 .J. Group Air Transportation 8,340,321 5.44%

December 31, 2013

Ranking (Note І) Type of industry (Note П)

Total outstanding loan amount (Note Ш)

Total outstanding loan amount/FCB net worth of the

current year (%)(Note IV)

1 A. Group Plastic Sheets, Pipes and Tubes Manufacturing

$ 21,580,350 16.40%

2 B. Group Air Transportation 20,365,619 15.48% 3 C. Group Liquid Crystal Panel and

Components Manufacturing 18,731,865 14.24%

4 D. Group Visual Display and Terminal Service Manufacturing

15,394,132 11.70%

5 E. Group Unclassified Other Financial Intermediation Group Iron and Steel Smelting

10,085,534 7.66%

6 F. Group Unclassified Other Financial Intermediation

9,633,108 7.32%

7 G. Group Power Cable and Wiring Accessories Manufacturing

8,892,125 6.76%

8 H. Group Unclassified Other Financial Intermediation

8,827,381 6.71%

9 .I. Group Yarn Spinning Mills and Cotton 8,239,603 6.26% 10 .J. Group Iron and Steel Rolls over Extends

and Crowding 7,776,769 5.91%

Note:

I. Ranking the top ten enterprise groups other than government and government enterprise according to their total outstanding loan amount.


168

II. Definition of enterprise group is based on the Article 6 of Supplementary Provisions to the Taiwan Stock

Exchange Corporation Rules for Review of Securities Listings.

III. Total outstanding loan amount is the sum of balances of all types of loans (including import negotiation, export negotiation, bills discounted, overdraft, short-term unsecured loan, short-term secured loan, margin loans receivable, medium-term unsecured loan, medium-term secured loan, long-term unsecured loan, long-term secured loan and overdue loan), purchases in remittances, without recourse factoring, acceptance receivable and guarantees.

E. Liquidity risk

(A) Definition and resource of liquidity risk

The liquidity risk of the First Group refer to a financial loss when assets are not convertible or not enough financing aid can be obtained to inject fund for the financial liabilities soon to be matured. For instance, the client terminates the deposit contract in advance, or financing channel of call loan becomes difficult due to market influence, or deterioration on the credit default rate giving rise to unusual fund collection, difficulty in converting the financial instrument and interest sensitive insurer exercise the right to terminate contract in advance. Above events may mitigate the cash inflows from loan origination, transactions and investing activities from the lease subsidiaries.

Liquidity risk exists in the Bank’s operation, which may be given rise by specific event of various industries or overall market movement, such as liquidation protocol of deposit or call loan payment, source of loan or time required for asset liquidation are affected by various industries or certain overall market events, including but not limited to insufficient depth of market, market disorder, low liquidity on funds, credit event, merging or acquisition activities, systematic impact and natural disasters.

(B) Procedures and evaluation method used for liquidity risk management

Please see Note 12(2)C for the risk controlling regulations and procedures

In order to prevent liquid risk that gives rise to operating risk, crisis reaction procedures have been set up in relation to liquidity risk and fund liquidity gap shall be monitored on a regular basis.

Management procedure and evaluation method for the liquidity risk of the First Group are as follows:

a. The subsidiary, FCB

Procedure

In consideration of the operating demand, the sources of fund need to be diverse and stable. The use of fund should avoid high concentration, and the liquid assets held should take precedence of highly liquid earning assets of high quality.

In accordance with the “Management policy of assets and liabilities” and “Management principle of liquidity and interest risk”, risk management division is the investigation unit for liquidity risk indicator. Finance division is the execution unit for fund transferring. Also, attention needs to be paid on the movement of market condition and day-to-day

2014 ANNUAL REPORT

169

II. Definition of enterprise group is based on the Article 6 of Supplementary Provisions to the Taiwan Stock

Exchange Corporation Rules for Review of Securities Listings.

III. Total outstanding loan amount is the sum of balances of all types of loans (including import negotiation, export negotiation, bills discounted, overdraft, short-term unsecured loan, short-term secured loan, margin loans receivable, medium-term unsecured loan, medium-term secured loan, long-term unsecured loan, long-term secured loan and overdue loan), purchases in remittances, without recourse factoring, acceptance receivable and guarantees.

E. Liquidity risk

(A) Definition and resource of liquidity risk

The liquidity risk of the First Group refer to a financial loss when assets are not convertible or not enough financing aid can be obtained to inject fund for the financial liabilities soon to be matured. For instance, the client terminates the deposit contract in advance, or financing channel of call loan becomes difficult due to market influence, or deterioration on the credit default rate giving rise to unusual fund collection, difficulty in converting the financial instrument and interest sensitive insurer exercise the right to terminate contract in advance. Above events may mitigate the cash inflows from loan origination, transactions and investing activities from the lease subsidiaries.

Liquidity risk exists in the Bank’s operation, which may be given rise by specific event of various industries or overall market movement, such as liquidation protocol of deposit or call loan payment, source of loan or time required for asset liquidation are affected by various industries or certain overall market events, including but not limited to insufficient depth of market, market disorder, low liquidity on funds, credit event, merging or acquisition activities, systematic impact and natural disasters.

(B) Procedures and evaluation method used for liquidity risk management

Please see Note 12(2)C for the risk controlling regulations and procedures

In order to prevent liquid risk that gives rise to operating risk, crisis reaction procedures have been set up in relation to liquidity risk and fund liquidity gap shall be monitored on a regular basis.

Management procedure and evaluation method for the liquidity risk of the First Group are as follows:


Procedure

In consideration of the operating demand, the sources of fund need to be diverse and stable. The use of fund should avoid high concentration, and the liquid assets held should take precedence of highly liquid earning assets of high quality.

In accordance with the “Management policy of assets and liabilities” and “Management principle of liquidity and interest risk”, risk management division is the investigation unit for liquidity risk indicator. Finance division is the execution unit for fund transferring. Also, attention needs to be paid on the movement of market condition and day-to-day

capital liquidity to ensure appropriate liquidity and long-term profitability. Unless otherwise indicated by offshore branches, sufficient liquidity shall be maintained in accordance with the local competent authorities.

Risk management division sets up liquid position or indicator limit by the duration and implements after obtaining the approval from assets and liabilities management committee and Board of Directors. Each liquidity risk monitoring indicator are assessed and appraised regularly in the meeting of assets and liabilities management committee.

Risk management division is responsible for reporting the assets and liabilities management committee, risk management committee and Board of Directors to represent the liquidity risk and other monitoring result.

Evaluation method

The content of the liquidity risk report mainly used to estimate cash flow from various business line and the effects on fund transferring so that early warning area and target goal can be set up for cash gap and relevant indicator in order to control both under the tolerable risk limit.

Risk Management Division regularly makes “Analysis table for cash flow gap” and “Adjustment table for cash flow gap” to ensure that the cash flow gap is within the granted limit and reports to the management in relation to fund liquidity matters. Given that the limit has been reached or an obvious deteriorated indicator shown internally or externally, immediate escalation should be made to the assets and liabilities management committee for further response action and report to the Board of Directors. Given the liquidity risk, action shall be taken in accordance with “Contingent plan for liquidity risk”.

b. The subsidiary, FS

Procedure

In order to maintain proper liquidity and security, enhance liquidity risk management, increase return on capital utilization and integrate business operation, the management, planning and risk controlling execution of liquidity risk is carried out in accordance with “Regulations Governing the Capital Liquidity Risks”.

In addition to operating funds and long-term investment of various businesses, proper revolving fund is required for the daily operation. Additionally the remaining capital, in principle, should hold liquid and superior earning assets in avoidance of high concentration according to the “Regulations Governing the Acquisition of Funds and Utilization” of FS. The responsible unit for capital transferring adjusts liquidity gap based on the daily capital liquidity volume and market movement to ensure appropriate liquidity.

In the event of credit rating being downgraded, financial crisis, natural disaster or other irresistible event which gives rise to insufficient liquidity, strategic actions should be taken based on the guidelines for crisis management of FS.


170

Evaluation method

To manage liquidity risks, FS is required to maintain the lowest liquidity ratio by the competent authorities and make “Structural Analysis on Maturities of Assets and Liabilities” by month. The liquidity gap is computed based on the remaining time before maturities of assets and liabilities. In general, accumulative gap of each period should be more than 0 and is submitted to the management for approval. If the gap for accounts located in 1-10 days is less than 0 in “Structural Analysis on Maturities of Assets and Liabilities”, specific adjustment on the balance structure is needed in an effort to make the gap become greater than 0.

c. The subsidiary, FALI

Procedure

Liquidity risk refers to a gap between supply and demand of funds due to inability to acquire necessary and sufficient supply of funds by reasonable cost within a reasonable time, or the risk of loss FALI may assume when it has to sell its asset at a price lower than market price in order to acquire necessary supply of funds. FALI’s working capital is sufficient for daily operations, therefore there is no liquidity risk arising from inability to raise fund for fulfilment of contractual obligations. Most of FALI’s investments in bonds and stocks have an active market. Thus FALI expects that its financial assets can be sold at a price close to the fair value in the market. In order to ensure sufficient funds for fulfilling liabilities as maturity comes due or meeting the demands for increase in assets, FALI reconciles funds by deposits of financial institutions, short-term notes and bills (including bills and bonds under repurchase or resale agreements), and monetary funds. To cope with requirements for fund liquidity, FALI estimates yearly and monthly net cash inflow (outflow) according to revenues and expenditures from annual plan, and checks cash inflow and outflow every day in accordance with the fund procurement procedures for basis of fund allocation.

Evaluation method

In relation to the nature and purposes of holding, the investment segment evaluates market liquidity of the underlying investment with consideration of the commensuration between market trading volume and the position held. As most of FALI’s non-derivative financial liabilities mature within one year, there is no significant risk.

d. The subsidiary, FSIT

Procedure

In addition to the long-term and short-term investment, the subsidiary, FSIT needs to maintain proper operating capital for daily operations. Additionally the remaining capital, in principle, should hold liquid and superior earning assets in avoidance of high concentration and is processed according to the authorization rules of FSIT.

The Finance department should adjust the liquidity gap to maintain proper liquidity according to the daily fund liquidity and market movement and make relating structural analysis by month, which is reported to the General Manager and acknowledged to

2014 ANNUAL REPORT

171

Evaluation method

To manage liquidity risks, FS is required to maintain the lowest liquidity ratio by the competent authorities and make “Structural Analysis on Maturities of Assets and Liabilities” by month. The liquidity gap is computed based on the remaining time before maturities of assets and liabilities. In general, accumulative gap of each period should be more than 0 and is submitted to the management for approval. If the gap for accounts located in 1-10 days is less than 0 in “Structural Analysis on Maturities of Assets and Liabilities”, specific adjustment on the balance structure is needed in an effort to make the gap become greater than 0.

c. The subsidiary, FALI

Procedure

Liquidity risk refers to a gap between supply and demand of funds due to inability to acquire necessary and sufficient supply of funds by reasonable cost within a reasonable time, or the risk of loss FALI may assume when it has to sell its asset at a price lower than market price in order to acquire necessary supply of funds. FALI’s working capital is sufficient for daily operations, therefore there is no liquidity risk arising from inability to raise fund for fulfilment of contractual obligations. Most of FALI’s investments in bonds and stocks have an active market. Thus FALI expects that its financial assets can be sold at a price close to the fair value in the market. In order to ensure sufficient funds for fulfilling liabilities as maturity comes due or meeting the demands for increase in assets, FALI reconciles funds by deposits of financial institutions, short-term notes and bills (including bills and bonds under repurchase or resale agreements), and monetary funds. To cope with requirements for fund liquidity, FALI estimates yearly and monthly net cash inflow (outflow) according to revenues and expenditures from annual plan, and checks cash inflow and outflow every day in accordance with the fund procurement procedures for basis of fund allocation.

Evaluation method

In relation to the nature and purposes of holding, the investment segment evaluates market liquidity of the underlying investment with consideration of the commensuration between market trading volume and the position held. As most of FALI’s non-derivative financial liabilities mature within one year, there is no significant risk.

d. The subsidiary, FSIT

Procedure

In addition to the long-term and short-term investment, the subsidiary, FSIT needs to maintain proper operating capital for daily operations. Additionally the remaining capital, in principle, should hold liquid and superior earning assets in avoidance of high concentration and is processed according to the authorization rules of FSIT.

The Finance department should adjust the liquidity gap to maintain proper liquidity according to the daily fund liquidity and market movement and make relating structural analysis by month, which is reported to the General Manager and acknowledged to

responsible risk managing segments. In the event of credit rating being downgraded, financial crisis, natural disaster or other unavoidable event which gives rise to severe insufficient liquidity, strategic actions should be taken based on the guidelines for crisis management of FSIT.

Evaluation method

According to “Structural Analysis on Maturities of Assets and Liabilities” made every month, the capital gap is calculated based on the remaining period of time by asset or liability, which shall be acknowledged to the responsible risk managing segment after reporting to the General Manager. In general, the gap should be greater than 0. If the capital gap is less than 0 for the accounts under 0-30 days, specific adjustment on the balance structure is needed in an effort to make the gap become greater than 0.

(C) Duration analysis for the financial assets and liabilities held for liquidity risk management are as follows:

a. Financial assets held for liquidity risk management

In order to fulfill the payment obligation and potential emergent fund demand in the market, as well as manage the liquidity risk at the same time, sound earning assets held by the First Group with high liquidity include cash and cash equivalents, deposits and call loans, financial assets at fair value through profit and loss, bills discounted and call loan, term receivables, available-for-sale financial assets, and bonds investment without an active market, etc.

b. Duration analysis for the financial assets and liabilities held for liquidity risk management

The following table illustrates the cash inflow and outflow of financial assets and liabilities of the First Group held for liquidity risk management based on the remaining maturity from the balance sheet date to the contract expiration date. While the amounts disclosed in the table are not discounted by contract cash flow, certain accounts may differ from the responding accounts in the balance sheet.


172

D

ecem

ber

31, 2

014

0

- 30

day

s

31

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0 da

ys

91 -

180

day

s

18

1 da

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1 y

ear

1

year

or

abov

e

Tot

al

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Prim

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capi

tal i

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ash

and

due

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$

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9,

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$ 6,

826,

298

$ 9,

172,

346

$ 27

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,108

$

138,

382,

473

C

all l

oans

and

ove

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70,0

46,9

73

23,6

37,8

24

2,25

9,80

2 24

3,79

3 -

96,1

88,3

92

B

onds

(bi

lls)

sold

und

er a

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agre

emen

t 1,

531,

206

351,

000

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- 1,

882,

206

Se

curi

ties

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292,

423,

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13

7,95

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12

1,23

2,73

4 46

4,61

5,31

1

Loa

ns d

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d 16

4,59

7,76

5 19

2,41

8,25

7 19

4,86

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0,49

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4,85

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323

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39,6

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rela

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set s

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254,

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9,84

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N

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94,3

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316,

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s an

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1,45

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rest

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otal

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26

8,20

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2,16

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upo

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atur

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13

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13

,050

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) ($

161,

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343)

$

136,

368,

002

2014 ANNUAL REPORT

173

D

ecem

ber

31, 2

014

0

- 30

day

s

31

- 9

0 da

ys

91 -

180

day

s

18

1 da

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1 y

ear

1

year

or

abov

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Tot

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Prim

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tal i

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ash

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due

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anks

$

85,0

99,0

02 $

9,

573,

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$ 6,

826,

298

$ 9,

172,

346

$ 27

,711

,108

$

138,

382,

473

C

all l

oans

and

ove

rdra

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70,0

46,9

73

23,6

37,8

24

2,25

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3 -

96,1

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92

B

onds

(bi

lls)

sold

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531,

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curi

ties

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stm

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292,

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13

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1,23

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4,61

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1

Loa

ns d

isco

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d 16

4,59

7,76

5 19

2,41

8,25

7 19

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0,49

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9 1,

517,

234,

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tere

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ecei

vabl

es a

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s an

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254,

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nanc

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nstr

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all l

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94,3

79,3

71

20,9

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12

3,35

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9,88

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382

122,

810,

134

D

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posi

ts

46,7

26,4

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42,6

95,6

97

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65

56,8

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922,

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459

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6,34

6,57

2

Tim

e de

posi

ts

140,

172,

121

194,

316,

042

135,

233,

698

231,

724,

410

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77,5

56

717,

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tere

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387,

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191

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s an

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Cro

ss c

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xclu

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6,63

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Inte

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$

136,

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D

ecem

ber

31, 2

013

0

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day

s

31 -

90

days

91

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ays

181

days

– 1

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1 ye

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r ab

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otal

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l ins

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5,00

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4,78

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1 $

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11

8,83

2,62

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all l

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curi

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290

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174

Maturity analysis for above demand deposits are amortized to each period based on historical experience of banking subsidiary. Given that all the demand deposits have to be paid in the shortest period, as of December 31, 2014 and 2013, the payment on period of 0-30 days will be increased by $1,059,620,111 and $980,630,023, respectively.

(D)Maturity analysis for items off the balance sheet

The loans, loan commitment and letters of credit include unused loan commitments and unused letters of credit issued. Financial guarantee contract refers that the First Group represent a guarantor and the issuer of the guaranteed letter of credit.

Terms of financial instruments contracts off the balance sheet which may require fulfillment at the earliest are all less than a year:

Financial instruments contracts December 31, 2014 December 31, 2013 Unused loan commitments (Note) $ 135,195,659 $ 126,835,001 Unused letters of credit issued 31,040,109 31,159,643 Various guarantees 79,865,265 78,343,237 Total $ 246,101,033 $ 236,337,881

Note: Above unused loan commitments include irrevocable loan commitment except for the

significant adverse movement.

(E)Maturity analysis on lease contract and capital expense commitment

Lease commitment of the First Group includes operating lease and finance lease.

Operating lease commitment is the minimum rental that the First Group should make as a lessee or lessor under the lease term not revocable.

Capital expenditure commitment of the First Group refers to the capital expenses spent on the contract commitment in order to acquire the building and equipment.

Please refer to the below table for maturity analysis of lease contract commitment and capital expenditure commitment of the First Group:

December 31, 2014 Less than 1 year 1 to 5 years More than 5 years Total Lease commitment Operating lease expense (Lessee) $ 275,570 $ 1,879,997 $ 257,002 $ 2,412,569 Operating lease income (Lessor) ( 528,353 ) ( 1,459,498 ) ( 161,921 ) ( 2,149,772 ) Total ( $ 252,783 ) $ 420,499 $ 95,081 $ 262,797 December 31, 2013 Less than 1 year 1 to 5 years More than 5 years Total Lease commitment Operating lease expense (Lessee) $ 239,235 $ 1,723,534 $ 299,745 $ 2,262,514 Operating lease income (Lessor) ( 496,666 ) ( 1,348,566 ) ( 57,063 ) ( 1,902,295 ) Total ( $ 257,431 ) $ 374,968 $ 242,682 $ 360,219 The present value of finance lease has been recognized under finance lease liabilities. As the amount is immaterial and the liquidity risk is low, no analysis on its maturity value will be taken.

2014 ANNUAL REPORT

175

Maturity analysis for above demand deposits are amortized to each period based on historical experience of banking subsidiary. Given that all the demand deposits have to be paid in the shortest period, as of December 31, 2014 and 2013, the payment on period of 0-30 days will be increased by $1,059,620,111 and $980,630,023, respectively.

(D)Maturity analysis for items off the balance sheet

The loans, loan commitment and letters of credit include unused loan commitments and unused letters of credit issued. Financial guarantee contract refers that the First Group represent a guarantor and the issuer of the guaranteed letter of credit.

Terms of financial instruments contracts off the balance sheet which may require fulfillment at the earliest are all less than a year:

Financial instruments contracts December 31, 2014 December 31, 2013 Unused loan commitments (Note) $ 135,195,659 $ 126,835,001 Unused letters of credit issued 31,040,109 31,159,643 Various guarantees 79,865,265 78,343,237 Total $ 246,101,033 $ 236,337,881

Note: Above unused loan commitments include irrevocable loan commitment except for the

significant adverse movement.

(E)Maturity analysis on lease contract and capital expense commitment

Lease commitment of the First Group includes operating lease and finance lease.

Operating lease commitment is the minimum rental that the First Group should make as a lessee or lessor under the lease term not revocable.

Capital expenditure commitment of the First Group refers to the capital expenses spent on the contract commitment in order to acquire the building and equipment.

Please refer to the below table for maturity analysis of lease contract commitment and capital expenditure commitment of the First Group:

December 31, 2014 Less than 1 year 1 to 5 years More than 5 years Total Lease commitment Operating lease expense (Lessee) $ 275,570 $ 1,879,997 $ 257,002 $ 2,412,569 Operating lease income (Lessor) ( 528,353 ) ( 1,459,498 ) ( 161,921 ) ( 2,149,772 ) Total ( $ 252,783 ) $ 420,499 $ 95,081 $ 262,797 December 31, 2013 Less than 1 year 1 to 5 years More than 5 years Total Lease commitment Operating lease expense (Lessee) $ 239,235 $ 1,723,534 $ 299,745 $ 2,262,514 Operating lease income (Lessor) ( 496,666 ) ( 1,348,566 ) ( 57,063 ) ( 1,902,295 ) Total ( $ 257,431 ) $ 374,968 $ 242,682 $ 360,219 The present value of finance lease has been recognized under finance lease liabilities. As the amount is immaterial and the liquidity risk is low, no analysis on its maturity value will be taken.

(F)Disclosure required by Regulations Governing the Preparation of Financial Statements by Financial

Holdings Companies

a. Structure analysis of NTD time to maturity (FCB)

Expressed In Thousands of New Taiwan Dollars December 31, 2014

Total 0~30 days 31~90 days 91~180 days 181 days ~ 1 year Over 1 year Primary capital inflow upon maturity $ 1,796,519,207 $ 502,416,147 $ 163,361,758 $ 164,529,275 $ 249,004,767 $ 717,207,260 Primary capital outflow upon maturity ( 2,551,020,779 ) ( 270,264,527 ) ( 322,559,377 ) ( 372,693,217 ) ( 512,571,377 ) ( 1,072,932,281 ) Gap ($ 754,501,572 ) $ 232,151,620 ($ 159,197,619 ) ($ 208,163,942 ) ($ 263,566,610 ) ($ 355,725,021 )

December 31, 2013 Total 0~30 days 31~90 days 91~180 days 181 days ~ 1 year Over 1 year

Primary capital inflow upon maturity $ 1,767,028,179 $ 501,661,150 $ 136,149,237 $ 131,006,454 $ 133,451,494 $ 864,759,844 Primary capital outflow upon maturity ( 2,164,064,620 ) ( 198,097,336 ) ( 215,869,112 ) ( 182,711,211 ) ( 283,789,477 ) ( 1,283,597,484 ) Gap ($ 397,036,441 ) $ 303,563,814 ($ 79,719,875 ) ($ 51,704,757 ) ($ 150,337,983 ) ($ 418,837,640 )

Note: The amounts listed above represent the funds denominated in New Taiwan dollars only (i.e., excluding foreign currency).

b. Structure analysis of USD time to maturity of the Bank (FCB)

Expressed In Thousands of US Dollars December 31, 2014

Total 0~30 days 31~90 days 91~180 days 181 days ~ 1 year Over 1 year Primary capital inflow upon maturity $ 19,420,139 $ 7,113,767 $ 4,617,761 $ 2,220,219 $ 1,457,970 $ 4,010,422 Primary capital outflow upon maturity ( 28,316,148) ( 7,912,874) ( 4,720,992) ( 3,453,002) ( 5,044,740) ( 7,184,540) Gap ($ 8,896,009) ($ 799,107) ($ 103,231) ($ 1,232,783) ($ 3,586,770) ($ 3,174,118)

December 31, 2013 Total 0~30 days 31~90 days 91~180 days 181 days ~ 1 year Over 1 year

Primary capital inflow upon maturity $ 19,144,554 $ 6,031,652 $ 4,771,058 $ 2,368,371 $ 1,871,045 $ 4,102,428 Primary capital outflow upon maturity ( 19,501,898) ( 8,174,137) ( 3,931,474) ( 1,922,313) ( 2,016,429) ( 3,457,545) Gap ($ 357,344) ($ 2,142,485) $ 839,584 $ 446,058 ($ 145,384) $ 644,883

Note: The amounts listed above represent the items denominated in U.S. dollars for Company’s head office, domestic and Offshore Banking Units.


176

F.Market risk

(A) Market risk definition

Market risk occurs when the market price fluctuates leading to movement in fair value of financial instrument held by the First Group in or off the balance sheet or the future cash flow. The risk factors that could give rise to market price movement usually include interest rate, exchange rate, equity securities and instrument price. Any movement in above risk factors could result in risk of fluctuation on net profit or value of investment portfolio held by the First Group.

The market risks that the First Group faces mainly are equity securities, interest rate and exchange rate risk. Market risk position of equity securities mainly include domestic listed stocks, domestic stock index options and stock index futures and call and put warrants, etc. Positions with interest rate risk mainly include: bonds and interest-derivative instruments, such as fixed and floating interest swap and bond option, etc. Positions with exchange rate risk mainly include: the consolidated positions invested by the subsidiaries, indirect subsidiaries of the First Group, such as various derivatives denominated in foreign currency, credit-linked bonds, US government bonds, and other foreign bonds, etc.

(B) Goal of market risk management

In order to effectively identify, evaluate, control and monitor the market risks of the First Group, as well as to enhance the managing mechanism of market risk, please see Note 12(2) C. for the risk management policies and controlling procedures that the Company places for subsidiaries within the First Group.

