Chinatrust Commercial Bank Address: No. 3, Sungshou Road, Sinyi District, Taipei Tel: (02) 2722-2002 Website: http://www.chinatrust.com.tw Spokesman Name: Daniel I.K. Wu Position: Senior Executive Vice President Tel: (02) 2722-2002 Email address:
[email protected] Acting Spokesman Name: Miao-Chiu Hsu Position: Executive Vice President Tel: (02) 2722-2002 Email address:
[email protected] Stock transfer agency Agency: Corporate Trust Operation and Service Department, Chinatrust Commercial Bank Address: 5F., No. 83, Sec. 1, Chongcing South Road, Taipei Tel: (02) 2181-1911 Website: http://www.chinatrust.com.tw The notarization CPA of last few years Name: Albert Gau、Charles Chen Business office: KPMG Certified Public Accountants Address: 68F., No. 7, Sec. 5, Sinyi Road, Taipei Tel: (02) 8101-6666 Website: http://www.kpmg.com.tw Credit rating institution Titles: Taiwan Ratings Co., Ltd. Address: 49F., No. 7, Sec. 5, Sinyi Road, Taipei Tel: (02) 8722-5800 Website: http://www.taiwanratings.com.tw
Contents
I. Letter to Shareholders………………………………………………………………………..
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II. Company Profile A. Company Overview……………………………………………………………………… 7 B. Organization……………………………………………………………………………… 10 III. Business Review A. Business Performance……………………………………………………………………. 13 B. Employees………………………………………………………………………………... 18 C. Corporate Responsibility & Code of Ethics……………………………………………... 19 IV. Special Notes A. Dividend policy and status of execution…………………………………………………. 26 B. The influence of dividend allocation this time to the operation performance, earnings per share and investment return rate for the stockholders……………………………….. 26 C. Information relating to employee bonuses and remuneration to directors and supervisors of the Board…………………………………………………………………. 27 V. Supervisors’ review report of the financial statements of the last year……………………... 28 VI. Internal Control Representation…………………………………………………………….. 29 VII. Head Office and Domestic Branches………………………………………………………. 31 ІAppendix 1ЇAnnual Financial Reports for 2008 ІAppendix 2ЇConsolidated Financial Reports for 2008
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I. Letter to Shareholders In 2008, the U.S. subprime-mortgage crisis deteriorated further, sending shock waves across the global financial system. A number of world-renowned financial institutions collapsed, ending up either in government control or acquired by peers. This in turn triggered a global financial storm, which threw the world economy off track. Analysts across the globe lowered GDP forecasts for emerging as well as advanced economies, and cut major listed companies’ credit ratings and earnings estimates. In response, monetary authorities cut interest rates with a view to stimulating private consumption and boosting business spending. Governments also expanded infrastructure outlays to help create jobs. In Taiwan, financial institutions posted massive investment losses as the value of their securities holdings fell sharply amid the slowing global economy. Chinatrust Commercial Bank (the “Bank” or “CTCB”) monitors domestic and international economic and financial market changes daily, and is especially watchful in areas of the world where Taiwanese companies are operating. With asset quality high on its priority list, the Bank is committed to retaining its status as a preferred partner in serving ethnic-Chinese clients inside and outside Taiwan. To achieve this, CTCB continues to strengthen its product innovation and risk management with equal importance. To further consolidate its market leadership, the Bank knows it must meet the needs of customers no matter what corner of the world their business may take them. Looking to the future, the Bank is confident that it will be able to accomplish even more by building on its many advantages — a broad customer base, sound asset quality and a well-rounded network of service outlets. Organizational Change Banks in Taiwan are now allowed to deal in bills finance thanks to an easing in local regulations. A merger of CTCB and Chinatrust Bills Finance Corp. was thus implemented to optimize sharing of resources and bring down risk and costs. With CTCB as the surviving entity, the exercise — at a swap ratio of one Chinatrust Bills share for 0.77 CTCB share — was completed on April 26, 2008. In 2008, the Bank set up an investment department to help clients put idle funds to the fullest use and maximize returns. The department aims to become Taiwan’s top investment team across multiple asset classes, serving both retail and institutional investors. When it comes to serving Taiwanese investors doing business around the world, CTCB operates a global remittance network spanning more than 100 countries. Never complacent, the Bank is still in the process of expanding its cross-border trading platform that already covers Hong Kong, China, the U.S., Indonesia and Vietnam as well as Taiwan. In 2008, CTCB secured an operating permit for its Singapore branch, further extending its reach of wealth management and overseas financing. In turn, CTCB has taken another stride toward becoming an even more competitive bank in the region.
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Business Plan Review and Accomplishments CTCB utilizes the most stringent risk control when developing and launching new products, especially in the face of the current financial storm. Equal emphasis is placed on developing a comprehensive framework of international services so that the Bank can best serve Taiwanese businesses and its wealth management clients throughout the world. As such, CTCB aims to grow earnings by means of aggressive product innovation without neglecting risk control. In 2008, the Bank posted pretax profit of NT$13.74 billion and net income of NT$12.55 billion. The pretax and net tallies attained 82% and 96% respectively of the Bank’s target. Return on equity came in at 12.25% on a pre-tax basis and 11.26% on an after-tax basis. CTCB was the only bank in Taiwan that managed net income in excess of NT$10 billion despite the 2008 financial tsunami. Business Plan for 2009 In line with its longstanding principle of sound management, the Bank is moving ahead of its peers in pursuing Basel II compliance. In its 2009 business plan, CTCB highlights the need to optimize its capital allocation and maintain a sound balance sheet at a time when the financial crisis has yet to run its course. A summary is as follows: A. Guiding principles 1. Continue to devise custom products and services to cater to various market segments. 2. Update the customer relationship management model as warranted, with a view to providing the best wealth management services available anywhere. 3. Make aggressive inroads into online and mobile banking to secure a leading position in the space. 4. Refine the ability to identify all promising market segments to deliver effective marketing. 5. Keep costs under control to boost operating efficiency. 6. Upgrade risk evaluation, supervision and control capabilities. 7. Strengthen the capacity for devising unique products that stand apart from me-toos. 8. Launch a wide range of tailor-made products that cater to specific needs of customers. 9. Enhance competitiveness by further streamlining provision of trade finance. 10. Focus on introduction of structured finance products and build a more assertive presence in cross-border syndicated loans and structured services. B. Objectives 1. Expand overseas markets aggressively to uphold CTCB’s leadership in the broadly defined Greater China market that spans Hong Kong, China, Vietnam, and the U.S., as well as Taiwan. 2. Become the preferred choice of target clients for general banking services and wealth management. 3. Identify target customers and induce them to subscribe to CTCB’s credit cards, widely Ĵ
recognized as the easiest to use and offering the most benefits in the market, and to seek its unsecured personal loans. 4. Offer tailor-made consumer banking products to consolidate CTCB’s reputation as the market’s foremost brand. 5. Uphold CTCB’s leading position in the area of Taiwan Dollar-denominated products, and become a top-notch trader of financial products across the Greater China market. 6. Become the preferred banking partner of emerging small and medium-sized businesses. C. Key Strategies 1. Bolster the customer-focused business model by identifying various segments of the market, analyzing customer behavior, determining customer needs and thereby boosting earnings. 2. Continue to strive for Basel II compliance, while heightening risk consciousness and rigorously enforcing risk control programs. 3. Increase the precision and efficiency of pre-lending credit evaluations; focus on credit-worthy clients who can provide quality collateral and thus effectively reduce credit risk and improve earnings contribution. 4. Continue development of new products and trading ideas so as to provide customers with a full range of hedging and investment strategies. 5. Offer a wide variety of product specifications and tools in line with market changes and deregulation so as to cater to different customers from different industries. 6. Strengthen a customer-oriented corporate philosophy. Impact of Competitive Conditions, Legal Framework, and Macro Environment In 2008, the global financial tsunami continued to take its toll on banks’ wealth management and deposit/loan operations. In addition, foreign institutions launched a number of acquisitions of Taiwanese banks starting in 2006. For instance, Standard Chartered of the U.K. acquired Hsinchu International Bank and DBS of Singapore acquired Bowa Bank. Several private-equity funds have also invested in small and medium-sized Taiwanese banks, providing them with new business models and products. Competition in an already crowded market has thus been brought to an unprecedented level. Since a new administration took office in May 2008, Taiwan has moved toward an aggressive deregulation of its economic dealings with China. In their November consultations, high-level negotiators from both sides raised the topic of financial cooperation, signaling that many possibilities remain to be explored going forward. Against a still volatile marketplace, the Bank will continue to strengthen customer relationship management, enhance operational efficiency and risk control, and improve asset quality. Aided by this reliable and efficient business model, CTCB is confident of surmounting the financial storm.
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New Developments The Bank has a number of activities under way to improve performance and profitability in coming years: 1. Strengthen the Bank’s electronic trading platform to help customers worldwide better allocate funds from continent to continent. 2. Consolidate existing trust offerings to deliver a comprehensive service package. 3. Install multi-purpose ATMs where people can buy mutual funds as well as deposit, withdraw and transfer money. These integrated services go a long way toward serving as a handy assistant for people’s everyday finance and investment needs. In addition, usher in corporate uses for ATMs, such as revenue collection for designated retailers. 4. Revamp the online banking platform, adding various enhanced features to help it function more efficiently. 5. Identify the specific needs of primary customers and develop multi-purpose credit cards. 6. Further promote the use of electronic wallets and contactless trading to speed up transactions at retail outlets. Latest Credit Ratings Credit Ratings Type
Rating Agency
Outlook
Additional Notes Effective Date
Long-Term Short-Term
International
Moody’s
A2
Prime-1
Stable
BFSR: C-
2008.12.11
Standard & Poor’s
A-
A-2
Stable
BFSR: C+
2008.10.17
Fitch
A
F1
Stable
Individual: B Support: 3
2008.11.10
Taiwan Ratings
twAA
twA-1+
Stable
Creditworthiness: Very Strong
2008.10.17
Fitch
AA+(twn)
F1+(twn)
Stable
Individual: B Support: 3
2008.11.10
Domestic
The Future Both the financial markets and legal and regulatory frameworks have undergone drastic changes in recent years. Furthermore, a new era has dawned upon the economic landscape across the Taiwan Strait. In response, CTCB is ready to undertake and pursue the following: 1. Institute an effective organization structure and cultivate top-notch professionals to prepare for the Bank’s next generation of leaders. 2. Remain a financial services institution that customers can rely on. 3. Offer a full spectrum of services to satisfy a broad variety of customers. Ķ
4. Take the lead to develop innovative products and services and build a stronger international presence, securing CTCB’s status as the foremost banking partner for ethnic-Chinese everywhere. 5. Consolidate risk information and bolster in-house risk control capabilities to effectively enhance overall risk management. 6. Engage in public-service activities and help care for the less fortunate so as to remain a responsible corporate citizen. Building on its far-reaching international presence, CTCB is set to further hone its capacity for product innovation and risk control. It aims to provide customers with the greatest value, above and beyond that offered by other institutions, so that it can proudly present an ethnic-Chinese banking brand recognized all over the world. This, in turn, will serve as a solid foundation for generating sustainable shareholder value over the long haul.
Charles L.F. Lo Chairman
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II. Company Profile A. Company Overview 1. Date of Establishment: March 14, 1966 2. History: The predecessor of Chinatrust Commercial Bank (CTCB) was China Securities Investment Corp., which was founded in 1966. Two key events stand out in its 43-year history: reorganization as an investment trust company in 1971 and transformation into a commercial bank in 1992. This evolution coincides with the budding, growth, and metamorphosis of Taiwan’s financial market, which in turn is a mirror of how the local economy has evolved. With a mission to build a truly international, diversified entity capable of providing a complete range of financial services, Chinatrust Financial Holding Co., Ltd (CFHC) was initiated on May 17, 2002. Through a share swap, CTCB was made a wholly owned unit of the financial holding company. To maximize economies of scale, CTCB merged with Grand Commercial Bank in December 2003 and acquired Fengshan Credit Cooperative in July 2004. These were followed by its successful bid in May 2007 for Enterprise Bank of Hualien. On April 2008, CTCB merged with Chinatrust Bills Finance Corp. As of the end of 2008, CTCB had 145 domestic outlets and a total of 4,406 ATMs installed across the country. With an outstanding base of NT$1.24 trillion in deposits, it had assets of NT$1.69 trillion, surpassing all other private banks in Taiwan. 3. Business Overview CTCB is engaged in the following businesses: deposits, loans, guarantees, foreign exchange, OBU, trust, credit cards, cash cards, equities, bonds, proprietary dealing in futures, derivatives, factoring, safe deposit boxes, electronic banking, and the Public Welfare Lottery. In terms of wealth management, CTCB has opted to serve clients with professional counseling that centers on its financial advisory system, doing away with the conventional approach of promoting in-house products. In 2008, the bank launched upgraded wealth management services for clients with assets in excess of NT$1 million and NT$3 million, while those “Super VIPs” who have assets of more than NT$15 million are accorded a corresponding class of premier services under the program. It is a new milestone for the local wealth management market, as these Super VIPs are given access to meticulously prepared, impartial market reports compiled by Standard & Poor’s as well as consolidated management services for the wealth of the entire household. When it comes to corporate banking, CTCB has made it a point to grow the e-commerce market. Special emphasis is placed on developing and perfecting an online banking platform ĸ
fully protected by a well-rounded security mechanism. In 2007, the bank joined forces with Yahoo! Taiwan to install the “Yahoo! pay easy” payment platform. A brand-new model of online trading has been made available for buyers and sellers to exchange goods and cash more safely, in turn giving Taiwan’s e-commerce market an extra push. In addition, CTCB began offering personalized online banking services in 2001. Given its innovation, safety and convenience, the program has been well received among its clients. Thus, it is no wonder that the universally acclaimed international periodical Global Finance has awarded CTCB the honor of “Best Internet Bank in Taiwan” for five consecutive years, and that it is now Taiwan’s largest Internet bank that has the largest number of clients. 4. Honors/Awards CTCB’s proven track record in product development, business performance, and earnings capacity has not gone unnoticed. It has won extensive recognition among domestic and foreign rating agencies and well-respected financial publications. The number of honors and awards granted to CTCB is unparalleled by any other local peer. The following is a list of major prizes won in 2008: Honors - Domestic (1) Top 1 in Consumers’ Ideal Brand Survey (Credit Card / Financial Holding) – Management Magazine (2) Trusted Brand 2008: Gold Winner in Banking Industry & Credit Card Issuing Bank – Reader’s Digest (3) Golden Award for 9th Arts & Business Awards – Council for cultural Affairs, Executive Yuan (4) Best Bank in Service Award 2008 – Next Magazine (5) Taiwan Banking and Finance Best Practice Awards ”The award for Best Electronic Banking – Taiwan Academy of Banking and Finance (6) Best Bank Awards for Preferred Brands of Businesspeople – Business Today Honors – International (1) Best Foreign Exchange Bank in Taiwan, Best Trade Finance Bank in Taiwan, Best Emerging Market Bank in Taiwan, Best Investment Bank in Taiwan, Best Corporate / Institutional Internet Bank in Taiwan, Best Consumer Internet Bank in Taiwan - Global Finance (2) Best Private Bank in Taiwan, Best Bank in Taiwan - Euromoney (3) Best Bank in Taiwan, Best Foreign Exchange Bank in Taiwan, Best Cash Management Bank in Taiwan, Best Private Bank in Taiwan - FinanceAsia (4) Best Cash Management Bank in Taiwan, Best Local Currency Structured Product in Taiwan, Best Domestic Bank in Taiwan, Best Domestic Investment Bank in Taiwan, Best Debt House Taiwan - The Asset Ĺ
(5) House of the Year – AsiaRisk (6) Best Domestic Bank in Taiwan, Best Local Cash Management Bank in Taiwan (Small, Medium and Large sized Corporates) - Asiamoney (7) Deals of the Year 2008 in Taiwan, 2008 Online Banking Security Project of Year, Bank of the Year 2008 in Taiwan - The Banker (8) The Asian Banker IT Implementation AwardsɡBest CRM/Applications Project Award, Best Retail Bank in Taiwan - The Asian Banker (9) Best Local Trade Bank in Taiwan - Trade Finance Magazine 5. Going Global As banks increasingly have to do business in a deregulated global market, CTCB has relentlessly endeavored to expand both at home and abroad. As of the end of 2008, CTCB had 145 domestic and 75 overseas outlets (branches, subsidiaries and their branches, and representative offices). As the Taiwanese bank with the most extensive international network, CTCB has branches in Hong Kong, Kowloon, Tokyo, New Delhi, Ho Chi Minh City, Singapore and New York. In addition to Chinatrust Bank (USA), acquired in 2001, the bank also has subsidiaries in the Philippines, Indonesia, and Canada, and runs representative offices in Los Angeles, London, Manila, Bangkok, Hanoi, and Beijing. Looking ahead, CTCB is poised to pursue an even broader overseas presence through undertaking mergers and acquisitions, as well as forming joint ventures. Pending a policy shift of the government, it is also ready to make inroads into the mainland China market. This will add to CTCB’s existing outposts across Southeast Asia, America, and Europe and make a truly comprehensive international network. CTCB will be a truly international bank capable of offering customers a full package of globalized financial services.
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B. Organization 1. Organization chart
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2009.01.01
2. Directors, supervisors, and major managers (1) Directors and supervisors April 15, 2009 Title
Name
Date of Office assignment term
Significant experience
Education
President of CFHC
Department of Economics, National Chung Hsing University, Taiwan
Jeffrey L. S. Koo
Chairman of CFHC Chairman of Chinese International Economic Cooperation Association
Honorary Ph.D., De La Salle University Philippines MBA, New York University, USA
Director
Wen-Long Yen
Chairman of United Real Estate Management Co., Ltd.
Department of Economics, Soochow University, Taiwan
Director
James Chen
President, Institutional Banking Group, Chinatrust Commercial Bank
MBA, The City University of New York, USA
Director
Roger Kao
Vice President of VIDEOLAND Inc
Boston University Master of Science in Broadcast Journalism
Partner-in-Charge, Jones Day Taipei Office
S.J.D., Harvard University, USA
Independent Chung-Yu Wang Director
Vice chairman of Tong Lung Metal Industry Co., Ltd.
Honorary Ph.D.,Chung Yuan Christian University, Taiwan
Supervisor Shih-Chuan Lin
Chairman of Ho-Yeh Investment Co., Department of Economics, National Ltd. Taiwan University, Taiwan
Supervisor T.C. Tsai
Vice President of Taiwan Fuji Xerox Corp.
Department of Finance and Tax, National Cheng Chi University, Taiwan
Supervisor Paul T.C. Liang
President of Bank Chinatrust (Indonesia)
Bachelor of International Trade, National Chengchi University, Taiwan
Chairman
Charles L. F. Lo
Director
Independent Jih-Tsan Huang Director
June 16,2008
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Note: All directors and supervisors are legal representatives of Chinatrust Financial Holding Co., Ltd. which owns 7,173,185,998 shares of common stocks and 100% of ownership.
3. Top 10 shareholders or shareholders owning over 10% April 15, 2009 Institutional shareholder
Shareholders of major institutional shareholders
Chinatrust Financial Holding Co., Ltd.