Major subsidiaries of the First Group have various market risk management policies, standards, key points and the regulations from competent authorities and the Company to comply.

a. The Bank sets up “Management policy for market risk”, “Management standards for market risk”, “Management standards for liquidity and interest rate risk” and “Management guidelines for market risk” and others in an attempt to effectively regulate market risk and ensure that the market risk is under the Bank’s bearable capacity. The Bank divided market risk management into trading book and banking book. Interest rate risk management in relation to trading book and banking book is provided in Note 12(2)F G) and (H). ‘Trading book’ refers to A. positions held with an intention to earn profit from interest rate movement or price variance between the purchase price and selling price, B. positions held for hedging purpose, and C. interest rate related instruments positions and equity securities positions held for brokerage or proprietary trading on which regular market value assessment and capital provision against market risk shall be made. Financial instrument positions not classified as trading book are classified into the scope of ‘banking book’.

b. FS breaks down market risks by segment and sets up “Risk Management Procedure and Implementation Standards” and guidelines for other business management, through which risk control procedures are planned and implemented.

c. The subsidiary, FALI sets up “Investment Management Policy” to regulate relating controlling process and procedures for the investments on financial instruments, and regularly manages the risk exposure through the “Investment Execution Committee”.

2014 ANNUAL REPORT

177

F.Market risk

(A) Market risk definition

Market risk occurs when the market price fluctuates leading to movement in fair value of financial instrument held by the First Group in or off the balance sheet or the future cash flow. The risk factors that could give rise to market price movement usually include interest rate, exchange rate, equity securities and instrument price. Any movement in above risk factors could result in risk of fluctuation on net profit or value of investment portfolio held by the First Group.

The market risks that the First Group faces mainly are equity securities, interest rate and exchange rate risk. Market risk position of equity securities mainly include domestic listed stocks, domestic stock index options and stock index futures and call and put warrants, etc. Positions with interest rate risk mainly include: bonds and interest-derivative instruments, such as fixed and floating interest swap and bond option, etc. Positions with exchange rate risk mainly include: the consolidated positions invested by the subsidiaries, indirect subsidiaries of the First Group, such as various derivatives denominated in foreign currency, credit-linked bonds, US government bonds, and other foreign bonds, etc.

(B) Goal of market risk management

In order to effectively identify, evaluate, control and monitor the market risks of the First Group, as well as to enhance the managing mechanism of market risk, please see Note 12(2) C. for the risk management policies and controlling procedures that the Company places for subsidiaries within the First Group.

Major subsidiaries of the First Group have various market risk management policies, standards, key points and the regulations from competent authorities and the Company to comply.

a. The Bank sets up “Management policy for market risk”, “Management standards for market risk”, “Management standards for liquidity and interest rate risk” and “Management guidelines for market risk” and others in an attempt to effectively regulate market risk and ensure that the market risk is under the Bank’s bearable capacity. The Bank divided market risk management into trading book and banking book. Interest rate risk management in relation to trading book and banking book is provided in Note 12(2)F G) and (H). ‘Trading book’ refers to A. positions held with an intention to earn profit from interest rate movement or price variance between the purchase price and selling price, B. positions held for hedging purpose, and C. interest rate related instruments positions and equity securities positions held for brokerage or proprietary trading on which regular market value assessment and capital provision against market risk shall be made. Financial instrument positions not classified as trading book are classified into the scope of ‘banking book’.

b. FS breaks down market risks by segment and sets up “Risk Management Procedure and Implementation Standards” and guidelines for other business management, through which risk control procedures are planned and implemented.

c. The subsidiary, FALI sets up “Investment Management Policy” to regulate relating controlling process and procedures for the investments on financial instruments, and regularly manages the risk exposure through the “Investment Execution Committee”.

(C) Policy and procedure for market risk management

In order to identify, evaluate, control and monitor market risks that the First Group faces and strengthen managing mechanism for market risks, management policies and procedures have been set up to effectively manage market risk and ensure that market risk is controlled under a bearable capacity.

Policy

The Board of FCB is the highest command and supervisory unit in charge of the granting of risk management policy, major risk assumption limit and relevant authorization. The Risk Management Committee under the Board of Directors executes various risk management implementations as resolved and granted by the Board and performs risk supervision. In addition, risk management division set up independent from the business unit is responsible for establishing market risk management structure for the market risk management.

Procedure

Please see Note 12(2)C or the risk managing regulations and controlling procedures that the Company places for each subsidiary within the Group.

Each key subsidiary sets up stop-loss point, pre-warning program, market risk limit and trading authorization, annual risk limit of investment portfolio respectively as resolved and approved by the Board of Directors. Followed by the annual reviews, revision and adjustment may be made depending on the actual situation.

a. The risk management division of the Bank assesses various risk indicators regularly as required by the policies and monitors various risk indicators to be within the limits authorized by the Board of Directors. Any excess over the limits and the usage level of risk limits are summarized and reported to the Board of Directors, risk management committee, general manager, vice-general manager and other related segments.

Business unit, before the engagement in new transaction or developing new market, should identify and evaluate risk in compliance with related procedures. The evaluation module before adoption should be verified through module testing technicians in order to effectively identify various market risks. For financial instruments that cannot be assessed by market price or module evaluation, the risks should be transferred by back-to-back method to avoid that the Bank may assume uncertain market risk.

b. The subsidiary, FS controls the trading limits to the traders directly through the on-line trading system. When developing a new product or business plan, or when the method, model and assumption are significantly altered in relation to the authorization standards, approval procedures, risk management and controlling procedures, all should be discussed and reviewed by the risk managing unit and audit segment, and initialed by the General Manager.

(D) Management procedure for market risk

The First Group’s management procedure for market risk of interest rate risk, exchange risk and equity securities are as follows:


178

a. Identification and evaluation

Risk identification: When there is any new product, market or currency of a financial instrument, market risk factors and market risk source should first be identified before the underwriting is permitted.

Risk evaluation: Appropriate risk indicator and risk limits for management are set up. Each every significant risk indicator of the subsidiaries includes position, gain and loss, stress testing loss, sensitivity (PVO1, Delta, Vega, Gamma) and Value-at-Risk (VaR).

b. Monitoring and report

For financial instrument evaluated by the market price, the information of independent source should be assessed at least once a day. For those evaluated by modules, the assumption and input used in the evaluation module as provided by the market data of Reuters and Bloomberg, after the module experience is tested and granted, the calculation on evaluation and sensitivity may be carried on, which is used to control the risk incurred through investment portfolio.

The key subsidiaries of the First Group establish risk reporting programs and procedures. The risk management division should regularly present the daily report, monthly report and other risk management report to the Board of Directors and senior management based on the needs of segment heads, general manager, general president or the Board of Directors to report interest risk, exchange risk and equity securities exposure, including gain and loss, trading position, various risk indicators, risk limit usage, all limit excess or fault and so on, and regularly follow-up and send out warning reminder to ensure corrective action has been taken in a timely manner and in compliance with regulations.

(E) Risk evaluation method (market risk evaluation technique)

In order to effectively evaluate market risks, each key subsidiary in the First Group sets up methods and limits to measure evaluate risks and performs market price evaluations for the financial instrument position held on a daily/weekly basis, which are then reported to the Board or each responsive unit regarding the positions held, gains and losses on transactions and market risks on a weekly/monthly basis.


In order to effectively evaluate the market risks, the Bank establishes appropriate risk indicators and measurement instruments based on each investment portfolio and business characteristics of trading book and banking book. Meanwhile, by setting up risk limits and controlling mechanism, risk limit control is regularly reported to each responsible segment and reported to the Board of Directors. Above risk indicators include: positions, gains and losses, sensitivity indexes (Delta, Gamma, Vega), Value-at-Risk of equity securities (VaR), stress losses and others.

Definitions of various indicators:

PV01: It is the change in related amount of interest rate instrument when the interest rate moves by 1 unit (1bp = 0.01%).

2014 ANNUAL REPORT

179

a. Identification and evaluation

Risk identification: When there is any new product, market or currency of a financial instrument, market risk factors and market risk source should first be identified before the underwriting is permitted.

Risk evaluation: Appropriate risk indicator and risk limits for management are set up. Each every significant risk indicator of the subsidiaries includes position, gain and loss, stress testing loss, sensitivity (PVO1, Delta, Vega, Gamma) and Value-at-Risk (VaR).

b. Monitoring and report

For financial instrument evaluated by the market price, the information of independent source should be assessed at least once a day. For those evaluated by modules, the assumption and input used in the evaluation module as provided by the market data of Reuters and Bloomberg, after the module experience is tested and granted, the calculation on evaluation and sensitivity may be carried on, which is used to control the risk incurred through investment portfolio.

The key subsidiaries of the First Group establish risk reporting programs and procedures. The risk management division should regularly present the daily report, monthly report and other risk management report to the Board of Directors and senior management based on the needs of segment heads, general manager, general president or the Board of Directors to report interest risk, exchange risk and equity securities exposure, including gain and loss, trading position, various risk indicators, risk limit usage, all limit excess or fault and so on, and regularly follow-up and send out warning reminder to ensure corrective action has been taken in a timely manner and in compliance with regulations.

(E) Risk evaluation method (market risk evaluation technique)

In order to effectively evaluate market risks, each key subsidiary in the First Group sets up methods and limits to measure evaluate risks and performs market price evaluations for the financial instrument position held on a daily/weekly basis, which are then reported to the Board or each responsive unit regarding the positions held, gains and losses on transactions and market risks on a weekly/monthly basis.


In order to effectively evaluate the market risks, the Bank establishes appropriate risk indicators and measurement instruments based on each investment portfolio and business characteristics of trading book and banking book. Meanwhile, by setting up risk limits and controlling mechanism, risk limit control is regularly reported to each responsible segment and reported to the Board of Directors. Above risk indicators include: positions, gains and losses, sensitivity indexes (Delta, Gamma, Vega), Value-at-Risk of equity securities (VaR), stress losses and others.

Definitions of various indicators:

PV01: It is the change in related amount of interest rate instrument when the interest rate moves by 1 unit (1bp = 0.01%).

Delta: When the price of underlying asset moves by 1 unit that leads to related movement in Delta ratio of the derivative, by which is multiplied the nominal amount to measure to Delta position.

Vega: It is the change in related amount of derivative instrument when the value of underlying asset moves by 1 unit. It is the change in related amount of the interest rate instrument when the interest rate moves by 100 basic units.

Gamma: It is the change in related amount of Delta when the underlying asset value moves by 1 unit.

Interest rate-sensitive instruments are the change in related amount of PV01 that incurred to the interest rate instrument when interest rate moves by unit.

Exchange rate-sensitive instruments are the change in related amount of Delta that incurred to the exchange rate instrument when exchange rate moves by 1% of the unit.

Stress loss: Provided that all other conditions remain constant, it is the effects from ±100bp interest rate movement, ±15% overall market movement of equity securities, ±3% exchange rate fluctuation on New Taiwan Dollars versus major currencies or ±5% exchange rate fluctuation on New Taiwan Dollars versus other currencies.

b. The subsidiaries, FS, FALI and FSIT

Basically, financial instruments are valued through Mark-to-Market. However, if there is no quoted market price available for the public, valuation models may be adopted accompanied with related model controlling rules after verification.

(F) Policy and procedure of risk management on trading book

The so-called trading book includes the financial instrument and physical instrument position held for trading or held for hedging purpose in relation to the trading position. The positions held for trading are instruments held with an attempt to sell in short-term or gain profit or arbitrage from the actual or estimated short-term price fluctuations. For example, self-operating position, discretionary account (such as agent facilitating transaction), position generated through market transaction or the position held to offset another position in the trading book, total or major investment portfolio. For positions not included in above trading book are banking book position.

The Bank establishes specific policy and procedure for the trading strategy of trading book position in order to manage potential market risk of trading position and well control the risk within the limits.

a. Strategy

In order to effectively control market risk and ensure the mobility and adaptability of the trading strategy implemented by sale units, market risk limit of the trading book is set at the level of “investment portfolio” to carry out various assessments and controls. In addition, risk limits of each portfolio are set up according to the trading strategy, types of trading instruments and annual profit objective for better management.


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b. Policy and procedure of risk management

In principle, management policy is carried out based on annually revised risk limits of each investment portfolio.

c. Evaluation policy and procedure

Generally, financial instruments are assessed through Mark-to-Market, however, Mark-to-Model may be adopted if there is no fair value in the market. Nonetheless, the model should be independently verified before adoption and relevant guideline model management needs to be set up and implemented accordingly.

Evaluation procedure: The risk management unit confirms that the risk evaluation is consistent with the position information posted on the evaluation system at day-end and the market data adopted. In addition, the risk management unit monitors daily evaluation and risk limit and regularly report risk quota usage and limit exceeding event.

d. Evaluation method

The Bank executes stress testing on ±100bp interest rate movement, ±15% equity securities movement, ±3% exchange rate fluctuation and ±5% circumstance movement on a monthly basis and reports to the risk management committee regularly.

(G) Interest risk management for trading book

Risk management on the interest rate of trading book for FCB is as follows:

a. Interest risk definition

Interest risk occurs when there is an adverse movement of interest rate resulting in change in fair value of trading book position held.

b. Management objective

The management objective of interest risk lies in effective identification, evaluation, controlling and monitoring of interest rate to enhance managing mechanism of market risk.

c. Management policy and procedure

In principle, annual risk limits are controlled based on investment portfolio of trading book with interest rate revised annually.


Evaluation is calculated based on the risk-sensitive index verified by system calculation. In addition, stress testing is performed based on +/-100bp annual interest rate movement and reported to the risk management committee regularly.

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In principle, management policy is carried out based on annually revised risk limits of each investment portfolio.

c. Evaluation policy and procedure

Generally, financial instruments are assessed through Mark-to-Market, however, Mark-to-Model may be adopted if there is no fair value in the market. Nonetheless, the model should be independently verified before adoption and relevant guideline model management needs to be set up and implemented accordingly.

Evaluation procedure: The risk management unit confirms that the risk evaluation is consistent with the position information posted on the evaluation system at day-end and the market data adopted. In addition, the risk management unit monitors daily evaluation and risk limit and regularly report risk quota usage and limit exceeding event.


The Bank executes stress testing on ±100bp interest rate movement, ±15% equity securities movement, ±3% exchange rate fluctuation and ±5% circumstance movement on a monthly basis and reports to the risk management committee regularly.

(G) Interest risk management for trading book

Risk management on the interest rate of trading book for FCB is as follows:

a. Interest risk definition

Interest risk occurs when there is an adverse movement of interest rate resulting in change in fair value of trading book position held.

b. Management objective

The management objective of interest risk lies in effective identification, evaluation, controlling and monitoring of interest rate to enhance managing mechanism of market risk.


In principle, annual risk limits are controlled based on investment portfolio of trading book with interest rate revised annually.


Evaluation is calculated based on the risk-sensitive index verified by system calculation. In addition, stress testing is performed based on +/-100bp annual interest rate movement and reported to the risk management committee regularly.

(H) Risk management for banking book interest

Interest risk is the risk that a bank suffers from an adverse movement of interest rate or financial condition of the bank. Interest movement might change the bank’s net interest income and other interest-sensitive incomes which further affects the bank’s earnings. Meanwhile, interest movement could also affect positions in and off the bank’s balance sheet.

The banking book risk management of the Bank is as follows:

a. Strategy

The objective of interest rate management is to improve banks’ adaptability so that the earnings and economic value in the balance sheet can be assessed and managed through avoiding the impact from interest rate movement.


According to “Management policy of asset and liability” and “Management guideline for liquidity and interest risk” of the Bank, risk management division is the monitoring unit that is responsible for interest risk index, analysis and monitoring interest-sensitive position, and regular reporting the monitoring result of interest risk to the asset and liability management committee, risk management committee and Board of Directors.

If various interest risk indexes and stress testing results fall in the warning threshold, risk management division should issue warning notice to the asset and liability management committee. However, if interest risk index exceed the planned threshold, it should be reported to the asset and liability management committee for discussing the responding measures, which is followed by relevant business unit and reported to the Board of Directors.

c. Evaluation method

The interest rate risk of the Bank is mainly the repricing gap risk resulting from the difference between maturities and repricing date of banking book assets and liabilities and off balance sheet accounts. In order to stabilize long-term profit and business development at the same time, Risk Management Division sets up various monitoring indicators for interest rate of most common period and executes stress testing, and tests the effects on net interest income and net fair economic value within one year when the market interest rate moves by +/-200 bps, that is Interest Rate Shock from the perspective of earnings and economic value. Every interest rate risk indicator and stress testing result should be reported to management for review.

(I) Risk management for foreign exchange

a. Definition of foreign exchange

Foreign exchange risk occurs when the net foreign position held fluctuates with the currency exchange rate giving rise to an exchange gain or loss. The foreigner exchange risks of financial instruments held by the Group mainly include foreign investment position, spot exchange and forward contract, FX option and other derivative or non-derivative instruments.


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b. Objective

The objective of foreign exchange lies in effective identification, evaluation, controlling and monitoring foreign exchange risk of the Company and enhancement of management mechanism for market risk.


Management policy for market risk is adjusted based on the annual risk limit revised by foreign exchange trading investment portfolio annually.


Through risk sensitive indicators calculated by the validated system as a benchmark, the Bank regularly carries out testing and reports the results to the risk management committee given that the currency movement is provided at +/-3% and other currency movement at +/-5%.

(J) Risk management for equity securities

a. Definition of equity securities risk

The market risk of the equity securities held by the Company includes the individual risk resulting from market price movement of each equity securities and general market risk resulting from overall market price movement.

b. Risk management objective

The objective for equity risk management lies in effective identification, evaluation, risk controlling and monitoring for the equity securities of the Group and enhancement of managing mechanism for market risk.

c. Management policy

Management policy for market risk is adjusted based on the annual risk limit revised by stock trading investment portfolio annually.


The Bank executes stress testing on +/-15% weighted average index of taiwan stock movement on a monthly basis and reports to the risk management committee regularly.

(K) Foreign exchange risk gap As of December 31, 2014 and 2013, the following table summarizes financial instruments of foreign denominated assets and liabilities by currency of which the foreign exchange exposure is presented by the carrying amount:

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b. Objective

The objective of foreign exchange lies in effective identification, evaluation, controlling and monitoring foreign exchange risk of the Company and enhancement of management mechanism for market risk.


Management policy for market risk is adjusted based on the annual risk limit revised by foreign exchange trading investment portfolio annually.


Through risk sensitive indicators calculated by the validated system as a benchmark, the Bank regularly carries out testing and reports the results to the risk management committee given that the currency movement is provided at +/-3% and other currency movement at +/-5%.

(J) Risk management for equity securities

a. Definition of equity securities risk

The market risk of the equity securities held by the Company includes the individual risk resulting from market price movement of each equity securities and general market risk resulting from overall market price movement.

b. Risk management objective

The objective for equity risk management lies in effective identification, evaluation, risk controlling and monitoring for the equity securities of the Group and enhancement of managing mechanism for market risk.

c. Management policy

Management policy for market risk is adjusted based on the annual risk limit revised by stock trading investment portfolio annually.


The Bank executes stress testing on +/-15% weighted average index of taiwan stock movement on a monthly basis and reports to the risk management committee regularly.

(K) Foreign exchange risk gap As of December 31, 2014 and 2013, the following table summarizes financial instruments of foreign denominated assets and liabilities by currency of which the foreign exchange exposure is presented by the carrying amount:

Expressed In Thousands of New Taiwan Dollars

December 31, 2014 December 31, 2013 USD RMB USD RMB Financial assets Cash and cash equivalents $ 8,493,732 $ 26,551,081 $ 15,547,056 $ 17,462,447 Due from the Central Bank and call

loans to other banks 44,145,216 12,665,068

51,050,710

6,488,256 Financial assets at fair value through

profit or loss 12,678,633 30,124

7,514,970

86,070 Available-for-sale financial assets 6,376,944 1,603,476 8,705,829 1,654,819 Loans discounted 273,834,578 10,286,092 243,392,641 4,210,345 Receivables 20,077,709 6,965,686 30,875,469 2,864,866 Held-to-maturity financial assets 17,735,318 7,376,993 19,314,038 7,521,084 Other financial assets 562,118 20,747,836 430,754 23,223,751 Subtotal-financial assets $ 383,904,248 $ 86,226,356 $ 376,831,467 $ 63,511,638 Financial liabilities Due to Central Bank and others $ 86,991,014 $ 5,717,756 $ 121,428,892 $ 5,099,043 Deposits and remittances 297,764,195 75,283,508 284,819,586 48,197,413 Financial liabilities at fair value

through profit or loss 11,579,640 1,343

1,109,306

1,597 Other financial liabilities 335,702 206,632 2,232,806 157,825 Payables 20,643,074 2,736,970 23,416,664 993,941 Subtotal-financial liabilities $ 417,313,625 $ 83,946,209 $ 433,007,254 $ 54,449,819 Note: As of December 31, 2014 and 2013, the exchange rate of USD to NTD was 31.670, and 29.780,

respectively. In addition, as of December 31, 2014 and 2013, the exchange rate of RMB to NTD was 5.099, and 4.913, respectively.

(L) Sensitivity analysis

a. Interest rate risk

If the market yield curve shifts upwards or downwards by 20 bps, it could affect the assessed fair value and interest income.

The First Group assumes that yield curve is the only variable when all the other interest curves remain constant and sums up the gain and loss resulting from changes in each yield curve. According to the above estimated net interest income and assessed gain and loss on fair value, sensitivity analysis is as follows:

b. Foreign exchange risk

Given that all the other variables remain constant, every NTD to USD appreciate by 2% NTD to JPY and RMB appreciate by 3% or NTD to other currencies appreciate by 4%, the sensitivity of the gain and loss on the net foreign exchange position held by the First Group is shown in the below table.

c. Equity securities risk

Given that all the other variables remain constant, if the equity price rises/falls by 4% (based on the average interest rate of Taiwan Stock Exchange Market Index in the latest


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three years), the fair value of listed stocks, emerging stocks in the trading book and other equity interest relating position held by the First Group are shown in the below table:

d. Sensitivity analysis is summarized as follows:

December 31, 2014 (Expressed In Thousands of New Taiwan Dollars)

Main risk Movements Effects on gain

and loss Effects on

equity

Foreign exchange risk

NTD to USD appreciate by 2%, JPY and RMB appreciate by 3%, or NTD to other currencies appreciate by 4%.(Note 1)

71,691 ( 1,042)


NTD to USD appreciate by 2%, JPY and RMB depreciate by 3%, or NTD to other currencies depreciate by 4%.(Note 2)

( 71,691) 1,042

Interest rate risk Main interest rate curve increases by 20 BPS ( 198,425) ( 475,033) Interest rate risk Main interest rate curve decreases by 20 BPS 186,951 558,246 Equity securities risk

Weighted average index of Taiwan Stock Exchange Market rises by 4%.

122,864 ( 56,750)

Equity securities risk

Weighted average index of Taiwan Stock Exchange Market falls by 4%.

( 122,864) 56,750



and loss Effects on

equity


NTD to USD, JPY and EUR appreciate by 2%, or NTD to other currencies appreciate by 4%.(Note 3)

37,809

( 1,444)


NTD to USD, JPY and EUR depreciate by 2%, or NTD to other currencies depreciate by 4%.(Note 4)

( 37,809)

1,444



222,211

( 86,066)



( 222,211)

86,066

Note 1: If NTD to USD, RMB, JPY, and other currencies respectively appreciate by 2%, 3%, 3%, and 4%, the effects on profit (loss) will be ($47,027), $156,401, ($2,449) and ($35,234), respectively; the effect on equity will be all amounts denominated in USD.

Note 2: If NTD to USD, RMB, JPY, and other currencies respectively depreciate by 2%, 3%, 3% and 4%, the effects on profit (loss) will be $$47,027, ($156,401), $2,449 and $35,234, respectively; the effect on equity will be all amounts denominated in USD.

Note 3: If NTD to USD, RMB, JPY, and other currencies respectively appreciate by 2%, 2%, 2% and 4%, the effects on profit (loss) will be ($44,788), $116,316, ($1,847) and ($31,872), respectively; the effect on equity will be all amounts denominated in USD.

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three years), the fair value of listed stocks, emerging stocks in the trading book and other equity interest relating position held by the First Group are shown in the below table:

d. Sensitivity analysis is summarized as follows:



and loss Effects on

equity


NTD to USD appreciate by 2%, JPY and RMB appreciate by 3%, or NTD to other currencies appreciate by 4%.(Note 1)

71,691 ( 1,042)


NTD to USD appreciate by 2%, JPY and RMB depreciate by 3%, or NTD to other currencies depreciate by 4%.(Note 2)

( 71,691) 1,042



122,864 ( 56,750)



( 122,864) 56,750



and loss Effects on

equity


NTD to USD, JPY and EUR appreciate by 2%, or NTD to other currencies appreciate by 4%.(Note 3)

37,809

( 1,444)


NTD to USD, JPY and EUR depreciate by 2%, or NTD to other currencies depreciate by 4%.(Note 4)

( 37,809)

1,444



222,211

( 86,066)



( 222,211)

86,066

Note 1: If NTD to USD, RMB, JPY, and other currencies respectively appreciate by 2%, 3%, 3%, and 4%, the effects on profit (loss) will be ($47,027), $156,401, ($2,449) and ($35,234), respectively; the effect on equity will be all amounts denominated in USD.

Note 2: If NTD to USD, RMB, JPY, and other currencies respectively depreciate by 2%, 3%, 3% and 4%, the effects on profit (loss) will be $$47,027, ($156,401), $2,449 and $35,234, respectively; the effect on equity will be all amounts denominated in USD.

Note 3: If NTD to USD, RMB, JPY, and other currencies respectively appreciate by 2%, 2%, 2% and 4%, the effects on profit (loss) will be ($44,788), $116,316, ($1,847) and ($31,872), respectively; the effect on equity will be all amounts denominated in USD.

Note 4: If NTD to USD, RMB, JPY, and other currencies respectively depreciate by 2%, 2%, 2% and 4%, the effects on profit (loss) will be $44,788, ($116,316), $1,847 and $31,872, respectively; the effects on equity will be all amounts denominated in USD.

(M)Disclosure made in accordance with Regulations Governing the Preparation of Financial Reports by Financial Holdings Companies

Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2014

(Expressed In Thousands of New Taiwan Dollars, %) Item 1~90 days 91~180 days 181 days~1 year Over 1 year Total

Interest-rate-sensitive assets 1,441,411,464 23,079,918 32,964,293 113,137,831 1,610,593,506 Interest-rate-sensitive liabilities

410,169,577 908,170,178 97,512,697 37,782,186 1,453,634,638

Interest-rate-sensitive gap 1,031,241,887 (885,090,260) (64,548,404) 75,355,645 156,958,868 Net 153,210,918 Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities (%) 110.80% Ratio of interest-rate-sensitive gap to stockholders’ equity (%) 102.45%

Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013

(Expressed In Thousands of New Taiwan Dollars, %) Item 1~90 days 91~180 days 181 days~1 year Over 1 year Total

Interest-rate-sensitive assets 1,407,540,638 42,227,726 21,746,422 119,558,122 1,591,072,908 Interest-rate-sensitive liabilities

439,061,162 851,478,326 95,673,038 39,947,664 1,426,160,190

Interest-rate-sensitive gap 968,479,476 (809,250,600) (73,926,616) 79,610,458 164,912,718 Net 131,587,627 Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities (%) 111.56% Ratio of interest-rate-sensitive gap to stockholders’ equity (%) 125.33% Note: The amounts listed above represent the items denominated in NTD for the Bank (exclusive of foreign

currency), excluding contingent assets and contingent liabilities.

Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2014

(Expressed In Thousands of USD, %) Item 1~90 days 91~180 days 181 days~1 year Over 1 year Total

Interest-rate-sensitive assets 15,628,582 2,424,202 1,008,192 414,297 19,475,273 Interest-rate-sensitive liabilities

10,792,379 6,019,120 1,081,461 108,779 18,001,739

Interest-rate-sensitive gap 4,836,203 (3,594,918) (73,269) 305,518 1,473,534 Net 4,837,730 Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities (%) 108.19% Ratio of interest-rate-sensitive gap to stockholders’ equity (%) 30.46%

Sensitivity analysis of interest rate for assets and liabilities (USD)

December 31, 2013 (Expressed In Thousands of USD, %)

Item 1~90 days 91~180 days 181 days~1 year Over 1 year Total Interest-rate-sensitive assets 13,469,448 2,202,331 1,394,510 627,870 17,694,159 Interest-rate-sensitive liabilities

10,547,067 5,903,286 828,344 22,818 17,301,515

Interest-rate-sensitive gap 2,922,381 (3,700,955) 566,166 605,052 392,644 Net 4,418,658 Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities (%) 102.27% Ratio of interest-rate-sensitive gap to stockholders’ equity (%) 8.89%


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Explanation:The amounts listed above represent the items denominated in USD for FCB, excluding contingent

assets and contingent liabilities.

Note

A.Interest-rate-sensitive assets and liabilities are those interest earned assets and interest bearing liabilities, revenues and costs which are sensitive to changes in interest rates.

B.Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities =Interest-rate-sensitive assets / interest-rate-sensitive liabilities.

C.Interest-rate-sensitive gap = Interest-rate-sensitive assets interest-rate-sensitive liabilities.

G. Insurance risks

(A) Policy, procedure and method of risk management relating to insurance liabilities:

Risks relating to insurance liabilities happen when the policy sales underestimate the liability leading to a failure of fulfilling the future obligation. The subsidiary, FALI establishes appropriate risk managing mechanism in relation to various reserves for insurance business which is actually implemented accordingly. The contents include:

a. Review on the legitimacy of the setting aside of provisions for insurance

b. Setting up proper procedures for the setting aside of provisions for insurance

c. Evaluation on the risk of provisions for insurance

d. Controlling methods for risks relating to provisions for insurance

(B) Commensurate policy, procedure and method between risk management and assets and liabilities

Risk of assets and liabilities commensuration refer to risks occuring due to inconsistent movement in the value of asset and liability. According to the nature and complexity of the insurance liabilities sold, proper assets and liabilities managing mechanism are set up making FALI form, execute, monitor and adjust strategies relating to the assets and liabilities under durable capacity in order to achieve its pre-set financial goals. The content includes:

a. Commensurate risk identification of assets and liabilities

b. Commensurate risk evaluation of assets and liabilities

c. Responding commensurate risk of assets and liabilities

(C) Insurance risk concentration

All businesses of FALI occur within the territory of Taiwan, and the insurance risks from every location as assumed by FALI have no significant difference between them. Moreover, FALI sets up durable accumulative limits based on each risk unit and each risk event and transfers the risks exceeding risk limit through reinsurance.

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Explanation:The amounts listed above represent the items denominated in USD for FCB, excluding contingent

assets and contingent liabilities.

Note

A.Interest-rate-sensitive assets and liabilities are those interest earned assets and interest bearing liabilities, revenues and costs which are sensitive to changes in interest rates.

B.Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities =Interest-rate-sensitive assets / interest-rate-sensitive liabilities.

C.Interest-rate-sensitive gap = Interest-rate-sensitive assets interest-rate-sensitive liabilities.

G. Insurance risks

(A) Policy, procedure and method of risk management relating to insurance liabilities:

Risks relating to insurance liabilities happen when the policy sales underestimate the liability leading to a failure of fulfilling the future obligation. The subsidiary, FALI establishes appropriate risk managing mechanism in relation to various reserves for insurance business which is actually implemented accordingly. The contents include:

a. Review on the legitimacy of the setting aside of provisions for insurance

b. Setting up proper procedures for the setting aside of provisions for insurance

c. Evaluation on the risk of provisions for insurance

d. Controlling methods for risks relating to provisions for insurance

(B) Commensurate policy, procedure and method between risk management and assets and liabilities

Risk of assets and liabilities commensuration refer to risks occuring due to inconsistent movement in the value of asset and liability. According to the nature and complexity of the insurance liabilities sold, proper assets and liabilities managing mechanism are set up making FALI form, execute, monitor and adjust strategies relating to the assets and liabilities under durable capacity in order to achieve its pre-set financial goals. The content includes:

a. Commensurate risk identification of assets and liabilities

b. Commensurate risk evaluation of assets and liabilities

c. Responding commensurate risk of assets and liabilities

(C) Insurance risk concentration

All businesses of FALI occur within the territory of Taiwan, and the insurance risks from every location as assumed by FALI have no significant difference between them. Moreover, FALI sets up durable accumulative limits based on each risk unit and each risk event and transfers the risks exceeding risk limit through reinsurance.

(D) Sensitivity analysis on insurance risk

According to insurance regulations, the assumption variables used for computing policy reserve are locked-in upon pricing. However, such assumption may differ from the actual experience as time passes. In addition, according to IFRS No. 4, FALI should perform liability adequacy test to evaluate if the provisions for insurance recognized is sufficient or not. In particular, for changes in various assumptions on death rate, insurance rate, lapse rate, discount rate and rate of return on investment, the results of sensitivity testing have shown that inadequacy of FALI’s liabilities did not exist For the years ended December 31, 2014 and 2013 given that the death rate moves by 10%, insurance rate rises by 10%, assumed lapse rate moves by 10% or 30%, fluctuates by 1%.

(E) Credit risk

With regard to the insurance contracts taken over by FALI, credit risks happen mainly when the reinsurer fails to carry out the obligation of reinsurance contract leading to a financial loss of FALI. Any dispute between FALI and reinsurer could give rise to further impairment on the reinsured assets. In addition, receivables from insurance agents or representatives could also involve credit risks.

In avoidance of above risks, the subsidiary, FALI chooses to trade with reinsurance companies assessed by AVIVA Group with good credit rating. The maximum exposure on reinsurance contract of FALI is the carrying amount of reinsured asset.

(F) Liquidity risk

The liquidity risk of insurance contract mainly happens when FALI fails to liquidate assets or obtain sufficient fund leading to a failure in fulfilling obligation from various insurance liabilities. In order to manage the liquidity risk of insurance contracts, FALI carries out maturity analysis on insurance contract regularly and reviews the assets and liabilities.

The following table contains an analysis on estimated timing for net cash flow of insurance contracts of FALI. The figures in the table represent estimates that the total insurance payment and expense at certain time in the future less undiscounted cash inflow, premiums for example. However, the actual payments in the future may differ from the estimated experience.

Net cash outflow (inflow) of insurance contract:

December 31, 2014 December 31, 2013 Less than 1 year $ 1,288,957 $ 7,952,085 1~5 years 741,573 2,478,593 5~15 years 176,574 169,967 More than 15 years 5,525,503 4,290,634 Total contractual cash flow $ 7,732,607 $ 14,891,279

(G) Market risk:

Main risks of insurance contracts assumed by the subsidiary, FALI include: death rate, mortality rate, insurance rate and return rate, etc. Insurance contracts under general accounts offered by FALI are mainly denominated in NTD. Therefore, market risks relating to exchange rates are insignificant. On the other hand, according to current Regulations Governing the


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Setting Aside of Various Reserves by Insurance Enterprises, the interest rate of insurance contract is locked-in for liabilities reserve set aside based on the assumption when the policy is issued. In addition, the best estimated investment return is the discount rate used for liability adequacy test.

(H) Regarding derivatives embedded in the main insurance contract not measured by fair value, information on market risk exposure is as follows:

The following embedded derivatives issued by FALI, of which the contracts are not measured by fair value. Surrender value of such instruments varies with the announced interest rates, and the announced interest rates are the interest rates used to compute the value of insurance contract reserve in the year in which the policy effective date or the month of policy anniversary date announced by the life insurance company. FALI assumes risks when the overall return on investment or separated return rate on investment is lower than the lowest guaranteed interest rate. However, FALI regularly reviews the return on investment and investment portfolios to mitigate risk of interest-spread.

(3)Capital management

For the effective control on capital adequacy of the First Group and each of its subsidiary, as well as for ensuring the business development and risk controlling, the Company has established “Management Policies for Capital Adequacy of The First Financial Holdings Company” as approved by the Board of Directors to improve capital utilization efficiency of the First Group, through which the Risk Management Committee then sets up “Warning Indicators for Capital Adequacy ” for each subsidiary accordingly as authorized by the Board so that the capital strategies from senior management can be practiced and implemented. Related information should be reported to the Board of Directors accordingly on a regular basis.

In addition, in order to establish evaluation process for capital adequacy and maintain proper self-owned capital structure of each significant subsidiary within the First Group, also to develop business and control risk on both sides for better improvement of capital utilization, subsidiaries have established capital management policies to implement the strategies of senior management and the related information shall be disclosed or reported accordingly.

The management objectives and procedures for capital management of the significant subsidiaries within the First Group are as follows:

A.Objective of capital management

(A)To ensure that the First Group and its subsidiaries comply with regulations governing capital adequacy and minimum requirements set up by competent authorities of each industry, the consolidated capital adequacy ratio for the First Group shall not be lower than 110%, capital adequacy ratio for FCB should be not be lower than 8% as set out in “Regulations Governing Capital Adequacy of Banks”, capital adequacy ratio for FS should not be lower than 200% as set out in “Regulations Governing Securities Firms”, and capital adequacy ratio for FALI should be not be lower than 200%.

(B)In response to the capital required from each subsidiary’s operation plan, and to make them have sufficient capital for various risks derived from capital demand, capital allocation is distributed under a goal of utilization of capital arrangement.

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Setting Aside of Various Reserves by Insurance Enterprises, the interest rate of insurance contract is locked-in for liabilities reserve set aside based on the assumption when the policy is issued. In addition, the best estimated investment return is the discount rate used for liability adequacy test.

(H) Regarding derivatives embedded in the main insurance contract not measured by fair value, information on market risk exposure is as follows:

The following embedded derivatives issued by FALI, of which the contracts are not measured by fair value. Surrender value of such instruments varies with the announced interest rates, and the announced interest rates are the interest rates used to compute the value of insurance contract reserve in the year in which the policy effective date or the month of policy anniversary date announced by the life insurance company. FALI assumes risks when the overall return on investment or separated return rate on investment is lower than the lowest guaranteed interest rate. However, FALI regularly reviews the return on investment and investment portfolios to mitigate risk of interest-spread.

(3)Capital management

For the effective control on capital adequacy of the First Group and each of its subsidiary, as well as for ensuring the business development and risk controlling, the Company has established “Management Policies for Capital Adequacy of The First Financial Holdings Company” as approved by the Board of Directors to improve capital utilization efficiency of the First Group, through which the Risk Management Committee then sets up “Warning Indicators for Capital Adequacy ” for each subsidiary accordingly as authorized by the Board so that the capital strategies from senior management can be practiced and implemented. Related information should be reported to the Board of Directors accordingly on a regular basis.

In addition, in order to establish evaluation process for capital adequacy and maintain proper self-owned capital structure of each significant subsidiary within the First Group, also to develop business and control risk on both sides for better improvement of capital utilization, subsidiaries have established capital management policies to implement the strategies of senior management and the related information shall be disclosed or reported accordingly.

The management objectives and procedures for capital management of the significant subsidiaries within the First Group are as follows:

A.Objective of capital management

(A)To ensure that the First Group and its subsidiaries comply with regulations governing capital adequacy and minimum requirements set up by competent authorities of each industry, the consolidated capital adequacy ratio for the First Group shall not be lower than 110%, capital adequacy ratio for FCB should be not be lower than 8% as set out in “Regulations Governing Capital Adequacy of Banks”, capital adequacy ratio for FS should not be lower than 200% as set out in “Regulations Governing Securities Firms”, and capital adequacy ratio for FALI should be not be lower than 200%.

(B)In response to the capital required from each subsidiary’s operation plan, and to make them have sufficient capital for various risks derived from capital demand, capital allocation is distributed under a goal of utilization of capital arrangement.

(C)Significant subsidiaries such as FSC, FS, and FALI should evaluate its capital adequacy on a

regular basis and appropriately plan on its capital structure, tool to exercise and portfolio adjustment through duty segregation to carry out capital management.

B.Capital management procedures

The Board of Directors of the Company is the highest authority of the First Group. To maintain the capital adequacy, the Board authorizes Risk Management Committee of the Company to set up “Warning indicators of Capital Adequacy” and review the budgeted business goals for each subsidiary every year. When the capital adequacy ratio of each subsidiary is lower than the warning indicator, the Company has to take action depending on the significance.

When the capital adequacy is lower than the legal standard as required, the First Group may start to plan on resolutions, such as increasing qualifying net capital or decreasing the legal standards, including:

(A)Reduce total risk assets of subsidiaries.

(B)Adjust asset portfolios of subsidiaries.

(C)Dispose the stock investments of subsidiaries; or

(D)Increase capital of the Company or issue preferred stocks or subordinated bonds that can be included in qualifying capital.

The Company performs evaluation for the First Group’s capital adequacy and reports to the senior management in order to effectively monitor the capital adequacy of the First Group on time.

The responsible segments of significant banking, securities and life insurance subsidiaries and others should effectively identify, evaluate, monitor and control market risk, credit risk, operating risk, banking book interest risk, liquidity risk as set up by competent authorities and comply with legal and compliance risk regulations with an attempt to reflect evaluation on the minimum capital required. The subsidiary, FCB also sets up separately a team for capital planning and holds a meeting to ensure the implementation of the Board’s capital strategies on a regular basis in respect of capital managing objectives, fund gap, responding measures that could impose an effect on risk assets or qualifying self-owned capital and so on.


190

(A) Capital adequacy

December 31, 2014

Company

Ownership of financial holdings company

Qualifying capital Legal capital demand

FFH 100% $ 155,944,344 $ 167,906,467 FCB 100% 167,220,303 116,298,350 FS 100% 4,644,815 2,041,455 FALI 51% 391,667 171,926 FSIT 100% 978,416 576,055 FVC 100% 2,201,219 1,109,638 Other subsidiaries 100% 1,898,538 2,132,479 Deductible item ( 175,959,585) ( 164,719,946) Subtotal 157,319,717 125,516,424 Capital adequacy 125.34%

December 31, 2013

Company



FFH 100% $ 143,728,222 $ 145,486,113 FCB 100% 150,762,418 110,648,840 FS 100% 4,623,247 1,617,130 FALI 51% 399,331 195,702 FSIT 100% 994,341 560,306 FVC 100% 1,644,458 865,537 Other subsidiaries 100% 1,729,218 2,087,446 Deductible item ( 157,264,026) ( 142,300,879) Subtotal 146,617,209 119,160,195 Capital adequacy 123.04%

2014 ANNUAL REPORT

191

(A) Capital adequacy

December 31, 2014

Company



FFH 100% $ 155,944,344 $ 167,906,467 FCB 100% 167,220,303 116,298,350 FS 100% 4,644,815 2,041,455 FALI 51% 391,667 171,926 FSIT 100% 978,416 576,055 FVC 100% 2,201,219 1,109,638 Other subsidiaries 100% 1,898,538 2,132,479 Deductible item ( 175,959,585) ( 164,719,946) Subtotal 157,319,717 125,516,424 Capital adequacy 125.34%

December 31, 2013

Company



FFH 100% $ 143,728,222 $ 145,486,113 FCB 100% 150,762,418 110,648,840 FS 100% 4,623,247 1,617,130 FALI 51% 399,331 195,702 FSIT 100% 994,341 560,306 FVC 100% 1,644,458 865,537 Other subsidiaries 100% 1,729,218 2,087,446 Deductible item ( 157,264,026) ( 142,300,879) Subtotal 146,617,209 119,160,195 Capital adequacy 123.04%

(B) Qualifying capital of financial holdings company

December 31, 2014

Item Amount Common stock $ 92,592,548 Capital instrument met regulation of other Tier I capital for bank - Other preferred stock and subordinated bonds 2,000,000 Capital collected in advance - Additional paid-in capital 18,200,167 Legal reserve 9,355,102 Special reserve 4,128,990 Retained earnings 22,068,989 Adjustment of equity 7,598,954 Less：capital deductible item ( 406) Total qualifying capital $ 155,944,344

December 31, 2013

Item Amount Common stock $ 86,535,092 Capital instrument met regulation of other Tier I capital for bank - Other preferred stock and subordinated bonds 3,000,000 Capital collected in advance - Additional paid-in capital 18,200,167 Legal reserve 8,266,238 Special reserve 4,128,990 Retained earnings 19,446,949 Adjustment of equity 4,151,813 Less：capital deductible item ( 1,027) Total qualifying capital $ 143,728,222


192

(C) In accordance with Article 46 of the Financial Holding Company Act, the following table

represents the Company and its subsidiaries’ provision of business credit or endorsements to, or other transactions with, the same individual or the same affiliated company.

December 31, 2014

Name

Total balance of transaction listed in

article 46, paragraph 2 of the Financial Holding

Company Act

Percentage (%) of net value on effective date of

financial holdings company

Same Natural Persons Or Same Legal Person

National Treasury Administration, Ministry Of Finance $ 118,760,520 77.16

Taiwan High Speed Rail Corporation

37,802,973

24.56 Taiwan Power Company

21,235,191

13.80

Au Optronics Corp.

7,738,545

5.03 China Airlines Ltd.

7,727,133

5.02

Innolux Corporation

6,620,659

4.30 Wan Bao Development Consulting Co.,Ltd 5,777,680 3.75 Wistron Corporation

5,664,525

3.68

Far Eastern New Century Corporation

5,625,308

3.65 Yang Ming Marine Transport Corp.

4,759,690

3.09

Dragon Steel Corporation

4,683,218

3.04 Eva Airways Corporation

4,643,173

3.02

Kindom Construction Corp.

4,387,932

2.85 Foxconn Technology Corp

4,320,185

2.81

Cheng Shin Rubber Ind. Co., Ltd.

4,088,700

2.66 CPC Corporation, Taiwan

3,955,754

2.57

Evergreen Marine (UK) Ltd.

3,906,019

2.54 Formosa Petrochemical Corp

3,427,475

2.23

Cai Feng International Ltd.

3,202,518

2.08 Subtotal

$ 258,327,198

167.84

Same Party Tsai Sir. and Same Party $ 4,785,723

3.11

Shen Sir. and Same Party

3,247,518

2.11 Subtotal

$ 8,033,241

5.22


Evergreen Group $ 21,958,490 14.27 Formosa Plastics Group 17,739,254 11.53 Hon Hai Group 16,082,219 10.45 Au Optronics Group 13,680,326 8.89 Far Eastern Group 12,045,463 7.83 LinYuan Group 11,027,888 7.17 E United Group 10,702,202 6.95 Ruentex Group 9,283,697 6.03

2014 ANNUAL REPORT

193

(C) In accordance with Article 46 of the Financial Holding Company Act, the following table

represents the Company and its subsidiaries’ provision of business credit or endorsements to, or other transactions with, the same individual or the same affiliated company.

December 31, 2014

Name



Company Act




National Treasury Administration, Ministry Of Finance $ 118,760,520 77.16

Taiwan High Speed Rail Corporation

37,802,973

24.56 Taiwan Power Company

21,235,191

13.80

Au Optronics Corp.

7,738,545

5.03 China Airlines Ltd.

7,727,133

5.02

Innolux Corporation

6,620,659

4.30 Wan Bao Development Consulting Co.,Ltd 5,777,680 3.75 Wistron Corporation

5,664,525

3.68

Far Eastern New Century Corporation

5,625,308

3.65 Yang Ming Marine Transport Corp.

4,759,690

3.09

Dragon Steel Corporation

4,683,218

3.04 Eva Airways Corporation

4,643,173

3.02

Kindom Construction Corp.

4,387,932

2.85 Foxconn Technology Corp

4,320,185

2.81

Cheng Shin Rubber Ind. Co., Ltd.

4,088,700

2.66 CPC Corporation, Taiwan

3,955,754

2.57

Evergreen Marine (UK) Ltd.

3,906,019

2.54 Formosa Petrochemical Corp

3,427,475

2.23

Cai Feng International Ltd.

3,202,518

2.08 Subtotal

$ 258,327,198

167.84

Same Party Tsai Sir. and Same Party $ 4,785,723

3.11

Shen Sir. and Same Party

3,247,518

2.11 Subtotal

$ 8,033,241

5.22


Evergreen Group $ 21,958,490 14.27 Formosa Plastics Group 17,739,254 11.53 Hon Hai Group 16,082,219 10.45 Au Optronics Group 13,680,326 8.89 Far Eastern Group 12,045,463 7.83 LinYuan Group 11,027,888 7.17 E United Group 10,702,202 6.95 Ruentex Group 9,283,697 6.03

December 31, 2014

Name



Company Act



China Airlines Group 8,592,129 5.58 Lih Pao Construction Group 8,474,630 5.51 CSC Group 8,339,774 5.42 Walsin Group 7,628,695 4.96 Taiya International Group 7,605,656 4.94 Yfy Group 7,474,498 4.86 Uni President Group 7,166,889 4.66 Chicony Group 7,086,535 4.60 Taiwan Cement Group 6,401,204 4.16 Wisdom Marine Group 6,139,343 3.99 Wistron Corporation 5,689,432 3.70 Cheng Shin Group 5,636,616 3.66 Test Rite Group 5,333,764 3.47 Yang Ming Marine Group 5,325,714 3.46 Lian Hwa Group 5,236,830 3.40 Kantons Group 5,189,349 3.37 Long Chen Paper Group 4,888,763 3.18 Hpw Group 4,848,928 3.15 Fubon Group 4,754,884 3.09 Shihlin Paper Group 4,611,744 3.00 Yulon Group 4,535,861 2.95 Pou Chen Group 4,000,694 2.60 Ting Hsin Group 3,773,098 2.45 China Development Financial 3,653,450 2.37 Hongtai Group 3,378,051 2.19 Tatung Group 3,240,541 2.11 Kingston Group 3,189,129 2.07 United Microelectronics Group 3,056,724 1.99 WPG Group 3,039,249 1.97 Chailease Finance Group 3,029,492 1.97 Subtotal $ 273,841,205 177.92 (Note) Net value in the above table is the amount that had not been audited as of December 31, 2014.

(4) Information with respect to the transferring of financial assets and extinguishing of liabilities: None.

(5) Adjustment of key organization and significant change in regulatory system: None.

(6) Significant impact arising from changes in government laws and regulations: None.

(7) Information with respect to the subsidiary holding the capital stock of parent company: None.

(8) Information for private placement securities: None.


194

(9) Information for discontinued operations: None.

(10) Major operating assets or liabilities transferred from (or to) other financial institutions: None.

(11) Research developing plan and the amounts sponsored by others: None.

(12) Employee benefit information: Please see Note 6(24) d and (38).

(13) The main asset additions, expansion, construction, leasing, abandoned, idle, sale, transfer or long-term lease: None.

(14) The major contract signed, completed, canceled or lapsed: None.

(15) Information of the First Group’ engagement in co-marketing:

A. Transactions among the First Group

Please refer to Notes 13(1)H and 7.

B. Joint promotion of businesses

In order to create synergies within the group and provide customers financial services in all aspects, the Company has continuously established other financial service desks (including banking service, securities trading service, and insurance service desks) in its banks and securities subsidiaries to provide customers one-stop-shopping services.