1. Jeffrey L. S. Koo (7.28%) 2. Mega International Commercial Bank Co., Ltd. Acting as Custodian for the Investment Account of Morgan Stanley Formosa Holdings (Cayman) Limited. (4.30%) 3. IXIS Corporate and Investment Bank (3.20%) 4. JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary Agency – Morgan Stanley Investment Management Limited as external fund manager) (1.89%) 5. Cathay Life Insurance Co., Ltd. (1. 87%) 6. Bureau of Labor Insuranceʳ(1.23%) 7. China Life Insurance Co.,Ltd. (1.20%) 8. Farglory Life Insurance Co.,Ltd. (1.04%) 9. JPMorgan Chase Bank N.A. Taipei Branch in custody for Foreign Equity Series(a series of Templeton Institutional Funds, Inc.) (0.96%) 10.Chunghwa Post Co.,Ltd. (0.95%)
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4. Major Managers April 1,2009ʳ ˧˼̇˿˸ʳ
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˖˻˼˸˹ʳ˦̇̅˴̇˸˺˼˶ʳˢ˹˹˼˶˸̅ʳ̂˹ʳ˧˴˼̆˻˼́ʳ˛̂˿˷˼́˺̆
˦˸́˼̂̅ʳ˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ ˔˴̅̂́ʳ˞˼́˺ʳ
ˠ˴̆̇˸̅ʳ̂˹ʳ˟˴̊ʿʳ˚˸̂̅˺˸̇̂̊́ʳ˨́˼̉˸̅̆˼̇̌ʿʳ ˨˦˔ʳ
ˣ˴̅̇́˸̅ʿʳ˟̂̇̈̆ʳ˜́̇˸̅́˴̇˼̂́˴˿ʳ˟˴̊ʳ ˢ˹˹˼˶˸ʿ˧˴˼̃˸˼ʳ ʳ
˦˸́˼̂̅ʳ˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ ˧˼̀ʳ˧ˁʳ˖˻˼̈ʳ
˕˴˶˻˸˿̂̅ʳ̂˹ʳ˘˶̂́̂̀˼˶̆ʿʳ˦̂̂˶˻̂̊ʳ ˨́˼̉˸̅̆˼̇̌ʳ
˘˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˙̅˸˷ʳ˖˻˸́ʳ
˕˴˶˻˸˿̂̅ʳ̂˹ʳˣ̈˵˿˼˶ʳ˙˼́˴́˶˸ʿʳˡ˴̇˼̂́˴˿ʳ ˖́˸́˺˶˻˼ʳ˨́˼̉˸̅̆˼̇̌ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˖˿˼˹˹ʳ˦˻˸́ʳ
˕˴˶˻˸˿̂̅ʳ̂˹ʳ˕̈̆˼́˸̆̆ʳ˔˷̀˼́˼̆̇̅˴̇˼̂́ʿʳ ˡ˴̇˼̂́˴˿ʳ˖˻˸́˺ʳ˾̈́˺ʳ˨́˼̉˸̅̆˼̇̌ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
ˠ˼˶˻˴˸˿ʳ˖˻˴́˺ʳ
ˠ˕˔ʿʳ˨́˼̉˸̅̆˼̇̌ʳ̂˹ʳ˛˴̅̇˹̂̅˷ʳʿ˨˦˔ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˗˸̅˸˾ʳ˟̂ʳ
ˠ˕˔ʿʳˠ˴˷̂́́˴ʳ˨́˼̉˸̅̆˼̇̌ʿʳ˨˦˔ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˝˸̅˸̀̌ʳˢ̈ʳ
ˠ˴̆̇˸̅ʳ̂˹ʳ˜́˷̈̆̇̅˼˴˿ʳ˘́˺˼́˸˸̅˼́˺ʿ˧˻˸ʳ ˣ˸́́̆̌˿̉˴́˼˴ʳ˦̇˴̇˸ʳ˨́˼̉˸̅̆˼̇̌ʿʳ˨˦˔ʳ
˩ˣʳ̂˹ʳ˖˼̇˼˵˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˝̂̆˸̃˻ʳ˦˻˼˻ʳ
˕˴˶˻˸˿̂̅ʳ̂˹ʳ˔˶˶̂̈́̇˼́˺ʿʳ˙̈ʳ˝˸́ʳ˖˴̇˻̂˿˼˶ʳ ˨́˼̉˸̅̆˼̇̌ʳ
˩ˣʳ̂˹ʳ˧˻˸ʳ˛̂́˺˾̂́˺ʳ˴́˷ʳ˦˻˴́˺˻˴˼ʳ˕˴́˾
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˚˴̅̌ʳ˖˻˸́ʳ
˕˴˶˻˸˿̂̅ʳ̂˹ʳ˕˴́˾˼́˺ʳ˴́˷ʳ˜́̆̈̅˴́˶˸ʿʳ˖˻˼́˸̆˸ʳ ˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ ˖̈˿̇̈̅˸ʳ˨́˼̉˸̅̆˼̇̌ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˝̈˿˼˸ʳ˟ˁʳˬ˴́˺ʳ
ˠ˕˔ʿʳ˧˻˸ʳ˖˼̇̌ʳ˨́˼̉˸̅̆˼̇̌ʳ̂˹ʳˡˁˬˁʳ˕˴̅̈˶˻ʳ ˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ ˖̂˿˿˸˺˸ʿʳ˨˦˔ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
ˠ˼˴̂ˀ˖˻˼̈ʳ˛̆̈ʳ
ˠ˕˔ʿʳ˦˧ˁʳ˝̂˻́ʺ̆ʳ˨́˼̉˸̅̆˼̇̌ʳʿ˨˦˔ʳ
ˣ˴̅̇́˸̅ʿʳˣ̅˼˶˸̊˴̇˸̅˻̂̈̆˸ʳ˖̂̂̃˸̅̆ʳ˧˴˼̊˴́
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˔˿˵˸̅̇ʳ˖˻˴́˺ʳ
ˡ˸̊ʳ˔̆˼˴ʳˠ˼˷˷˿˸ʳ˦˶˻̂̂˿ʳʿʳ˛˞ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˔˿˵˸̅̇ʳ˦˻˼̈́˺ʳ
˕˴˶˻˸˿̂̅ʳ̂˹ʳ˸˿˸˶̇̅̂́˼˶̆ʿʳˡ˴̇˼̂́˴˿ʳ˧˴˼̊˴́ʳ ˨́˼̉˸̅̆˼̇̌ʳ
˩ˣʳ̂˹ʳ˩˼̆˴ʳ˜́̇˸̅́˴̇˼̂́˴˿ʳ˔̆˼˴ʳ ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˜˺́˴̇˼̈̆ʳ˖˻˴́˺ʳ
ˠ˕˔ʿʳˡ˴̇˼̂́˴˿ʳ˨́˼̉˸̅̆˼̇̌ʿʳ˨˦˔ʳ
˘˩ˣʳ̂˹ʳ˦̇˴́˷˴̅˷ʳ˖˻˴̅̇˸̅˸˷ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
ˢ̃˸́̀˼́˷ʳˬ˸˻ʳ
˕˴˶˻˸˿̂̅ʳ̂˹ʳ˘˶̂́̂̀˼˶̆ʿʳ˧̈́˺˻˴˼ʳ˨́˼̉˸̅̆˼̇̌ ˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˙̅˴́˾ʳ˦˻˼˻ʳ
ˠ˕˔ʿʳ˨́˼̉˸̅̆˼̇̌ʳ̂˹ʳ˧˸̋˴̆ʳ˴̇ʳ˔̈̆̇˼́ʿʳ˨˦˔ ˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˧̂́̌ʳˬ˴́˺ʳ
ˠ˴̆̇˸̅ʳ̂˹ʳ˜́̇˸̅́˴̇˼̂́˴˿ʳ˕˔ʿʳ˨́˼̇˸˷ʳ˦̇˴̇˸̆ʳ ˜́̇˸̅́˴̇˼̂́˴˿ʳ˨́˼̉˸̅̆˼̇̌ʿʳ˨˦˔ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˗˴̉˼˷ʳ˦̊˸˼ʳ
ˠ˕˔ʿʳ˨́˼̉˸̅̆˼̇̌ʳ̂˹ʳ˗˴˿˿˴̆ʿʳ˨˦˔ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˔˿˸̋ʳ˖˻˸́ʳ
ˠ˴̆̇˸̅ʳ̂˹ʳ˜́˹̂̅̀˴̇˼̂́ʳ˘́˺˼́˸˸̅˼́˺ʳʿʳ ˡ˴̇˼̂́˴˿ʳ˧˴˼̊˴́ʳ˨́˼̉˸̅̆˼̇̌ʳ
ˣ̅˸̆˼˷˸́̇ʳ̂˹ʳ˩˼̆˴ʳ˜́̇˸̅́˴̇˼̂́˴˿ʳ˧˴˼̊˴́ʳ ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
ˠ˼́˺˽̂˻́ʳ˟˸˸ʳ
ˠ˕˔ʿʳˡ˸̊ʳˬ̂̅˾ʳ˨́˼̉˸̅̆˼̇̌ʳʿʳ˨˦˔ʳ
˦˩ˣʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˖̂̀̀˸̅˶˼˴˿ʳ˕˴́˾ʳ
˘̋˸˶̈̇˼̉˸ʳ˩˼˶˸ʳˣ̅˸̆˼˷˸́̇ʳ
˪˼˿˿˼˴̀ʳ˛˴́ʳ
ˠ˕˔ʿʳ˖̂́˶̂̅˷˼˴ʳ˨́˼̉˸̅̆˼̇̌ʿʳ˖˴́˴˷˴ʳ
ˣ̅˸̆˼˷˸́̇ʳ̂˹ʳ˖˻˼́˴̇̅̈̆̇ʳ˕˴́˾ʳʻ˨ˁ˦ˁ˔ˁʼʳ ʳ
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III. Business Review A. Business Performance 1. Scope of Business: a. Corporate Banking i. Commercial Banking Provide flexible, tailor-made services, including loans, trade finance, cash management, trust and proxy services, factoring and letters of credit for international trade. ii. Capital Markets
y Corporate Finance Division: Offer tailor-made services based on clients’ specific funding and financial management needs, including syndicated and structured loans, planning of financial structure, and advisory services on domestic or overseas IPOs and secondary offerings.
y Financial Markets Division: Design and trade securities, derivatives, and structured products; provide customers with investment and hedging advice to help them minimize risk. b. Retail Banking i. Wealth Management Provide target clients with financial planning and advisory services regarding asset allocation, as well as access to CFHC’s large variety of financial products. ii. Secured Lending Provide individuals with residential mortgages, extend loans to small businesses, and design repo-related products and services for other corporate clients. c. Consumer Finance i. Credit Cards Aside from credit cards, offer stored value cards and VISA-Debit cards as well. Running both issuing and acquiring business. ii. Unsecured Lending Provide full range of unsecured loans, such as mail loans for cardholders, personal loans (both term and revolving) for public, and cash cards. 2. Revenue Breakdown: Unit: NT$ million Item
Amount
%
Corporate Banking
21,611
39
Retail Banking
14,327
26
Consumer Finance
19,543
35
Total
55,481
100
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3. Business discussion: a. Business Strategy CTCB was among the first banks in Taiwan to adopt a fee-based business model, while rivals continued in the traditional banking mode. As such, CTCB stands out for its willingness to engage customers in areas such as cash management for corporate customers and wealth management for retail customers. Through this strategy, the Bank has already built a top banking franchise in Taiwan and the region by leveraging our extensive client base and our broad distribution network (145 domestic branches and 75 overseas outlets) to provide innovative, value-added, and high-margin services to our customers. CTCB also devotes significant resources to develop the most advanced risk management and internal control systems, to ensure the stable performance and profitability. The bank is focusing on several strategies for profitable growth: i.Strengthen fee income in target segments. A core focus for CTCB is the continued expansion of businesses generating fee income, including wealth management products, credit cards, trade finance, cash management and capital markets products. Our strength in these areas enabled our fee income ratio to reach 35.24% in 2008, one of the highest among our peers. ii.Enhance cross-selling platform. We continue to leverage our “open architecture” bank platform to distribute “best-of-breed” products and services from multiple providers to our retail and corporate customers. Our strategies for improving our cross selling include utilizing:
y Customer relationship and information systems: utilize our advanced customer relationship and information systems to target a variety of banking, card, insurance, securities and investment products and services that meet the needs of our customers, and thus enhance our abilities to develop long-term, multi-product relationships with our customers.
y Business alliances: maintain and further build our alliances with global financial services providers, such as insurance and asset management companies, to offer a full range of “best-of-breed” products and services to our targeted customers.
y Convenient and cost-effective channel mix: We have re-engineered our branch operations to further improve service levels in the branch channel, and continue to expand our industry leading ATM network and improve our Internet channel. iii.Lead industry standard for risk management. Chinatrust is a pioneer in the implementation of the New Basel Capital Accord in the region, and led the industry by continuously implementing enhanced risk management procedures for all our credit exposures, including credit evaluation, rating methodologies, and credit risk pricing models. Chinatrust has thus maintained a high standard of asset quality, with its NPL ratio at 1.68% in 2008 December. IJĵ
iv.Explore local and global market opportunities. We aim to be a national champion in Taiwan as well as a regional player in Asia and have identified our corporate banking, credit card and wealth management businesses as our pioneer products to the regional market. Through this strategy, we have continuously expanded our branch network in Taiwan, and are seeking opportunities in the banking, insurance, securities and asset management industries. Besides the local market, we have also established the largest international network among our domestic peers, with 75 overseas locations, largely supporting the development of our corporate banking business. As we expand our international retail banking presence, our expansion strategy is to partner with local financial or retail players in different countries to leverage their customer base and network. b. Corporate Banking Business i. Transaction Banking Business
y Factoring Business Current economic conditions have led to a substantial slowdown in the total Taiwan factoring market. It is estimated that Taiwanese factoring turnover has dropped about 50% year-over-year, with international turnover seeing similar declines. Despite adverse market conditions, Chinatrust has maintained a strong position in the Taiwanese factoring market, retaining a 20% market share through December 2008.
y Trade Finance Business As Taiwan is an export-oriented economy, the global financial crisis, coupled with overall sluggish worldwide economic demand, resulted in a substantial decline in Taiwan’s export volume in 2008. This led to declining volume for Chinatrust’s trade finance business, with letter of credit issuance and export bills negotiation declining 7% compared with 2007. Despite this decrease, Taiwanese exporters have been able to leverage their alliances and strong demand with China, and based on current market conditions Taiwan’s export market will likely stabilize in 2009.
y Cash Management Business Chinatrust is the leading bank in the Cash Management business in Taiwan, covering collection, payment, and portfolio management services. With a strong value proposition and product packages, empowered by excellent sales, the Bank has acquired a wide range of customers – from jumbo-sized customers, such as international groups, to small- and medium- enterprises; from the high-technology industry to services and traditional manufacturers, as well as government and the financial industry. In addition to regular collection and payment services, one-shot deals such as cash dividend payout service also improve our deposit volume and revenue profile. In 2008, Chinatrust performed more than 20% of cash dividend services in Taiwan, representing about 6 million transactions.
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ii. Syndicated Loans In 2008, Chinatrust foresaw the deteriorating credit market and thus adopted a more prudent and cautious approach in selecting syndication transactions earlier than competitors. With this approach, Chinatrust passed on many low yield deals in first half of 2008, in view of the potential tightening liquidity and widening spread. With this discipline, Chinatrust’s market share dropped 4% compared with 2007, but the Bank still maintained a top 3 position with 62 deals in 2008. Chinatrust also maintained a very disciplined and healthy average final hold ratio of 12% in 2008. Overall, Chinatrust has managed to demonstrate superior distribution ability despite the unfavorable market conditions. Furthermore, Chinatrust also successfully closed several LBO financing transactions in 2008, including a very complicated acquisition financing, sponsored by Transpac, to rescue the biggest home shopping company in Taiwan during the tough market conditions in the fourth quarter. With superior structuring/execution capability and a strong distribution network, Chinatrust is a true leading bank in Taiwan syndicated loan market. CTCB is integrating its various trading platforms, including those of overseas branches and subsidiaries. The goal is to construct a highly efficient, centralized operational platform for financial transactions. As of the end of 2008, it had completed links to the Hong Kong and Vietnam branches, and is now moving on to connecting other overseas branches and subsidiaries. iii.FX & Derivatives Business Chinatrust ranked number one in Taiwanese derivatives market share for 2008, achieving a total share of 15.4%. The total contract amount of the derivatives market in Taiwan in 2008 was NT$ 104 billion, which increased by 12% over 2007. This increase is mainly due to the increase in foreign exchange and interest rate derivatives, while the volume of credit derivatives has declined significantly since the sub-prime financial crisis in 2007. In 2008, aside from Chinatrust, no bank’s market share exceeded 10%. c. Retail Banking Business i. Wealth Management Since entering the wealth management business seven years ago, Chinatrust has built the leading position in the Taiwanese market. CTCB has achieved the top market share in terms of numbers of clients, products, and sales volume. CTCB’s leadership cuts across all five major wealth management products, with market leading positions in mutual funds, collective investment accounts, foreign structured notes, personal trusts, and bancassurance. CTCB’s position is reflected in the bank’s 16% market share of VIP clients (clients with NT$ 3 million or more of assets under management at the bank),
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which is number one in the industry, and in awards such as the Euromoney “2009 Best Private Bank in Taiwan”, which CTCB has claimed for five consecutive years. In 2008, CTCB consolidated its leadership position by further segmenting its wealth management model in order to optimize service delivery for customers with different asset volumes, initiating new research services and introducing a loyalty bonus program. These programs position wealth management for further growth in 2009 and beyond. ii.Internet Banking Chinatrust Internet Banking had more than 1.4 million registered customers in December 2008, giving it almost 1/3 market share in this field. Furthermore, monthly traffic to our website is more than 3 million unique visitors, equivalent to a mid-size portal site, which creates business opportunities for product cross selling and personalized and event-based online marketing. In spite of the global recession, there still have been more than 2.4 million transactions performed online in 2008, for which the fee income generated exceeded NT$ 427 million. Chinatrust Internet Banking was awarded “The Best Consumer Internet Bank in Taiwan” by Global Finance in 2008 and was the only banking website in Taiwan that has been recognized with this award for five consecutive years since 2003. The Banker also recognized us for the “2008 Online Banking Security Project of the Year”. In 2008, Chinatrust Internet Banking implemented several key projects to grow the business and improve profitability. We partnered with Yahoo! Taiwan to provide an E-Commerce service, which allows flexible payments for online transactions through credit cards, debit cards, bank transfers and prepaid accounts. The new platform makes online bill/micro payment more convenient by integrating all the fundamental bills, payment tools (credit card, banking account, and virtual account), as well as payment channels. iii.ATM Services As of December 31, 2008, Chinatrust has installed a total of 4,406 ATMs at strategic locations in Taiwan, including branches, department stores, securities companies and 7-Eleven convenience stores, thereby capturing 17.3% of ATM market share and continuing to hold the No. 1 position in terms of the number of ATMs. Chinatrust also achieved 24.3% market share (Source: FISC data) in terms of transaction volume and had the leading average transaction volume per machine as well. d. Consumer Finance Business Credit Card Despite the difficult situation in the global economy and its impact on Taiwan, CTCB maintains its commitment to provide superior services to our more than 3 million active cardholders. In 2008, CTCB continued utilizing its segmentation strategy to improve IJĸ
customer relationships by aligning business units with segments to manage customers in different life stages and merchants in different fields. All marketing campaigns are designed based on customer needs and behaviors. We reallocate resources to the different segments based on data-mining, so as to maximize customer profitability. Utilizing these strategies, CTCB maintained its position as the leading brand in Taiwan and led the market in several key indicators of credit card business, including spending volumes, total cash advance amount and cards in circulation. The average cards in circulation market share was 15.1%, and the total card sales volume share was 19.5% through the year. i.Acting as a pioneer to implement credit card payments in taxis Chinatrust is the first bank to implement a GPRS wireless payment platform and introduce credit card services to taxi transportation in Taiwan. Chinatrust has worked with TaiwanTaxi, a leading brand in the field, to provide an in-vehicle credit card payment system. The GPRS EDC accepts various credit cards, including VISA, MasterCard and JCB. The service must maintain stable quality while the vehicle is in motion and offer multi-function equipment that accepts chip cards, contact-less cards and magnetic cards. Paying by credit card can be completed in 10 seconds, significantly quicker than paying by cash, saving time for drivers and passengers. ii.Applying Near Field Communication (NFC) mechanism to cell-phones Near Field Communication (NFC) is a new, short-range wireless connectivity technology that evolved from a combination of existing contact-less devices. Since the cell-phone has become an essential device, expanding the uses of the cell phone improves customer convenience and is a growing trend. In 2008, Chinatrust applied NFC technology to cell-phones in Taiwan by forming an alliance with Chunghwa Telecom, the telecommunications market leader. The new service will allow fast and convenient payments for consumers who don’t need to carry a credit card. Chinatrust will also build on its relationships with its credit card merchant acquisition customers to develop location based on-demand offerings, utilizing posters and other media located in popular shopping locations. B. Employees Year
December 31,2007
December 31,2008
8,401
8,380
33.50 years old
34.30 years old
6.60 years
7.29 years
Number of employees Average age Average tenure of employee
Number of employees Education level
Percentage
Number of employees
Percentage
Graduate and up
1,301
15.49%
1,420
16.94%
Bachelor
6,671
79.41%
6,540
78.05%
429
5.10%
420
5.01%
High school
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C. Corporate Responsibility & Code of Ethics Michael Porter, the world-renowned Harvard business professor, considers corporate social responsibility (CSR) an integral part of a company’s core competitive strategy. As global competition intensifies, the gap between rich and poor continues to get wider. Enterprises are increasingly required to adopt a CSR-minded business strategy to become more competitive and ensure sustainable growth. Corporate citizenship is now valued everywhere. Since trade with the rest of the world serves as its lifeline, Taiwan simply cannot disregard this global trend. Chinatrust’s avid involvement in all kinds of social welfare activities goes back a long way, even as the company has pursued an ever-improving financial performance and sought to maximize shareholder value. For years, Chinatrust has played a due part in helping foster social change for the better. At Chinatrust, corporate social responsibility is considered one of the company’s core values. Keenly aware of its duty to serve the community where it has thrived, Chinatrust has spared no funds and resources at its disposal to contribute a due share to public good. The company’s corporate motto “We are family” is best reflected by its heart-felt care for employees, the community, and the environment. Chinatrust’s active involvement in all kinds of social events, including charity, the arts, and environmental protection, is intended to make real the vision of creating a better tomorrow for everyone. 1. Pioneer in Charity Endeavors The Chinatrust Charity Foundation was founded on November 2, 2004 to coordinate various charity projects already under way and expand their reach across the community. Special emphasis is placed on caring for the economically disadvantaged and physically or mentally disabled children. Volunteers from within Chinatrust are encouraged to take part in various activities year round to make the vision of “Love for kids” a reality. a. Care for Economically Disadvantaged Children Chinatrust launched the “Light Up A Life” fund-raising campaign in 1985. The first such campaign meant for disadvantaged children to be sponsored by a local private enterprise, it has received donations totaling about NT$700 million over the past 24 years. By aiding 35 charity groups, more than 130,000 needy children have benefitted from the initiative. The bulk of the funds raised from the “Light Up A Life” campaign are handed over to the Taiwan Fund for Children and Families (TFCF) that operates support centers throughout the country. Under the banner of the “Poverty-Relief Project,” the fund devises programs to promote early education of pre-school children, and advance vocational training and self-enhancement of parents and youngsters. Relief efforts are continuously made toward enabling less fortunate families to have a fresh start. b. Care for Physically/Mentally Disabled Children With a view to enhancing people’s awareness of the importance to undertake early IJĺ
intervention, the Chinatrust Charity Foundation formed a partnership with the Taipei County Government in 2005 to support the Down Syndrome Foundation. The latter moved to set up a learning center in Tamsui; it also took delivery of an early intervention van from Chinatrust to serve children in remote areas in need of such treatment and care. In the second half of 2006, Chinatrust took another step by teaming up with the Minghsin Children’s Development Center. In addition to attracting people’s attention to early intervention, the collaboration offered a free screening service across Taipei County’s 29 urban and rural townships to spot possible afflictions. The objective was to advance treatment of children with developmental delays during the precious window before their third birthday. Given an annual average of 10 screening events over the past three years, 276 possible cases were detected out of a total of 1,808 screened children. That translates into a detection ratio of 15.39%, doubling the tally reported by the World Health Organization. To further the early intervention initiative across the countryside, Chinatrust donated a hand-painted early intervention van to the Minghsin Children’s Development Center in 2008. In conjunction with its donating early intervention vans to help promote the cause, Chinatrust has also become a sponsor for the First Social Welfare Foundation since 2007. It offers on-the-spot early intervention services on a weekly basis at Taipei County’s Tamshui, Shulin, and Tucheng communities. The purpose is to spare parents in remote areas the hassle of traffic, thus enhancing their willingness to pursue early intervention for their children. Meanwhile, Chinatrust sponsored — through Hsinchu County’s Social Affairs Bureau — the Syin-Lu Social Welfare Foundation’s extension of early intervention services to less fortunate families living in the county’s remote areas. It is Chinatrust’s belief that each and every physically or mentally disabled child is entitled to due attention and care. Between 2005 and 2008, Chinatrust offered 2,332 hours of fixed-location services to a cumulative 1,104 children; it also contributed another 1,544 hours’ worth of house calls that benefited 580 children. c. Volunteer Activities From its beginning, the Chinatrust Charity Foundation has made it a point to solicit volunteers from within the Chinatrust Group to help in the care of and providing relief to economically disadvantaged children. A long-term counseling project was launched in September 2005 to help needy children in their after-school studies and in addressing interpersonal and emotional problems. Three years of hard work paid off well: these children have made tremendous progress both in academic pursuits and in personal enhancement.