C. Sharing of information

The Company has established “Measures for Protection of Customers’ Information for First Financial Holding Co., Ltd and its Subsidiaries” in accordance with the “Financial Holding Company Act”, “Computer-Process Personal Data Protection Law” and the related regulations stipulated by the Financial Supervisory Commission and the Company is required to publish its “Measures for Protection of Customers’ Information” at its website. Customers also reserve the right to have their information withdrawn from the information sharing mechanism.

D. Sharing of operating facilities or premises

The Company’s subsidiaries have set up 393 cross-selling service desks, among which FCB has established insurance service desks in its 190 branches, FALI has established cross-selling insurance service desks in 20 branches of FCB, and FS has set up cross-selling securities trading service desks in 131 branches of FCB. Besides, FS set up banking service desks and insurance service desks in the brokerage department of its 26 branches.

E. Apportionment of revenues, costs, expenses, gains and losses

Revenues, costs, expenses, gains and losses arising from the mutual use of business facilities and cross-sales between the Company's subsidiaries are directly attributed to subsidiaries by nature of services.

2014 ANNUAL REPORT

195

(9) Information for discontinued operations: None.

(10) Major operating assets or liabilities transferred from (or to) other financial institutions: None.

(11) Research developing plan and the amounts sponsored by others: None.

(12) Employee benefit information: Please see Note 6(24) d and (38).

(13) The main asset additions, expansion, construction, leasing, abandoned, idle, sale, transfer or long-term lease: None.

(14) The major contract signed, completed, canceled or lapsed: None.

(15) Information of the First Group’ engagement in co-marketing:

A. Transactions among the First Group

Please refer to Notes 13(1)H and 7.

B. Joint promotion of businesses

In order to create synergies within the group and provide customers financial services in all aspects, the Company has continuously established other financial service desks (including banking service, securities trading service, and insurance service desks) in its banks and securities subsidiaries to provide customers one-stop-shopping services.

C. Sharing of information

The Company has established “Measures for Protection of Customers’ Information for First Financial Holding Co., Ltd and its Subsidiaries” in accordance with the “Financial Holding Company Act”, “Computer-Process Personal Data Protection Law” and the related regulations stipulated by the Financial Supervisory Commission and the Company is required to publish its “Measures for Protection of Customers’ Information” at its website. Customers also reserve the right to have their information withdrawn from the information sharing mechanism.

D. Sharing of operating facilities or premises

The Company’s subsidiaries have set up 393 cross-selling service desks, among which FCB has established insurance service desks in its 190 branches, FALI has established cross-selling insurance service desks in 20 branches of FCB, and FS has set up cross-selling securities trading service desks in 131 branches of FCB. Besides, FS set up banking service desks and insurance service desks in the brokerage department of its 26 branches.

E. Apportionment of revenues, costs, expenses, gains and losses

Revenues, costs, expenses, gains and losses arising from the mutual use of business facilities and cross-sales between the Company's subsidiaries are directly attributed to subsidiaries by nature of services.

(1

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ets

$

172,

070,

824

$ 15

1,54

5,83

2

Tot

al li

abili

ties

and

equi

ty

$

172,

070,

824

$

15

1,54

5,83

2

2014 ANNUAL REPORT

197

(17)

Con

dens

ed f

inan

cial

sta

tem

ents

of

the

Firs

t Gro

up:

A. F

irst

Fin

anci

al H

oldi

ng C

o., L

td.

(A)

Firs

t Fin

anci

al H

oldi

ng C

o., L

td.

Indi

vidu

al b

alan

ce s

heet

D

ecem

ber

31

(Exp

ress

ed I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

Ass

ets

20

14

20

13

L

iabi

litie

s

2014

20

13

Cas

h an

d ca

sh e

quiv

alen

ts

$

1,74

9,88

3 $

1,

682,

644

C

omm

erci

al p

aper

s pa

yabl

e $

3,

998,

967

$

-

Secu

ritie

s pu

rcha

sed

unde

r

P

ayab

les

22

7,04

7

19

5,00

6

rese

ll ag

reem

ents

-

1,00

0,00

0

Cur

rent

tax

liabi

litie

s

2,78

3,09

7

3,

618,

559

Rec

eiva

bles

- n

et

9,

981

1,

613

B

onds

pay

able

7,00

0,00

0

7,

000,

000

Cur

rent

tax

asse

ts

2,

414,

068

3,

376,

048

O

ther

bor

row

ings

4,10

0,00

0

-

Inve

stm

ents

acc

ount

ed f

or

Lia

bilit

ies

rese

rve

16

,604

-

usin

g eq

uity

met

hod

- ne

t

164,

719,

946

14

2,30

0,87

7

Def

erre

d ta

x lia

bilit

ies

-

2,

475

Oth

er f

inan

cial

ass

ets

-net

3,16

8,10

6

3,16

8,10

5

Oth

er li

abili

ties

35

9

54

3

Pro

pert

y an

d eq

uipm

ent –

net

4,45

7

3,72

8

Tot

al li

abili

ties

18

,126

,074

10,8

16,5

83

Inta

ngib

le a

sset

s –

net

40

6

1,02

7

Equ

ity

Def

erre

d in

com

e ta

x as

sets

-net

1,69

1

- C

omm

on s

tock

92,5

92,5

48

86

,535

,092

Oth

er a

sset

s -

net

2,

286

11

,790

C

apita

l sur

plus

18,2

00,1

67

18

,200

,167

R

etai

ned

earn

ings

L

egal

res

erve

9,35

5,10

2

8,

266,

238

Sp

ecia

l res

erve

4,12

8,99

0

4,

128,

990

U

napp

ropr

iate

d ea

rnin

gs

22

,068

,989

19,4

46,9

49

O

ther

equ

ity

inte

rest

E

xcha

nge

diff

eren

ce o

n tr

ansl

atio

n of

fore

ign

fina

ncia

l sta

tem

ents

2,50

5,80

8

( 22

0,04

0 )

U

nrea

lized

gai

n an

d lo

ss o

n

avai

labl

e-fo

r-sa

le f

inan

cial

ass

ets

5,

093,

146

4,37

1,85

3

T

otal

equ

ity

15

3,94

4,75

0

14

0,72

9,24

9

Tota

l ass

ets

$

172,

070,

824

$ 15

1,54

5,83

2

Tot

al li

abili

ties

and

equi

ty

$

172,

070,

824

$

15

1,54

5,83

2

(B)

First Financial Holding Co., Ltd. Individual Statements of Comprehensive Income

For the years ended December 31 (Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Accounts 2014 2013

Revenues Share of profit of associates accounted for using

equity method $ 13,904,398 $ 11,112,205 Other revenues 289,401 226,400 Total revenues 14,193,799 11,338,605 Expenses and losses Share of loss of associates accounted for using

equity method ( 7,588 ) ( 12,144 ) Operating expenses ( 263,661 ) ( 232,502 ) Other expenses and losses ( 159,124 ) ( 144,616 ) Total expenses and losses ( 430,373 ) ( 389,262 ) Income from continuing operations before income tax 13,763,426 10,949,343

Income tax expense 321,510 ( 60,702 ) Income from continuing operations after income tax 14,084,936 10,888,641 Other comprehensive income 3,457,319 1,353,529 Total comprehensive income for the period $ 17,542,255 $ 12,242,170 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and

Diluted Consolidated Earnings Per Share $ 1.52 $ 1.18


198

Firs

t Fin

anci

al H

oldi

ng C

o., L

td.

Indi

vidu

al S

tate

men

t of

Cha

nge

in E

quit

y Fo

r th

e ye

ars

ende

d D

ecem

ber

31

(Exp

ress

ed I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

For

the

yea

r en

ded

Dec

embe

r 31

, 201

3 C

omm

on s

tock

Cap

ital

sur

plu

s L

egal

res

erve

Sp

ecia

l res

erve

Una

pp

rop

riat

ed

earn

ings

Exc

hang

e di

ffer

ence

on

tran

slat

ion

of f

orei

gn

fina

ncia

l sta

tem

ents

Unr

ealiz

ed g

ain

and

loss

on a

vaila

ble-

for-

sale

fina

ncia

l ass

ets

Tot

al

Bal

ance

, Jan

uary

1, 2

013

81,2

53,6

07$

18

,200

,167

$

7,24

8,85

4$

4,12

8,99

0$

18,4

50,6

25$

1,

002,

850)

($

3,86

4,09

8$

13

2,14

3,49

1$

A

pp

rop

riat

ion

of p

rior

yea

r's e

arni

ngs

Leg

al r

eser

ve a

pp

rop

riat

ed-

-

1,

017,

384

-

1,01

7,38

4)(

-

-

-

Cas

h di

vide

nds

of o

rdin

ary

sha

res

-

-

-

-

3,65

6,41

2)(

-

-

3,

656,

412)

(

Sto

ck d

ivid

ends

of

ordi

nary

sha

res

5,28

1,48

5

-

-

-

5,

281,

485)

(

-

-

-

N

et in

com

e fo

r th

e y

ear

-

-

-

-

10,8

88,6

41

-

-

10

,888

,641

Oth

er c

omp

rehe

nsiv

e in

com

e fo

r th

e y

ear

-

-

-

-

62,9

64

782,

810

50

7,75

5

1,35

3,52

9

Bal

ance

, Dec

embe

r 31

, 201

386

,535

,092

$

18,2

00,1

67$

8,

266,

238

$

4,

128,

990

$

19

,446

,949

$

220,

040)

($

4,

371,

853

$

140,

729,

249

$

For

the

yea

r en

ded

Dec

embe

r 31

, 201

4

Bal

ance

, Jan

uary

1, 2

014

86,5

35,0

92$

18

,200

,167

$

8,26

6,23

8$

4,12

8,99

0$

19,4

46,9

49$

22

0,04

0)($

4,37

1,85

3$

14

0,72

9,24

9$

A

pp

rop

riat

ion

of p

rior

yea

r's e

arni

ngs

-

Leg

al r

eser

ve a

pp

rop

riat

ed-

-

1,

088,

864

-

1,08

8,86

4)(

-

-

-

Cas

h di

vide

nds

of o

rdin

ary

sha

res

-

-

-

-

4,32

6,75

4)(

-

-

4,

326,

754)

(

Sto

ck d

ivid

ends

of

ordi

nary

sha

res

6,05

7,45

6

-

-

-

6,

057,

456)

(

-

-

-

N

et in

com

e fo

r th

e y

ear

-

-

-

-

14,0

84,9

36

-

-

14

,084

,936

Oth

er c

omp

rehe

nsiv

e in

com

e fo

r th

e y

ear

-

-

-

-

10,1

78

2,72

5,84

8

72

1,29

3

3,45

7,31

9

Bal

ance

, Dec

embe

r 31

, 201

492

,592

,548

$

18,2

00,1

67$

9,

355,

102

$

4,

128,

990

$

22

,068

,989

$

2,50

5,80

8$

5,

093,

146

$

153,

944,

750

$

Ret

aine

d ea

rnin

gsO

ther

equ

ity

inte

rest

2014 ANNUAL REPORT

199

First Financial Holding Co., Ltd. Individual Cash Flow Statement

For the years ended December 31 (Expressed In Thousands of New Taiwan Dollars)

2014 2013 Cash Flows From Operating Activities Net income $ 13,763,426 $ 10,949,343 Adjustments to reconcile net income to net cash provided by

operating activities: Depreciation and other amortization 3,120 4,778 Interest revenue ( 49,885 ) ( 9,949 ) Interest expense 156,840 144,500 Dividend income ( 206,231 ) ( 203,005 ) Loss on disposal of property and equipment - 33

Share of profit of associates accounted for under the equity menthod ( 13,896,810 ) ( 11,100,061 )

Changes in assets and liabilities Increase in other assets 694 ( 3,158 ) Increase in payables Decrease in other financial liabilities 30,265 7,712

Decrease in payable ( 184 ) ( 243 ) Interest received 41,517 10,058 Interest paid 461,632 4,068,262 Dividends received ( 155,064 ) ( 144,500 )

Income tax received (paid) 448,028 ( 1,517 ) Net cash provided by operating activities 597,348 3,722,253 Cash Flows from Investing Activities

Increase in investments accounted for under the equity method ( 5,300,000 ) -

Proceeds from capital reduction of other financial assets - 750,000 Acquisition of property and equipment ( 2,322 ) ( 346 ) Acquisition of intangible assets - ( 487 ) Net cash flows provided by investing activities ( 5,302,322 ) 749,167 Cash Flows from Financing Activities Increase in commercial papers payable 3,998,967 - Increase in other borrowings 4,100,000 -

Distribution of cash dividends ( 4,326,754 ) ( 3,656,412 ) Net cash provided by financing activities 3,772,213 ( 3,656,412 )

Net (decrease) increase in cash and cash equivalents ( 932,761 ) 815,008 Beginning balance of cash and cash equivalents 2,682,644 1,867,636 Ending balance of cash and cash equivalents $ 1,749,883 $ 2,682,644 Components of cash and cash equivalents Cash and cash equivalents shown in the balance sheet $ 1,749,883 $ 1,682,644 Due from the Central Bank and call loans to banks qualified as

cash and cash equivalents as defined by IAS No. 7 - 1,000,000 Ending balance of cash and cash equivalents $ 1,749,883 $ 2,682,644


200

F

irst

Com

mer

cial

Ban

k In

divi

dual

bal

ance

she

et

Dec

embe

r 31

(E

xpre

ssed

In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

A

sset

s

2014

2013

Lia

bilit

ies

20

14

2013

Cas

h an

d ca

sh e

quiv

alen

ts

$

59,4

11,4

18

$ 52

,387

,493

D

ue to

the

Cen

tral

Ban

k an

d ot

her

bank

s $

12

5,46

2,45

4

$

141,

376,

177

D

ue f

rom

the

Cen

tral

Ban

k an

d ca

ll lo

ans

to o

ther

ban

ks

17

6,61

9,88

9

158,

990,

690

Fu

nds

borr

owed

fro

m C

entr

al B

ank

and

othe

r ba

nks

80

,968

69,2

43

Fina

ncia

l ass

ets

at f

air

valu

e th

roug

h pr

ofit

or lo

ss

50

,114

,468

41,5

51,9

18

Fina

ncia

l lia

bili

ties

at f

air

valu

e th

roug

h pr

ofit

or lo

ss

23

,464

,824

14,9

06,2

02

Rec

eiva

bles

– n

et

50

,202

,758

54,3

67,6

60

Der

ivat

ive

liabi

litie

s of

hed

ging

- n

et

-

7,

973

C

urre

nt ta

x as

sets

2,42

0,47

5

2,63

3,66

4

Secu

ritie

s so

ld u

nder

rep

urch

ase

L

oans

dis

coun

ted,

net

1,48

7,01

3,10

1

1,42

2,15

1,00

0

agre

emen

ts

4,

922,

050

10,9

66,3

22

Ava

ilabl

e-fo

r-sa

le f

inan

cial

ass

ets

77,4

63,0

47

85

,244

,237

P

ayab

les

62

,188

,524

56,1

80,6

01

Hel

d-to

-mat

urit

y fi

nanc

ial a

sset

s –

net

307,

529,

119

30

4,05

3,85

8

Cur

rent

tax

liabi

litie

s

2,18

7,36

0

2,

419,

451

In

vest

men

ts a

ccou

nted

for

und

er th

e

Dep

osits

and

rem

itta

nces

1,81

5,52

6,00

3

1,

723,

640,

108

eq

uity

met

hod –

net

6,

921,

652

4,

560,

836

Fi

nanc

ial b

onds

pay

able

34,9

00,0

00

42

,700

,000

O

ther

fin

anci

al a

sset

s –

net

25

,636

,828

28,2

30,1

77

Oth

er f

inan

cial

liab

ilitie

s

43,4

66,1

10

52

,821

,627

P

rope

rty

and

equi

pmen

t - n

et

27

,528

,019

27,7

09,2

69

Lia

bilit

ies

rese

rve

5,

727,

436

5,63

1,20

1

Inve

stm

ent p

rope

rty

- ne

t

6,42

9,49

4

5,84

8,15

1

Def

erre

d ta

x lia

bilit

ies

5,

713,

268

5,71

3,26

1

Inta

ngib

le a

sset

s –

net

38

1,41

7

286,

389

O

ther

liab

ilitie

s

3,09

7,23

4

2,

439,

916

D

efer

red

inco

me

tax

asse

ts

1,

381,

797

1,

384,

874

T

otal

liab

ilitie

s

2,12

6,73

6,23

1

2,

058,

872,

082

O

ther

ass

ets –

net

89

3,66

7

1,05

9,49

3

Equ

ity

C

omm

on s

tock

75,8

59,0

00

66

,351

,000

Cap

ital s

urpl

us

22

,669

,729

19,6

69,7

29

R

etai

ned

earn

ings

47,6

50,6

62

41

,759

,944

Oth

er e

quit

y in

tere

st

7,

031,

527

3,80

6,95

4

T

otal

equ

ity

15

3,21

0,91

8

13

1,58

7,62

7

Tot

al a

sset

s $

2,

279,

947,

149

$

2,19

0,45

9,70

9

Tot

al li

abili

ties

and

equi

ty

$

2,27

9,94

7,14

9

$

2,19

0,45

9,70

9

JBFi

rst C

omm

erci

al B

ank

(A)

2014 ANNUAL REPORT

201

(B)

First Commercial Bank Individual Condensed Statements of Comprehensive Income


Account 2014 2013

Interest income $ 41,472,499 $ 36,776,302 Interest expenses ( 14,334,673 ) ( 11,910,850 ) Net interest income 27,137,826 24,865,452 Net non-interest income 10,381,690 7,911,031 Net revenues 37,519,516 32,776,483 Provision for bad debt expense and guarantee policy reserve ( 3,920,704 ) ( 3,922,121 )

Other expenses ( 17,737,017 ) ( 16,269,940 ) Income from continuing operations before income tax 15,861,795 12,584,422

Income tax expense ( 2,480,644 ) ( 1,939,695 ) Net income 13,381,151 10,644,727 Other comprehensive income 3,242,140 1,165,003 Total comprehensive income $ 16,623,291 $ 11,809,730 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and



202

C. F

irst

Sec

uriti

es

(A)

Firs

t Sec

uriti

es

Indi

vidu

al C

onde

nsed

Bal

ance

She

ets

Dec

embe

r 31

(E

xpre

ssed

In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

Ass

ets

20

14

20

13

L

iabi

liti

es

20

14

2013

Cur

rent

ass

ets

$

17,2

47,6

93

$

15,6

43,6

28

Cur

rent

liab

iliti

es

$

12,5

19,9

39

$

11,0

59,2

60

Ava

ilab

le-f

or-s

ale

fina

ncia

l

Oth

er li

abil

itie

s –

nonc

urre

nt

77

,631

107,

203

as

sets

790,

048

80

3,69

5

Tot

al li

abili

ties

12,5

97,5

70

11

,166

,463

In

vest

men

ts a

ccou

nted

for

unde

r th

e eq

uity

met

hod

P

rope

rty

and

equi

pmen

t

218,

962

22

1,41

1

In

tang

ible

ass

ets

38,4

62

47

,252

E

quit

y

D

efer

red

inco

me

tax

asse

ts

17

,355

34,4

20

Com

mon

sto

ck

6,

400,

000

6,40

0,00

0

Oth

er a

sset

s -

nonc

urre

nt

87

8,47

5

876,

920

C

apit

al s

urpl

us

28

,814

28,8

14

R

etai

ned

earn

ings

138,

479

52,4

76

O

ther

equ

ity

inte

rest

26,1

32

( 20

,427

)

Tot

al e

quit

y

6,59

3,42

5

6,

460,

863

T

otal

ass

ets

$

19,1

90,9

95

$

17,6

27,3

26

Tot

al li

abili

ties

and

equ

ity

$

19,1

90,9

95

$

17,6

27,3

26

2014 ANNUAL REPORT

203

(B)

First Securities Individual Condensed Statements of Comprehensive Income


Accounts 2014 2013 Revenues $ 1,551,837 $ 1,437,136 Service fee expense ( 75,628 ) ( 63,435 ) Employee benefit expense ( 792,557 ) ( 725,513 ) Share of profit of associates accounted for using

equity method ( 34,654 ) 23,171 Operating expenses ( 534,329 ) ( 514,874 ) Income from continuing operations before income

tax 114,669 156,485 Income tax expense ( 40,241 ) ( 16,613 ) Net income 74,428 139,872 Other comprehensive income 58,134 6,454 Total comprehensive income $ 132,562 $ 146,326 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and



204

D. F

irst

Sec

uriti

es I

nves

tmen

t Tru

st C

o., L

td.

(A)

Firs

t Sec

uriti

es I

nves

tmen

t Tru

st C

o., L

td.

Indi

vidu

al C

onde

nsed

Bal

ance

She

ets

Dec

embe

r 31

(E

xpre

ssed

In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

A

sset

s

2014

2013

Lia

bili

ties

2014

20

13

C

urre

nt a

sset

s $

44

7,29

0 $

42

5,86

8

Cur

rent

liab

iliti

es

$

164,

010

$

11

6,75

5

Pro

pert

y an

d eq

uipm

ent

49

6,98

8

496,

509

O

ther

liab

ilit

ies –

nonc

urre

nt

9,

683

9,51

6

Inve

stm

ent p

rope

rty

15

4,13

3

155,

152

T

otal

liab

iliti

es

17

3,69

3

12

6,27

1

Def

erre

d in

com

e ta

x as

sets

9,40

0

1,83

3

O

ther

ass

ets–

non

curr

ent

44

,298

41,2

50

Equ

ity

C

omm

on s

tock

600,

000

600,

000

Cap

ital

sur

plus

4,63

2

4,

632

Ret

aine

d ea

rnin

gs

36

3,86

6

38

6,95

4

O

ther

equ

ity

inte

rest

9,91

8

2,

755

Tot

al e

quit

y

978,

416

994,

341

T

otal

ass

ets

$

1,15

2,10

9 $

1,

120,

612

T

otal

liab

iliti

es a

nd e

quit

y $

1,

152,

109

$

1,

120,

612

2014 ANNUAL REPORT

205

(B)

First Securities Investment Trust Co., Ltd. Individual Condensed Statements of Comprehensive Income


Accounts 2014 2013 Operating revenues $ 514,399 $ 486,181 Operating expenses ( 433,106 ) ( 370,449 ) Operating income 81,293 115,732 Non-operating income and gain 13,761 8,744 Income from continuing operations before income

tax 95,054 124,476 Income tax expense ( 15,588 ) ( 21,026 ) Net income 79,466 103,450 Other comprehensive income 7,075 7,077 Total comprehensive income $ 86,541 $ 110,527 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and



206

E. F

irst

-Avi

va L

ife

Insu

ranc

e C

o., L

td.

(A)

Firs

t-A

viva

Lif

e In

sura

nce

Co.

, Ltd

. In

divi

dual

Con

dens

ed B

alan

ce S

heet

s D

ecem

ber

31

(E

xpre

ssed

In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

Ass

ets

20

14

20

13

L

iabi

liti

es

20

14

2013

Cas

h an

d ca

sh e

quiv

alen

ts

$

1,63

4,88

9 $

3,

310,

764

P

ayab

les

$

341,

846

$

20

2,42

4

Rec

eiva

bles

249,

557

27

6,84

8

Fina

ncia

l lia

bili

ties

at f

air

valu

e

C

urre

nt ta

x as

sets

34,4

78

36

,373

t

hrou

gh p

rofi

t or

loss

59,5

25

19

,464

Fi

nanc

ial a

sset

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fai

r va

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L

iabi

liti

es r

eser

ve

6,

959,

585

13,9

97,7

77

thro

ugh

prof

it or

loss

229,

363

1,

380,

414

O

ther

liab

ilit

ies

82

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66

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fina

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l

Def

erre

d ta

x li

abil

itie

s

30,0

32

5,

362

as

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4,66

8,01

4

9,76

5,16

9

Insu

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e pr

oduc

t lia

bili

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of

O

ther

fin

anci

al a

sset

s

884,

884

-

sepa

rate

acc

ount

s

22,0

32,2

58

13

,325

,009

L

oans

253,

745

15

3,02

5

Tot

al li

abili

ties

29,5

05,5

55

27

,644

,702

R

eins

uran

ce r

eser

ve a

sset

s

912

4,

690

E

quit

y

P

rope

rty

and

equi

pmen

t

16,8

19

2,

628

C

omm

on s

tock

2,25

0,00

0

2,

250,

000

In

tang

ible

ass

ets

6,

939

7,

529

A

ccum

ulat

ed d

efic

it

( 1,

517,

869

) (

1,50

2,99

0 )

Def

erre

d in

com

e ta

x as

sets

19,5

20

-

Oth

er e

quit

y in

tere

st

14

9,10

1

22

6,26

4

Oth

er a

sset

s

355,

409

35

5,52

7

Tot

al e

quit

y

881,

232

973,

274

In

sura

nce

prod

uct a

sset

s of

sepa

rate

acc

ount

s

22,0

32,2

58

13

,325

,009

Tot

al a

sset

s $

30

,386

,787

$

28

,617

,976

T

otal

liab

iliti

es a

nd e

quit

y $

30

,386

,787

$

28

,617

,976

2014 ANNUAL REPORT

207

(B)

First-Aviva Life Insurance Co., Ltd. Individual Condensed Statements of Comprehensive Income


Accounts 2014 2013

Operating revenues $ 14,882,449 $ 10,329,764 Operating costs ( 14,477,389 ) ( 9,969,072 ) Operating expenses ( 420,142 ) ( 384,794 ) Operating income ( 15,082 ) ( 24,102 ) Non-operating income and gain 673 426 Loss from continuing operations before income tax ( 14,409 ) ( 23,676 ) Income tax expense ( 470 ) ( 135 ) Net income ( 14,879 ) ( 23,811 ) Other comprehensive loss ( 77,163 ) ( 187,626 ) Total comprehensive loss ( $ 92,042 ) ( $ 211,437 ) Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and

Diluted Consolidated Earnings Per Share ( $ 0.07 ) ( $ 0.11 )


208

F. First Financial Assets Management Co., Ltd.

(A)

First Financial Assets Management Co., Ltd. Individual Condensed Balance Sheets

December 31 (Expressed In Thousands of New Taiwan Dollars)

Assets

2014 2013

Liabilities

2014

2013 Current assets

$ 231,104 $ 336,228

Current liabilities

$ 2,313,320 $ 2,413,332

Investments accounted for under the equity method 1,076,729 962,817

Other liabilities – noncurrent

42,408 20,581


3,461 2,854

Total liabilities

2,355,728 2,433,913 Investment property

2,854,038 2,787,247

Equity

Intangible assets

1,022 1,045

Common stock

1,450,000 1,450,000 Deferred income tax assets

20,643 7,047

Capital surplus

1,800 1,800

Other assets– noncurrent

14,183 16,752

Retained earnings

330,345 204,131

Other equity interest

63,307 24,146

Total equity

1,845,452 1,680,077

Total assets $ 4,201,180 $ 4,113,990

Total liabilities and equity

$ 4,201,180 $ 4,113,990

(B) First Financial Assets Management Co., Ltd.