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In March 2007, the Chinatrust Charity Foundation launched a volunteer English-teaching program. Teaching and game play are intertwined to give children a stronger incentive to learn English. Separately, the Foundation joined forces with the Ministry of Interior’s Northern Region Children’s Home in launching a program that helps prepare orphans and abused children to better blend into society. During weekends between May and August 2008, Chinatrust volunteers offered these children such activities as company visits, sharing with job-market achievers, interview skills training, and financial planning. Chinatrust’s financial expertise can also find its use in charity. In 2006, Chinatrust began dispatching volunteers to host financial management workshops at TFCF support centers across the country. A total of 81 sessions were held around the island in the ensuing three years. Underprivileged children and their families, be they in Taitung or Hualien on Taiwan’s eastern seaboard or on offshore islands like Penghu and Kinmen, were provided with a better understanding of the fundamentals of sound financial and debt management. Workshops were also carefully devised to help children and parents cultivate shared values about wealth creation so that the vicious cycle of poverty can be stopped. As of the end of 2008, the Chinatrust Charity Foundation had sponsored a total of 456 volunteer events at hospitals, children’s homes, and TFCF centers as well as other remote areas across the island. These include after-school counseling, reading of illustrated books to sick children, financial management workshops, and early intervention and screening services. In total, Chinatrust volunteers had contributed a combined 83,884 hours of their time serving more than 16,000 disadvantaged children. d. Emergency Relief Immediately after China’s Sichuan province was struck by a devastating earthquake measuring 8 on the Richter scale on May 12, 2008, Chinatrust donated 10 million yuan to help with the relief effort. Two months passed but much remained to be done. Joined by counselors and Taiwanese children who endured an equally destructive earthquake on September 21, 1999, volunteers from the Chinatrust Charity Foundation traveled to Sichuan and helped console local children who had yet to recover from a hugely traumatic experience. The five-day event was the Foundation’s first major undertaking in the cross-strait arena. It was followed by a visit to Taiwan at the end of September 2008 by 29 children viewed as heroes who survived the Sichuan earthquake. During their weeklong stay, these children were placed in the meticulous care of Chinatrust volunteers. With their birthplace far removed from the ocean, it is only natural that they would be eager to see it with their own eyes. To have their wish come true, the Foundation brought them to the scenic spots ijIJ
of Chinshan and Yeliou on Taiwan’s north coast. All this kindness and warmth must have left them a beautiful memory. Both the host and visitors told one another that one must hold up no matter what the future might hold and that a reunion would not be far off. e. Distribution of Public Welfare Lottery’s Proceeds Chinatrust was entrusted to operate the Public Welfare Lottery—a duty assigned to its wholly owned subsidiary Taiwan Lottery Corporation--in 2007. Of its NT$36.35 billion of proceeds in 2008, 50% were set aside for social welfare and charity programs undertaken by local governments; 45% were earmarked as government subsidies for the national annuity program; and 5% went toward the reserve for the national health insurance scheme. In December 2008, Taiwan Lottery Corporation took out funds to bolster protection of lottery dealers. The objective was self-explanatory: only when their personal safety and property are well protected can the physically disadvantaged dealers run their business free from such worries. Moreover, quite a few Big Lotto and Super Lottery jackpot winners have made generous donations. In 2007 and 2008, major lottery winners donated a total of NT$567 million through the Chinatrust Charity Foundation and Taiwan Lottery Corporation. Of the amount, some NT$76 million was specifically designated for Chinatrust’s “Light Up A Life” campaign -- a key sponsor for such social welfare groups as TFCF. With the Foundation acting on their behalf, lottery winners also donated NT$14 million to help with reconstruction of the Guihua Nine-Year School in Pengzhou, Sichuan province. Separately, Taiwan Lottery Corporation would hold a news conference to accommodate the wish of a given donor that a specific local government or social welfare group be designated as the beneficiary. To date 10 local counties and cities have benefitted from such donations. 2. Sponsorship for Arts & Cultural Activities For years, Chinatrust has been an avid sponsor for the arts and cultural activities. These include a New York Symphonic Ensemble concert, the “Ancient Egyptian Art from Louvre” exhibition, and the “Snow Wolf Lake” musical. In 2008, the highlight of Taiwan’s cultural scene was certainly the exhibition “Millet and His Time: Masterpieces from the Musée d’Orsay,” for which Chinatrust was also a major sponsor. A “Millet craze” swept across Taiwan as the phenomenal event attracted a cumulative 670,000 visitors, a record for any art exhibition in Taiwan. To treat its clients to this unique cultural feast, Chinatrust sponsored a VIP evening at the National Museum of History, the venue of the exhibition, at the beginning of June 2008. It was followed by a charity day at the end of the month when 100 children gathered by social welfare groups were invited to the exhibition for free, thus giving disadvantaged children an opportunity to appreciate Millet’s masterpieces and enjoy a moment of aesthetic delight. ijij
In addition to sponsoring the arts and cultural activities, Chinatrust took the initiative to construct the “Novel Hall,” the first privately run, medium-size venue for art performances in Taipei. Funded exclusively by Chinatrust, it has played host to numerous art performances -- music, drama, dance, traditional opera and others--since its inception in May 1997. An exquisite stage for art performances as well as a haven for nurturing new-born and fledgling art groups, it is an exemplar of blending business with art. Since 1997, the Chinatrust Foundation has received an average injection of NT$45 million from the Chinatrust Group each year for sponsoring the Novel Hall’s operations and programs. Chinatrust is also solely responsible for the Novel Hall’s general expenses for utilities, cleaning, security, and insurance so that it can provide art groups and the audience with the highest standard of services. As of the end of 2008, the Novel Hall had hosted a cumulative 2,520 art performances that attracted an audience in excess of 1.5 million people. The past decade and more has also seen Chinatrust sponsor a good number of art groups eager to present themselves before local people. It is hardly a surprise then that Chinatrust is an eight-time winner of the National Cultural Benefactor Award accorded by the Council for Cultural Affairs, which started to hand out such honors in 1998. In 1999, the Novel Hall began selling tickets to art lovers who may opt to pay with credit cards; the National CKS Cultural Center later recognized it as one of its best online ticketing agents. In the same year, the Taipei City Government rated the Novel Hall as the city’s best and most popular performance hall, citing its well-rounded facilities, competent personnel, and superior service. 3. Care for the Environment As global warming increasingly becomes an issue around the world, Chinatrust is keen on playing a due part in the cause of preserving the environment. In addition to sponsoring community parks and planting projects, it looks within to help uphold Taiwan’s environmental integrity. Efforts made across the Chinatrust group include garbage and kitchen refuse recycling, paperless operations at the office, and energy conservation by means of special devices to save electricity and water consumption. In 2006, Chinatrust became a patron of the Sungchi Park in Taipei’s Xinyi District, which is designed to be a place where residents and visitors can rest and relax. With a cement jungle as its backdrop, this mini-park is home to almost 270 trees of nine species. Meanwhile, more than 10 kinds of flowers bloom in different seasons at this park frequented by birds and butterflies. Chinatrust hopes that this splendid gathering of trees, flowers, birds, and butterflies will make a welcome break from the city’s hustle and bustle, a romantic corner in this premier shopping area. In step with rapidly unfolding global trends, in 2007 Chinatrust introduced a company-wide project to help with environmental protection and energy conservation. More ijĴ
than just reducing costs, it goes a long way toward reducing carbon dioxide emissions and keeping damage to the environment to a minimum. Chinatrust’s energy conservation endeavors cover elevators, lighting, and air-conditioning; the concept is also a key consideration in its deployment of facilities, procurement, and resource allocation. The program saves more than energy: it reduces outlays an estimated NT$5.373 million each year. Recycling is viewed as a top priority at Chinatrust. From June 1, 2007, single-use chopsticks were no longer made available at the workplace. Employees are urged to use their own personal mugs and chopsticks instead. While paper cups and single-use chopsticks are being phased out, Chinatrust estimates it can reduce garbage accumulation by a monthly average of 6,966 kilograms. Special shelves for used paper are installed next to copiers in all Chinatrust offices to facilitate recycling. Chinatrust initiated a creativity contest in 2008 to further enhance environmental awareness among all employees. A cash prize of NT$10,000 was granted to the employee who came up with the most interesting ideas about helping with environmental protection and energy conservation. The purpose was to have employees take preserving the environment and conserving energy even more seriously—both at home and the workplace. On top of that was a company-wide campaign featuring comic internal emails that is designed as a reminder to employees about switching off office lights, computer monitors, and desktop lamps whenever warranted; taking the stairs instead of the elevator; keeping paper printouts to a minimum; preparing one’s own mug for buying coffee or attending meetings, etc. The campaign was received favorably. 4. Protection of Consumer Interests Serving customers—who always come first—with the heart is constantly top-of-mind at Chinatrust. Chinatrust offers a full package of products and services so that it can truly satisfy clients no matter what they may need and desire. All products must conform to the most stringent selection criteria before hitting the market. Every wealth management specialist at Chinatrust is fully supported by an elite research team so that he or she can provide the client with comprehensive, professional services people will expect of a true expert. Chinatrust is absolutely committed to keeping personal data provided by its clients confidential. Clients are urged to take their case to Chinatrust if they think that the Company has been unfair in promoting or selling a given product, or that it has failed to adequately disclose the risks involved beforehand. For such and other disputes, clients can call the company, send email, write letters, or head directly to a Chinatrust counter. Chinatrust pledges to approach any such problem from the client’s perspective. Acting with goodwill to help clients solve their problems, Chinatrust is keen to win trust and longtime support. ijĵ
5. Emphasis on Human Rights; Care for Employees Human rights constitute a key ingredient of Chinatrust’s corporate values. Taking employees as family, it is committed to taking care of each and every one of them. This pledge is honored in the pay structure, welfare regime and other employee benefits—that is, every aspect of employees’ daily necessities and medical needs. a. Pay Structure: A well-rounded pay structure and benefit package goes a long way toward retaining talent who must find it happy reporting to work every day. Chinatrust offers a highly competitive remuneration package so that a top-notch workforce can foster and share its growth. b. Core Benefits: Chinatrust makes sure that employees’ basic needs are fully satisfied, including coverage by the national labor and health insurance program as well as the corporate insurance scheme. They are also entitled to grants for marriage, death, and child birth; subsidies for medical care of family members and children’s education; gift money for birthdays; and bonuses often paid ahead of three major Lunar calendar festivals: the Dragon Boat Festival, Moon Festival, and Lunar New Year. c. Complementary Benefits: Chinatrust put in force a complementary benefit scheme that features a point accumulation program in 2003. Employees are granted options to focus more heavily on benefit items they desire most and enjoy some shopping discounts, depending on their own specific needs in terms of everyday necessities. d. “Bank of Love, Happy Enterprise”: Chinatrust provides its employees with health checkup and follow-up programs and medical treatment services that go beyond what is required by pertinent government regulations. It also sponsors various sports clubs, employee travel, employee lunches, outdoor camps for employees and their families, lectures on various topics, and procurement of organic vegetables. There is even a massage parlor for employees to relax before returning to work. 6. Commitment to Social Welfare For more than 40 years, Chinatrust has been steadfast in its commitment to helping with social welfare. Starting in 2007, it took the initiative to publish a corporate social responsibility report to facilitate a better understanding among the general public of its longtime dedication in this regard. The key message is that Chinatrust harbors the ideal and is poised to take action to advance the cause of promoting social welfare--as a “bank of love” should do.
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IV. Special Notes A. Dividend policy and status of execution 1. Dividend policy: As a subsidiary of the Chinatrust Financial Holding Company, the Bank has the obligation to take care of the fund requirements of the parent company. It will also have to set aside an adequate legal reserve and maintain an equitable policy for distributing cash dividends. Dividends and bonuses for common stocks shall in principle be in cash and shall be maintained at a stable level every year. The above policy, however, is to be observed only in principle. The Bank shall take into consideration of business performance and budgeted capital requirements and make necessary adjustments in actual distribution. Distribution terms, time, and amount: If there are earnings in the financial statement, the Bank shall first set aside funds for taxes, be adjusted according to the principles of financial accounting, and set aside funds for losses, if any. Then it shall set aside 30% of the earnings as legal reserve. Before the total legal reserve reaches the amount of the total capital, the distributed cash dividends shall not exceed 15% of the total capital. After setting aside the legal reserve, the Bank shall set aside the special reserve and then set aside 0.01% to 0.05% of the distributable earnings to employees as bonuses. The way of distributing the remainder and the retained earnings at year-end shall be proposed by the Board of Directors and approved by the Shareholders’ Meeting. If there are earnings in a fiscal year, the Bank, not in contradiction with the provisions of Article 50 of the Banking Law, shall distribute to the shareholders at least 10% of the dividends in cash. The Board of Directors shall decide on the payment procedures and the ratio of bonuses for employees. 2. The Board has approved the earnings appropriation proposal for Year 2008. It is proposed that NT$430,391 thousand and NT$3,371,397 thousand from retained earnings of Year 2008 will be distributed in cash and in stock according to the record shown in the shareholder book on the distribution record date (Record Date) respectively. The dividends are NT$0.06 per share in cash and NT$0.47 per share in stock, total Common Stock dividends are NT$0.53 per share. B. The influence of dividend allocation this time to the operation performance, earnings per share and investment return rate for the stockholders: There was no announced financial forecast for the bank in Year 2009; therefore no disclosure of such information is needed.
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C. Information relating to employee bonuses and remuneration to directors and supervisors of the Board: 1. The allocation percentage or range of employee bonuses and remuneration to directors and supervisors of the Board mentioned in the Articles of Incorporation: The employee bonuses allocation range is between 0.01%~0.05%. However, the remuneration to directors and supervisors of the Board is not mentioned in the Article of Incorporation. 2. The proposed resolution of dividend distribution for Year 2008 approved by the Board is as follows: a. Cash bonus of employee is NT$1,895 thousand. b. No employee bonus distributed in the form of stock and the percentage of employee stock bonus over stock dividend distributed from earnings is 0%. c. The assumptive earnings per share after allocation of employee bonuses and remuneration to directors and supervisors of the Board: It is not applicable due to the employee bonuses and remuneration to directors and supervisors of the Board has been expensed from January 1, 2008. 3. The appropriation of employee bonus and remuneration to directors and supervisors for Year 2007: Year 2007 Distribution proposal Distributed with the Difference Explanation approved by the resolution from the Annual General Meeting Board of Directors 1.Distribution status: A. Employee bonus distributed in the form of cash B. Employee bonus distributed in the form of stock (1) shares (2) amount (3) % of outstanding shares of the Year C. Remuneration to Directors and Supervisors 2. EPS: (Note) A. Original EPS B. Pro forma EPS
NT$3,372 thousand
NT$3,372 thousand
-
-
-
-
-
-
-
NT$1.95 NT$1.95
NT$1.95 NT$1.95
-
Note: The original and pro forma data stated above were not retroactively adjusted.
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V. Supervisors’ review report of the financial statements of the last year
The Supervisors’ Report
In accordance with Article 219 of the Company Act, the undersigned, have duly examined and accepted as correct the financial reports (unconsolidated and consolidated) for the year 2008 along with the business report and earning distribution plan submitted by the Board of Directors of Chinatrust Commercial Bank.
Shih-Chuan Lin Supervisor
Paul Liang Supervisor
T.C. Tsai Supervisor
Taipei, Taiwan, R.O.C. April 29, 2009
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VI. Internal Control Representation Financial Supervisory Commission
Internal Control Representation Dear Sirs: On behalf of Chinatrust Commercial Bank Co., Ltd, we hereby certify that the company's internal control system and risk management mechanism for the fiscal year of 2008 have been implemented and audited by the independent internal auditors as to comply with " bank’s Internal Control and Internal Audit Rules", and the internal audit reports are periodically presented to the company's board of directors and supervisors. For the securities business operations, the company has evaluated the effectiveness of related internal control system in accordance with requirements promulgated by “Management Guidelines of Internal Control System for Securities Servicing Entities”. (Items listed on attachment are exception.) We hereby certify that the company complies with all related laws and regulations, and the internal controls are effectively in place. This representation is part of the annual report and publicly disclosed. We understand that we are legally bound to SEC ordinance #20, 32, 171 & 174. Sincerely yours, Chairman
President, Institutional Banking Group
President, Retail Banking Group
General Auditor
Compliance officer
Taipei, Taiwan, R.O.C. Mar. 24, 2009
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Chinatrust Commercial Bank Co., Ltd. Internal Control System - Items for Improvement/Improvement Plan (Cut-off Date: 2008/12/31) Items for Improvement
Improvement Measures
Scheduled Date of Completion
A. The Bank was reprimanded by
A. Pursuant to the instructions of FSC in the
A. As planned, the Bank
Financial Supervisory Commission
order, the Bank will organize at least 50
completed 50 sessions of
(FSC) for the inappropriate
sessions of promotional campaigns to the
promotional briefings to
handling process in relation to its
public within a year (starting from
the public by 2009/2/26.
sales of structured notes in wealth
2008/6/1) to advocate the risk awareness in
management business. The order
investments and wealth management.
was issued by FSC in accordance with Article 61-1, Paragraph 1 of the Banking Act. B. The Bank was defrauded by its
B. After investigating the fraud scheme of
B. Improvement measures
loan customer Everskill
Everskill and conducting thorough review
were completed. The
Technology Co., Ltd. in a factoring
on internal process of underwriting, credit
Bank released the
fraud case with fake account
investigation, loan disbursement, account
revision of "Risk Control
receivables.
reconciliation and loan review, CTCB will
Guidelines for Factoring
revise its existing procedures and modify
Products" on 2008/10/8.
relevant computer systems accordingly. C. Chinatrust Bank U.S.A.
C. To prevent similar cases in the future,
C. Improvement measures are
(CTBUSA), a subsidiary of the
CTBUSA has identified the causes of this
underway. Continuous
Bank, was defrauded by Ms.
specific case and will take the following
efforts will be made to
Arlene Shih, former branch
improvement measures:
ensure complete
manager of its City of Industry
(1) Cease the Hold-All-Mails service to the
implementation of the
Branch, in a loan fraud case. Ms. Shih embezzled a loan granted to a
customer.
improvement plan.
(2) CTBUSA will appoint the person
customer by taking advantage of
in-charge and supporting staff in
her authority at work, knowledge
writing for all lending cases. In
of the Bank procedure, as well as
addition, CTBUSA will establish a
familiarity with the customer.
non-single contact window network between customers and CTBUSA to enhance dual control. (3) An additional rule is to be implemented, requiring responsible employees to clearly specify the outstanding amount on the loan renewal documents at the time of renewal. (4) A notice is to be distributed to all business units in CTBUSA to reiterate the importance of full compliance with the operational procedures.
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VII. Head Office and Domestic Branches Domestic Branches Branch Office
Address
Tel
Head Office (Banking Department)
1F., No.3, Songshou Rd., Sinyi District, Taipei City 110, Taiwan (R.O.C.)
(02)2722-2002
Chengjhong Branch
1F., No.83, Sec. 1, Chongcing S. Rd., Jhongjheng District, Taipei City 100, Taiwan (R.O.C.)
(02)2381-8740
Da-an Branch
1F., No.102, Sec. 2, Roosevelt Rd., Jhongjheng District, Taipei City 100, Taiwan (R.O.C.)
(02)3365-1988
Dongmen Branch
No.213, Sec. 2, Sinyi Rd., Jhongjheng District, Taipei City 100, Taiwan (R.O.C.)
(02)2395-8000
Huashan Branch
1F., No.55, Sec. 1, Jhongsiao E. Rd., Jhongjheng District, Taipei City 100, Taiwan (R.O.C.)
(02)2341-3000
Datong Mini Branch
No.196, Sec. 3, Chongcing N.Rd., Datong District, Taipei City 103, Taiwan (R.O.C.)
(02)2598-2366
Chengde Branch
1F., No.17, Sec. 1, Chengde Rd., Datong District, Taipei City 103, Taiwan (R.O.C.)
(02)2556-2088
Jhongshan Branch
1F., No.106-2, Sec. 2, Jhongshan N. Rd., Taipei City 104, Taiwan (R.O.C.)
(02)2523-5222
Minsheng Branch
1F., No.58, Sec. 1, Minsheng E. Rd., Jhongshan District, Taipei City 104, Taiwan (R.O.C.)
(02)2564-1818
Chengbei Branch
1F., No.218, Songjiang Rd., Jhongshan District, Taipei City 104, Taiwan(R.O.C.)
(02)2562-3789
Nanjing East Road Branch
1F., No.16, Sec. 1, Nanjing E. Rd., Jhongshan District, Taipei City 104, Taiwan (R.O.C.)
(02)2523-2238
Chengdong Branch
1F., No.88, Sec. 2, Nanjing E. Rd., Jhongshan District, Taipei City 104, Taiwan (R.O.C.)
(02)2567-7377
Long Jiang Branch
1F., No.65, Sec. 3, Nanjing E. Rd., Jhongshan District, Taipei City 104, Taiwan (R.O.C.)
(02)2515-8811
Dazhi Brach
1F., No.638, Mingshuei Rd., Jhongshan District, Taipei City 104, Taiwan (R.O.C.)
(02)8502-6002
Jhunglun Branch
1F., No.85, Sec. 4, Bade Rd., Songshan District, Taipei City 105, Taiwan (R.O.C.)
(02)2767-2669
Sisong Branch
1F, No.161, Sec.4, Nanjing E. Rd., Songshan Distric, Taipei, 105, Taiwan (R.O.C.)
(02)2717-7100
Fubei Branch
1F., No.363, Fusing N. Rd., Songshan District, Taipei City 105, Taiwan (R.O.C.)
(02)8770-5566
Dunbei Branch
1F., No.122, Dunhua N. Rd., Songshan District , Taipei City 105, Taiwan (R.O.C.)
(02)2713-3322
Ren-ai Branch
1F., No.341, Sec. 4, Ren-ai Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2775-4600
Fusing Branch
1F., No.46, Sec. 4, Ren-ai Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2709-9009
Anhe Branch
1F., No.195, Sec. 2, Anhe Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2738-6171
Yanji Branch
1F., No.298, Sec. 4, Jhongsiao E. Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2771-6000
Jhongsiao Branch
1F., No.71, Sec. 4, Jhongsiao E. Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2752-0310
Sinyi Branch
1F., No.236, Sec. 4, Sinyi Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2707-9977
Dunnan Branch
1F., No.68, Sec. 2, Dunhua S. Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2325-3616
Sinsheng South Road Branch 1F., No.111, Sec. 1, Sinsheng S. Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)8773-6060
Gung-guan Branch
1F., No.281, Sec. 3, Roosevelt Rd., Da-an District, Taipei City 106, Taiwan (R.O.C.)
(02)2362-3377
Wanhua Branch
1F., No.92&96, Sec. 2, Changsha St., Wanhua District, Taipei City 108, Taiwan (R.O.C.)
(02)2389-8188
Shinfu Branch
No.9, Songgao Rd., Sinyi District, Taipei City 110, Taiwan (R.O.C.)
(02)2722-1668
Yongji Branch
1F., No.18, Yongji Rd., Sinyi District, Taipei City 110, Taiwan (R.O.C.)
(02)2761-7999
Songshan Branch
1F., No.550, Sec. 5, Jhongsiao E. Rd., Sinyi District, Taipei City 110, Taiwan (R.O.C.)
(02)2346-6711
Tianmu Branch
1F., No.90, Sec. 6, Jhongshan N. Rd., Shihlin District, Taipei City 111, Taiwan (R.O.C.)
(02)2832-2888
North Tianmu Branch
No.10, Tianmu W. Rd., Shilin District, Taipei City 111, Taiwan (R.O.C.)
(02)2876-6100
Shihlin Branch
1F., No.307, Jhongjheng Rd., Shihlin District, Taipei City 111, Taiwan (R.O.C.)
(02)2883-9900
Beitou Branch
1F., No.217, Guangming Rd., Beitou District, Taipei City 112, Taiwan(R.O.C.)
(02)2898-3039
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Branch Office
Address
Tel
Shihpai Branch
1F., No.46, Sec. 2, Shihpai Rd., Beitou District, Taipei City 112, Taiwan (R.O.C.)
(02)2821-3366
Neihu Branch
1F., No.358, Sec. 4, Chenggong Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
(02)2793-8668
Donghu Mini Branch
1F., No.182, Sec. 3, Kangning Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
(02)2631-2288
Rueiguang Branch
1F., No.32, Lane 513, Rueiguang Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
(02)2798-5600
Chenggong Branch
1F., No.161, Sec. 4, Chenggong Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
(02)8791-1686
Wunshan Branch
1F., No.248, Sec. 4, Sinhai Rd., Wunshan District, Taipei City 116, Taiwan (R.O.C.)
(02)2933-5358
Keelung Branch
1F., No.150, Sinyi Rd., Sinyi District, Keelung City 201, Taiwan (R.O.C.)
(02)2422-1166
Bansin Branch
1F., No.293-1, Sec. 1, Jhongshan Rd., Banciao City, Taipei County 220, Taiwan (R.O.C.)
(02)8961-1500
Banciao Branch
1F., No.187, Sec. 1, Wunhua Rd., Banciao City, Taipei County 220, Taiwan (R.O.C.)
(02)2960-6600
Jiangcuei Mini Branch
1F., No.8, Sec.3, Shuang 10th Rd., Banciao City, Taipei County 220, Taiwan (R.O.C.)
(02)2257-8999
Chong Cing Branch
1F., No.290, Chongcing Rd., Banciao City, Taipei County 220, Taiwan (R.O.C.)
(02)2963-4567
Sijhih Branch
1F., No.306, Sec. 1, Datong Rd., Sijhih City, Taipei County 221, Taiwan (R.O.C.)
(02)2648-9699
Sindian Branch
1F., No.6, Sec. 2, Beisin Rd., Sindian City, Taipei County 231, Taiwan (R.O.C.)
(02)2912-9988
North Sindian Branch
1F., No.25, Mincyuan Rd., Sindian City, Taipei County 231, Taiwan (R.O.C.)
(02)2913-5000
Yonghe Branch
1F., No.215, Sec. 1, Jhongshan Rd., Yonghe City, Taipei County 234, Taiwan (R.O.C.)
(02)8923-5008
Shuanghe Branch
1F., No.588, Jhongjheng Rd., Yonghe City, Taipei County 234, Taiwan (R.O.C.)
(02)2923-3333
Nashihjiao Branch
1F., No.65, Jhongjheng Rd., Yonghe City, Taipei County 234, Taiwan (R.O.C.)
(02)2949-8838
Jhonghe Branch
1F., No.66, Liancheng Rd., Jhonghe City, Taipei County 235, Taiwan (R.O.C.)
(02)2245-2277
Ban He Mini Branch
(1F., No.726, Jhongjheng Rd., Jhonghe City, Taipei County 235, Taiwan (R.O.C.)
(02)8226-1288
Tucheng Branch
1F., No.304, Sec. 2, Jhongyang Rd., Tucheng City, Taipei County 236, Taiwan (R.O.C.)
(02)2263-0888
Jincheng Mini Branch
1F., No.14, Sec. 3, Jincheng Rd., Tucheng City, Taipei County 236, Taiwan (R.O.C.)
(02)2260-1177
Shulin Branch
1F., No.122, Sec.1, Jhongshan Rd., Shulin City, Taipei County 238, Taiwan (R.O.C.)
(02)2681-2345
Sanchong Branch
1F., No.208, Jhengyi N. Rd., Sanchong City, Taipei County 241, Taiwan (R.O.C.)
(02)2982-8121
Chongyang Branch
1F., No.66, Sec. 1, Chongyang Rd., Sanchong City, Taipei County 241, Taiwan (R.O.C.)
(02)8988-1199
Er chong Pu Branch
1F., No.70-1, Sec. 1, Guangfu Rd., Sanchong City, Taipei County 241, Taiwan (R.O.C.)
(02)2995-9876
Chongsin Branch
No. 42-1, Sec. 2, Chongsin Rd., Sanchong City, Taipei County 241, Taiwan (R.O.C.)
(02) 89726189
Sinjhuang Branch
1F., No.320, Jhongjheng Rd., Sinjhuang City, Taipei County 242, Taiwan (R.O.C.)
(02)2992-9696
Danfong Branch
1F., No.879-15, Jhongjheng Rd., Sinjhuang City, Taipei County 242, Taiwan (R.O.C.)
(02)2906-6888
North Sinjhuang Branch
1F., No.57, Sec. 2, Jhonghua Rd., Sinjhuang City, Taipei County 242, Taiwan (R.O.C.)
(02)2277-6789
Min-an Branch
1F., No.179, Min-an Rd., Sinjhuang City, Taipei County 242, Taiwan (R.O.C.)
(02)2206-8887
Lujhou Branch
1F., No.211, Jhongshan 1st Rd., Lujhou City, Taipei County 247, Taiwan (R.O.C.)
(02)2848-2008
East Lujhou Branch
1F., No.135, Minzu Rd., Lujhou City, Taipei County 247, Taiwan (R.O.C.)
(02)2283-9300
Danshuei Mini Branch
No.123, Jhongshan Rd., Danshuei Township, Taipei County 251, Taiwan (R.O.C.)
(02)8631-8822
Yilan Branch
No.271, Sec.2, Jhongshan Rd., Yilan City, Yilan County 260, Taiwan (R.O.C.)
(03)935-1122
Loh Dong Branch
No.232, Singdong S. Rd., Luodong Township, Yilan County 265, Taiwan (R.O.C.)
(03)957-4320
Hsinchu Branch
1F., No.158, Jhongjheng Rd., Hsinchu City 300, Taiwan (R.O.C.)
(03)522-2687
East Hsinchu Branch
No.32, Jianjhong Rd., East District, Hsinchu City 300, Taiwan (R.O.C.)
(03) 5749190
Jhuke Branch
1F., No.2, Jinshan St., Hsinchu City 300, Taiwan (R.O.C.)
(03)563-8080
Ĵij
Branch Office
Address
Tel
Jingguo Branch
1F., No.375, Sec. 1, Jingguo Rd., Hsinchu City 300, Taiwan (R.O.C.)
(03)535-7655
Jhupei Branch
1F., No.49, Guangming 6th Rd., Jhubei City, Hsinchu County 302, Taiwan (R.O.C.)
(03)656-0222
Jhongyuan Branch
1F., No.445, Sec. 2, Jhongbei Rd., Jhongli City, Taoyuan County 320, Taiwan (R.O.C.)
(03)466-2211
Jhongli Branch
1F., No.500, Yanping Rd., Jhongli City, Taoyuan County 320, Taiwan (R.O.C.)
(03)422-3131
Taoyuan Branch
1F., No.32, Sec. 1, Chenggong Rd., Taoyuan City, Taoyuan County 330, Taiwan (R.O.C.)
(03)337-3266
South Taoyuan Branch
1F., No.389, Fusing Rd., Taoyuan City, Taoyuan County 330, Taiwan (R.O.C.)
(03)338-8866
North Taoyuan Branch
1F., No.124, Jingguo Rd., Taoyuan City , Taoyuan County 330 ,Taiwan (R.O.C.)
(03)315-0566
Linkou Mini Branch
1F., No.233, Fuxing 1st Rd., Guishan, Taoyuan County 333, Taiwan (R.O.C.)
(03)396-2777
Bade Mini Branch
1F., No.965, Sec. 1, Jieshou Rd., Bade City, Taoyuan County 334, Taiwan (R.O.C.)
(03)371-6565
Nankan Branch
1F., No.257, Jhongjheng Rd., Lujhu Township, Taoyuan County 338, Taiwan (R.O.C.)
(03)321-2211
Toufen Branch
1F., No.951, Jhonghua Rd., Toufen Township, Miaoli County 351, Taiwan (R.O.C.)
(037) 695678
Taichung Branch
1F., No.50, Minzu Rd., Central District, Taichung City 400, Taiwan (R.O.C.)
(04)2229-2161
Chunggang Branch
1F., No.400, Sec. 1, Taichung Port Rd., West District, Taichung City 403, Taiwan (R.O.C.)
(04)2314-9999
North Taichung Branch
1&2F., No.77, Yucai N. Rd., North District, Taichung City 404, Taiwan (R.O.C.)
(04)2223-1666
Shueinan Branch
1F., No.361, Sec.3, Wunsin Rd., Situn District, Taichung City 407, Taiwan (R.O.C.)
(04)2296-0988
Wunsin Branch
1F., No.875, Sec. 4, Wunsin Rd., Beitun District, Taichung City 406, Taiwan (R.O.C.)
(04)2246-9988
Situn Mini Branch
1F., No.111, Sec. 3, Taichung Port Rd., Situn District, Taichung City 407, Taiwan (R.O.C.)
(04)2355-1000
Fongjia Mini Branch
1F-1, No.275-2, Sec. 2, Situn Rd., Situn District, Taichung City 407, Taiwan (R.O.C.)
(04)2706-9706
Nantun Branch
1F., No.234, Sec. 2, Wucyuan W. Rd., Nantun District, Taichung City 408, Taiwan (R.O.C.)
(04)2471-2268
Gongyi Branch
1F., No.53, Sec. 2, Gongyi Rd., Nantun District, Taichung City 408, Taiwan (R.O.C.)
(04)2329-1111
Taiping Mini Branch
1F., No.312, Jhongsing E. Rd., Taiping City, Taichung County 411, Taiwan (R.O.C.)
(04)2278-9988
Dali Branch
1F., No.20, Dongrong Rd., Dali City, Taichung County 412, Taiwan (R.O.C.)
(04)2481-3333
Fongyuan Branch
1F., No.545, Jhongjheng Rd., Fongyuan City, Taichung County 420, Taiwan (R.O.C.)
(04)2520-1010
Changhua Branch
1F., No.76, Siaoyang Rd., Changhua City, Changhua County 500, Taiwan (R.O.C.)
(04) 727-9933
Yuanlin Branch
1F., No.372, Jhongjheng Rd., Yuanlin Township, Changhua County 510, Taiwan (R.O.C.)
(04) 836-8676
Nantou Mini Branch
1F., No.220, Jhongshan St., Nantou City, Nantou County 540, Taiwan (R.O.C.)
(049)220-7711
Chiayi Branch
1F., No.241, Minsheng N. Rd., Chiayi City 600, Taiwan (R.O.C.)
(05)228-6600
Douliou Branch
1F., No.2, Singhua St., Douliou City, Yunlin County 640, Taiwan (R.O.C.)
(05)536-0099
Tainan Branch
1F., No.159,Sec. 1,Fucian Rd., Central District, Tainan City 700, Taiwan (R.O.C.)
(06)215-2345
Central Tainan Branch
1F., No.167, Sec. 1, Minsheng Rd., Central District, Tainan City 700, Taiwan (R.O.C.)
(06)241-2318
Jhonghua Branch
1F., No.195, Sec. 2, Jhonghua E. Rd., East District, Tainan City 701, Taiwan (R.O.C.)
(06)335-3535
East Tainan Branch
1F., No.290, Sec. 2, Changrong Rd., East District, Tainan City 701, Taiwan (R.O.C.)
(06)208-5522
South Tainan Mini Branch
1F., No.236, Sec. 2, Jiankang Rd., South District, Tainan City 702, Taiwan (R.O.C.)
(06)291-9999
West Tainan Branch
1F., No.212, Sec. 4, Jinhua Rd., West District, Tainan City 703, Taiwan (R.O.C.)
(06)226-3636
Yongkang Branch
1F., No.425, Jhonghua Rd., Yongkang City, Tainan County 710, Taiwan (R.O.C.)
(06)202-5787
Sinying Branch
1F., No.137, Jhongshan Rd., Sinying City, Tainan County 730, Taiwan (R.O.C.)
(06)633-6789
Sinsing Branch
1F., No.206, Minsheng 1st Rd., Sinsing District, Kaohsiung City 800, Taiwan (R.O.C.)
(07)226-2325
Minzu Branch
1F., No.97, Minzu 2nd Rd., Sinsing District, Kaohsiung City 800, Taiwan (R.O.C.)
(07)238-6567
ĴĴ
Branch Office
Address
Tel
Kaohsiung Branch
1F., No.168, Jhongjheng 4th Rd., Cianjin District, Kaohsiung City 801, Taiwan (R.O.C.)
(07)231-8141
East Kaohsiung Branch
1F., No.29, Cingnian 1st Rd., Lingya District, Kaohsiung City 802, Taiwan (R.O.C.)
(07)535-1885
South Kaohsiung Branch
1F., No.21, Yisin 2nd Rd., Cianjhen District, Kaohsiung City 806, Taiwan (R.O.C.)
(07)336-6768
Cianjhen Mini Branch
1F., No.480, Rueilong Rd., Cianjhen District, Kaohsiung City 806, Taiwan (R.O.C.)
(07)726-1066
Jiouru Mini Branch
1F.,No.551,Jiouru 1st Rd.,Sanmin District,Kaohsiung City 807,Taiwan (R.O.C.)
(07)380-5558
Sanmin Branch
1F., No.366, Jiouru 2nd Rd., Sanmin District, Kaohsiung City 807, Taiwan (R.O.C.)
(07)316-1155
North Kaohsiung Branch
1F., No.52, Mingcheng 2nd Rd., Sanmin District, Kaohsiung City 807, Taiwan (R.O.C.)
(07)346-1199
Youchang Mini Branch
1F.,No.803-3,Houchang Rd., Nanzih District, Kaohsiung City 811,Taiwan(R.O.C.)