Individual Condensed Statements of Comprehensive Income For the years ended December 31

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

Accounts 2014 2013 Operating revenues $ 482,900 $ 344,763 Operating expenses ( 246,829 ) ( 153,845 ) Operating income 236,071 190,918 Non-operating income and expense 56,482 (8,779) Income from continuing operations before income tax 292,553 182,139 Income tax expense ( 29,504 ) ( 31,081 ) Net income 263,049 151,058 Other comprehensive income 38,510 49,518 Total comprehensive income $ 301,559 $ 200,576 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and Diluted

Consolidated Earnings Per Share $ 1.81 $ 1.04

2014 ANNUAL REPORT

209

F. First Financial Assets Management Co., Ltd.

(A)

First Financial Assets Management Co., Ltd. Individual Condensed Balance Sheets


Assets

2014 2013

Liabilities

2014

2013 Current assets

$ 231,104 $ 336,228

Current liabilities

$ 2,313,320 $ 2,413,332

Investments accounted for under the equity method 1,076,729 962,817

Other liabilities – noncurrent

42,408 20,581


3,461 2,854

Total liabilities

2,355,728 2,433,913 Investment property

2,854,038 2,787,247

Equity

Intangible assets

1,022 1,045

Common stock

1,450,000 1,450,000 Deferred income tax assets

20,643 7,047

Capital surplus

1,800 1,800

Other assets– noncurrent

14,183 16,752

Retained earnings

330,345 204,131

Other equity interest

63,307 24,146

Total equity

1,845,452 1,680,077

Total assets $ 4,201,180 $ 4,113,990

Total liabilities and equity

$ 4,201,180 $ 4,113,990

(B) First Financial Assets Management Co., Ltd.

Individual Condensed Statements of Comprehensive Income For the years ended December 31


Accounts 2014 2013 Operating revenues $ 482,900 $ 344,763 Operating expenses ( 246,829 ) ( 153,845 ) Operating income 236,071 190,918 Non-operating income and expense 56,482 (8,779) Income from continuing operations before income tax 292,553 182,139 Income tax expense ( 29,504 ) ( 31,081 ) Net income 263,049 151,058 Other comprehensive income 38,510 49,518 Total comprehensive income $ 301,559 $ 200,576 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and Diluted


G. First Venture Capital Co., Ltd.

(A)

First Venture Capital Co., Ltd. Individual Condensed Balance Sheets


Assets

2014 2013

Liabilities

2014

2013

Current assets $ 375,784 $ 74,192 Current liabilities $ 23,275 $ 100,033 Available-for-sale Total liabilities 23,275 100,033

financial assets 1,839,872 1,656,628 Equity Deferred income tax Common stock 1,800,000 1,500,000

assets

8,838

13,671

Retained earnings

(

)

(Accumulated deficit) 9,189 78,532

Other equity interest 392,030 222,990 Total equity 2,201,219 1,644,458

Total assets

$ 2,224,494 $ 1,744,491 Total liabilities and

equity $ 2,224,494 $ 1,744,491

(B)

First Venture Capital Co., Ltd. Individual Condensed Statements of Comprehensive Income


Accounts 2014 2013 Operating revenues $ 193,155 $ 69,908 Operating expenses ( 93,640 ) ( 23,783 ) Non-operating income and expense ( 268 ) ( 990 ) Income from continuing operations before income tax 99,247 45,135 Income tax (expense) benefit ( 11,527 ) 10,027 Net income 87,720 55,162 Other comprehensive income 169,038 218,246 Total comprehensive income $ 256,758 $ 273,408 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and Diluted



210

H. First Financial Management Consulting Co., Ltd.

(A)

First Financial Management Consulting Co., Ltd. Individual Condensed Balance Sheets


Assets

2014 2013

Liabilities

2014

2013

Current assets $ 44,383 $ 43,261 Current liabilities $ 4,215 $ 4,122 Property and equipment 43 71 Other liabilities – Intangible assets 1 8 noncurrent 860 3,236 Deferred income tax Total liabilities 5,075 7,358

assets 146 550 Equity Other assets 58 66 Common stock 20,000 20,000 Capital surplus 89 89 Retained earnings 19,467 16,509 Total equity 39,556 36,598

Total assets $ 44,631 $ 43,956 Total liabilities and

equity $ 44,631 $ 43,956

(B)

First Financial Management Consulting Co., Ltd. Individual Condensed Statements of Comprehensive Income


Accounts 2014 2013 Operating revenues $ 28,770 $ 29,631 Operating expenses ( 15,966 ) ( 15,982 ) Operating income 12,804 13,649 Non-operating income and gain 1,086 617 Income from continuing operations before income tax 13,890 14,266 Income tax expense ( 2,391 ) ( 2,425 ) Net income 11,499 11,841 Other comprehensive income 2,116 92 Total comprehensive income $ 13,615 $ 11,933 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and Diluted


2014 ANNUAL REPORT

211

H. First Financial Management Consulting Co., Ltd.

(A)

First Financial Management Consulting Co., Ltd. Individual Condensed Balance Sheets


Assets

2014 2013

Liabilities

2014

2013

Current assets $ 44,383 $ 43,261 Current liabilities $ 4,215 $ 4,122 Property and equipment 43 71 Other liabilities – Intangible assets 1 8 noncurrent 860 3,236 Deferred income tax Total liabilities 5,075 7,358

assets 146 550 Equity Other assets 58 66 Common stock 20,000 20,000 Capital surplus 89 89 Retained earnings 19,467 16,509 Total equity 39,556 36,598


equity $ 44,631 $ 43,956

(B)

First Financial Management Consulting Co., Ltd. Individual Condensed Statements of Comprehensive Income


Accounts 2014 2013 Operating revenues $ 28,770 $ 29,631 Operating expenses ( 15,966 ) ( 15,982 ) Operating income 12,804 13,649 Non-operating income and gain 1,086 617 Income from continuing operations before income tax 13,890 14,266 Income tax expense ( 2,391 ) ( 2,425 ) Net income 11,499 11,841 Other comprehensive income 2,116 92 Total comprehensive income $ 13,615 $ 11,933 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and Diluted


I. First P&C Insurance Agency Co., Ltd.

(A)

First P&C Insurance Agency Co., Ltd. Individual Condensed Balance Sheets


Assets

2014 2013

Liabilities

2014

2013

Current assets $ 18,451 $ 16,491 Current liabilities $ 5,619 $ 4,402 Property and equipment 48 41 Total liabilities 5,619 4,402 Other assets 650 413 Equity Common stock 3,000 3,000

Capital surplus 89 89 Retained earnings 10,441 9,454 Total equity 13,530 12,543


equity $ 19,149 $ 16,945

(B)

First P&C Insurance Agency Co., Ltd. Individual Condensed Statements of Comprehensive Income

For the years ended December 31


Accounts 2014 2013 Operating revenues $ 47,240 $ 41,568 Operating costs ( 31,632 ) ( 29,884 ) Operating expenses ( 7,289 ) ( 4,548 ) Operating income 8,319 7,136 Non-operating income and gain 213 215 Income from continuing operations before income tax 8,532 7,351 Income tax expense ( 1,450 ) ( 1,256 ) Net income 7,082 6,095 Total comprehensive income $ 7,082 $ 6,095 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share and Diluted



212

(18)Profitability, asset quality, management information, and liquidity and market risk sensitivity of

subsidiaries:

A. Consolidated:


Return on total assets (%) Before taxes 0.71 0.59 After taxes 0.61 0.50

Return on stockholders’ equity (%) Before taxes 11.15 9.53 After taxes 9.53 7.94

Net profit margin ratio (%) 41.18 29.83 Note 1: Return on total assets = Income before (after) income tax / average total assets.

Note 2: Return on stockholders’ equity = Income before (after) income tax / average stockholders’ equity.

Note 3: Net profit margin ratio = Income after income tax / net revenues.

Note 4: The term “Income before (after) income tax” means net income from January 1 to the balance sheet date of the reporting period.

B. FFHC








2014 ANNUAL REPORT

213

(18)Profitability, asset quality, management information, and liquidity and market risk sensitivity of

subsidiaries:

A. Consolidated:








B. FFHC








C. FCB and Its subsidiaries:

(A) Profitability








(B) Asset quality of FCB

a. Non-performing loans and assets quality

Please refer to Note 12(2)D(G)a.

b. Non-performing loans and overdue receivables exempted from reporting to the competent authority

Please refer to Note 12(2)D(G)b.

c. Profile of concentration of credit risk and credit extensions of FCB

Please refer to Note 12(2)D(G)c.

d. Structure analysis of time to maturity of FCB

i. Structure analysis of NTD time to maturity

Please refer to Note 12(2)E(F)a.

ii. Structure analysis of USD time to maturity of FCB

Please refer to Note 12(2)E(F)b.

e. Sensitivity analysis of interest rate for assets and liabilities of FCB

Please refer to Note 12(2)F(M).


214

D. Information for FS and its subsidiaries is stated below:

Profitability








E. Information for FSIT is stated below:

Profitability


Return on total assets (%) Before taxes (0.05) (0.09) After taxes (0.05) (0.09)

Return on stockholders’ equity (%) Before taxes (1.55) (2.19) After taxes (1.60) (2.21)

Net profit margin ratio (%) (3.67) (3.14) Note 1: Return on total assets = Income before (after) income tax / average total assets.




2014 ANNUAL REPORT

215

D. Information for FS and its subsidiaries is stated below:

Profitability








E. Information for FSIT is stated below:

Profitability


Return on total assets (%) Before taxes (0.05) (0.09) After taxes (0.05) (0.09)

Return on stockholders’ equity (%) Before taxes (1.55) (2.19) After taxes (1.60) (2.21)

Net profit margin ratio (%) (3.67) (3.14) Note 1: Return on total assets = Income before (after) income tax / average total assets.




(20)Content and amount of investment trust business in accordance with Trust Enterprise Act

(Expressed In Thousands of New Taiwan Dollars)

Balance Sheet of Trust Accounts Trust assets December 31, 2014 December 31, 2013 Bank deposits $ 11,186,194 $ 9,995,624 Bonds 49,252,352 81,493,188 Stocks 91,152,688 94,374,375 Mutual funds 206,060,965 200,142,057 Properties 15,533,438 11,431,026 Net assets under collective management accounts 448,365

546,485

Net assets under individual management accounts 13,880

14,161

Customers’ securities under custody 333,293,082 337,787,214 Total $ 706,940,964 $ 735,784,130 Trust liabilities Payables-customers securities under custody $ 333,293,082 $ 337,787,214 Payables 44 - Trust capital 373,519,274 397,864,708 Various reserves and accumulated profit or loss 128,564 132,208 Total $ 706,940,964 $ 735,784,130

As of December 31, 2014, the Offshore Banking Unit had book balance of NT$3,373,399 and

NT$35,736 for designated money trust funds investing in foreign securities and designated money

trust funds investing in local securities, repectively.

(Expressed In Thousands of New Taiwan Dollars) Property List of Trust Accounts

Investment items December 31, 2014 December 31, 2013 Bank deposits $ 11,186,194 $ 9,995,624 Bonds 49,252,352 81,493,188 Stocks 91,152,688 94,374,375 Mutual funds 206,060,965 200,142,057 Properties 15,533,438 11,431,026 Net assets under collective management

accounts 448,365

546,485 Net assets under individual management

accounts 13,880

14,161 Customers’ securities under custody 333,293,082 337,787,214

Total $ 706,940,964 $ 735,784,130


216


Income Statement of Trust Accounts For the years ended December 31 Trust revenues 2014 2013 Interest income $ 4,580,483 $ 3,914,013 Cash dividend income 3,714 899 Realized gain on bonds 29,932 608,981 Realized gain on stocks 1,480 1,168 Realized gain on mutual funds 4,287,897 3,931,526 Gain on translation 839 647 Total trust revenues 8,904,345 8,457,234 Trust expenses Management fee ( 2,102 ) ( 1,804 ) Service fee ( 36 ) - Realized loss on bonds ( 935 ) ( 759 ) Realized loss on stocks ( 153,482 ) ( 323,437 ) Realized loss on mutual funds ( 209 ) ( 5,172 ) Gain on translation ( 2,818,601 ) ( 3,269,092 ) Other expenses ( 2,081 ) ( 1,477 ) Total trust expenses ( 2,977,446 ) ( 3,601,741 ) Net income before tax 5,926,899 4,855,493 Income tax expense ( 60 ) - Net income after tax $ 5,926,839 $ 4,855,493

Since 2014,the earnings distributions received from domestic and foreign beneficiary certificates have been classified as interest revenue on the financial statements, and appropriate retroactive adjustments have been made for the year of 2013.

2014 ANNUAL REPORT

217


Income Statement of Trust Accounts For the years ended December 31 Trust revenues 2014 2013 Interest income $ 4,580,483 $ 3,914,013 Cash dividend income 3,714 899 Realized gain on bonds 29,932 608,981 Realized gain on stocks 1,480 1,168 Realized gain on mutual funds 4,287,897 3,931,526 Gain on translation 839 647 Total trust revenues 8,904,345 8,457,234 Trust expenses Management fee ( 2,102 ) ( 1,804 ) Service fee ( 36 ) - Realized loss on bonds ( 935 ) ( 759 ) Realized loss on stocks ( 153,482 ) ( 323,437 ) Realized loss on mutual funds ( 209 ) ( 5,172 ) Gain on translation ( 2,818,601 ) ( 3,269,092 ) Other expenses ( 2,081 ) ( 1,477 ) Total trust expenses ( 2,977,446 ) ( 3,601,741 ) Net income before tax 5,926,899 4,855,493 Income tax expense ( 60 ) - Net income after tax $ 5,926,839 $ 4,855,493

Since 2014,the earnings distributions received from domestic and foreign beneficiary certificates have been classified as interest revenue on the financial statements, and appropriate retroactive adjustments have been made for the year of 2013.

13.S

uppl

emen

tary

dis

clos

ures

(1)

Info

rmat

ion

rega

rdin

g si

gnif

ican

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nsac

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s

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ican

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up f

or th

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r 31

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31, 2

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FCB

and

Its

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e of

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218

D.

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am

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2014

: Ple

ase

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(A)

Sum

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sel

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4:

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lue(

Not

e)

Sale

pri

ce

Gai

n (l

oss)

on

dis

posa

l A

dditi

onal

te

rms

Rel

atio

nshi

p be

twee

n co

unte

rpar

ty a

nd

FCB

20

14.1

.10

SC L

owy

Pri

mar

y In

vest

men

ts,L

td

Loa

ns a

nd D

eriv

ativ

e fi

nanc

ial i

nstr

umen

ts

$ 1,

711,

406

$ 1,

653,

922

($

57,4

84)

Non

e N

one

2014

.1.1

3 D

euts

che

Ban

k A

G

Lon

don

Bra

nch

Loa

ns

153,

821

201,

274

47,4

53

Non

e N

one

2014

.1.1

4 JP

Mor

gan

Cha

se

Ban

k N

.A.

Loa

ns

611,

711

683,

077

71,3

66

Non

e N

one

2014

.4.3

D

euts

che

Ban

k A

G

Lon

don

Bra

nch

Deb

t inv

estm

ents

wit

hout

ac

tive

mar

ket

101,

884

126,

718

24,8

34

Non

e N

one

2014

.5.1

9 C

redi

t Sui

see

Secu

ritie

s(E

urop

e)L

imite

d D

ebt i

nves

tmen

ts w

itho

ut

activ

e m

arke

t 45

,293

89

,891

44

,598

N

one

Non

e

2014

.5.1

9 C

redi

t Sui

see

Secu

ritie

s(E

urop

e)L

imite

d D

ebt i

nves

tmen

ts w

itho

ut

activ

e m

arke

t 45

,293

89

,891

44

,598

N

one

Non

e

2014

.12.

3 B

ank

of A

mer

ica

Mer

rill

Lyn

ch

Fina

ncia

l bon

ds

45,1

89

86,7

64

41,5

75

Non

e N

one

Not

e: T

he c

arry

ing

amou

nt is

the

bala

nce

of th

e or

igin

al lo

an a

mou

nt a

fter

ded

ucti

on o

f al

low

ance

for

dou

btfu

l deb

ts.

2014 ANNUAL REPORT

219

(B

) S

ale

of n

on-p

erfo

rmin

g lo

ans

for

whi

ch t

he a

mou

nt e

xcee

ded

NT

$1 b

illi

on (

excl

udin

g sa

le t

o re

late

d pa

rtie

s) a

s of

D

ecem

ber

31, 2

014:

Tra

nsac

tion

obj

ect:

SC

Low

y P

rim

ary

Inve

stm

ents

,Ltd

D

ispo

sal d

ate：

Janu

ary

10, 2

014

(Exp

ress

ed i

n T

hous

ands

of

New

Tai

wan

Dol

lars

) C

ompo

siti

on

of

Deb

t D

ebt a

mou

nt(N

ote

1)

Boo

k va

lue

Allo

cati

on o

f se

llin

g pr

ice(

Not

e 2)

Cor

pora

tion

s S

ecur

ed

$ 2,

335,

035

$ 1,

366,

902

$ 1,

653,

922

Uns

ecur

ed

344,

504

344,

504

-

Tota

l $

2,67

9,53

9 $

1,71

1,40

6 $

1,65

3,92

2

Tra

nsac

tion

obj

ect:

：JP

Mor

gan

Cha

se B

ank

N.A

.

Dis

posa

l dat

e：Ja

nuar

y 14

, 201

4

Com

posi

tion

of

D

ebt

Deb

t am

ount

(Not

e 1)

B

ook

valu

e A

lloca

tion

of

sell

ing

pric

e (N

ote

2)

Cor

pora

tion

s S

ecur

ed

$ 1,

046,

016

$ 61

1,71

1 $

683,

077

Uns

ecur

ed

- -

-

Tota

l $

1,04

6,01

6 $

611,

711

$ 68

3,07

7

Not

e 1:

The

deb

t am

ount

is

amou

nt t

hat

a bu

yer

may

cla

im f

rom

the

cre

dito

r, in

clud

ing

the

sum

of

bala

nce

of d

ispo

sal

on

non-

perf

orm

ing

loan

(th

e ca

rryi

ng a

mou

nt b

efor

e th

e de

duct

ion

of a

llow

ance

for

dou

btfu

l de

bts)

and

wri

tten

-off

bad

de

bt.

Not

e 2:

Allo

cati

on o

f se

llin

g pr

ice

refe

rs t

o th

e pr

ice

allo

cati

on a

fter

the

eva

luat

ion

of r

ecov

erab

le a

mou

nt f

or v

ario

us l

oans

w

hen

the

bank

dis

pose

s lo

ans.


220

G.

Sec

uriti

zati

on p

rodu

cts,

inc

ludi

ng i

ts r

elat

ed i

nfor

mat

ion,

app

lied

by

subs

idia

ries

in

com

plia

nce

with

the

“Fin

anci

al A

sset

Sec

uriti

zatio

n A

ct”

or “

Rea

l Est

ate

Secu

ritiz

atio

n A

ct”

as o

f Dec

embe

r 31

, 20

14 :

Non

e.

H.

Sig

nifi

cant

tran

sact

ions

bet

wee

n pa

rent

com

pany

and

sub

sidi

arie

s fo

r th

e ye

ar e

nded

Dec

embe

r 31

, 201

4:

(Exp

ress

ed I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

No.

(N

ote

1)

Com

pany

C

ount

erpa

rty

Rel

atio

nshi

p (N

ote

2)

Det

ails

of

tran

sact

ions

Acc

ount

A

mou

nt

Con

ditio

ns

Perc

enta

ge (

%)

of to

tal

cons

olid

ated

net

rev

enue

s or

ass

ets

(Not

e 3)

0 FF

HC

FC

B

1 C

ash

and

cash

equ

ival

ents

$

1

,749

,883

N

o si

gnif

ican

t dif

fere

nce

from

gen

eral

cus

tom

ers

0.07

%

FCB

1

Inte

rest

inco

me

40,2

64

″ 0.

12%

FC

B

1 C

urre

nt ta

x lia

bili

ties

1,84

8,95

3 ″

0.08

%

FCB

1

Cur

rent

tax

asse

ts

1,45

8,55

0 ″

0.06

%

FS

1 C

urre

nt ta

x as

sets

26

,890

″

0.00

%

FSIT

1

Cur

rent

tax

asse

ts

22,8

53

″ 0.

00%

FF

AM

1

Cur

rent

tax

asse

ts

30,5

43

″ 0.

00%

FV

C

1 C

urre

nt ta

x lia

bili

ties

5,21

9 ″

0.00

%

FVC

1

Cur

rent

tax

asse

ts

5,95

3 ″

0.00

%

FFM

C

1 C

urre

nt ta

x as

sets

2,

413

″ 0.

00%

FP

CIA

1

Cur

rent

tax

asse

ts

1,44

3 ″

0.00

%

1 FC

B

FFH

C

2 D

epos

its a

nd r

emit

tanc

es

1,74

9,88

3 ″

0.07

%

FFH

C

2 In

tere

st e

xpen

se

40,2

64

″ 0.

12%

FF

HC

2

Cur

rent

tax

asse

ts

1,84

8,95

3 ″

0.08

%

FFH

C

2 C

urre

nt ta

x lia

bili

ties

1,45

8,55

0 ″

0.06

%

FS

3 D

epos

its a

nd r

emit

tanc

es

373,

916

″ 0.

02%

FS

3

Gai

n an

d lo

ss in

inve

stm

ent p

rope

rty

68,7

37

″ 0.

20%

FS

3

Bus

ines

s an

d ad

min

istr

ativ

e 55

,644

″

0.16

%

FSIT

3

Dep

osits

and

rem

itta

nces

52

,032

″

0.00

%

FSIT

3

Net

ser

vice

fee

and

com

mis

sion

53

,055

″

0.16

%

FA

LI

3 D

epos

its a

nd r

emit

tanc

es

506,

342

″ 0.

02%

F

AL

I 3

Net

ser

vice

fee

and

com

mis

sion

33

,062

″

0.10

%

2014 ANNUAL REPORT

221

(Exp

ress

ed I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

No.

(N

ote

1)

Com

pany

C

ount

erpa

rty

Rel

atio

nshi

p (N

ote

2)

Det

ails

of

tran

sact

ions

Acc

ount

A

mou

nt

Con

ditio

ns

Perc

enta

ge (

%)

of to

tal

cons

olid

ated

net

rev

enue

s or

ass

ets

(Not

e 3)

1 FC

B

FA

LI

3 Fi

nanc

ial l

iabi

litie

s at

fai

r va

lue

thro

ugh

inco

me

stat

emen

t 31

7,93

6 N

o si

gnif

ican

t dif

fere

nce

from

gen

eral

cus

tom

ers

0.01

%

FA

LI

3 In

tere

st e

xpen

se

1,18

5 ″

0.00

%

FA

LI

3 N

et s

ervi

ce f

ee a

nd c

omm

issi

on

543,

816

″ 1.

59%

F

AL

I 3

Acc

ount

s re

ceiv

able

- n

et

55,5

97

″ 0.

00%

FF

MC

3

Dep

osits

and

rem

itta

nces

33

,697

″

0.00

%

FPC

IA

3 D

epos

its a

nd r

emit

tanc

es

18,7

12

″ 0.

00%

FF

AM

3

Dep

osits

and

rem

itta

nces

24

,113

″

0.00

%

FFA

M

3 B

usin

ess

and

adm

inis

trat

ive

97,2

44

″ 0.

28%

FF

AM

3

Acc

ount

s pa

yabl

e 30

,020

″

0.00

%

FVC

3

Dep

osits

and

rem

itta

nces

29

7,40

3 ″

0.01

%

FFM

C

3 D

epos

its a

nd r

emit

tanc

es

29,5

01

″ 0.

00%

FP

CIA

3

Dep

osits

and

rem

itta

nces

14

,457

″

0.00

%

FPC

IA

3 N

et s

ervi

ce f

ee a

nd c

omm

issi

on

30,1

62

″ 0.

09%

2

FS

FFH

C

2 C

urre

nt ta

x lia

bili

ties

26,8

90

″ 0.