(07)368-1699
Gangshan Branch
1F.,NO.388, Gangshan Rd.,Gangshan Township,Kaohsiung County 820,Taiwan (R.O.C.)
(07)623-5500
Fongshan Branch
1F., No.85-1, Jhongshan Rd., Fongshan City, Kaohsiung County 830, Taiwan (R.O.C.)
(07)745-1199
Wujia Branch
No. 699, Wujia 2nd Rd., Fongshan City, Kaohsiung County 830, Taiwan (R.O.C.)
(07)821-5101
Cingnian Branch
1F., No.315, Sec. 2, Cingnian Rd., Fongshan City, Kaohsiung County 830, Taiwan (R.O.C.)
(07)777-7668
Pingtung Branch
1F., No.450, Zihyou Rd., Pingtung City, Pingtung County 900, Taiwan (R.O.C.)
(08)738-3000
Taitung Branch
1F., No.279, Jhongshan Rd., Taitung City, Taitung County 950, Taiwan (R.O.C.)
(089) 339898
Hualien Branch
1F., No.376, Jhongshan Rd., Hualien City, Hualien County 970, Taiwan (R.O.C.)
(03)834-0566
East Hualien Branch
1F., No.1-7, Gongyuan Rd., Hualien City, Hualien County 970, Taiwan (R.O.C.)
(03)835-1101
West Hualien Branch
1F., No.835, Jhongshan Rd., Hualien City, Hualien County 970, Taiwan (R.O.C.)
(03)857-2161
Ren Li Branch
1F., No.112, Sec. 1, Jhongjheng Rd., Ji-an Township, Hualien County 973, Taiwan (R.O.C.)
(03)853-9577
Ji An Branch
1F., No.171, Nanchang Rd., Ji-an Township, Hualien County 973, Taiwan (R.O.C.)
(03)853-7357
Overseas Subsidiaries Branch
Address
Tel
Fax
PT. Bank Chinatrust Indonesia!
Tamara Center, 15th-17th Fl., J1 Jend. Sudirman Kav. 62-21-25578787 62-21-5206378 24, Jakarta, 12920, Indonesia
Chinatrust (Phils.)
3rd Fl., Tower One & Exchange Plaza, Ayala Triangle , 63-2-8485519 Ayala Avenue cor. Paseo De Roxas, Makati City, Philippines
Commercial Bank Corp.!
CTC Bank of Canada! 1518 West Broadway, Vancouver, B.C., Canada, V6J 1W8
63-2-7594983
1-604-6833882
1-604-6833723
22939 Hawthorne Boulevard, 2nd Floor, Torrance, CA 1-310-7912828 90505
1-310-7912877
Hong Kong Branch!
28/F., Two International Finance Centre, 8 Finance Street, Central, Hong Kong
852-29161888
852-28109742
Kowloon Branch!
26/F, One Peking, No.1 Peking Road, Tsim Sha Tsui, Kowloon, Hong Kong
852-29161688
852-28050899
New Delhi Branch!
604, 6th floor, Mercantile house, 15-K.G. Marg, New Delhi-110001, India
Chinatrust Bank (U.S.A.)!
Ĵĵ
91-11-43688888 91-11-23731815
Branch
Address
Tel
Fax
New York Branch!
3rd Fl., 366 Madison Ave., NY, NY10017, USA
1-212-4578888
1-212-4576666
Tokyo Branch!
7th F1., AIG Building, 1-3, Marunouchi, 1-chome Chiyoda-ku, Tokyo 100-0005, Japan
81-3-32161108
81-3-32161090
Ho Chi Minh City Branch!
Unit 107-111, 1st Floor, 1-5 Le Duan St., Dist 1, HCMC, Vietnam
848-3910-1888
848-3910-1999
Singapore Branch
1 Raffles Place #29-02/03 OUB Centre Singapore 048616
65-63514888
65-65325999
Los Angeles Rep.
17851 Colima Road, City of Industry, CA91748, USA. 1-626-8397660
1-626-8393562
Office! London Rep. Office! 7th Fl., Aldermary House, 15 Queen Street, London, EC4N 1TX, England
44-207-3290033 44-207-3290828
Bangkok Rep. Office! Diethelm Tower A, Suite 803 93/1 Wireless Road, PathumwanBangkok 10330, Thailand
66-2-2543139
66-2-2566480
Hanoi Rep. Office!
4th Fl., 41B Ly Thai To Street, Hanoi, Vietnam
84-4-38249088
84-4-38249099
Beijing Rep. Office!
B-111,The grand pacific building, 8a, Guanghua rd., Chao Yang district, Beijing, P.R.C. 100026
86-10-65813700 86-10-65815701
Manila Rep. Office!
3rd Fl., Tower One, Ayala Triangle, Ayala Avenue cor 63-2-8485519 Paseo De Roxas, Metro Manila, Makati , Philippines
63-2-7594983
Automation Service Outside Bank Name of the Service
Address
Wenhwa University
No.56, Hwa-kang Rd., Peitou area, Taipei City 112, Taiwan (R.O.C.)
Chia Nan University of Pharmacy
No.60, Sec.1, Erren Road, Rende Township, Tainan County 717, Taiwan (R.O.C.)
ĴĶ
Appendix 1
CHINATRUST COMMERCIAL BANK CO.,LTD. FINANCIAL STATEMENTS December 31, 2008 and 2007 AND INDEPENDENT AUDITORS’ REPORT
ADDRESS:
No. 3 SUNG-SHOU ROAD, TAIPEI, TAIWAN, R.O.C.
TELEPHONE NUMBER: 886-2-2722-2002
IJ
CHINATRUST COMMERCIAL BANK CO., LTD. FINANCIAL STATEMENTS TABLE OF CONTENTS
Contents
Page
. Cover Page
1
. Table of Contents
2
. Independent Auditors’ Report
3
. Balance Sheets
4
. Statements of Income
5
. Statements of Changes in Stockholders’ Equity
6
. Statements of Cash Flows
7
. Notes to Financial Statements 1. Basis of presentation
8~10
2. Summary of significant accounting policies
10~21
3. Reasons for and effect of accounting changes
21
4. Summary of major accounts
22~70
5. Related-party transactions
71~80
6. Pledged assets
81
7. Significant commitments and contingencies
82~87
8. Significant catastrophic losses
88
9. Significant subsequent events
88
10. Others
88~105
11. Disclosure required A. Related information on significant transactions
105~106
B. Related information on investee companies
107~109
12. Business segment financial information
109
ij
Independent Auditors’ Report
The Board of Directors Chinatrust Commercial Bank Co., Ltd. We have audited the accompanying balance sheets of Chinatrust Commercial Bank Co., Ltd. as of December 31, 2008 and 2007, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chinatrust Commercial Bank Co., Ltd. as of December 31, 2008 and 2007, and the results of its operations and cash flows for the years then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Publicly Held Banks, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Securities Issuers, the related financial accounting standards of the Business Entity Accounting Act and of the Regulation on Business Entity Accounting Handling, and generally accepted accounting principles in the Republic of China. As stated in Notes 3 and 4(AA), commencing from July 1, 2008, Chinatrust Commercial Bank Co., Ltd. adopted the second amendment of Republic of China Statement of Financial Accounting Standards (SFAS) No. 34 “Financial Instruments: Recognition and Measurement” and proceeded to reclassify its financial assets. This resulted in an increase in after-tax net income of NT$ 6,242,549 thousand and an increase in EPS of NT$ 0.87 for the year ended December 31, 2008.
Ĵ
As stated in Notes 1 and 10(H), Chinatrust Commercial Bank Co., Ltd. merged with Chinatrust Bills Finance Corp., a wholly owned subsidiary of Chinatrust Financial Holding Company, Ltd., in a stock conversion transaction on April 26, 2008. After the merger, Chinatrust Commercial Bank Co., Ltd. was the surviving entity and incorporated Chinatrust Bills Finance Corp., which was dissolved. Pursuant to Interpretations (91) No. 243 and 244 issued by the Accounting Research and Development Foundation, the merger could qualify as a reorganization, and thus both merging entities’ assets and liabilities should be recorded at the book value on a consolidated basis. Additionally, in accordance with Interpretation (95) No. 141, when Chinatrust Commercial Bank Co., Ltd. prepared comparative financial statements, the financial statements of Chinatrust Commercial Bank Co., Ltd. were retroactively restated to reflect the merger assuming both entities had merged on January 1, 2007. As stated in Notes 5 and 7(D), Chinatrust Commercial Bank Co., Ltd. Hong Kong Branch was assessed an administrative fine and prohibited from engaging in certain business activities by the Financial Supervisory Commission (FSC) due to its flawed process for disposing of overseas structured notes. The FSC lifted the business restrictions described above in March 2007 after certain operating deficiencies had been corrected and improved by Chinatrust Commercial Bank Co., Ltd. This case, whose investigation has been concluded by the Taipei District Court Prosecutors Office and for which the judgment of the Court of first instance has been given by the Taipei District Court, has been filed with the FSC to examine if Chinatrust Commercial Bank Co., Ltd.’s parent company, Chinatrust Financial Holding Company, Ltd., had breached the regulations of the Financial Holding Company Law. The cases as stated in Note 7(D) are still under investigation by the authority and the judiciary, and the results remain uncertain. Chinatrust Commercial Bank Co., Ltd. has additionally prepared consolidated financial statements, on which we have expressed an unqualified opinion with an added explanatory paragraph for reference.
Taipei, Taiwan, R.O.C. February 24, 2009
Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures, and practices to audit such financial statements are those generally accepted and applied in the Republic of China.
ĴĮIJ Ĵ
ĵ
Ķ
ķ
ĸ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007
(Retroactively Restated As of December 31, 2007ѧNote 10(H)) (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Stated)
1.
BASIS OF PRESENTATION Chinatrust Commercial Bank Co., Ltd. (the “Bank”) was incorporated in March 1966 originally as “China Securities Investment Corporation.” In December 1970, the Bank changed its organization and was renamed China Trust Co., Ltd. Twenty-one years later, on July 2, 1992, it was approved to conduct commercial banking business and changed its name to Chinatrust Commercial Bank Co., Ltd. In order to restructure overall resources, lower costs, expand the business scope, enhance competitiveness, and improve the quality of financial services and operating efficiency, on September 30, 2003, the Bank’s board of directors resolved to acquire Grand Commercial Bank, a wholly owned subsidiary of Chinatrust Financial Holding Company, Ltd., and to merge it with the Bank as the surviving entity. The acquisition date of record was December 1, 2003. On August 1, 1991, Grand Commercial Bank was approved to conduct commercial banking business and began operations on December 30, 1991. As of November 30, 2003, Grand Commercial Bank had a business department, a trust department, a domestic banking unit, an offshore banking unit, and 42 domestic branches. In order to develop the business units, enhance competitiveness, and provide customers with more convenient and varied financial services, the Bank assumed the outstanding assets, liabilities and operations of Fengshan Credit Cooperative (“FSCC”) and Enterprise Bank of Hualien (“EBH”) on October 1, 2004, and September 8, 2007, respectively. ʳ In order to enhance the effectiveness of Chinatrust Financial Holding Company’s operation as a whole, to integratedly utilize the resources and fundamental structure of the Bank from the perspective of information, operation, and risk management and to reduce operational risk and cost, the Bank merged with Chinatrust Bills Finance Corp., a wholly owned subsidiary of Chinatrust Financial Holding Company, Ltd., upon the approval of the Bank’s board of directors on October 29, 2007. After the merger, the Bank was the surviving entity and incorporated Chinatrust Bills Finance Corp., which was dissolved. This merger was approved by the FSC on January 15, 2008, and the date of record set for the stock conversion transaction was April 26, 2008. The Bank acquired all assets and liabilities of Chinatrust Bills Finance Corp. by issuing common shares in a 0.77-for-1 exchange for the shares of Chinatrust Bills Finance Corp. The calculation of the stock exchange ratio was based on the net value of the Bank and Chinatrust Bills Finance Corp. as of June 30, 2007, as audited and certified by certified public accountants. Please refer to Note 10(H) for further information. The Bank has been approved to conduct business in the following areas: (a) Checking accounts, savings accounts, and time deposits; (b) Short-, medium-, and long-term loans; (c) Note discounting; Ĺ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (d) Investment in marketable securities; (e) Domestic foreign exchange business; (f)
Banker’s acceptances;
(g) Issuance of domestic standby letters of credit; (h) Domestic endorsement guarantees business; (i)
Collection and payment agency;
(j)
Agency for government and corporate bonds, treasury bills, and securities transactions;
(k) Agency transactions and proprietary trading of short-term bills; (l)
Credit card-related products;
(m) Agency for sale of gold nuggets, gold coins, and silver coins; (n) Financial derivative businesses as approved by the Financial Supervisory Commission (“FSC”); (o) Custody and warehouse services; (p) Renting of safe-deposit boxes; (q) Financial advisory services on corporate banking; (r)
Foreign exchange business in connection with exports and imports, fund remittance and repatriation, foreign currency deposits and loans; guarantee for secured repayment, and attestation on exports and imports;
(s) Non-discretionary trust funds for investment in foreign and domestic marketable securities; (t)
Account receivable factoring business as approved by the FSC;
(u) Endorsement and issuance of corporate bonds; (v) Issuance of financial debentures; (w) Underwriting, agency transactions, and proprietary trading of marketable securities; (x) Proprietary trading of government bonds; (y) All businesses related thereto as specified in the license or other agency services as approved by the FSC; ĺ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (z) Trust and fiduciary services; (aa) Margins on foreign currency transactions; (ab) Issuance of cash value cards; (ac) Public welfare lottery sales; (ad) Futures proprietary trading business; and (ae) Other businesses as approved by the FSC. The Bank’s headquarters coordinates corporate-wide operations and establishes domestic and overseas banking units to expand business. As of December 31, 2008, the Bank had 145 domestic branches (including 13 branches which were temporarily closed due to a relocation plan and 3 business licenses), 7 foreign branches, and 6 overseas representative offices. The Bank’s parent company and ultimate parent company is Chinatrust Financial Holding Company, Ltd. As of December 31, 2008, the Bank had 8,380 employees.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Bank’s financial statements were prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Publicly Held Banks, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Securities Issuers, the Business Entity Accounting Act, the Regulation on Business Entity Accounting Handling, and generally accepted accounting principles of the Republic of China. The significant accounting policies and bases of measurement adopted in preparing these financial statements are summarized as follows: (A) Basis of compilation for statements of cash flows The statements of cash flows are compiled based upon cash and cash equivalents. Cash comprises cash on hand, savings accounts, checking accounts, and unrestricted time deposits or negotiable certificates of deposits which may be terminated anytime without impairing the principal. (B) Securities under repurchase/resell agreements Securities sold/purchased with a commitment to repurchase/resell at predetermined price are treated as financing transactions. The difference between the cost and the repurchase/resell price is treated as interest expense/revenue and recognized over the term of the agreement. On the selling/purchasing date, these agreements are recognized as securities sold under repurchase agreements or securities purchased under resell agreements. IJı
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (C) Financial instruments Financial instruments held by the Bank are recorded on the trading date except for debt securities, which are recorded on the settlement date. The financial instruments are initially recognized at fair value plus transaction costs, except for financial instruments held for trading purposes, which are initially recognized at fair value. Upon disposition, the cost of sale of equity securities is determined by the moving-average method, and the cost of sale of debt securities is determined by the first-in, first-out (FIFO) method. Subsequent to the initial recognition, the financial instruments held or issued by the Bank are classified according to the purpose of holding or issuing as follows: (a) Financial assets and liabilities carried at fair value through profit or loss: Financial assets and liabilities are classified as held for trading if they have been acquired principally for the purpose of selling or repurchasing in the near term. The derivative financial instruments held by the Bank, except for those designated as hedging instruments, are classified under these accounts. At each balance sheet date, the fair value is remeasured and the resulting gain or loss from such remeasurement is recognized in current profit or loss. (b) Available-for-sale financial assets: At each balance sheet date, the fair value is remeasured and the resulting gain or loss from such remeasurement is recognized directly in equity. Interest on a debt instrument classified as available-for-sale is accrued; the relevant premium/discount is amortized by using the effective-interest-rate method. If there is objective evidence that an available-for-sale financial asset is impaired, the carrying amount of the asset is reduced, and impairment loss is recognized. Impairment loss recognized in profit or loss for an investment in an equity instrument classified as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the amount of the impairment loss of the available-for-sale debt securities decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. A gain or loss on available-for-sale financial assets is recognized directly in equity, except for impairment losses and foreign exchange gains or losses arising from monetary financial assets, until the financial assets are derecognized, at which time the cumulative gain or loss previously recognized in equity is charged to profit or loss. (c) Held-to-maturity financial assets: The amortized cost and interest income of held-to-maturity financial assets are determined by using the effective-interest-rate method. If there is objective evidence that a held-to-maturity financial asset is impaired, the carrying amount of the asset is reduced, and impairment loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. The book value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (d) Financial assets carried at cost: Equity instruments with no quoted market price and whose fair value cannot be reliably measured are stated at cost. If there is objective evidence that financial assets carried at cost are impaired, the carrying amount of the assets is reduced, and impairment loss is recognized. However, the impairment losses may not be reversed subsequently. (e) Debt investments without active market: The amortized cost and interest income of debt investments without an active market are determined by using the effective-interest-rate method. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. The book value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized. Commencing from January 1, 2006, the fair value of financial assets held by the Bank is determined as follows: Fair value of listed or OTC securities is determined based on the market closing price on the balance sheet date, fair value for open-end fund investment is the net worth on the balance sheet date, and fair value for debt securities is determined based on the closing price on the balance sheet date on the Gre Tai Securities Market or the pricing model used by the Bank. Fair value of derivative financial instruments is determined by the market value on the balance sheet date or the pricing model adopted by the Bank. In accordance with the second amendment of Republic of China Statement of Financial Accounting Standards (SFAS) No. 34 “Financial Instruments: Recognition and Measurement”, financial assets classified as assets measured at fair value through profit or loss (other than derivative financial assets and those designated as assets measured at fair value through profit or loss by the entity upon initial recognition) upon initial recognition may be reclassified into other categories if those financial assets are no longer held for the purpose of selling and meet criteria (a) or (b) listed below; financial assets classified as available-for-sale that would have met the definition of loans and receivables may be reclassified out of the available-for-sale category to the loans and receivables category. The accounting treatments on the date of reclassification are summarized as follows: (a) Financial assets classified as assets measured at fair value through profit or loss upon initial recognition that would have met the definition of loans and receivables shall be reclassified at their value on the date of reclassification, which will become their new cost or amortized cost, as applicable, if the entity has the intention and ability to hold the financial assets for the foreseeable future or until maturity. Any previous gain or loss already recognized in profit or loss shall not be reversed.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (b) Financial assets classified as assets measured at fair value through profit or loss upon initial recognition which do not meet the preceding criterion may be reclassified out of the fair value through profit or loss category only in rare circumstances and shall be reclassified at their fair value on the date of reclassification, which will become their new cost or amortized cost, as applicable. Any previous gain or loss already recognized in profit or loss shall not be reversed. (c) Financial assets classified as available-for-sale that would have met the definition of loans and receivables shall be reclassified at their fair value on the date of reclassification, which will become their new cost or amortized cost, as applicable, if the entity has the intention and ability to hold the financial assets for the foreseeable future or until maturity. For any previous gain or loss on a financial asset that has been recognized directly in equity, if the financial asset has a fixed maturity, the gain or loss should be amortized to current profit or loss over the remaining life of the financial asset; if not, the gain or loss remains in equity. (D) Hedge accounting When a fair value hedge, cash flow hedge, and hedge of net investment in foreign operations are in conformity with all the conditions for applying hedge accounting, the affected profit or loss is recognized by offsetting the changes in the fair value of hedging instruments and hedged items. The related accounting treatments are as follows: (a) Fair value hedge: Changes in the fair value of derivatives that are designated and qualified as fair value hedging instruments against the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment are recognized through profit or loss in the current period. (b) Cash flow hedge: Where a derivative financial instrument is designated as a hedge of the variability in cash flow of a recognized asset or liability or a highly probable forecast transaction, the effective portion of any gain or loss on remeasurement of the derivative financial instrument to fair value is recognized directly in equity. When the hedged transaction actually affects the profit or loss, the gain or loss previously recognized in equity should be recognized through current profit or loss. Any gain or loss from the change in fair value relating to an ineffective portion of the hedge transaction is recognized immediately through profit or loss. (c) Hedge of net investment in foreign operations: The effective portion of any gain or loss on a hedging instrument relating to a hedge against foreign currency fluctuation in a foreign operation is recognized directly in equity until the disposal of the foreign operation, at which time the cumulative gain or loss recognized directly in equity is recognized in profit or loss.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (E) Financial assets securitization Under the Regulations for Financial Assets Securitization, the Bank, with the assistance of a trustee, securitized its financial assets for the purposes of offering asset-backed securities in the form of related beneficiary certificates through a special-purpose trust, and the trustee will deliver all of collected fund to the Bank. Under the framework of the transaction, the Bank has surrendered its rights to and control of these securitized financial assets. Such financial assets are no longer recognized on the Bank’s accounts, and the gain or loss from securitization is recognized thereon, except for the retained interests in the form of subordinated seller certificates necessary for credit enhancement, which are classified as held-to-maturity financial assets and other financial assets because those certificates do not have quoted market prices. The gain or loss from the securitization of financial assets is determined based on the difference between the proceeds from securitization and the book value of the securitized financial assets. The cost of each class of asset-backed securities, which is determined based on the previous book value of the securitized financial assets, is allocated in proportion to the fair value of each class of the asset-backed securities and the retained interests on the date of transfer. Because the securitized financial assets do not have a quoted market price, the fair value of each class of the asset-backed securities and the retained interests are evaluated based on the present value of future cash flows considering the expected credit loss rate, prepayment rate, and discount rate on the financial assets. The cash receipts of subordinated seller certificates from the trustee are accounted for using the cost recovery method. On the balance sheet date, the fair value of these certificates is evaluated based on the present value of expected future cash flows, and the resulting losses (if any) are recognized as current losses. (F) Accounts receivable Consumer loans to credit card holders are reflected by the amounts reported by merchants, excluding unearned interest. Interest thereon is recognized on an accrual basis using the interest method. A credit card loan, accrued interest and other related advances that are over 90 days past due are reclassified as a non-accrual account without accruing interest. Interest collected while accruing of interest has stopped is included in earnings only to the extent of cash actually received. The Bank engages in factoring and management of accounts receivable. The interest and transaction fees from factoring and management of such accounts are treated as current income. An allowance for credit losses is provided by reviewing the balance of factoring accounts receivable at period-end. As regards the factoring accounts, those sold by the account-selling companies which have not yet been paid for are accounted for under “payables.”
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CHINATRUST COMMERCIAL BANK CO., LTD. ! NOTES TO FINANCIAL STATEMENTS (CONT’D) (G) Loans
! !
Loans are recorded by the amount of outstanding principal, with unearned income excluded. Interest income is recognized on an accrual basis using the interest method. Recording of interest receivable of loans would be suspended if either of the following conditions is met: (a) Collection of payment of principal or interest accrued is considered highly unlikely; or (b) Payment of principal or interest accrued is over 6 months past due. Interest revenue is recognized upon receipt of interest for the period when recording of accrued interest is suspended. (H) Allowance for credit losses Adequate allowance for credit losses is provided by assessing the balance, at the end of the accounting period of loans, accounts receivable, non-accrual accounts, guarantee reserves, and other related advances according to the default risk of specific claims and the inherent risk of overall claims. In accordance with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-Performing and Non-Accrued Loans,” the “Regulations Governing Institutions Engaging in Credit Card Business” issued by the FSC, and generally accepted accounting principles in the Republic of China, the management evaluates the expected default probabilities of the overall portfolio to determine the default risk of claims. The inherent risk on overall claims is reviewed based on past experience. Non-accrual loans and accounts receivableɡnon-accrual account deemed as uncollectible are written off upon approval of the board of directors. The recovery of written-off loans is accounted for under the reversal of the allowance for credit losses. Reserves for guarantees are appropriately provided based on an estimate of probable losses inherent in the ending balances of guarantees, acceptances receivable and commercial paper. Provision for the accounts referred to above was accounted for under bad debt expenses. (I) Investments under equity method Investees in which the Bank and its subsidiaries, directly or indirectly, hold more than 20% of the outstanding voting stock, or hold less than 20% but are able to exercise significant influence over the investees, are accounted for under the equity method. Upon disposition, gain or loss on disposal of long-term equity investment is calculated based on the difference between the selling price and book value of investment at the disposal date. The remaining capital surplus arising from a long-term equity investment is adjusted to profit or loss proportionate to sales proceeds. IJĶ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! The Bank prepares consolidated financial statements that include the accounts of its majority-owned affiliates in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks. Commencing from January 1, 2006, the Bank adopted the amended SFAS No. 5 “Long-term Investments under Equity Method.” In accordance with this amended standard, when the investment cost exceeds the fair value of identifiable net assets acquired, the excess should be recorded as goodwill. Prior to December 31, 2005, the differences between original investment and net equity of an investee previously recognized whose underlying causes could not be analyzed were amortized using the straight-line method over twenty years. Since January 1, 2006, these differences are no longer amortizable. (J) Premises, equipment, and depreciation Premises and equipment are stated at cost or cost plus incremental value from revaluation. The incremental value of land is adjusted using the Government Announced Price. Major additions, improvements, and replacements are capitalized, while maintenance and repairs are charged to current expenses. Interest incurred in the acquisition of premises until an asset is ready for its intended use is capitalized as part of the acquisition costs. Depreciation is computed using the straight-line method over the government-prescribed useful lives. Premises and equipment still in use after their original estimated useful lives may be depreciated over their estimated remaining useful lives based on their residual value. Useful lives of major premises and equipment are as follows: Buildings and premises Transportation equipment Miscellaneous equipment
10 3 3
to 56 years to 6 years to 10 years
Superficies is recognized and capitalized at acquisition cost and amortized over the term of the contract. During the period of construction on the surface, the amortization expenses are capitalized as the cost of the building construction. Idle premises and equipment are accounted for under other assets at the lower of net realizable value or book value. The current year’s depreciation expenses are accounted for under other non-interest income. Idle premises and equipment are valued at the lower of book value or recoverable amount at year-end. (K) Intangible assets (a) Goodwill Prior to January 1, 2006, goodwill of the Bank acquired from business combination was amortized over 5 years using the straight-line method. In accordance with the amended SAFS No. 1 “Conceptual Framework for Financial Accounting and Preparation of Financial Statements,” goodwill previously recognized is no longer amortized commencing from January 1, 2006. IJķ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Goodwill relating to cash-generating units is tested for impairment in a fixed period each year. An impairment loss is recognized when the recoverable amount is less than the carrying amount. Impairment losses cannot be reversed once an impairment loss has been recognized. If the result of the evaluation of future economic benefits of goodwill indicates a significant impairment, the unamortized portion of goodwill is reduced based on the amount of impairment loss, and the reduction is recognized as asset impairment losses. (b) Computer software Computer software system expenses, which are recorded on the basis of the actual cost of acquisition, are amortized using a straight-line method over a period of 5 to 10 years. (L) Asset impairment In accordance with SFAS No. 35 “Impairment of Assets,” unless inapplicable, the recoverable amount (individual assets or cash generating units other than goodwill) of an asset is estimated and compared with the carrying amount whenever there is an indication that the asset may be impaired. An impairment loss is recognized when the recoverable amount is less than the carrying amount (higher of fair market value or value in use). For assets other than goodwill, reversal of impairment loss is recognized when the recoverable amount of the asset has increased from its prior-period estimation. The book value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods. (M) Foreclosed properties Foreclosed properties received are stated at estimated net fair market value, and the difference between it and the nominal value of the original claim is reflected as a credit loss. On the balance sheet date, if the foreclosed properties received are still unsold, the net fair market value shall be reassessed, and the difference after reassessment is accounted for under impairment loss on assets if there is sufficient evidence indicating that the net fair market value is lower than the book value of foreclosed properties. Gain or loss on disposal of foreclosed properties is accounted for under other non-interest income as well. (N) Employee bonuses and directors’ and supervisors’ remuneration Commencing from January 1, 2008, the Bank estimates the amount of employee bonuses and directors’ and supervisors’ remuneration according to Interpretation (96) No. 052 issued by the Accounting Research and Development Foundation and recognizes it as personnel expenses. If later the actual allocation amount pursuant to a resolution of the Bank’s board of directors on behalf of shareholders or a resolution of a shareholders’ meeting of the parent company, Chinatrust Financial Holding Company, Ltd., is different from the estimated amount recognized in the financial statements, the difference is accounted for as changes in accounting estimates and recognized as profit or loss of the current period.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (O) Share-based payment Effective January 1, 2008, the Bank adopted SFAS No. 39 “Share-based Payment” and applies it to the Bank’s share-based payment transactions for options that were granted after January 1, 2008. (a) Equity-settled share-based payments The payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, and the corresponding increase in equity is recognized. The vesting period is estimated based on the ultimate vesting conditions that must be satisfied. The vesting conditions include service conditions and performance conditions (including market conditions). In valuing equity-settled payments, no account is taken of any vesting conditions other than market conditions. (b) Cash-settled share-based payments For cash-settled share-based payment transactions, a liability equal to the portion of the goods or services received is recognized at its current fair value determined at each balance sheet date and at the date of settlement, with any changes in the fair value recognized in profit or loss of the period. (c) Determining the fair value of share-based payments Fair value of the share options at the grant date is measured with the use of an option pricing model based on management’s best estimate of the exercise price, expected term, underlying share price, expected volatility, expected dividend yield, risk-free interest rate, and any other inputs to the model. (d) Other The Bank need not apply SFAS No. 39 retroactively to the options under share-based payments agreements that were granted before January 1, 2008; the pro-forma net income and EPS information shall be disclosed based on the measurement principles for share-based payments ruled by SFAS No. 39. (P) Retirement plan The Bank maintains and funds a retirement plan covering all regular employees and recognizes pension expense based on the actuarial report. The annual contribution to this interest-bearing pension fund is made at rates ranging up to 15% of gross salary paid. This pension fund is not reflected in the financial statements.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! The Bank maintains and funds a retirement plan covering all regular employees. Payments of pension benefits are calculated based on the employee’s average monthly salary for the last six months prior to approved retirement and base point (b.p.) entitlement. The b.p. earned by each employee is 2 b.p. for the first 15 years of service and 1 b.p. for the 16th year and thereafter. Under the retirement plan, the pension benefits obligation is the responsibility of the Bank. The Labor Pension Act of the R.O.C. (“the Act”), which took effect from July 1, 2005, adopts a defined contribution pension plan. In accordance with the Act, employees of the Bank (who were hired before July 1, 2005) could elect to be subject to either the Act and maintain their service years before the enforcement of the Act, or the pension mechanism of the Labor Standards Law. Employees who are hired by the Bank after July 1, 2005, are required to be covered by the pension plan as defined by the Act. For employees subject to this Act, the Bank is required to make monthly cash contributions to the employees’ individual pension accounts at the rate of not less than 6% of the employees’ monthly wages and to deposit the contribution in a personal retirement benefit account at the Council of Labor Affairs. The employee retirement plan maintained by the Bank has been amended in conformity with the Act, and the amendment has been approved by the board of directors. Under SFAS No. 18 “Accounting for Pensions,” the balance sheet date is the measurement date of the actuarial report, and a minimum pension liability is recorded in the financial statements based on the difference between the accumulated benefit obligation and the fair value of plan assets. Commencing from January 1, 1996, net periodic pension cost recognized in accordance with SFAS No. 18 includes the current service cost, net transition asset or obligation, prior service cost, and unrecognized gain or loss on the pension plan, which is amortized using the straight-line method over the expected average remaining service period of 15 years of the employees in accordance with the rules set by the SFB. The Bank contributes monthly no less than 2% of gross salary to the employee pension fund, which is deposited into a designated depository account with Bank of Taiwan. Pursuant to the Act, the Bank also contributes cash at the rate of 6% of gross salary of each employee to the Council of Labor Affairs. This contribution is recognized as pension expense for the current period when the contribution is actually made. (Q) Securities and futures trading loss reserve In compliance with the Regulations Governing Securities Firms, the securities trading loss reserve is provided in the amount of 10% of the net gain per month from proprietary trading of securities when gain exceeds loss. It is reversed in the month when a loss is realized. Provision for or reversal of such reserve is accounted for under other non-interest income. An allowance is provided until the balance of the reserve reaches $200,000. In compliance with the Regulations Governing Futures Commission Merchants, a futures commission merchant engaging in proprietary futures trading shall each month set aside 10% of that month’s realized net profit as reserve for trading loss. The reserve for trading loss shall not be used for purposes other than covering trading loss in excess of trading profits. When the accumulated reserve for trading loss reaches the legally required level of minimum working capital, no additional reserve for trading loss is required to be set aside.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (R) Foreign currency translation The non-derivative foreign currency transactions of the Bank are recorded at the rate of exchange prevailing on the date of the transaction. Monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the rate of exchange ruling at the balance sheet date. Any resulting exchange differences are included in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into the functional currency using the rate of exchange at the date of the initial transaction. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated into the functional currency using the rate of exchange ruling at the balance sheet date. Any exchange differences resulting from fair value variation through profit or loss are included in the income statement, and exchange differences resulting from fair value variation through equity are accounted for under equity adjustments. Foreign-currency-denominated assets and liabilities of overseas subsidiaries are translated at the spot rate on the balance sheet date; the components of their stockholders’ equity are translated at the historical rate except for the beginning balance of retained earnings, for which the spot rate at the beginning of the year is used. Dividends are translated at the exchange rate on the date of declaration. Income statement accounts are translated at the weighted-average rate, with differences reflected as cumulative translation adjustments to stockholders’ equity. (S) Commitments and contingencies If the losses from commitments and contingencies are deemed probable and the amount can be reasonably estimated, such losses are recorded currently, otherwise only the nature of commitments and contingencies is disclosed in the notes to the financial statements. (T) Income taxes The Bank adopted SFAS No. 22 “Income Taxes” for the purpose of making inter- and intra-period income tax allocation, as well as for calculating the current income tax expense (benefit). Accordingly, the income tax effects from taxable temporary differences are recognized as deferred tax liabilities, while deductible temporary differences, prior-years’ loss carryforward benefits, investment tax credits, and income tax credits are recognized as deferred tax assets but subject to management’s judgment as to whether the realization is more likely than not. Prior-year income tax adjustments are recognized as current income tax expenses of the adjustment period. Investment tax credits are recognized in the current year. Income taxes separately levied on interest revenue from short-term bills are reported as current income tax expense.
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CHINATRUST COMMERCIAL BANK CO., LTD. ! NOTES TO FINANCIAL STATEMENTS (CONT’D)
!! The 10% surtax on undistributed earnings! is recorded as current expense on the date of the
annual stockholders’ meeting held by the board of directors on behalf of shareholders for declaring the distribution of earnings. As a subsidiary of Chinatrust Financial Holding Company, Ltd., the Bank files a consolidated corporate income tax return with its parent company and its subsidiaries. The difference between the consolidated income tax and the Bank’s ordinary income tax is adjusted at the parent-company level, and the Bank recognizes such difference as a payable or receivable. (U) EPS Basic EPS are calculated by dividing net income, net of preferred stock dividends, by the weighted-average number of common shares outstanding during the period. In the event of capital increase through capitalization of retained earnings, capital surplus, or employee bonuses, the number of shares outstanding is retroactively adjusted by the capitalization ratio, regardless of the period when such incremental shares remain outstanding.
3.
REASONS FOR AND EFFECT OF ACCOUNTING CHANGES (A) Effect of changes in accounting principles through profit or loss Effective January 1, 2008, the Bank adopted Republic of China Statement of Financial Accounting Standards (SFAS) No. 39 “Share-based Payment” and Interpretation (96) No. 052 issued by the Accounting Research and Development Foundation. In accordance with SFAS No. 39 and the Interpretation, the Bank is required to classify, measure and disclose the share-based payment arrangements, employee bonuses, and directors’ and supervisors’ remuneration. This accounting principle change caused an increase in net income after tax of $49,433 and an increase in EPS after tax of NT$0.01 (dollars). Commencing from July 1, 2008, the Company adopted the second amendment of SFAS No. 34 “Financial Instruments: Recognition and Measurement” and proceeded to reclassify its financial assets. The aforesaid change resulted in an increase in after-tax net income of $6,242,549 and an increase in EPS of NT$0.87(dollars) for the year ended December 31, 2008. Please refer to Note 4(AA) for further information. (B) Cumulative effect of change in accounting principle Effective January 1, 2008, the Bank adopted the newly released SFAS No. 39 “Share-based Payment.” Pursuant to SFAS No. 39, for liabilities arising from share-based payment transactions existing at the application date of this standard, the Bank shall apply the standard retroactively. After the reevaluation, the cumulative effect of change in accounting principle amounted to $(63,850). (C) Other Commencing from January 1, 2007, the Bank adopted SFAS No. 37 “Intangible Assets.” Pursuant to SFAS No. 37, the Bank reassessed the useful life and amortization method of intangible assets which had been recognized prior to the effective date, and made no changes. ijIJ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 4.