00%

FC

B

3 C

ash

and

cash

equ

ival

ents

37

3,91

6 ″

0.02

%

FCB

3

Bus

ines

s an

d ad

min

istr

ativ

e 68

,737

″

0.20

%

FCB

3

Net

inco

me

exce

pt in

tere

st

55,6

44

″ 0.

16%

3

FSIT

FF

HC

2

Cur

rent

tax

liabi

litie

s 22

,853

″

0.00

%

FCB

3

Cas

h an

d ca

sh e

quiv

alen

ts

52,0

32

″ 0.

00%

FC

B

3 B

usin

ess

and

adm

inis

trat

ive

53,0

55

″ 0.

16%

4

FTSL

FC

B

3 C

ash

and

cash

equ

ival

ents

18

,712

″

0.00

%

5 FC

MI

FCB

3

Cas

h an

d ca

sh e

quiv

alen

ts

33,6

97

″ 0.

00%

6

FA

LI

FCB

3

Cas

h an

d ca

sh e

quiv

alen

ts

506,

342

″ 0.

02%

FC

B

3 B

usin

ess

and

adm

inis

trat

ive

33,0

62

″ 0.

10%

FC

B

3 O

ther

fin

anci

al a

sset

s –

net

317,

936

″ 0.

01%

FC

B

3 In

tere

st in

com

e 1,

185

″ 0.

00%

FC

B

3 N

et s

ervi

ce f

ee a

nd c

omm

issi

on

543,

816

″ 1.

59%


222

(Exp

ress

ed I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

No.

(N

ote

1)

Com

pany

C

ount

erpa

rty

Rel

atio

nshi

p (N

ote

2)

Det

ails

of

tran

sact

ions

Acc

ount

A

mou

nt

Con

ditio

ns

Perc

enta

ge (

%)

of to

tal

cons

olid

ated

net

rev

enue

s or

ass

ets

(Not

e 3)

6 F

AL

I FC

B

3 A

ccou

nts

paya

ble

55,5

97

No

sign

ific

ant d

iffe

renc

e fr

om g

ener

al c

usto

mer

s 0.

00%

7 FF

AM

FF

HC

2

Cur

rent

tax

liabi

litie

s 30

,543

″

0.00

%

FCB

3

Cas

h an

d ca

sh e

quiv

alen

ts

24,1

13

″ 0.

00%

FC

B

3 N

et s

ervi

ce f

ee a

nd c

omm

issi

on

97,2

44

″ 0.

28%

FC

B

3 A

ccou

nts

rece

ivab

le -

net

30

,020

″

0.00

%

8 FF

MC

FF

HC

2

Cur

rent

tax

liabi

litie

s 2,

413

″ 0.

00%

FC

B

3 C

ash

and

cash

equ

ival

ents

29

,501

″

0.00

%

9 FP

CIA

FF

HC

2

Cur

rent

tax

liabi

litie

s 1,

443

″ 0.

00%

FC

B

3 C

ash

and

cash

equ

ival

ents

14

,457

″

0.00

%

FCB

3

Net

ser

vice

fee

and

com

mis

sion

30

,162

″

0.09

%

10

FVC

FF

HC

2

Cur

rent

tax

asse

ts

5,21

9 ″

0.00

%

FFH

C

2 C

urre

nt ta

x lia

bili

ties

5,95

3 ″

0.00

%

FCB

3

Cas

h an

d ca

sh e

quiv

alen

ts

297,

403

″ 0.

01%

Not

e 1:

The

num

bers

fill

ed in

for

the

tran

sact

ion

com

pany

in r

espe

ct o

f in

ter-

com

pany

tran

sact

ions

are

as

follo

ws:

(1)P

aren

t com

pany

is ‘0

’.

(2)T

he su

bsid

iarie

s are

num

bere

d in

ord

er st

artin

g fr

om ‘1

’.

Not

e 2:

Rel

atio

nshi

p be

twee

n tr

ansa

ctio

n co

mpa

ny a

nd c

ount

erpa

rty

is c

lass

ifie

d in

to th

e fo

llow

ing

thre

e ca

tego

ries

; fil

l in

the

num

ber

of c

ateg

ory

each

cas

e be

long

s to

(If

tran

sact

ions

bet

wee

n pa

rent

com

pany

and

sub

sidi

arie

s or

bet

wee

n su

bsid

iari

es r

efer

to th

e sa

me

tran

sact

ion,

it is

not

req

uire

d to

dis

clos

e tw

ice.

For

exa

mpl

e, if

the

pare

nt c

ompa

ny h

as a

lrea

dy d

iscl

osed

its

tran

sact

ion

wit

h a

subs

idia

ry, t

hen

the

subs

idia

ry is

not

req

uire

d to

dis

clos

e th

e tr

ansa

ctio

n; f

or tr

ansa

ctio

ns b

etw

een

two

subs

idia

ries

, if

one

of th

e su

bsid

iari

es h

as d

iscl

osed

the

tran

sact

ion,

then

the

othe

r is

not

req

uire

d to

dis

clos

e th

e tr

ansa

ctio

n.):

(1)P

aren

t com

pany

to s

ubsi

diar

y.

(2)S

ubsi

diar

y to

par

ent c

ompa

ny.

(3)S

ubsi

diar

y to

sub

sidi

ary.

2014 ANNUAL REPORT

223

Not

e 3:

Reg

ardi

ng p

erce

ntag

e of

tran

sact

ion

amou

nt to

con

solid

ated

tota

l ope

ratin

g re

venu

es o

r to

tal a

sset

s, it

is c

ompu

ted

base

d on

per

iod-

end

bala

nce

of tr

ansa

ctio

n

to c

onso

lidat

ed to

tal a

sset

s fo

r ba

lanc

e sh

eet a

ccou

nts

and

base

d on

acc

umul

ated

tran

sact

ion

amou

nt f

or th

e pe

riod

to c

onso

lidat

ed to

tal o

pera

ting

reve

nues

for

inco

me

stat

emen

t acc

ount

s.

I. O

ther

sig

nifi

cant

tran

sact

ions

that

may

aff

ect t

he d

ecis

ions

mad

e by

fin

anci

al s

tate

men

t use

rs a

s of

Dec

embe

r 31

, 201

4: N

one.

(2)

Info

rmat

ion

rega

rdin

g re

inve

sted

bus

ines

s

A. F

unds

lent

to o

ther

s:

(A)

The

sub

sidi

arie

s, F

CB

, FA

LI

and

FS b

elon

g to

fin

anci

al i

ndus

try,

ins

uran

ce i

ndus

try

and

secu

riti

es i

ndus

try,

and

no

disc

losu

re i

s re

quir

ed.

(B)

Not

app

lica

ble

for

the

subs

idia

ries

, FS

IT, F

FAM

, FV

C, F

FMC

and

FP

CIA

.

(C)

Indi

rect

inv

este

es b

elon

g to

fin

anci

al i

ndus

try

and

secu

ritie

s in

dust

ry a

nd n

o di

sclo

sure

is

requ

ired

exc

ept

for

Firs

t C

omm

erci

al

Ban

k (U

SA)

and

FTS

L.


224

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

)

Num

ber

Cre

dito

r B

orro

wer

G

ener

al

ledg

er

acco

unt

Is

a

rela

ted

part

y

Max

imum

ou

tsta

ndin

g ba

lanc

e du

ring

th

e ye

ar e

nded

D

ecem

ber

31,

2014

Bal

ance

at

Dec

embe

r 31

, 20

14

Act

ual

amou

nt

draw

n do

wn

Inte

rest

R

ate

Nat

ure

of

Loa

n

Am

ount

of

tran

sact

ions

w

ith

the

borr

ower

Rea

son

for

shor

t-te

rm

fina

ncin

g

Allo

wan

ce

for

doub

tful

ac

coun

ts

Col

late

ral

Lim

it o

n lo

ans

gran

ted

to

a si

ngle

pa

rty

Cei

ling

on

tota

l loa

ns

gran

ted

Item

V

alue

1 FC

B L

easi

ng

Co.

, Ltd

.

Pan

Paci

fic

Ass

et

Prop

erty

Man

agem

ent

Co.

, Ltd

.

Oth

er

rece

ivab

les

N

$

2

6,00

0 $

-

$

-

4.96

%

2 -

Ope

rati

on

turn

over

-

Rea

l est

ate

sett

ing

$ 60

,000

$

987,

950

$ 1,

317,

267

2 FC

B L

easi

ng

Co.

Ltd

. Pa

ntec

h C

onst

ruct

ion

Co.

, Ltd

. O

ther

re

ceiv

able

s N

10

2,00

0 90

,000

90

,000

4.

96%

2

- O

pera

tion

tu

rnov

er

- R

eal e

stat

e se

ttin

g 14

4,00

0 98

7,95

0 1,

317,

267

3 FC

B L

easi

ng

Co.

Ltd

. Pu

nggi

Con

stru

ctio

n C

o.,

Ltd

. O

ther

re

ceiv

able

s N

64

,050

59

,850

59

,850

3.

75%

2

- O

pera

tion

tu

rnov

er

- R

eal e

stat

e se

ttin

g 12

0,00

0 98

7,95

0 1,

317,

267

4 FC

B L

easi

ng

Co.

Ltd

. A

i Kua

i Int

erna

tiona

l, In

c.

Oth

er

rece

ivab

les

N

50,0

00

50,0

00

43,4

93

5.53

%

2 -

Ope

rati

on

turn

over

-

Stoc

k

55,0

00

987,

950

1,31

7,26

7

5 FC

B L

easi

ng

Co.

Ltd

. A

i Kua

i Int

erna

tiona

l, In

c.

Oth

er

rece

ivab

les

N

23,8

32

8,83

2 8,

832

4.75

%

2 -

Ope

rati

on

turn

over

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Dep

osit

1,50

0 98

7,95

0 1,

317,

267

6 FC

B L

easi

ng

Co.

Ltd

. I-

Mei

M

ultim

edia

e-C

onte

nt

Prod

ucti

on &

Mar

ketin

g C

o., L

td.

Oth

er

rece

ivab

les

N

20,8

10

8,65

2 8,

652

6.80

%

2 -

Ope

rati

on

turn

over

-

Dep

osit

2,60

0 98

7,95

0 1,

317,

267

7 FC

B L

easi

ng

Co.

Ltd

. Pa

n Fe

ng I

nter

nati

onal

C

o., L

td.

Oth

er

rece

ivab

les

N

15,0

00

6,33

3 6,

333

6.43

%

2 -

Ope

rati

on

turn

over

-

Dep

osit

1,50

0 98

7,95

0 1,

317,

267

8 FC

B L

easi

ng

Co.

Ltd

. M

J L

ife

Ent

erpr

ises

Ltd

. O

ther

re

ceiv

able

s N

10

,967

86

9 86

9 7.

30%

2

- O

pera

tion

tu

rnov

er

- D

epos

it 2,

250

987,

950

1,31

7,26

7

9 FC

B L

easi

ng

Co.

Ltd

. Sa

n W

en C

o., L

td.

Oth

er

rece

ivab

les

N

13,3

80

3,69

8 3,

698

5.80

%

2 -

Ope

rati

on

turn

over

-

Dep

osit

1,50

0 98

7,95

0 1,

317,

267

10

FCB

Lea

sing

C

o. L

td.

Fute

k A

lloy

Co.

, Ltd

. O

ther

re

ceiv

able

s N

10

,000

4,

537

4,53

7 6.

30%

2

- O

pera

tion

tu

rnov

er

- R

eal e

stat

e se

ttin

g 12

,000

98

7,95

0 1,

317,

267

11

FCB

Lea

sing

C

o. L

td.

HA

NK

Y C

o., L

td.

Oth

er

rece

ivab

les

N

300,

000

295,

985

295,

985

4.18

%

2 -

Ope

rati

on

turn

over

-

Rea

l est

ate

sett

ing

240,

000

987,

950

1,31

7,26

7

12

FCB

Lea

sing

C

o. L

td.

Yua

ns o

f bi

olog

ical

Sc

ienc

e T

echn

olog

ies

Co.

, Ltd

. of

hall

Oth

er

rece

ivab

les

N

11,3

77

3,92

1 3,

921

8.11

%

2 -

Ope

rati

on

turn

over

-

Rea

l est

ate

sett

ing

14,4

00

987,

950

1,31

7,26

7

13

FCB

Lea

sing

C

o. L

td.

Tai

wan

New

lead

er C

o.,

Ltd

. O

ther

re

ceiv

able

s N

8,

000

7,35

3 7,

353

7.40

%

2 -

Ope

rati

on

turn

over

-

Tic

kets

4,

018

987,

950

1,31

7,26

7

14

FCB

Lea

sing

C

o. L

td.

Res

erve

for

gu

aran

tees

-Han

Kua

n Fr

uit &

Veg

etab

le

Prod

ucti

on C

oope

rativ

e in

Yun

lin C

ount

y,

Tai

wan

Oth

er

rece

ivab

les

N

8,81

3 3,

872

3,87

2 6.

72%

2

-

Ope

rati

on

turn

over

-

Pers

onal

pr

oper

ty

secu

red

12,0

00

987,

950

1,31

7,26

7

2014 ANNUAL REPORT

225

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

)

Num

ber

Cre

dito

r B

orro

wer

G

ener

al

ledg

er

acco

unt

Is

a

rela

ted

part

y

Max

imum

ou

tsta

ndin

g ba

lanc

e du

ring

th

e ye

ar e

nded

D

ecem

ber

31,

2014

Bal

ance

at

Dec

embe

r 31

, 20

14

Act

ual

amou

nt

draw

n do

wn

Inte

rest

R

ate

Nat

ure

of

Loa

n

Am

ount

of

tran

sact

ions

w

ith

the

borr

ower

Rea

son

for

shor

t-te

rm

fina

ncin

g

Allo

wan

ce

for

doub

tful

ac

coun

ts

Col

late

ral

Lim

it o

n lo

ans

gran

ted

to

a si

ngle

pa

rty

Cei

ling

on

tota

l loa

ns

gran

ted

Item

V

alue

15

FCB

Lea

sing

C

o. L

td.

Com

pass

gua

rant

ee

resp

onsi

bilit

y C

hang

hua

Cou

nty

Coo

pera

tive

Fa

rm

Oth

er

rece

ivab

les

N

10,0

00

8,98

0 8,

980

7.20

%

2 -

Ope

rati

on

turn

over

-

Pers

onal

pr

oper

ty

secu

red

12,0

00

987,

950

1,31

7,26

7

16

FCB

Lea

sing

C

o. L

td.

Xua

ntai

Foo

d C

o., L

td.

Oth

er

rece

ivab

les

N

12,0

00

10,5

82

10,5

82

7.35

%

2 -

Ope

rati

on

turn

over

-

Dep

osit

1,20

0 98

7,95

0 1,

317,

267

17

FCB

Lea

sing

C

o. L

td.

New

era

Art

Co.

, Ltd

. O

ther

re

ceiv

able

s N

10

,000

9,

134

9,13

4 8.

11%

1

10,0

00 O

pera

tion

tu

rnov

er

- R

eal e

stat

e se

ttin

g 14

,000

32

9,31

7 1,

317,

267

18

FCB

Lea

sing

C

o. L

td.

Arc

h-w

orld

Co.

, Ltd

. O

ther

re

ceiv

able

s N

15

0,00

0 14

3,60

0 73

,600

4.

50%

1

237,

000

Ope

rati

on

turn

over

-

Rea

l est

ate

sett

ing

180,

000

329,

317

1,31

7,26

7

Not

e: 1

. The

am

ount

of l

oans

for i

ndiv

idua

l com

pani

es d

ue to

bus

ines

s tra

nsac

tions

sha

ll no

t exc

eed

10%

net

ass

et v

alue

of F

CB

L’s

late

st f

inan

cial

sta

tem

ents

. The

tot

al a

mou

nt o

f lo

ans

for

indi

vidu

al

com

pani

es d

ue to

bus

ines

s tr

ansa

ctio

ns s

hall

not e

xcee

d 40

% n

et v

alue

of F

CB

L’s l

ates

t fin

anci

al st

atem

ents

. 2.

Wit

h re

gard

to s

hort

-ter

m f

inan

cing

cap

ital b

orro

wer

s w

ho d

id n

ot h

ave

busi

ness

tran

sact

ions

wit

h FC

B L

easi

ng, t

he a

mou

nt o

f lo

ans

for

indi

vidu

al c

ompa

nies

due

to b

usin

ess

tran

sact

ions

sha

ll

not

exce

ed 3

0% n

et a

sset

val

ue o

f FC

BL’

s la

test

fina

ncia

l sta

tem

ents

. For

thos

e w

ho h

ave

the

dem

and

for s

hort-

term

fin

anci

ng c

apita

l, th

e to

tal a

mou

nt o

f lo

ans

shal

l not

exc

eed

40%

net

ass

et

valu

e of

FC

BL’

s lat

est f

inan

cial

stat

emen

ts. I

f the

bor

row

er is

FC

BL’

s sub

sidia

ry, t

he a

mou

nt o

f loa

ns sh

all n

ot e

xcee

d 40

% n

et a

sset

val

ue o

f FC

BL’

s lat

est f

inan

cial

stat

emen

ts.

3. T

he to

tal a

mou

nt o

f FC

BL

shal

l not

exc

eed

40%

net

ass

et v

alue

of

its

late

st f

inan

cial

sta

tem

ents

.

4. T

he a

mou

nt o

f lo

ans

for

indi

vidu

al c

ompa

nies

abo

ve a

re n

ot th

e re

late

d pa

rtie

s of

the

com

pany

.


226

B. E

ndor

sem

ents

and

gua

rant

ees

prov

ided

for

oth

ers:

(A)

The

sub

sidi

arie

s, F

CB

, FA

LI

and

FS b

elon

g to

fin

anci

al in

dust

ry, i

nsur

ance

indu

stry

and

sec

uriti

es in

dust

ry, a

nd n

o di

sclo

sure

is

req

uire

d.

(B)

Not

app

lica

ble

for

the

subs

idia

ries

, FS

IT, F

FAM

, FV

C, F

FMC

and

FP

CIA

.

(C)

Indi

rect

in

vest

ees

belo

ng

to

fina

ncia

l in

dust

ry

and

secu

ritie

s in

dust

ry

and

no

disc

losu

re

is

requ

ired

ex

cept

fo

r Fi

rst

Com

mer

cial

Ban

k (U

SA

) an

d FT

SL

.

No.

End

orsi

ng

and

guar

ante

e co

mpa

ny

End

orse

d an

d gu

aran

teed

co

mpa

ny

Lim

it f

or

endo

rsem

ent

and

guar

ante

e fo

r si

ngle

en

terp

rise

Max

imum

ba

lanc

e ac

cum

ulat

ed

as o

f th

e ye

ar

End

ing

bala

nce

of e

ndor

sem

ent

and

guar

ante

e

Act

ually

us

ed

amou

nt

Prop

erty

- ba

cked

en

dors

emen

t an

d gu

aran

tee

The

rat

io o

f ac

cum

ulat

ed

endo

rsem

ent a

nd

guar

ante

e am

ount

an

d th

e ne

t val

ue

of th

e la

test

fi

nanc

ial

stat

emen

ts

Max

imum

lim

it

Prov

isio

n of

en

dors

emen

ts/

guar

ante

es b

y pa

rent

co

mpa

ny to

su

bsid

iary

N

ote

2

Prov

isio

n of

en

dors

emen

ts/

guar

ante

es b

y su

bsid

iary

to

pare

nt

com

pany

N

ote

2

Prov

isio

n of

en

dors

emen

ts/

guar

ante

es to

th

e pa

rty

in

Mai

nlan

d C

hina

N

ote

2

Nam

e of

co

mpa

ny

Rel

atio

nshi

p

1 FC

B L

easi

ng

Co.

, Ltd

.

FCB

L C

apita

l In

tern

atio

nal

(B.V

.I)

Ltd

.

Subs

idia

ry

$9,8

79,5

04

$2,5

41,5

18

$2,4

06,9

20

$427

,862

N

one

73.0

9%

$32,

931,

680

N

N

N

2 FC

B L

easi

ng

Co.

, Ltd

.

FCB

L

Subs

idia

ry

9,87

9,50

4 2,

851,

890

2,69

3,54

0 1,

694,

345

Non

e 81

.79%

32

,931

,680

N

N

Y

Not

e 1:

Dep

endi

ng o

n th

e en

dors

emen

t an

d gu

aran

tee

proc

edur

es,

the

tota

l am

ount

sha

ll n

ot e

xcee

d th

e ne

t va

lue

of t

he l

ates

t au

dite

d fi

nanc

ial s

tate

men

ts.

C. S

ecur

ities

hel

d at

the

end

of p

erio

d:

(A)

The

sub

sidi

arie

s, F

CB

, FA

LI

and

FS b

elon

g to

fin

anci

al in

dust

ry, i

nsur

ance

indu

stry

and

sec

uriti

es in

dust

ry, a

nd n

o di

sclo

sure

is

req

uire

d.

(B)

The

rel

evan

t inf

orm

atio

n fo

r su

bsid

iari

es F

SIT

, FFA

M, F

VC

is a

s fo

llow

s, e

xcep

t FFM

C a

nd F

PC

IA w

hich

are

not

app

lica

ble

for

the

rega

rdin

g m

atte

r.

(C)

Indi

rect

in

vest

ees

belo

ng

to

fina

ncia

l in

dust

ry

and

secu

ritie

s in

dust

ry

and

no

disc

losu

re

is

requ

ired

ex

cept

fo

r Fi

rst

Com

mer

cial

Ban

k (U

SA

) an

d FT

SL

.

2014 ANNUAL REPORT

227

(Exp

ress

ed I

n T

hous

ands

of

New

Tai

wan

Dol

lars

, Unl

ess

Oth

erw

ise

Indi

cate

d)

In

vest

or

Nam

e O

f In

vest

ee A

nd T

ype

Of

Secu

riti

es

Rel

atio

nshi

p

A

ccou

nt

Shar

es /

Uni

ts

(i

n th

ousa

nds)

Boo

k va

lue

Ow

ners

hip

Perc

enta

ge (

%)

Mar

ket V

alue

(N

ote

1)

Not

e

FFH

C

FCB

St

ocks

A

sub

sidi

ary

of F

FHC

E

quity

inve

stm

ents

acc

ount

ed

for

unde

r th

e eq

uity

met

hod

7,58

5,90

0 $1

52,5

98,9

18

100.

00%

$1

52,5

98,9

18

FS

640,

000

6,59

3,42

5 10

0.00

%

6,59

3,42

5

FS

IT

60

,000

97

8,41

6 10

0.00

%

978,

416

FFA

M

14

5,00

0 1,

845,

452

100.

00%

1,

845,

452

FVC

180,

000

2,20

1,21

9 10

0.00

%

2,20

1,21

9

FF

MC

2,00

0 39

,556

10

0.00

%

39,5

56

FPC

IA

30

0 13

,530

10

0.00

%

13,5

30

FAL

I

114,

750

449,

428

51.0

0%

449,

428

Taiw

an D

epos

itor

y &

Cle

arin

g C

orpo

rati

on

A

n in

vest

ee o

f FF

HC

und

er

the

cost

met

hod

Fina

ncia

l ass

ets

carr

ied

at c

ost

278

6,10

5 0.

08%

6,

105

Not

e 2

Ta

ipei

Fin

anci

al C

ente

r C

orp.

30,0

00

300,

000

2.04

%

300,

000

Not

e 2

Ta

iwan

Ass

et M

anag

emen

t Cor

pora

tion

22

5,00

0 2,

862,

000

17.0

3%

2,86

2,00

0 N

ote

2

FCB

L

FCB

L C

apita

l Int

erna

tion

al (

B.V

.I) L

td.

Stoc

ks

An

inve

stee

of

FCB

L

unde

r th

e eq

uity

met

hod

Equ

ity in

vest

men

ts a

ccou

nted

for

unde

r th

e eq

uity

met

hod

60,5

00

2,06

9,13

3 10

0.00

%

2,06

9,13

3

FCB

L C

apita

l

Inte

rnat

iona

l

(B.V

.I)

Ltd

FCB

Int

erna

tion

al L

easi

ng L

td.

A

n in

vest

ee o

f FC

BL

Cap

ital

Inte

rnat

iona

l (B

.V.I

) L

td

unde

r th

e eq

uity

met

hod

U

SD 3

0,00

0 th

ousa

nd

891,

114

100.

00%

89

1,11

4

FC

B L

easi

ng (

Xia

men

) L

td.

U

SD 3

0,00

0 th

ousa

nd

946,

653

100.

00%

94

6,65

3

FSIT

FS

ITC

Glo

bal P

rope

rty

Fund

B

enef

icia

ry c

erti

fica

tes

A m

utua

l fun

d m

anag

ed

by F

SIT

Ava

ilabl

e-fo

r- s

ale

fina

ncia

l

Ass

ets-

curr

ent

4,31

5 40

,604

1.

25%

40

,604

FS

ITC

Chi

na C

entu

ry F

und

3,

000

30,6

69

6.54

%

30,6

69

FSIT

C T

aiw

an M

oney

Mar

ket F

und

2,

683

40,2

91

0.25

%

40,2

91

FSIT

C G

loba

l Soc

ially

Res

pons

ible

Inv

estm

ent

Bon

d Fu

nd

1,

662

23,5

34

0.17

%

23,5

34

FS

ITC

Mon

ey M

arke

t Fun

d

950

8,99

8 4.

32%

8,

998

FSIT

C G

loba

l Hig

h Y

ield

Bon

d Fu

nd

72

5 5,

901

1.35

%

5,90

1

FS

ITC

Inn

ovat

ion

Fund

584

8,01

5 0.

72%

8,

015

FSIT

C L

eadi

ng E

mer

ging

Mar

ket B

ond

Fund

230

40,2

80

0.14

%

40,2

80

FSIT

C H

igh-

Tech

Fun

d

157

4,07

2 0.

23%

4,

072

SPA

CE

SH

UT

TL

E H

I-T

EC

H C

O.,L

TD

3,09

5 33

,113

2.

22%

33

,113

H

itro

n Te

chno

logi

es I

nc.

51

0 8,

466

0.22

%

8,46

6


228

In

vest

or

Nam

e O

f In

vest

ee A

nd T

ype

Of

Secu

riti

es

Rel

atio

nshi

p

A

ccou

nt

Shar

es /

Uni

ts

(i

n th

ousa

nds)

Boo

k va

lue

Ow

ners

hip

Perc

enta

ge (

%)

Mar

ket V

alue

(N

ote

1)

Not

e

FVC

C

hia

Cha

ng C

o., L

td

Stoc

ks

Non

e A

vaila

ble-

for-

sal

e fi

nanc

ial

Ass

ets

188

5,90

7 0.

12%

5,

907

C

hina

Fin

ebla

nkin

g Te

chno

logy

Co.

, Ltd

.

348

10,3

58

0.75

%

10,3

58

Can

do C

o., L

td.

80

0 3,

537

0.36

%

3,53

7

W

ieso

n T

echn

olog

ies

Co.

, Ltd

.

3,09

8 30

,609

4.

65%

30

,609

Jo

yin

Co.

, Ltd

.

3,08

4 57

,169

4.

58%

57

,169

E

vers

ol C

orpo

rati

on

2,

744

7,82

0 0.

98%

7,

820

Kuo

Chi

ng C

hem

ical

Co.

, Ltd

.

1,38

8 26

,286

1.

68%

26

,286

T

cst T

ech

Co.

, Ltd

.

1,60

0 6,

400

3.53

%

6,40

0

Jo

rjin

Tec

hnol

ogie

s In

c.

1,

819

43,6

59

6.57

%

43,6

59

Max

igen

Bio

tech

Inc.

1,20

7 18

,106

1.

79%

18

,106

Po

wer

Sou

rce

ener

gy C

o., L

td

1,

031

$20,

616

5.03

%

$20,

616

Adv

ance

d Fl

exib

le C

ircu

its C

o., L

td

2,

271

46,1

04

4.03

%

46,1

04

Prot

ech

Whe

el I

ndus

try

Co.

, Ltd

124

- 0.

66%

-

SR S

UN

TO

UR

IN

C

1,

000

27,8

10

1.66

%

27,8

10

Car

emed

Sup

ply,

Inc

1,10

3 34

,949

4.

05%

34

,949

M

ylig

ht T

echn

olog

y C

o., L

td.

1,

200

2,56

8 3.

63%

2,

568

Clie

ntro

n C

orp

2,

850

71,0

22

3.96

%

71,0

22

Glo

ria

Spec

ial S

teel

Pro

file

Cor

pora

tion

3,44

8 54

,268

12

.63%

54

,268

C

huan

Shi

h In

dust

rial

Co.

, Ltd

.

3,30

0 20

,097

8.

49%

20

,097

Z

OW

IE T

echn

olog

y C

orpo

rati

on

45

9 4,

595

4.06

%

4,59

5

A

win

Dia

mon

d T

echn

olog

y C

orpo

ratio

n

800

9,04

8 7.

85%

9,

048

Bio

tani

co In

c.

2,

500

44,0

25

4.97

%

44,0

25

Uni

vers

al P

eptid

e C

orp

2,

250

5,62

5 12

.89%

5,

625

Tai

wan

Sol

ar E

nerg

y C

orpo

rati

on

3,

003

48,0

48

0.95

%

48,0

48

Sino

App

lied

Mat

eria

ls C

o., L

td

2,

000

15,0

20

15.0

9%

15,0

20

3S S

ilico

n T

ech.

, Inc

.

1,09

0 15

,295

4.

64%

15

,295

T

opce

ll So

lar

Inte

rnat

iona

l Co.

, Ltd

523

2,81

6 0.

19%

2,

816

Gre

enR

ich

Tec

hnol

ogy

Co.

, Ltd

.

210

1,83

5 0.

45%

1,

835

TB

IMot

ion

Tec

hnol

ogy

2,

000

79,0

00

2.35

%

79,0

00

Ent

ropy

Pre

cisi

on S

yste

m I

nc.

1,

381

191,

697

8.22

%

191,

697

Ute

ch S

olar

Cor

p

2,40

0 10

,152

1.

09%

10

,152

H

ero

Mov

ie

60

60

0 5.

00%

60

0

Fu

lgen

t Sun

Inte

rnat

iona

l (H

oldi

ng)

Co.

, Ltd

.

1,14

6 54

,372

0.

90%

54

,372

2014 ANNUAL REPORT

229

In

vest

or

Nam

e O

f In

vest

ee A

nd T

ype

Of

Secu

riti

es

Rel

atio

nshi

p

A

ccou

nt

Shar

es /

Uni

ts

(i

n th

ousa

nds)

Boo

k va

lue

Ow

ners

hip

Perc

enta

ge (

%)

Mar

ket V

alue

(N

ote

1)

Not

e

FVC

G

olde

n W

ay E

lect

roni

cs C

orp.

, Ltd

St

ocks

N

one

Ava

ilabl

e-fo

r- s

ale

fina

ncia

l

Ass

ets

1,00

0 16

,440

5.

00%

16

,440

Jo

y In

dust

rial

Co.

, Ltd

1,10

0 41

,437

3.

12%

41

,437

E

verr

eady

Pre

cisi

on I

nd. C

orp.

1,51

2 25

,259

4.

87%

25

,259

In

tera

ctiv

e D

igita

l Tec

hnol

ogie

s In

c.

3,

000

174,

300

7.14

%

174,

300

Acc

utex

Acc

uran

cy &

Tec

hnol

ogy

Lea

ding

Com

pany

83

5 29

,530

2.

66%

29

,530

W

eiya

Tec

hnol

ogy

co.,

LT

D

3,

170

33,1

27

10.8

8%

33,1

27

TPM

Fun

d B

enef

icia

ry c

erti

fica

tes

- 14

,922

10

.26%

14

,922

Sh

angh

ai K

itch

en C

o., L

td.

Stoc

ks

739

9,18

1 3.

08%

9,

181

JPP

Hol

ding

588

4,99

8 5.

25%

4,

998

Bra

vo I

deas

735

36,7

33

3.34

%

36,7

33

Cos

mos

Bio

-Tec

h H

oldi

ng C

o., L

td

50

0 20

,000

2.

20%

20

,000

A

porg

ee O

ptoc

om C

o.,L

td

1,

400

21,0

00

3.50

%

21,0

00

Tai

Lin

g B

iote

ch In

c.

1,

500

52,0

50

3.03

%

52,0

50

Tai

wan

Bif

ido

Food

s In

c.

1,

000

35,3

80

3.34

%

35,3

80

Ton

g B

ao C

o., L

td.

36

1 21

,407

1.

07%

21

,407

Sh

angh

ai K

itch

en C

o., L

td.

1,

600

12,0

06

3.48

%

12,0

06

JPP

Hol

ding

1,25

0 45

,001

2.

27%

45

,001

B

ravo

Ide

as

43

7 23

,208

1.

52%

23

,208

C

osm

os B

io-T

ech

Hol

ding

Co.

, Ltd

1,27

5 19

,533

3.

75%

19

,533

A

porg

ee O

ptoc

om C

o.,L

td

26

8 7,

227

0.53

%

7,22

7

T

ai L

ing

Bio

tech

Inc.

1,65

0 22

,523

3.

79%

22

,523

Pi

li C

o.,L

td

40

5,

860

0.09

%

5,86

0

A

pplie

d G

reen

Lig

ht In

c. o

f C

aym

an

2,

100

294

6.98

%

294

Nan

Pao

Res

ins

Co.

, Ltd

345

31,1

40

0.39

%

31,1

40

Tai

r Ji

uh E

nter

pris

e C

o., L

td.

1,

000

37,0

00

3.17

%

37,0

00

FEM

CO

Ste

el T

echn

olog

y C

o., L

td.

2,

448

49,0

01

7.33

%

49,0

01

TR

PMA

Co.

, Ltd

.

1,61

3 40

,323

1.

49%

40

,323

FFA

M

Firs

t Fin

anci

al A

sset

s M

anag

emen

t (B

.V.I)

Ltd

. St

ocks

A

n in

vest

ee o

f FF

AM

unde

r th

e eq

uity

met

hod

Equ

ity in

vest

men

ts a

ccou

nted

for

unde

r th

e eq

uity

met

hod

USD

30,

000

thou

sand

1,

076,

729

100.

00%

1,

076,

729

FFA

M (

B.V

.I)

Fir

st F

inan

cial

Lea

sing

(C

heng

du)

U

SD 3

0,00

0 th

ousa

nd

1,07

6,69

4 10

0.00

%

1,07

6,69

4

Not

e 1：

Mar

ket v

alue

of u

nlist

ed st

ock

is ca

lcul

ated

bas

ed o

n th

e in

vest

ee’s

mos

t rec

ent u

naud

ited

finan

cial

stat

emen

ts, w

here

as m

arke

t val

ue o

f em

ergi

ng s

tock

is c

alcu

late

d ba

sed

on r

efer

ence

pri

ce in

an

emer

ging

sto

ck m

arke

t.

Not

e 2：

No

defi

nite

mar

ket p

rice

is a

vaila

ble

as th

e st

ock

is n

ot tr

aded

in a

n op

en m

arke

t.


230

D. C

umul

ativ

e pu

rcha

ses

or s

ales

of

the

mar

keta

ble

secu

ritie

s up

to N

T$3

00 m

illi

on o

r ov

er 1

0% o

f th

e is

sued

cap

ital

sto

ck:

The

sub

sidi

arie

s, F

CB

, FA

LI

and

FS b

elon

g to

fin

anci

al i

ndus

try,

ins

uran

ce i

ndus

try

and

secu

ritie

s in

dust

ry,

and

no d

iscl

osur

e is

re

quir

ed.

Indi

rect

inv

este

es b

elon

g to

fin

anci

al i

ndus

try

and

secu

ritie

s in

dust

ry a

nd n

o di

sclo

sure

is

requ

ired

exc

ept

for

Firs

t C

omm

erci

al B

ank

(US

A)

and

FTS

L. N

ot a

ppli

cabl

e fo

r th

e re

mai

ning

indi

rect

inve

stee

s.

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

/ Tho

usan

ds O

f U

S D

olla

rs)

Nam

e of

in

vest

or

Nam

e of

inve

stee

A

ddre

ss

Maj

or

oper

atin

g ac

tiviti

es

Initi

al in

vest

men

t am

ount

Sh

ares

hel

d as

at D

ecem

ber

31,

2014

N

et p

rofi

t (l

oss)

of

the

inve

stee

fo

r th

e ye

ar

ende

d D

ecem

ber

31,

2014

Inve

stm

ent

inco

me

(los

s)

reco

gniz

ed b

y th

e C

ompa

ny

for

curr

ent p

erio

d

Bal

ance

as

at

Dec

embe

r 31

, 20

14

Bal

ance

as

at

Dec

embe

r 31

, 201

3

Num

ber

of

shar

es (

in

thou

sand

s)

Rat

e B

ook

valu

e

FCB

L

FCB

L C

apita

l In

tern

atio

nal

(B.V

.I)

Ltd

6F,9

4,C

hung

Hsi

aoE

.Roa

d.,S

ec.2

, T

aipe

i, T

aiw

an

Not

e

$ 1,

791,

218

$ 5

82,4

04

60,0

50

100%

$2

,069

,133

($

100,

556)

($

100,

556)

(USD

60,0

50)

(USD

20,5

00)

FCB

L C

apita

l In

tern

atio

nal

(B.V

.I)

Ltd

FC

BL

Rm

. 100

8,

Jian

wu

Bui

ldin

g,

No.

18

8, W

angd

un

Rd.

, Suz

hou,

Not

e

886,

103

580,

784

USD

30,

000

thou

sand

10

0%

891,

114

(157

,660

) (1

57,6

60)

(USD

30,0

00)

(USD

20,0

00)

FCB

L C

apita

l In

tern

atio

nal

(B.V

.I)

Ltd

FCB

Lea

sing

(X

iam

en)

Ltd

.

20-

21F.

, Hul

i B

uild

ing,

W

uyua

nwan

B

usin

ess

Ope

ratio

ns

Cen

ter,

Hul

i D

istr

ict,

Xia

men

C

ity

Not

e

903,

495

- U

SD 3

0,00

0 th

ousa

nd

100%

94

6,65

3 4,

266

4,26

6

(USD

30,0

00)

Not

e: L

easi

ng b

usin

ess,

inve

stm

ent c

onsu

lting

ser

vice

s, a

nd b

usin

ess

man

agem

ent c

onsu

lting

ser

vice

s

2014 ANNUAL REPORT

231

E.

Info

rmat

ion

of d

eriv

ativ

e in

stru

men

t tra

nsac

tion

s:

The

sub

sidi

arie

s, F

CB

, FA

LI

and

FS a

nd i

ts s

ubsi

diar

ies

belo

ng t

o fi

nanc

ial

indu

stry

, in

sura

nce

indu

stry

and

sec

uriti

es i

ndus

try,

an

d no

dis

clos

ure

is r

equi

red.

Ind

irec

t in

vest

ees

belo

ng t

o fi

nanc

ial

indu

stry

and

sec

uriti

es i

ndus

try

and

no d

iscl

osur

e is

req

uire

d ex

cept

for

Fir

st C

omm

erci

al B

ank

(US

A)

and

FT

SL

. Not

app

lica

ble

for

the

rem

aini

ng in

dire

ct in

vest

ees.

F.

Inf

orm

atio

n re

gard

ing

rein

vest

ed b

usin

ess

and

cons

olid

ated

sto

ck h

oldi

ngs:

Nam

e of

inve

stee

com

pany

Nam

e of

inve

stee

com

pany

Add

ress

Maj

or

oper

atin

g

activ

ities

Pe

rcen

tage

of

owne

rshi

p (%

) at

the

end

of c

urre

nt

peri

od

Car

ryin

g va

lue

of in

vest

men

t

Inve

stm

ent i

ncom

e

(los

s) r

ecog

nize

d by

the

Com

pany

for

curr

ent p

erio

d

The

com

bine

d ow

ners

hip

of th

e in

vest

ee c

ompa

ny’s

com

mon

shar

es

held

by

the

Com

pany

and

its

rela

ted

part

ies

(Not

e 7)

Num

ber

of

owne

d sh

ares

(in

thou

sand

s)

Num

ber

of p

ro

form

a sh

ares

(Not

e 8)

T

otal

Num

ber

of

shar

es

(in

thou

sand

s)

Perc

enta

ge o

f

owne

rshi

p (%

)

FFH

C

FCB

30, C

hung

-Kin

g S.

Roa

d, S

ec. 1

,

Tai

pei,

Tai

wan

Not

e 1

100

$152

,598

,918

$13,

381,

151

7,

585,

900

-

7,

585,

900

10

0

FS

6F, 2

7, A

n H

o R

oad,

Sec

. 1,

Tai

pei,

Tai

wan

Not

e 2

100

6,59

3,42

5

74,4

28

64

0,00

0

-

640,

000

10

0

FS

IT

7F, 6

, Min

Chu

an E

. Roa

d Se

c.

3, T

aipe

i, T

aiw

an

Not

e 2

100

978,

416

79

,466

60,0

00

-

60,0

00

100

FF

AM

7F, 9

4, C

hung

Hsi

ao E

. Roa

d,

Sec

2, T

aipe

i, T

aiw

an

Not

e 5

100

1,84

5,45

2

263,

049

14

5,00

0

-

145,

000

10

0

FV

C

9F,3

0,C

hung

-Kin

g S.

Roa

d, S

ec.

1, T

aipe

i, T

aiw

an

Not

e 4

100

2,20

1,21

9

87,7

20

18

0,00

0

-

180,

000

10

0

FF

MC

9F,3

0,C

hung

-Kin

g S.

Roa

d, S

ec.

1, T

aipe

i, T

aiw

an

Not

e 5

100

39,5

56

11

,499

2,00

0

-

2,00

0

100

FP

CIA

9F,3

0,C

hung

-Kin

g S.

Roa

d, S

ec.

1, T

aipe

i, T

aiw

an

Not

e 3

100

13,5

30

7,

082

30

0

-

300

10

0

FA

LI

13F,

456

, Xin

-Yi

Roa

d,Se

c.4,

Tai

pei,T

aiw

an

Not

e 3

51

449,

428

(7

,588

)

114,

750

-

11

4,75

0

51

FCB

FI

A

9F, 3

0, C

hung

-Kin

g S.

Roa

d,

Sec.

1, T

aipe

i, T

aiw

an

Not

e 3

100

275,

008

-

5,

000

-

5,

000

10

0

FC

BL

6F, 9

4,C

hung

Hsi

aoE

.Roa

d., S

ec.

2, T

aipe

i, T

aiw

an

Not

e 5

100

3,32

8,32

1

-

300,

000

-

30

0,00

0

100

FI

RS

T

CO

MM

ER

CI

AL

BA

NK

(US

A)

200

Eas

t Mai

n St

reet

,

Alh

ambr

a, C

A91

801,

USA

Not

e 1

100

3,31

5,39

7

-

7,00

0

-

7,00

0

100


232

Nam

e of

inve

stee

com

pany

Nam

e of

inve

stee

com

pany

Add

ress

Maj

or

oper

atin

g

activ

ities

Pe

rcen

tage

of

owne

rshi

p (%

) at

the

end

of c

urre

nt

peri

od

Car

ryin

g va

lue

of in

vest

men

t

Inve

stm

ent i

ncom

e

(los

s) r

ecog

nize

d by

the

Com

pany

for

curr

ent p

erio

d

The

com

bine

d ow

ners

hip

of th

e in

vest

ee c

ompa

ny’s

com

mon

shar

es

held

by

the

Com

pany

and

its

rela

ted

part

ies

(Not

e 7)

Num

ber

of

owne

d sh

ares

(in

thou

sand

s)

Num

ber

of p

ro

form

a sh

ares

(Not

e 8)

T

otal

Num

ber

of

shar

es

(in

thou

sand

s)

Perc

enta

ge o

f

owne

rshi

p (%

)

FCB

E

AR

EM

9

F, 9

4,C

hung

Hsi

aoE

.Roa

d.,

Sec.

2, T

aipe

i, T

aiw

an

Not

e 6

30

2,92

6

-

1,50

0

-

1,50

0

30

FCB

L

FCB

L C

apita

l

Inte

rnat

iona

l

(B.V

.I)

Ltd

.

6F,

94,

Chu

ngH

siao

E.R

oad,

Sec

.

2, T

aipe

i, T

aiw

an

Not

e 5

100

2,06

9,13

3

-

60,0

50

-

60,0

50

100

FCB

L C

apita

l

Inte

rnat

iona

l

(B.V

.I)

Ltd

.

FCB

Lea

sing

Co.

, Ltd

.

Rm

. 100

8, J

ianw

u B

uild

ing,

No.

188,

Wan

gdun

Rd.

, Suz

hou,

Chi

na

Not

e 5

100

891,

114

-

U

SD 3

0,00

0

thou

sand

USD

30,

000

thou

sand

10

0

FC

B

Lea

sing

(Xia

men

) L

td.

20-2

1F.,

Hul

i Bui

ldin

g,

Wuy

uanw

an B

usin

ess

Ope

rati

ons

Cen

ter,

Hul

i Dis

tric

t,

Xia

men

City

Not

e 5

100

946,

653

-

U

SD 3

0,00

0

thou

sand

USD

30,

000

thou

sand

10

0

FS

FCM

I 7

F,29

,AnH

oRoa

d,Se

c.1,

Tai

pei,

Tai

wan

Not

e 5

100

134,

852

-

10

,000

-

10

,000

10

0

FT

SL

P

.O. B

OX

659

, RO

AD

TO

WN

,TO

RT

OL

A B

RIT

ISH

,

VIR

GIN

IS

LA

ND

S

Not

e 5

100

655,

196

-

1,

000

-

1,

000

10

0

FTS

L

FWS

L

Hon

g K

ong

Not

e 2

5

100

USD

9,6

77

thou

sand

-

66

,000

-

66

,000

10

0

FFA

M

Firs

t Fin

anci

al

Ass

ets

Man

agem

ent

(B.V

.I)C

o.,

Ltd

7F,

94, C

hung

Hsi

aoE

.Roa

d.,

Sec.

2, T

aipe

i, T

aiw

an

Not

e 5

100

1,07

6,72

9

-

USD

30,

000

thou

sand

USD

30,

000

thou

sand

10

0

Firs

t Fin

anci

al

Ass

ets

Man

agem

ent

(B.V

.I)C

o.,

Ltd

FCB

Lea

sing

(Che

ngdu

)

Co.

, Ltd

.

Fl.

18, N

o. 7

, Xin

guan

ghua

St.,

Jing

jiang

, Che

ngdu

, Chi

na

Not

e 5

100

1,07

6,69

4

-

USD

30,

000

thou

sand

USD

30,

000

thou

sand

10

0

2014 ANNUAL REPORT

233

(

3) In

vest

men

ts in

Peo

ple’

s Rep

ublic

of C

hina

A.

FCB

’s in

vest

men

ts in

Sha

ngha

i bra

nch

for

the

year

end

ed D

ecem

ber

31, 2

014

wer

e as

fol

low

s:

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

/ Tho

usan

ds O

f U

S D

olla

rs)

Inve

stee

C

ompa

ny

Maj

or B

usin

esse

s an

d P

rodu

cts

Tot

al A

mou

nt o

f P

aid-

in C

apita

l

Met

hod

of

Inve

stm

ent

(Not

e 1)

Acc

umul

ated

O

utfl

ow o

f In

vest

men

t fro

m

Tai

wan

as

of

Janu

ary

1, 2

014

Inve

stm

ent F

low

s A

ccum

ulat

ed

Out

flow

of

Inve

stm

ent f

rom

T

aiw

an a

s of

D

ecem

ber

31,

2014

N

et in

com

e of

inve

stee

Per

cent

age

of

Ow

ners

hip

Equ

ity

in

the

Ear

ning

s (L

osse

s)

(Not

e 2)

O

utfl

ow

Infl

ow

Firs

t C

omm

erci

al

Ban

k Sh

angh

ai

Bra

nch

Ban

king

bus

ines

ses

appr

oved

by

loca

l go

vern

men

t

$ 4

,676

,508

(U

SD 1

57,4

40)

1 $

4,6

76,5

08

(USD

157

,440

) $

-

-

$ 4,

676,

508

(USD

157

,440

) $

338

,271

N

/A

$ 33

8,27

1 (2

)A

Car

ryin

g V

alue

as

of

Dec

embe

r 31

, 201

4 A

ccum

ulat

ed I

nwar

d R

emitt

ance

of

Ear

ning

s as

of

Dec

embe

r 31

, 201

4

Acc

umul

ated

Inv

estm

ents

in

Mai

nlan

d C

hina

as

of

Dec

embe

r 31

, 201

4

Inve

stm

ent A

mou

nts

Aut

hori

zed

by I

nves

tmen

t C

omm

issi

on, M

OE

A

Upp

er L

imit

on

Inve

stm

ent

$

5,6

34,6

95

- $

4,6

76,5

08

(USD

157

,440

) $

4,6

76,5

08

(USD

157

,440

) $

9

1,92

6,55

1


234

B.

FCB

’s in

vest

men

ts in

Che

ngdu

bra

nch

for

the

year

end

ed D

ecem

ber

31, 2

014

wer

e as

fol

low

s:

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

/ Tho

usan

ds O

f U

S D

olla

rs)

Inve

stee

C

ompa

ny

Maj

or B

usin

esse

s an

d P

rodu

cts

Tot

al A

mou

nt o

f P

aid-

in C

apita

l

Met

hod

of

Inve

stm

ent

(Not

e 1)

Acc

umul

ated

O

utfl

ow o

f In

vest

men

t fr

om T

aiw

an

as o

f Ja

nuar

y 1,

201

4

Inve

stm

ent F

low

s A

ccum

ulat

ed

Out

flow

of

Inve

stm

ent f

rom

T

aiw

an a

s of

D

ecem

ber

31,

2014

N

et in

com

e of

inve

stee

Per

cent

age

of

Ow

ners

hip

Equ

ity

in

the

Ear

ning

s (L

osse

s)

(Not

e 2)

O

utfl

ow

Infl

ow

Firs

t C

omm

erci

al

Ban

k C

heng

du

Bra

nch

Ban

king

bu

sine

sses

ap

prov

ed b

y lo

cal

gove

rnm

ent

$ 4

,896

,697

(U

SD 1

62,2

69)

1 $

-

$

4,8

96,6

97

(USD

162

,269

) -

$ 4

,896

,697

(U

SD 1

62,2

69)

$32,

021

N/A

$3

2,02

1 (2

)A

Car

ryin

g V

alue

as

of

Dec

embe

r 31

, 201

4 A

ccum

ulat

ed I

nwar

d R

emitt

ance

of

Ear

ning

s as

of

Dec

embe

r 31

, 201

4

Acc

umul

ated

Inv

estm

ents

in

Mai

nlan

d C

hina

as

of

Dec

embe

r 31

, 201

4

Inve

stm

ent A

mou

nts

Aut

hori

zed

by I

nves

tmen

t C

omm

issi

on, M

OE

A

Upp

er L

imit

on

Inve

stm

ent

$

5,1

71,0

86

- $

4,8

96,6

97

(USD

162

,269

) $

4,8

96,6

97

(USD

162

,269

) $

91

,926

,551

2014 ANNUAL REPORT

235

C.