SUMMARY OF MAJOR ACCOUNTS (A) CASH December 31, 2008 12,220,633 11,234 3,597,732 3,938,633 15,778,960 $ 35,547,192
Cash on hand Petty cash and revolving fund Checks for clearance Cash in transit Due from other banks Total
$
December 31, 2007 9,316,123 12,274 2,272,134 3,135,301 2,170,212 $ 16,906,044
$
(B) DUE FROM CENTRAL BANK AND CALL LOANS TO BANKS
December 31, 2008 6,598,449 24,075,687 70,971 58,606,340 $ 89,351,447
Required reserveѧAccount A Required reserveѧAccount B Due from Central Bank Call loans to other banks Total
$
December 31, 2007 1,920,428 25,191,954 22,187 113,341,249 $ 140,475,818
$
The reserves for deposits are calculated at prescribed rates, using the average monthly balances of various deposit accounts and are appropriated and deposited in the reserve account of the Central Bank of the Republic of China (Taiwan). Deposits in “Required reserveɡAccount A” are interest-free and can be withdrawn at any time; deposits in “Required reserveɡAccount B” are interest-bearing and cannot be withdrawn except for the monthly adjustment to the required reserve permitted by relevant regulations. (C) FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS As of December 31, 2008 and 2007, the financial assets held for trading were as follows: December 31, 2008 41,527,451 1,500,000 1,971,758 9,335,769 5,328,902 3,789,211 6,740,686 2,672,630 381,528 572 2,755,339 91,355,482 309,445 $ 167,668,773
Commercial paper Negotiable certificates of deposit Treasury bills Government bonds Corporate bonds Financial debentures Convertible bonds Other securities and bonds Listed and OTC securities Beneficiary certificates Asset-backed securities Derivatives Valuation adjustment of financial assets Total
$
December 31, 2007 12,668,716 5,430,000 196,530 7,634,535 6,431,677 5,616,825 7,607,423 4,445,262 13,749,252 28,858 1,606,248 31,807,742 4,979 $ 97,228,047 $
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Please refer to Notes 6 and 7(A) for information with regard to the restrictions or repurchase conditions for financial assets held for trading shown above. In addition, for the information on reclassification of financial assets, please refer to Note 4(AA). There was no financial asset designated on initial recognition as one to be measured at fair value, with changes in fair value recognized in profit or loss. As of December 31, 2008 and 2007, financial liabilities held for trading were as follows: December 31, 2008 $ 90,789,174 2,201,156 86,734 $ 93,077,064
Derivatives Borrowed government bonds Borrowed listed and OTC securities Total
December 31, 2007 $ 32,725,152 2,708,883 $ 35,434,035
For the year ended December 31, 2008 and 2007, the net realized gains on financial assets and liabilities held for trading amounted to $2,517,518 and $5,861,710, respectively, and net unrealized gains (losses) amounted to $2,546,719 and $(3,587,690), respectively. (D) RECEIVABLESѧNET December 31, 2008 $ 22,709 97,938,232 4,491,592 5,234,289 630,647 1,404,054 2,975,243 112,696,766 (630,273) $ 112,066,493
Notes receivable Accounts receivable Interest receivable Acceptances receivable Accrued income Tax refund receivable Other receivables Subtotal Less: Allowance for credit losses Total
December 31, 2007 $ 30,531 121,364,602 5,746,927 5,716,949 1,101,037 1,253,926 2,297,396 137,511,368 (1,964,251) $ 135,547,117
The accounts receivable shown above included the receivables from credit card holders who were involved in debt repayment negotiation with the Bank. As of December 31, 2008 and 2007, accounts receivable included factoring of $33,956,943 and $47,777,631, respectively. Please refer to Note 6 for information with regard to the restrictions on other receivables shown above. Allowance for credit losses attributed to the accounts receivable and accounts receivable Ё non-accrual account (accounted for under other financial assetsЁnet ) is established via a process that collectively evaluates the probable losses inherent in the portfolio based upon various analyses. The changes in allowance for credit losses were as follows:
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! For the year ended December 31, 2008 Beginning balance Current (reversal of provision) provision Current transfer Current charge-off Recovery of bad debts Exchange rate effect Ending balance
For the year ended December 31, 2007 Beginning balance Current provisions Current transfer Current charge-off Recovery of bad debts Exchange rate effect Transfer due to assumption of assets and liabilities of EBH Ending balance
Inherent risk of overall claims $ 1,393,612 (76,954) (496,560) 3,909 824,007
$
Inherent risk of overall claims $ 2,595,577 577,671 (1,780,787) 1,151
$
1,393,612
Default risk of specific claims $ 584,136 4,947,366 496,560 (6,554,350) 1,189,946 663,658
$
4,870,412 (6,554,350) 1,189,946 3,909 1,487,665
$
Default risk of specific claims $ 1,845,772 2,608,115 1,780,787 (6,910,318) 1,127,182 -
$
Total 1,977,748
$
$
132,598 584,136
$
Total 4,441,349 3,185,786 (6,910,318) 1,127,182 1,151 132,598 1,977,748
(E) LOANSѧNET December 31, 2008 311,858,520 5,349,245 301,301,405 1,249,436 67,165,863 686,924,469 151,548,561 7,294,748 845,767,778 (8,555,975) $ 837,211,803
Corporate loans Micro-business loans Mortgage loans Automobile loans Consumer loans Subtotal of NTD loans Foreign currency loans Non-accrual loans Subtotal Less: Allowance for loan losses Total
$
December 31, 2007 305,054,018 5,433,511 295,164,284 3,629,867 71,982,471 681,264,151 114,308,677 8,383,049 803,955,877 (10,003,908) $ 793,951,969 $
The loans shown above included the loans to cash card holders and clients taking fiduciary loans who were involved in debt repayment negotiation with the Bank. Please refer to Note 4(Z) for the industry information. As of December 31, 2008 and 2007, non-performing loans amounted to $8,976,525 and $11,500,598, respectively. For the years ended December 31, 2008 and 2007, suspended accrual of interest for all of non-accrual accounts amounted to $93,523 and $160,077, respectively. As of December 31, 2008 and 2007, there were no loans written off without prior recourse.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Allowance for credit losses attributed to the loans and short-term advances (accounted for under other financial assets ѧnet) is established via a process that collectively evaluates and estimates the probable losses inherent in the portfolio based upon various analyses. The changes in allowance for credit losses were as follows: For the year ended December 31, 2008 Beginning balance Current provisions Current transfer Current charge-off Recovery of bad debts Exchange rate effects Ending balance
Inherent risk of overall claims $ 5,147,212 (1,005,321) 84,536 $ 4,226,427
Default risk of specific claims $ 4,856,696 5,312,882 1,005,321 (10,279,096) 3,682,279 $ 4,578,082
For the year ended December 31, 2007 Beginning balance Current provisions Current transfer Current charge-off Recovery of bad debts Transfer due to assumption of assets and liabilities of EBH Exchange rate effects Ending balance
Inherent risk of overall claims $ 12,114,500 (6,971,326) -
Default risk of specific claims $ 5,142,832 6,198,816 6,971,326 (19,199,011) 2,657,771 3,084,962
$
4,038 5,147,212
$
4,856,696
$
$
$
$
Total 10,003,908 5,312,882 (10,279,096) 3,682,279 84,536 8,804,509
Total 17,257,332 6,198,816 (19,199,011) 2,657,771 3,084,962 4,038 10,003,908
(F) AVAILABLE-FOR-SALE FINANCIAL ASSETSѧNET
December 31, 2008 18,866,413 2,700,000 1,660,202 42,795,632 9,676,203 1,041,960 14,033,745 (6,194,324) $ 84,579,831
Commercial paper Negotiable certificates of deposit Treasury bills Government bonds Corporate bonds Beneficiary certificates Financial debentures Listed and OTC securities Valuation adjustment of financial assets Total
$
December 31, 2007 39,989,895 21,680,000 1,301,010 50,578,112 4,998,046 200,000 5,659,182 1,267,151 (1,468,549) $ 124,204,847 $
Please refer to Notes 6 and 7(A) for information with regard to the restrictions or repurchase conditions on available-for-sale financial assets shown above. In addition, please refer to Note 4 (AA) for the information on reclassification of financial assets. For the years ended December 31, 2008 and 2007, the Bank recognized an impairment loss of $139,256 and $177,141, respectively, on its structured investment vehicle (SIV) in light of the market situation. As of June 30, 2008, the Bank had derecognized them from the balance sheet at their carrying amount accordingly. ijĶ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (G) HELD-TO-MATURITY FINANCIAL ASSETS December 31, 2008 136,641,000 842,341 19,624,444 9,097,344 1,413,033 516,751 $ 168,134,913
Negotiable certificates of deposit Treasury bills Government bonds Corporate bonds Financial debentures Asset-backed securities Total
$
December 31, 2007 102,641,000 802,211 29,062,762 4,146,560 886,355 461,644 $ 138,000,532
$
Please refer to Notes 6 and 7(A) for information with regard to the restrictions or repurchase conditions on held-to-maturity financial assets shown above. (H) FINANCIAL ASSETS SECURITIZATION (a)
Mortgage loans securitization During the third quarter of 2004, the Bank securitized its mortgage loans with a book value of $5,031,192 with Deutsche Bank AG, Taipei Branch (Deutsche Bank), as Trustee, and offered security in the form of beneficiary certificates. These beneficiary certificates have a redemption period from August 10, 2004, to August 25, 2024. The other terms of these beneficiary certificates are as follows: Class of beneficiary certificates issued Class A Class B Class C Class D Class E
Order of principal repayment 1st 2nd 3rd 4th 5th
Issue amount/ Face value $4,325,000 250,000 150,000 130,000 176,192
Interest rate
Payment frequency
the index rate +0.25% the index rate +0.55% the index rate +0.80% the index rate +1.25% None
once a month once a month once a month once a month once a month
The Bank holds the Class E beneficiary certificates and retains the right to interest in excess of the amount paid to the holders of class A, B, C and D beneficiary certificates. If the loan debtors default, neither the investor nor Deutsche Bank has the right of recourse to the Bank. The repayment of the principal of Class E beneficiary certificates is subordinate to the investors’ certificates, and their value is affected by the credit risk, prepayment rate, and change in interest rate of the securitized loans.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 1. Key assumptions used in measuring retained interests The key assumptions used in measuring the subordinated seller certificates arising from the loan securitization at the loan securitization dates and during the reporting period were as follows: Mortgage loan securitization December 31, 2008 August 10, 2004 Prepayment rate (annual rate) Adjustable Rate Mortgage Government Subsidized Mortgage Weighted-average life (in years) Expected credit losses rate (annual rate) Discounting rate for residual cash flows (annual rate) - principal - interest
17.50% 7.00% 9.45 2.57%
17.50% 7.00% 17.36 3.01%
5.70% 2.34%
5.70% 2.34%
2. Sensitivity analysis As of December 31, 2008, the key economic assumptions and sensitivity of the current fair value of residual cash flows with immediate 10% and 20% adverse changes in these assumptions were as follows: ! Carrying amount of retained interests Weighted-average life (in years) Prepayment rate (annual rate) Adjustable Rate Mortgage Government Subsidized Mortgage Impact on fair value of 10% adverse change Impact on fair value of 20% adverse change Expected credit losses rate (annual rate) Impact on fair value of 10% adverse change Impact on fair value of 20% adverse change
Mortgage loans securitization $ 152,551 9.45 17.50 % 7.00 % (322) (601) 2.57 % (883) (1,766)
3. Expected static pool credit losses As the securitized mortgage loans did not have actual credit losses as of the balance sheet date, the expected static pool credit losses are, therefore, equal to the expected credit losses.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 4. Cash flows The cash flows received from and paid to securitization trusts were as follows:
Servicing fees received Other cash flows received on retained interests Repayments of cash reserve Servicing advances Repayments of servicing advances
$
For the years ended December 31, 2008 2007 3,481 $ 4,553 18,135 22,037 1,369 (8,846) 8,017
2,712 (11,797) 10,535
(b) Collateralized loan obligation securitization During the first quarter of 2007, the Bank securitized a collateralized loan with a book value of $8,273,187 with First Commercial Bank Co., Ltd. as Trustee, and offered security in the form of beneficiary certificates. The Bank acquired $7,451,775 in cash from this transaction, with a gain of $6,594 accounted for under other non-interest income. These beneficiary certificates have a redemption period from January 3, 2007, to January 12, 2014. The other terms of these beneficiary certificates are as follows: Class of beneficiary certificates issued
Order of principal repayment
Issue amount/ Face value
Issue price (price-perhundred)
1st
$ 5,323,000
99.794
-
% once a month
2nd
379,000
94.933
-
% once a month
Senior tranche C - certificate
3rd
1,092,000
93.131
-
% once a month
Senior tranche D - certificate
4th
608,000
91.022
-
% once a month
Mezzanine tranche E - certificate
5th
316,000
100
3.1509 % once a month
Subordinated tranche F - certificate Subordinated tranche G - certificate
6th
270,000
100
3.3500 % once a month
7th
285,187
203.488
Senior tranche A - certificate Senior tranche B - certificate
Interest rate
None
Payment frequency
once a month
The Bank holds the subordinated beneficiary certificates and retains the right to interest (if any) in excess of the amount paid to the holders of senior and mezzanine beneficiary certificates. If the loan debtors default, neither the investor nor Trustee has the right of recourse to the Bank. The repayment of the principal of subordinated beneficiary certificates is subordinate to the investors’ certificates, and their value is affected by the credit risk, prepayment rate, and change in interest rate of the securitized loans. For the year ended December 31, 2008, an impairment loss of $38,660 was recognized as a result of the increase in these risks; please refer to Note 4(J) for more information.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 1. Key assumptions used in measuring retained interests The key assumptions used in measuring the subordinated seller certificates arising from the loan securitization on the measurement date of initial recognition and during the reporting period were as follows:
Prepayment rate (annual rate) Weighted-average life (in years) Expected credit losses rate (annual rate) Discounting rate for residual cash flows (annual rate)
Corporate loans securitization December 31, 2008 January 3, 2007 21.25% 3.60% 0.78 1.96 2.44% 0.30% 1.16% 2.23%
ʳ
2. Sensitivity analysisʳ ʳ
As of December 31, 2008, the key economic assumptions and sensitivity of the current fair value of residual cash flows with immediate 10% and 20% adverse changes in these assumptions were as follows: !
Carrying amount of retained interests Weighted-average life (in years) Prepayment rate (annual rate) Impact on fair value of 10% adverse change Impact on fair value of 20% adverse change Expected credit losses rate (annual rate) Impact on fair value of 10% adverse change Impact on fair value of 20% adverse change
Corporate loans securitization $ 545,915 0.78 21.25 % (133) (266) 2.44 % (2,173) (4,336)
3. Expected static pool credit losses As the securitized collateralized loan obligation did not have actual credit losses as of the balance sheet date, the expected static pool credit losses are, therefore, equal to the expected credit losses. 4. Cash flows The cash flows received from and paid to securitization trusts were as follows:
$
Other cash flows received on retained interests Servicing fees received
For the years ended December 31, 2008 2007 101,186 $ 160,958 200
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200
ʳ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (I) INVESTMENTS UNDER EQUITY METHOD
Chinatrust (Philippines) Commercial Bank Corporation (original investment at PHP 2,695,137 thousand) PT Bank Chinatrust Indonesia (original investment at Rupiah 191 billion) Chinatrust Forex Corporation (Note) (original investment at PHP 31,045 thousand) CTC Bank of Canada (original investment at CAD 15,000 thousand) Chinatrust Securities Investment Consultancy Co., Ltd. (Note) (original investment at $9,940) Chinatrust Capital Corporation (original investment at $4,842,782) Grand Bills Finance Corporation (original investment at $1,010,880) GCB Finance (HK) Limited (original investment at $223,050) Total
December 31, 2008 % Book value 99.41 $ 3,625,552
December 31, 2007 % Book value 99.41 $ 4,113,480
99.00
3,753,558
99.00
3,524,411
60.00
20,760
60.00
24,178
100.00
561,941
100.00
666,773
99.40
9,947
99.40
13,639
100.00
7,677,139
100.00
8,735,617
21.15
1,731,854
21.15
1,459,350
100.00
367,913
100.00
357,583
$ 17,748,664
$ 18,895,031
For the years ended December 31, 2008 and 2007, investment income (loss) recognized under the equity method were as follows:
Chinatrust (Philippines) Commercial Bank Corporation PT Bank Chinatrust Indonesia Chinatrust Forex Corporation (Note) CTC Bank of Canada Chinatrust Securities Investment Consultancy Co., Ltd. (Note) Chinatrust Capital Corporation Grand Bills Finance Corporation GCB Finance (HK) Limited Total
$
For the years ended December 31, 2008 2007 43,610 $ 81,551 690,349 123 21,231 (239)
$
Note: Company in liquidation.
Ĵı
(1,156,932) 33,817 3,221 (364,820)
447,662 49,200 251
$
729,257 (96,771) 2,974 1,214,124
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (J) OTHER FINANCIAL ASSETSѧNET
Short-term advances—net Refundable deposits—net Hedging derivative financial assets Deposits pledged Debt investment without active market—net Financial assets carried at cost—net Accounts receivableѧnon-accrual account Less: Allowance for uncollectible accountsѧ accounts receivableѧnon-accrual account Others Total
$
$
December 31, 2008 399,542 12,581,663 2,754,664 91,150 808,594 3,133,261 857,392 (857,392) 238,730 20,007,604
$
$
December 31, 2007 723,461 2,561,984 374,311 4,777,483 1,219,825 1,821,975 13,497 (13,497) 38,904 11,517,943
The debt investments, comprising corporate and other bonds, without an active market held by the Bank are carried at amortized cost due to the lack of quoted market price. For the years ended December 31, 2008 and 2007, the Bank recognized an impairment loss of $510,545 and $599,090, respectively, on its structured investment vehicle (SIV) in light of the market situation. During the second quarter of 2008, the Bank had derecognized them from the balance sheet at their carrying amount accordingly. Furthermore, the Bank recognized an impairment loss of $38,660 on collateralized loan obligation securitization. Financial assets carried at cost include stock and equity investments of the Bank with no quoted market price and whose fair value cannot be reliably measured; such financial assets are carried at cost. On September 8, 2007, the Bank purchased all of the assets of EBH and assumed all liabilities, which include the equity of Sunny Assets Management Co. in the amount of $11. The Bank also recognized the full amount of the impairment loss. As of December 31, 2008, the Bank had obtained 85 thousand shares of MasterCard International restricted common stock. As of December 31, 2008, through a conversion plan, the shares had become listed stocks and 73 thousand shares had been sold. For the year ended December 31, 2008, the Bank recognized a gain of $437,482, accounted for under realized gains on available-for-sale financial assets. During May and November 2008, the Bank received a payment of $1,856,703 and 1,114 thousand shares of common stock (recognized as $1,466,863 in revenue), respectively, in connection with the redemption of VISA stock through the National Credit Card Center of the R.O.C. distributed by VISA Inc. as a result of VISA’s global restructuring. Gains from the preceding transactions after deducting business tax were all accounted for under other miscellaneous income. The preceding shares are generally non-transferable until March 25, 2011, unless certain conditions are met. For the years ended December 31, 2008 and 2007, the Bank recognized impairment loss amounting to $9,500 and $48,125, respectively, on its equity investments carried at cost. Please refer to Note 6 for information with regard to the restrictions on the other financial assets shown above. ĴIJ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (K) PREMISES AND EQUIPMENTˇNET
December 31, 2008
Cost
Land Superficies Buildings Transportation equipment Miscellaneous equipment Construction in progress Prepayment for equipment Leased premises Total
$ 16,506,215 3,190,325 14,387,201 45,836 10,329,276 399,074 21,748 289,594 $ 45,169,269
December 31, 2007 Land Superficies Buildings Transportation equipment Miscellaneous equipment Construction in progress Prepayment for equipment Leased premises Total
Cost $ 16,365,608 3,257,608 14,257,236 62,863 10,428,366 127,975 2,528 245,593 $ 44,747,777
Revaluation appreciation
Accumulated depreciation
Accumulated impairment
$
$
$
61,649 416 62,065
4,676,761 36,453 7,732,645 73,209 $ 12,519,068
$
Revaluation appreciation $ 61,649 416 $ 62,065
Accumulated depreciation $ 4,340,950 49,087 7,398,476 20,466 $ 11,808,979
Accumulated impairment $ 27,244 13,510 $ 40,754
$
141,060 94,439 235,499
Net $
$
$
$
16,426,804 3,190,325 9,616,417 9,383 2,596,631 399,074 21,748 216,385 32,476,767
Net 16,400,013 3,257,608 9,903,192 13,776 3,029,890 127,975 2,528 225,127 32,960,109
The depreciable assets were revalued on December 31, 1974, and December 31, 1980, resulting in total appreciation of $13,510 and $53,123, respectively. In addition, land was revalued on September 30, 1987, based on the government-announced value, resulting in land appreciation of $77,519. In May 2006, the Bank acquired the superficies of lots 43, 43-1, 45 and 45-1 of Jingmao Section, Nankang, Taipei, from Taiwan Fertilizer Co., Ltd. for 50 years through a public tender. The acquisition cost amounted to $3,364,140 (include business tax and other related expenses of the superficies). The rental is determined annually at the rate of 8% of the government district assessed present value. Please refer to Note 6 for information on performance guarantee deposits. Following the acquisition of EBH, the Bank worked on a relocation plan for each branch office’s operations. Due to the dissolution or relocation of branch offices, a portion of the premises became idle. As of March 31, 2008, the Bank reclassified these idle premises and equipment under other assets. Please refer to Note 4(M) for further information about the book value of relevant idle premises and equipment.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! In 2006, the book value of the second training center premises was deducted in the amount of $87,821; please refer to Note 5(B) for more detailed information about the premises transactions described above. As of December 31, 2007, the Bank reclassified the non-self-use part of the second training center premises under idle premises and equipment with net book value of $471,371 after deduction of accumulated impairment. (L) INTANGIBLE ASSETS December 31, 2008 10,152,835 1,548,784 $ 11,701,619
Goodwill Computer software Total
$
December 31, 2007 10,152,835 1,479,340 $ 11,632,175 $
As of December 31, 2008 and 2007, goodwill of the Bank was acquired from business combination. The Bank purchased all of the assets and assumed all of the liabilities of EBH on September 8, 2007, and recognized goodwill in the amount of $6,068,229; please refer to Note 10 for further information. The Bank recognized impairment loss of $42,798 on computer software. (M) OTHER ASSETSѧNET December 31, 2008 2,335,008 112,857 1,400 205,868 (134,804) 3,583,160 2,260,347 (951,121) 21,942 2,852 $ 7,437,509
Prepayments Deferred charges Real estate investments Foreclosed properties received Less: Accumulated impairment Deferred income tax assets—net Idle premises and equipment Less: Accumulated impairment Temporary payments Others Total
$
December 31, 2007 2,150,087 132,672 1,400 1,054,083 (948,121) 4,020,034 3,170,013 (1,161,995) 17,532 2,894 $ 8,438,599 $
For the years ended December 31, 2008 and 2007, the Bank recognized an impairment loss of $4,193 and $53,890, respectively, to cover exposure of foreclosed properties. For the years ended December 31, 2008 and 2007, the Bank recognized an impairment loss of $66,151 and $139,244, respectively, to cover exposure of its idle premises and equipment. As of December 31, 2008, idle premises and equipment with net book value of $798,011 which had been reused were reclassified under premises and equipment. Please refer to Note 4(T) for further information on “deferred income tax assetsѧnet.”
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (N) DUE TO CENTRAL BANK AND OTHER BANKS December 31, 2008 $ 4,664,000 98,580 $ 4,762,580
Financing from Central Bank Financing from other banks Total
December 31, 2007 $ 5,023,432 175,575 $ 5,199,007
Financing from Central Bank As of December 31, 2008, the Bank had borrowed US$141,935 thousand from the Central Bank in order to facilitate the business expansion of its overseas branches and subsidiaries. This loan bears interest at the annual rate of 6M LIBOR. All financing will mature prior to July 26, 2019, and interest is payable semi-annually and on the maturity date. Financing from other banks As of December 31, 2008, the Bank had borrowed US$3,000 thousand from other banks, with an annual interest rate of 8.1325%. The financing will mature on February 17, 2009, with interest payable quarterly. (O) PAYABLES December 31, 2008 Notes payable Accounts payable Accrued expenses Income taxes payable Interest payable Acceptances payable Collection payable Other tax payable Dividends and bonuses payable Checks for clearance Interbank clearing payable Non-discretionary monetary trust payable Miscellaneous lottery accounts payable Lease payable Other payables Total
$
$
12,914,649 7,818,591 314,145 4,745,390 5,235,928 1,743,832 344,491 32,376 3,323,252 201,943 814,600 3,345,166 155,713 2,691,134 43,681,210
December 31, 2007 $ 383 24,641,051 8,816,459 266,193 4,564,883 5,721,495 2,064,256 296,251 32,800 2,027,328 179,685 269,135 4,337,930 212,041 1,135,360 $ 54,565,250
As of December 31, 2008 and 2007, accounts payable included the balances arising from factoring of $11,279,601 and $22,466,988, respectively.