Inve

stm

ents

on

FCB

Int

erna

tion

al L

easi

ng L

td. t

hrou

gh th

e B

ank’

s in

dire

ct s

ubsi

diar

y, F

CB

L C

apit

al I

nter

nati

onal

(B

.V.I

.) L

td.,

are

as f

ollo

ws:

(E

xpre

ssed

In

Tho

usan

ds O

f N

ew T

aiw

an D

olla

rs/ T

hous

ands

Of

US

Dol

lars

)

Inve

stee

C

ompa

ny

Maj

or

Bus

ines

ses

and

Pro

duct

s

Tot

al A

mou

nt

of P

aid-

in

Cap

ital

Met

hod

of

Inve

stm

ent

(N

ote

1)

Acc

umul

ated

O

utfl

ow o

f In

vest

men

t fro

m

Tai

wan

as

of

Janu

ary

1, 2

014

Inve

stm

ent F

low

s A

ccum

ulat

ed

Out

flow

of

Inve

stm

ent f

rom

T

aiw

an a

s of

D

ecem

ber

31,

2014

N

et in

com

e of

inve

stee

Per

cent

age

of

Ow

ners

hip

Equ

ity

in

the

Ear

ning

s (L

osse

s)

(Not

e 2)

O

utfl

ow

Infl

ow

FCB

In

tern

atio

nal

Lea

sing

Ltd

.

Fina

ncia

l L

easi

ng

$

886,

103

(USD

30,

000)

2

$ 5

80,7

84

(USD

20,

000)

30

5,31

9 (U

SD10

,000

) -

$ 8

86,1

03

(USD

30,

000)

($

157,

660)

10

0%

($15

7,66

0)

(2)A

Car

ryin

g V

alue

as

of

Dec

embe

r 31

, 201

4

Acc

umul

ated

Inw

ard

Rem

ittan

ce o

f E

arni

ngs

as o

f D

ecem

ber

31, 2

014

Acc

umul

ated

Inv

estm

ents

in

Mai

nlan

d C

hina

as

of

Dec

embe

r 31

, 201

4

Inve

stm

ent A

mou

nts

Aut

hori

zed

by I

nves

tmen

t C

omm

issi

on, M

OE

A

Upp

er L

imit

on

Inve

stm

ent

$ 89

1,11

4 -

$ 8

86,1

03

(USD

30,

000)

$

88

6,10

3 (U

SD 3

0,00

0)

$

1,97

5,90

1

D.

Info

rmat

ion

on F

CB

’s i

nves

tmen

t in

FC

B L

easi

ng (

Xia

men

) L

td.

thro

ugh

the

indi

rect

sub

sidi

ary-

FC

BL

Cap

ital

Int

erna

tion

al

(B.V

.I)

Ltd

.

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

/ Tho

usan

ds O

f U

S D

olla

rs)

Inve

stee

C

ompa

ny

Maj

or

Bus

ines

ses

and

Pro

duct

s

Tot

al A

mou

nt

of P

aid-

in

Cap

ital

Met

hod

of

Inve

stm

ent

(N

ote

1)

Acc

umul

ated

O

utfl

ow o

f In

vest

men

t fro

m

Tai

wan

as

of

Janu

ary

1, 2

014

Inve

stm

ent F

low

s A

ccum

ulat

ed

Out

flow

of

Inve

stm

ent f

rom

T

aiw

an a

s of

D

ecem

ber

31,

2014

N

et in

com

e of

inve

stee

Per

cent

age

of

Ow

ners

hip

Equ

ity

in

the

Ear

ning

s (L

osse

s)

(Not

e 2)

O

utfl

ow

Infl

ow

FCB

Lea

sing

(X

iam

en)

Ltd

Fina

ncia

l L

easi

ng

$

903,

495

(USD

30,

000)

2

$

-

$ 9

03,4

95

(USD

30,0

00)

- $

90

3,49

5 (U

SD30

,000

) $

4,2

06

100%

$

4,20

6 (2

)A

Car

ryin

g V

alue

as

of

Dec

embe

r 31

, 201

4

Acc

umul

ated

Inw

ard

Rem

ittan

ce o

f E

arni

ngs

as o

f D

ecem

ber

31, 2

014

Acc

umul

ated

Inv

estm

ents

in

Mai

nlan

d C

hina

as

of

Dec

embe

r 31

, 201

4

Inve

stm

ent A

mou

nts

Aut

hori

zed

by I

nves

tmen

t C

omm

issi

on, M

OE

A

Upp

er L

imit

on

Inve

stm

ent

$

946,

653

- $

903

,495

(U

SD 3

0,00

0)

$

903,

495

(USD

30,

000)

$

1,9

75,9

01


236

E.

FVC

’s in

vest

men

ts in

the

Peop

le’s

Rep

ublic

of C

hina

for

the

year

end

ed D

ecem

ber

31, 2

014

wer

e as

fol

low

s:

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

/ Tho

usan

ds O

f U

S D

olla

rs)

Inve

stee

C

ompa

ny

Maj

or

Bus

ines

ses

and

Pro

duct

s

Tot

al

Am

ount

of

Pai

d-in

C

apita

l

Met

hod

of

Inve

stm

ent

(N

ote

1)

Acc

umul

ated

O

utfl

ow o

f In

vest

men

t fro

m

Tai

wan

as

of

Janu

ary

1, 2

014

Inve

stm

ent F

low

s A

ccum

ulat

ed

Out

flow

of

Inve

stm

ent f

rom

T

aiw

an a

s of

Ju

ne 3

0 20

14

Net

inco

me

of in

vest

ee P

erce

ntag

e of

O

wne

rshi

p

Equ

ity

in th

e E

arni

ngs

(Los

ses)

(N

ote

2)

Out

flow

In

flow

Fu

lgen

tsun

In

tern

atio

nal

Hol

ding

Co.

, L

td

Foot

wea

r sa

les

$1,8

25,0

33

2 $

58,

936

(USD

2,0

37)

- -

$ 5

8,93

6 (U

SD 2

,037

) $3

4,34

5 0.

89%

$

-

(2)C

Car

ryin

g V

alue

as

of

Dec

embe

r 31

, 201

4 A

ccum

ulat

ed I

nwar

d R

emitt

ance

of

Ear

ning

s as

of

Dec

embe

r 31

, 201

4

Acc

umul

ated

Inv

estm

ents

in

Mai

nlan

d C

hina

as

of

Dec

embe

r 31

, 201

4

Inve

stm

ent A

mou

nts

Aut

hori

zed

by

Inve

stm

ent C

omm

issi

on, M

OE

A

Upp

er L

imit

on

Inve

stm

ent

$ 5

8,82

7 (U

SD 2

,033

) -

$ 5

8,93

6 (U

SD 2

,037

) $

58,

936

(USD

2,0

37)

$ 1,

320,

731

Not

e 1

: T

he C

ompa

ny i

nves

ted

in F

ulge

nt S

un I

nter

nati

onal

(H

oldi

ng)

Co.

, L

imit

ed a

nd h

eld

0.89

% s

tock

rig

ht,

and

thro

ugh

who

se r

einv

estm

ent t

he C

ompa

ny in

dire

ctly

acq

uire

d 0.

89%

sto

ck r

ight

of

Fulg

ents

un I

nter

nati

onal

Hol

ding

Co.

, Ltd

. N

ote

2: T

he u

pper

lim

it on

inve

stm

ent w

as b

ased

on

60%

of s

ubsi

diar

y’s N

AV.

Not

e 3:

Div

iden

d in

com

e fr

om i

nves

tmen

ts r

ecov

ered

USD

4 (

NT

dol

lars

$10

9) f

rom

201

2 w

ill b

e re

cogn

ized

as

a re

duct

ion

of

inve

stm

ent c

osts

.

2014 ANNUAL REPORT

237

F.

FFA

M’s

inve

stm

ents

in P

eopl

e’s R

epub

lic o

f Chi

na fo

r th

e ye

ar e

nded

Dec

embe

r 31

, 201

4 w

ere

as f

ollo

ws:

(Exp

ress

ed I

n T

hous

ands

Of

New

Tai

wan

Dol

lars

/ Tho

usan

ds O

f U

S D

olla

rs)

Inve

stee

C

ompa

ny

Maj

or

Bus

ines

ses

and

Pro

duct

s T

otal

Am

ount

of

Pai

d-in

Cap

ital

Met

hod

of

Inve

stm

ent

(N

ote

1)

Acc

umul

ated

O

utfl

ow o

f In

vest

men

t fro

m

Tai

wan

as

of

Janu

ary

1, 2

014

Inve

stm

ent F

low

s A

ccum

ulat

ed

Out

flow

of

Inve

stm

ent f

rom

T

aiw

an a

s of

D

ecem

ber

31, 2

014

Per

cent

age

of

Ow

ners

hip

Net

inco

me

of in

vest

ee

Equ

ity

in

the

Ear

ning

s (L

osse

s)

(Not

e 2)

O

utfl

ow

Infl

ow

Firs

t Fin

anci

al

Lea

sing

(C

heng

du)

Ltd

.

Fina

ncia

l L

easi

ng

$

908,

634

(USD

30,

000)

2

$

908,

634

(USD

30,

000)

-

- $

90

8,63

4 (U

SD 3

0,00

0)

$ 74

,751

10

0.00

%

$ 7

4,75

1 (2

)B

Car

ryin

g V

alue

as

of

Dec

embe

r 31

, 201

4

Acc

umul

ated

Inw

ard

Rem

ittan

ce o

f E

arni

ngs

as o

f D

ecem

ber

31, 2

014

Acc

umul

ated

Inv

estm

ents

in

Mai

nlan

d C

hina

as

of

Dec

embe

r 31

, 201

4

Inve

stm

ent A

mou

nts

Aut

hori

zed

by I

nves

tmen

t Com

mis

sion

, M

OE

A

Upp

er L

imit

on

Inve

stm

ent

$

1,07

6,69

4 -

$

908

,634

(U

SD 3

0,00

0)

$

908,

634

(USD

30,

000)

$

1,1

07,2

71

Not

e 1:

Inv

estm

ent m

etho

ds a

re c

lass

ifie

d in

to th

e fo

llow

ing

thre

e ca

tego

ries

; fill

in th

e nu

mbe

r of

cat

egor

y ea

ch c

ase

belo

ngs

to:

(1)

Dir

ectly

inve

st in

a c

ompa

ny in

Mai

nlan

d C

hina

.

(2)

Thr

ough

inve

stin

g in

an

exis

ting

com

pany

in th

e th

ird

area

, whi

ch th

en in

vest

ed in

the

inve

stee

in M

ainl

and

Chi

na.

1.FC

B In

tern

atio

nal L

easi

ng L

td: F

CB

L C

apita

l Int

erna

tion

al (

B.V

.I.)

Ltd

.

2.FC

B’s

inve

stm

ent i

n FC

B L

easi

ng (X

iam

en)

Ltd

: FC

BL

Cap

ital I

nter

natio

nal (

B.V

.I) L

td.

3.Fu

lgen

tsun

Inte

rnat

iona

l Hol

ding

Co.

, Ltd

: Ful

gent

Sun

Inte

rnat

iona

l (H

oldi

ng)

Co.

, Lim

ited

4. F

irst

Fin

anci

al L

easi

ng (

Che

ngdu

) L

td: F

irst

Fin

anci

al A

sset

s M

anag

emen

t (B

VI)

Ltd

.

(3)

Oth

ers

Not

e 2:

In

the

‘Inve

stm

ent i

ncom

e (lo

ss) r

ecog

nise

d by

the

Com

pany

for t

he y

ear

ende

d D

ecem

ber

31, 2

014’

col

umn:

(1)I

t sho

uld

be in

dica

ted

if th

e in

vest

ee w

as s

till

in th

e in

corp

orat

ion

arra

ngem

ents

and

had

not

yet

any

pro

fit d

urin

g th

is p

erio

d.

(2)I

ndic

ate

the

basi

s fo

r in

vest

men

t inc

ome

(los

s) r

ecog

niti

on in

the

num

ber

of o

ne o

f th

e fo

llow

ing

thre

e ca

tego

ries

:

A.T

he f

inan

cial

sta

tem

ents

that

are

aud

ited

and

atte

sted

by

inte

rnat

iona

l acc

ount

ing

firm

whi

ch h

as c

oope

rativ

e re

lati

onsh

ip w

ith a

ccou

ntin

g fi

rm in

R.O

.C.(

For

inte

rim

and

ann

ual f

inan

cial

rep

orts

. For

quar

terl

y fi

nanc

ial r

epor

ts, t

hey

are

fina

ncia

l sta

tem

ents

that

are

rev

iew

ed b

y in

tern

atio

nal a

ccou

ntin

g fi

rm w

hich

has

coo

pera

tive

rela

tion

ship

wit

h ac

coun

ting

firm

in R

.O.C

..)


238

B.T

he fi

nanc

ial s

tate

men

ts th

at a

re a

udite

d an

d at

test

ed b

y R

.O.C

. par

ent c

ompa

ny’s

CPA

.(For

inte

rim

and

ann

ual f

inan

cial

rep

orts

. For

qua

rter

ly f

inan

cial

rep

orts

, the

y ar

e fi

nanc

ial s

tate

men

ts th

at a

re

revi

ewed

by

R.O

.C. p

aren

t com

pany

’s C

PA.)

C.O

ther

s.

Not

e 3:

Exp

ress

ed in

Tho

usan

ds o

f N

T D

olla

rs /

thou

sand

s of

US

Dol

lars

.

2014 ANNUAL REPORT

239

14. Disclosure of financial information by segments

(1) General information

The First Group’s operation segment reports are consistent with the internal reports provided to chief operating decision-maker (“CODM”). The CODM is a team that allocates resources to operating segments and evaluates their performance.

Inter-segmental transactions are arm’s length transactions, and gain and loss arising from such transactions are eliminated by the parent company upon the preparation of the consolidated financial statements. Profit and loss directly attributable to various segments have been considered when segment performance is being evaluated.

The operating segments of the First Group comprise banking, securities, insurance and other businesses. The operating results are reviewed by the CODM regularly and are referenced when allocating resources and evaluating operating performance.

The First Group has a global market, comprising three major business segments; there was no change in the reporting segments during the period.

The operating results have different income items due to different nature of the operating segments, and the First Group evaluates segment performance based on the net profit before tax of various segments. Therefore, performance of all reporting segments is presented by the net value of operating net profit less various operating expenses. Income from external clients provided for the CODM to review is measured on the same basis of the statement of comprehensive income.

Adjustments of internal pricing and transfer pricing are reflected in segment performance evaluation. Income from external clients has been allocated based on the regulated allocation standard between segments.

The internal management’s operating reports are prepared based on net operating profit, including net interest income, net service fee income, recovered bad debts (provision), and loan impairment loss, net gain (loss) on financial instruments and other operating gain (loss). Measurement basis does not include non-recurring items, e.g. litigation expenses.

Segment information is mainly based on the internal management reports provided by various operating segments to the CODM, including segmental gain (loss), segmental assets, segmental liabilities and other related information.


240

(2)I

nfor

mat

ion

abou

t seg

men

t gai

n (l

oss)

, ass

ets

and

liab

ilit

ies:

Fina

ncia

l inf

orm

atio

n of

the

Firs

t Gro

up b

y bu

sine

ss f

or th

e ye

ars

ende

d D

ecem

ber

31, 2

014

and

2013

wer

e as

fol

low

s:

For

the

yea

r en

ded

Dec

embe

r 31

, 201

4 B

anki

ng b

usin

esse

s

Sec

urit

ies

busi

ness

es

Ins

uran

ce

busi

ness

es O

ther

bus

ines

ses

Rec

onci

liati

on a

nd

elim

inat

ion

Con

solid

ated

Net

inte

rest

inco

me

27,7

91,6

74$

37

3,64

8$

23

9,19

8$

126,

926)

($

-

$

28,2

77,5

94$

Net

non

-int

eres

t in

com

e10

,425

,907

1,24

8,77

4

6,93

4,18

4)(

15,3

72,9

11

14,2

04,5

47)

(

5,

908,

861

Net

rev

enue

38,2

17,5

81

1,

622,

422

(6

,694

,986

)

15

,245

,985

(1

4,20

4,54

7)

34

,186

,455

Pro

visi

on f

or c

redi

t lo

sses

3,93

3,45

6)(

-

9)(

81

,535

)(

-

4,01

5,00

0)(

Rec

over

ed in

sura

nce

rese

rves

-

-

7,10

0,71

9

-

-

7,10

0,71

9

Op

erat

ing

exp

ense

s18

,284

,896

)(

1,50

0,09

4)(

42

0,13

3)(

89

1,74

8)(

307,

742

20,7

89,1

29)

(

Net

pro

fit

(los

s) f

rom

con

tinu

ing

oper

atio

ns b

efor

e ta

x15

,999

,229

122,

328

14,4

09)

(

14

,272

,702

13

,896

,805

)(

16,4

83,0

45

Inco

me

tax

(exp

ense

) be

nefi

t2,

618,

078)

(

47,9

00)

(

47

0)(

26

1,05

0

1)(

2,40

5,39

9)(

Net

pro

fit

(los

s) f

rom

con

tinu

ing

oper

atio

ns a

fter

tax

13,3

81,1

51$

74

,428

$

14

,879

)($

14

,533

,752

$

13

,896

,806

)($

14,0

77,6

46$

For

the

yea

r en

ded

Dec

embe

r 31

, 201

3 B

anki

ng b

usin

esse

s

Sec

urit

ies

busi

ness

es

Ins

uran

ce

busi

ness

es O

ther

bus

ines

ses

Rec

onci

liati

on a

nd

elim

inat

ion

Con

solid

ated

Net

inte

rest

inco

me

25,4

70,1

20$

31

5,52

7$

29

9,39

2$

152,

607)

($

-

$

25,9

32,4

32$

Net

non

-int

eres

t in

com

e7,

926,

668

1,

255,

441

45

8,80

4

12,2

60,8

03

11,3

67,9

16)

(

10

,533

,800

Net

rev

enue

33,3

96,7

88

1,

570,

968

75

8,19

6

12,1

08,1

96

11,3

67,9

16)

(

36

,466

,232

Pro

visi

on f

or c

redi

t lo

sses

4,02

7,15

6)(

-

5

19,3

55)

(

-

4,

046,

506)

(

Rec

over

ed in

sura

nce

rese

rves

-

-

397,

078)

(

-

-

39

7,07

8)(

Op

erat

ing

exp

ense

s16

,680

,386

)(

1,41

0,03

3)(

38

4,79

9)(

76

6,13

1)(

267,

855

18,9

73,4

94)

(

Net

pro

fit

(los

s) f

rom

con

tinu

ing

oper

atio

ns b

efor

e ta

x12

,689

,246

160,

935

23,6

76)

(

11

,322

,710

11

,100

,061

)(

13,0

49,1

54

Inco

me

tax

exp

ense

2,04

4,51

9)(

21

,063

)(

135)

(

106,

463)

(

-

2,17

2,18

0)(

Net

pro

fit

(los

s) f

rom

con

tinu

ing

oper

atio

ns a

fter

tax

10,6

44,7

27$

13

9,87

2$

23

,811

)($

11

,216

,247

$

11

,100

,061

)($

10,8

76,9

74$

2014 ANNUAL REPORT

241

D

ecem

ber

31, 2

014

B

anki

ng

busi

ness

es

S

ecur

ities

bu

sine

sses

Insu

ranc

e bu

sine

sses

Oth

er b

usin

esse

s R

econ

cili

atio

n an

d el

imin

atio

n

Con

solid

ated

S

egm

ent a

sset

s $

2,29

6,74

3,01

4

$ 21

,104

,866

$

30,3

86,7

87

$ 17

9,71

2,38

7 (

$ 17

2,23

8,37

1)

$ 2,

355,

708,

683

Seg

men

t lia

bili

ties

2,

143,

532,

096

14

,511

,441

29

,505

,555

20

,688

,776

(

6,

905,

739)

2,

201,

332,

129

Dec

embe

r 31

, 201

3

B

anki

ng

busi

ness

es

S

ecur

ities

bu

sine

sses

Insu

ranc

e bu

sine

sses

Oth

er b

usin

esse

s R

econ

cili

atio

n an

d el

imin

atio

n

Con

solid

ated

S

egm

ent a

sset

s $

2,20

6,68

3,60

0

$ 19

,316

,445

$

28,6

17,9

76

$ 15

8,58

5,82

6 (

$ 14

9,81

8,49

5)

$ 2,

263,

385,

352

Seg

men

t lia

bili

ties

2,

075,

095,

973

12

,855

,582

27

,644

,702

13

,488

,560

(

6,

905,

618)

2,

122,

179,

199

(3

) G

eogr

aphi

cal i

nfor

mat

ion

Fina

ncia

l inf

orm

atio

n of

the

Firs

t Gro

up b

y ar

ea f

or th

e ye

ars

ende

d D

ecem

ber

31, 2

014

and

2013

wer

e as

fol

low

s:

20

14

20

13

Tai

wan

$

29,0

61,4

48

$ 32

,242

,733

A

sia

3,19

8,57

9

2,41

6,72

2 N

orth

Am

eric

a 1,

525,

460

1,

429,

352

Oth

ers

400,

968

37

7,42

5 T

otal

$

34,1

86,4

55

$ 36

,466

,232

(4)

Info

rmat

ion

on p

rodu

cts

The

Firs

t Gro

up’s

info

rmat

ion

on p

rodu

cts

is c

onsi

sten

t with

thei

r se

gmen

t, pl

ease

ref

er to

Not

e 14

(2)

(5)

Maj

or c

usto

mer

info

rmat

ion

Non

e.


242

Corporate Headquarters First Financial Holding Co., Ltd.18F, 30, Sec. 1, Chung King S. Rd., Taipei 100, TaiwanPhone (886 2) 2311 1111www.firstholding.com.tw

First Commercial Bank30, Sec. 1, Chung King S. Rd., Taipei 100, TaiwanPhone (886 2) 2348 1111www.firstbank.com.tw

First Securities Inc.6F, 29, Sec. 1, An He Rd.,Taipei 106, TaiwanPhone (886 2) 2741 3434www.ftsi.com.tw

First Securities Investment Trust Co., Ltd.7F, 6, Sec. 3, Min Chuan E. Rd., Taipei 104, TaiwanPhone (886 2) 2504 1000www.fsitc.com.tw

First-Aviva Life Insurance Co., Ltd.13F, 456, Sec. 4, Xin Yi Rd., Taipei 110, TaiwanPhone (886 2) 8758 1000www.first-aviva.com.tw

First Financial Asset Management Co., Ltd.7F, 94, Sec. 2, Jhong Siao E Rd., Taipei 100, TaiwanPhone (886 2) 3343 7000

First Venture Capital Co., Ltd.9F, 30 Chung King S. Rd., Sec. 1Taipei 100, TaiwanPhone (886 2) 2348 4981

First Financial Management Consulting Co., Ltd.9F, 30, Sec. 1, Chung King S. Rd.,Taipei 100, TaiwanPhone (886 2) 2348 4982

First P&C Insurance Agency Co., Ltd. 9F, 30, Sec. 1, Chung King S. Rd.,Taipei 100, TaiwanPhone (886 2) 2348 4277

Shareholder Information ListingThe ordinary shares of First Financial Holding Co., Ltd. are listed on the Taiwan Stock Exchang under the ticker code 2892. The global deposit receipts (GDR) are listed on the Euro MTF market of the Luxembourg Stock Exchange with ISIN No. and ISIN code US32021V1098 and 017339818 respectively.

Ordinary Share Transfer Agent & RegistrarFirst Bank Personal Banking Business UnitShareholder Service Department, Trust Division42 Yen Ping S. Rd., Taipei 100, Taiwan Phone (886 2) 2348 1137

GDR Depositary, Transfer Agent & RegistrarCitibank, N.A.388 Greenwich Street, 14th FloorNew York, NY 10013, U.S.A.Phone (1) 888 250 3985wwss.citissb.com/adr/www

Independent AuditorPricewaterhouseCoopers, Taiwan27/F, International Trade Building, 333 Keelung Road, Sec.1,Taipei 110, TaiwanPhone (886 2) 2729 6666

2014 Annual Financial StatementsAn annual financial statements in Englsih version is available on the FFHC website at www.ffhc.com.tw.

2015 Annual Shareholders’ MeetingWhen: Friday, June 26, 2015Time: 9:00 a.m. Where: First Bank HeadquarterAddress: Auditorium Level, 30 Chung King S. Rd., Sec.1, Taipei 100, Taiwan

Contact Information Spokesperson Jennifer M.C. Liao / Executive Vice PresidentPhone (886 2) 2348 [email protected]

Deputy SpokespersonYao-Tien Shih / Executive Vice President Phone (886 2) 2348 [email protected]

Investor RelationsAnnie Lee / Head of IR / Deputy Head, Strategy Plan. Dept.Phone (886 2) 2348 4956 2348 [email protected]@firstbank.com.tw

General Information

Disclaimer: This shareholder report cannot be expected to provide as full understanding of the financial performance, financial position, operating, financing and investment activities of the First Financial Group as the 2014 FFHC annual report in Chinese and the full annual financial statements. This publication contains certain forward -looking statements and future expectations. These expectations are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these statements. FFHC assumes no obligation to update any forward-looking information contained in this report.

本年報採用不含重金屬之環保紙張及環保油墨印製FFHC 2014 ANNUAL REPORT is printed on post-consumer-waste recycled paper, using vegetable-based inks.

2014 annual report -...

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