Ĵĵ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (P) DEPOSITS AND REMITTANCES December 31, 2008 NTD deposits Checking accounts Demand deposits Demand deposits Demand savings deposits Others Subtotal of demand deposits Time deposits Time deposits Time savings deposits Negotiable certificates of deposit Postal savings redeposits Government treasury Others Subtotal of time deposits Subtotal of NTD deposits Foreign currency deposits Adjustment of the fair value decline on hedge transactions (Note) Subtotal of foreign currency deposits Remittances under custody Remittances outstanding Total
$
$
6,862,983
December 31, 2007 $
8,118,163
77,184,929 257,160,673 4,020,933 338,366,535
79,090,706 281,839,158 3,406,710 364,336,574
190,189,026 264,071,427 5,242,300 20,648,149 10,996,544 32,964,800 524,112,246 869,341,764 274,957,645
187,899,524 257,743,336 4,059,800 22,473,322 9,461,810 8,500,000 490,137,792 862,592,529 237,626,000
274,957,645 43,475 399,950 1,144,742,834
(37,991) 237,588,009 67,409 909,728 1,101,157,675
$
Note: Please refer to Note 4(Z) for the structured deposit in USD used for hedging purposes.
ĴĶ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (Q) FINANCIAL DEBENTURES
Bonds 2003-1
Issue date 09/12/2003
2003-2
10/13/2003
2003-3
10/13/2003
2004-1 (Note 3)
03/15/2004
2004-2 (Note 3)
05/27/2004
December 31, 2008 Terms of transactions Maturity date Interest rate 09/12/2010 The single coupon rate is Bank of Taiwan's quoted floating interest rate for 2-year time deposit plus 80 basis points; simple interest is accrued annually. 10/13/2010 The single coupon rate is Bank of Taiwan's quoted floating interest rate for 2-year time deposit plus 80 basis points; simple interest is accrued annually. 10/13/2010 The prime rate plus 100 basis points; simple interest is accrued at a floating rate. (Note 1) 03/19/2009 If 6M LIBOR 2.10%, the coupon rates of A to E will be 5.0000%-6M LIBOR, 5.0001%-6M LIBOR, 5.0002%6M LIBOR, 5.0003%-6M LIBOR and 5.0004%-6M LIBOR. (The coupon rates above are subject to a minimum of 0%.) 05/27/2011 Tranche A: (6 mL+0.7000%)*n/N Tranche B: (6 mL+0.7001%)*n/N Tranche C: (6 mL+0.7002%)*n/N The coupon rate zones of all bonds were as follows: st 1 year: 0.50%Љ6mLЉ2.00% 2nd year: 0.50%Љ6mLЉ2.50% 3rd year: 0.50%Љ6mLЉ3.00% 4th year: 0.50%Љ6mLЉ3.50% 5th year: 0.50%Љ6mLЉ4.00% 6th year: 0.50%Љ6mLЉ4.50% 7th year: 0.50%Љ6mLЉ5.00% (Note 6)
Ĵķ
Bond issued Type Amount Unsecured $ 5,000,000 subordinated financial debentures
"
2,000,000
"
2,000,000
Secured financial debentures
"
1,300,000
1,500,000
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Bonds 2004-3 (Note 3)
Issue date 06/10/2004
December 31, 2008 Terms of transactions Maturity date Interest rate 06/10/2009
The coupon rate is 4.00%*n/N. The applicable coupon rate zones of the bonds were as follows:
Type
Bond issued Amount
Secured financial debentures
$
500,000
1st year: 1.10%Љ6mLЉ 2.00% 2nd year: 1.10%Љ6mLЉ 2.50% 3rd year: 1.10%Љ6mLЉ 3.00% 4th year: 1.10%Љ6mLЉ 3.50% 5th year: 1.10%Љ6mLЉ 4.00% (Note 6) 2004-4 (Note 3)
01/28/2005
01/28/2010
2.30%
5.625% Step-up 03/17/2005 Callable Perpetual Subordinate Notes
N/A
5.625%; if redemption right is not exercised 10 years after the issue date, the interest rate will be 6M LIBOR + 1.86%
2005-2
06/06/2005
06/08/2015
2005-3
06/08/2005
06/09/2015
2005-4
06/09/2005
06/09/2015
2005-5
11/29/2005
N/A
A, F and M = 2.168% B, E and N = 2.169% H and J = 2.170% C, I and K = 2.171% D, G and L = 2.172% A = 2.60% * n/N (n represents the total days that USD 30y CMS - USD 2y CMS is greater than or equal to 0 within the interest period. N represents the total days within the interest period.) B = 2.170% A = 2.62% * n/N (n represents the total days that USD 30y CMS - USD 2y CMS is greater than or equal to 0 within the interest period. N represents the total days within the interest period.) B = 2.170%, C = 2.003% D = 2.002%, E = 2.001% F = 2.000%, G = 1.999% H = 1.998%, I = 1.997% A=3.35%, B=3.35%; if redemption right is not exercised 10 years after the issue date, the interest rate will be 90 days CP+1.85% for A and 4.35% for B.
Ĵĸ
Unsecured financial debentures Perpetual accumulated subordinate financial debentures Unsecured financial debentures
700,000
16,430,000
7,000,000
"
2,500,000
"
4,500,000
Perpetual non-accumulated subordinated financial debentures
12,000,000
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Bonds
Issue date
December 31, 2008 Terms of transactions Maturity date Interest rate
2005-7 (Note 3)
04/12/2005
04/18/2010
2.09%
2006-1
05/17/2006
05/17/2016
2.14%
Type
Bond issued Amount
Unsecured financial debentures " th
2006-2 (Note 5)
10/05/2006
10/05/2016
A=2.75%. B=2.5%. From the 6 year after the issue date, B=3.5%.
2007-1
11/28/2007
11/28/2010
A=2.825%. B is floating rate; the single coupon rate is Bank of Taiwan's quoted floating interest rate for 3-year time deposit plus 0.25%; simple interest is accrued at a floating rate.
2007-2
12/11/2007
6/11/2011
2007-3 2007-4 2008-1 2008-2
12/14/2007 12/18/2007 04/10/2008 04/25/2008
12/14/2014 12/18/2014 04/10/2023 N/A
Floating rate; the single coupon rate is Bank of Taiwan(s quoted floating interest rate for 3-year time deposit plus 0.325%; simple interest is accrued at a floating rate. The prime rate plus 0.40% (Note 1) 3.05% 3.49% 3.60%; if redemption right is not exercised 7 years after the issue date, the interest rate will be 4.60%.
2008-3
04/25/2008
04/25/2015
A=3.10%, B=3.00%.
2008-4
04/25/2008
10/25/2013
The single coupon rate is Bank of Taiwan's quoted floating interest rate for 3-year time deposit plus 0.28%; simple interest is accrued annually. Adjustment for fair value increase on hedged transactions
$
3,100,000
Unsecured subordinated financial debentures "
12,900,000
650,000
"
4,350,000
" " " Perpetual accumulated subordinated financial debentures
1,500,000 2,000,000 2,000,000 700,000
Unsecured subordinated financial debentures
3,350,000
"
450,000
2,716,886
Unamortized premium $
ĴĹ
2,500,000
81,745 91,728,631
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! !
Bonds 2003-1
Issue date 09/12/2003
2003-2
10/13/2003
2003-3
10/13/2003
2003-4
10/28/2003
2003-5 (Note 2) 2004-1 (Note 3)
06/12/2003 03/15/2004
2004-2 (Note 3)
05/27/2004
December 31 , 2007 Terms of transactions Maturity date Interest rate 09/12/2010 The single coupon rate is Bank of Taiwan's quoted floating interest rate for 2-year time deposit plus 80 basis points; simple interest is accrued annually. 10/13/2010 The single coupon rate is Bank of Taiwan's quoted floating interest rate for 2-year time deposit plus 80 basis points; simple interest is accrued annually. 10/13/2010 The prime rate plus 100 basis points; simple interest is accrued at a floating rate. (Note 1) 10/28/2008 The 1st year: 5%; The 2nd~5th years: if 6M LIBOR < 0.9%, the coupon rate will be 6M LIBOR. If 6M LIBOR Њ 0.9%, the coupon rate will be 5%-6M LIBOR. 06/12/2008 2.5% 03/22/2009 If 6M LIBOR 2.10%, the coupon rate of A to F will be 5.0000%-6M LIBOR, 5.0001%6M LIBOR, 5.0002%-6M LIBOR, 5.0003%-6M LIBOR, 5.0004%6M LIBOR, 5.0005%-6M LIBOR. (The coupon rates above are subject to a minimum of 0%.) 05/27/2011 Tranche A: (6 mL+0.7000%)*n/N Tranche B: (6 mL+0.7001%)*n/N Tranche C: (6 mL+0.7002%)*n/N The coupon rate zones of all bonds were as follows: 1st year: 0.50%Љ6mLЉ2.00% 2nd year: 0.50%Љ6mLЉ2.50% 3rd year: 0.50%Љ6mLЉ3.00% 4th year: 0.50%Љ6mLЉ3.50% 5th year: 0.50%Љ6mLЉ4.00% 6th year: 0.50%Љ6mLЉ4.50% 7th year: 0.50%Љ6mLЉ5.00% (Note 6) Ĵĺ
Bond issued Type Amount Unsecured $ 5,000,000 subordinated financial debentures
"
2,000,000
"
2,000,000
"
300,000
" Secured financial debentures
"
2,000,000 1,500,000
1,500,000
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! !
Bonds 2004-3 (Note 3)
Issue date 06/10/2004
2004-4 (Note 3)
01/28/2005
December 31, 2007 Terms of transactions Maturity date Interest rate 06/10/2009 The coupon rate is 4.00%*n/N. The applicable coupon rate zones of the bonds were as follows: 1st year: 1.10%Љ6mLЉ 2.00% 2nd year: 1.10%Љ6mLЉ 2.50% 3rd year: 1.10%Љ6mLЉ 3.00% 4th year: 1.10%Љ6mLЉ 3.50% 5th year: 1.10%Љ6mLЉ 4.00% (Note 6) 01/28/2010 2.30%
5.625% Step-up 03/17/2005 Callable Perpetual Subordinated Notes
N/A
5.625%; if redemption right is not exercised 10 years after the issue date, the interest rate will be 6M LIBOR+1.86%.
2005-2
06/06/2005
06/08/2015
2005-3
06/08/2005
06/09/2015
2005-4
06/09/2005
06/09/2015
2005-5
11/29/2005
N/A
A, F and M = 2.168% B, E and N = 2.169% H and J = 2.170% C, I and K = 2.171% D, G and L = 2.172% A = 2.6% * n/N (n represents the total days that USD 30y CMS - USD 2y CMS is greater than or equal to 0 within the interest period. N represents the total days within the interest period.) B = 2.170% A = 2.62% * n/N (n represents the total days that USD 30y CMS - USD 2y CMS is greater than or equal to 0 within the interest period. N represents the total days within the interest period.) B = 2.170%, C = 2.003% D = 2.002%, E = 2.001% F = 2.000%, G = 1.999% H = 1.998%, I = 1.997% A=3.35%, B=3.35%; if redemption right is not exercised 10 years after the issue date, the interest rate will be 90 days CP+1.85% for A and 4.35% for B.
ĵı
Type Secured financial debentures
Bond issued Amount $ 500,000
Unsecured financial debentures Perpetual accumulated subordinate financial debentures Unsecured financial debentures
700,000
16,219,892
7,000,000
"
2,500,000
"
4,500,000
Perpetual non-accumulated subordinated financial debentures
12,000,000
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Bonds 2005-7 (Note 3)
Issue date 04/12/2005
December 31, 2007 Terms of transactions Maturity date Interest rate 04/18/2010 2.09%
2006-1
05/17/2006
05/17/2016
2006-2 (Note 5)
10/05/2006
10/05/2016
2007-1
11/28/2007
11/28/2010
2007-2
12/11/2007
06/11/2011
2007-3 2007-4
12/14/2007 12/18/2007
12/14/2014 12/18/2014
2.14% A=2.75%. B=2.5%. From the 6th year after the issue date, B=3.5%. A=2.825%. B is floating rate; the single coupon rate is Bank of Taiwan's quoted floating interest rate for 3-year time deposit plus 0.25%; simple interest is accrued at a floating rate. Floating rate; the single coupon rate is Bank of Taiwan(s quoted floating interest rate for 3-year time deposit plus 0.325%; simple interest is accrued at a floating rate. The prime rate plus 0.40%. (Note 1) 3.05% Adjustment for fair value decline on hedged transactions
Type Unsecured financial debentures "
Bond issued Amount $ 2,500,000
3,100,000
Unsecured subordinated financial "
12,900,000
650,000
"
4,350,000
" "
1,500,000 2,000,000 (56,112)
Unamortized premium $
71,883 84,735,663
Note 1:
The prime rate is based on page code 6165 of Reuters (Original: Associated Press), the fixed interest rate of 90-day CP/BA at 11:00am on the interest reset date.
Note 2:
Due to the acquisition of Grand Commercial Bank, the Bank assumed the 2003-1 financial debentures previously issued by Grand Commercial Bank in 2003.
Note 3:
Due to the acquisition of Chinatrust Bills Finance Corp., the Bank assumed the 1st domestic secured bonds, 2nd domestic secured bonds, and 3rd domestic secured bonds in 2004, the 1st domestic unsecured bonds in 2004, and the 1st domestic unsecured bonds in 2005 previously issued by Chinatrust Bills Finance Corp.
Note 4:
Tranche F, which was originally issued by Chinaturst Bills Finance Corp. and was to mature on March 22, 2009, was voided as a result of the merger as of June 30, 2008.
Note 5:
The Bank is authorized to redeem the Tranche A and Tranche B debentures in whole or in part (either one) on the date five years after its issue date, and at intervals of every three months thereafter, at a price equal to their principal plus unpaid interest, if any, and the holders or underwriters of the debentures may not refuse to accept the redemption.
ĵIJ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Note 6:
n represents the total days that 6mL is greater than or equal to the floor rate of the interest rate collar within the interest period, and less than or equal to the ceiling rate within the interest period. N represents the total days within the interest period.
Please refer to Note 4(Z) for the information on hedging of bonds shown above. (R) OTHER FINANCIAL LIABILITIES December 31, 2008 Appropriated loan funds
$
Guarantee deposits received Hedging derivative financial liabilities Others Total
$
139,193
December 31, 2007 $
162,945
919,068
1,878,657
14,055
461,315
7,691 1,080,007
2,502,917
$
(S) RETIREMENT PLAN The pension funds and related accounts for the years ended December 31, 2008 and 2007, were as follows: For the years ended December 31, 2007 Chinatrust Chinatrust Bills Commercial Finance Bank Co., Ltd. Corp.(dissolved) 4,602,787 $ 4,512,638 $ 36,859
2008
Ending balance of pension fund Net periodic pension cost: Defined benefit pension plan Defined contribution pension plan
$
321,508 279,006
285,597 250,861
2,338 2,069
The Bank maintains a retirement plan covering all regular employees. Payments of pension benefits are calculated based on the number of the employee’s years of service and salary of the last six months prior to approved retirement. Commencing from April 1, 2008, the Bank contributes 8% of the monthly payroll to a pension fund, but contributed 7.17% before that date. Furthermore, the Bank established a Workers’ Retirement Reserve Fund Supervisory Committee on May 31, 2000, upon approval of the authority-in-charge and contributes 6.44% of monthly payroll to a designated depository account with Bank of Taiwan.
ĵij
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! As of December 31, 2008 and 2007, the funding status was reconciled with accrued pension liabilities per books as follows:
Benefit obligation Vested benefit obligation Non-vested benefit obliigation Accumulated benefit obligation Additional benefit based on future salaries Projected benefit obligation Fair value of pension plan assets Funding status Unrecognized net transition obligation (net assets) Unrecognized loss on pension fund Unrecognized prior service cost (Accrued pension liability) prepaid pension cost
For the years ended December 31, 2007 2008 Chinatrust Commercial Chinatrust Bills Finance Corp. Bank Co., Ltd. (dissolved) (not restated) (688,649) $ (775,858) $ (10,556) (3,815,254) (3,795,869) (16,260) (4,503,903) (4,571,727) (26,816) (1,016,847) (754,278) (8,827) (5,520,750) (5,326,005) (35,643) 4,602,787 4,512,638 32,151 (917,963) (813,367) (3,492) 75,616 113,423 (195)
$
892,250 (64,826) (14,923)
$
$
754,747 (69,813) (15,010)
$
8,089 463 4,865
Actuarial assumptions used in the pension costs calculation were as follows: For the years ended December 31, 2007 2008 Chinatrust Commercial Chinatrust Bills Finance Corp. Bank Co., Ltd. (not restated) (dissolved) 3.25% 3.25% 3.50% 2.00% 2.00% 3.25% 3.25% 3.25% 2.75%
Discount rate Incremental rate of future compensation levels Expected long-term rate of return on plan assets
Net periodic pension costs were as follows: For the years ended December 31, 2007 Chinatrust Chinatrust Bills Commercial Finance Corp. Bank Co., Ltd. (dissolved) (not restated) 240,908 $ 235,680 $ 1,524 173,095 157,003 1,172 (146,661) (139,906) (805) 47,631 32,820 447 314,973 $ 285,597 $ 2,338
2008
Service cost Interest cost Expected return on plan assets Amortization and deferred amount Net periodic pension cost
$
$
ĵĴ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! As of December 31, 2008, the vested benefit obligation of the Bank’s retirement plan amounted to $694,445. As of December 31, 2007, the vested benefit obligation of the retirement plan of Chinatrust Commercial Bank Co., Ltd. (not restated) and Chinatrust Bills Finance Corp. (dissolved) amounted to $776,240 and $10,556, respectively.! ! (T) INCOME TAXES The income tax expenses and related accounts for the years ended December 31, 2008 and 2007, were as follows:
$
Current income tax expenses Deferred income tax expenses 10% surtax on undistributed earnings Income tax expense
$
For the years ended December 31, 2008 2007 1,509,240 $ 1,261,188 212,779 1,044,001 3,568 1,725,587 $ 2,305,189
The components of deferred income tax expenses were as follows:
Temporary difference due to allowance for credit losses in excess of tax-allowance limit Provision for impairment loss on assets Reversal of allowance for market value decline on assumed collateral Net unrealized gains (losses) on foreign exchange and derivative instruments Reversal of difference in pension provision for financial and tax purposes Amortization of goodwill Estimation of operating loss Investment tax credit Others Total
ĵĵ
$
$
For the years ended December 31, 2008 2007 $ 1,491,220 (13,658) 103,584
(1,864) 164,323
205,517
(641,289)
22
354
(54,250) (28,436) 212,779
52,398 (30,415) 9,274 1,044,001
$
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Commencing from January 1, 2006, the Bank adopted the “Income Basic Tax Act” in determining the income basic tax, and its income tax rate is 25%. For the years ended December 31, 2008 and 2007, the differences between income tax under the tax rate and income tax expenses were as follows: For the years ended December 31, Income tax calculated on net income before tax Income tax separately levied on interest income Net income from domestic investment Tax exempt (gains) losses on disposal of land Securities transaction (income) losses tax relief Adjustment of securities under repurchase (resell) agreements Foreign investment losses (income) recognized under equity method Provision for miscellaneous loss reserve Expenses and losses on futures proprietary trading Net income from offshore banking unit Imputed interest of separate trading of registered interest Amortization of goodwill Investment tax credit Income tax separately levied 10% surtax on undistributed earnings Difference between Basic Tax and Regular Income Tax Under-stated income tax for prior year Difference in loss carryforward between the consolidated and non-consolidated corporate income tax returns Others Total
$
2008 3,585,310 (1,142,967) (216,204) (27,872) (494,909) (147,363)
$
57,454 11,828 41,300 (403,003) 13,786 (744,521) (28,436) 965,720 3,568 115,669 57,325
$
40,717 38,185 1,725,587
2007 3,229,980 (998,238) (231,136) 190,344 492,637 (45,261) (327,661) 2,017 30,498 (616,190) 12,103 (521,663) (30,415) 769,734 343,202
$
5,238 2,305,189
As of December 31, 2008 and 2007, the temporary differences resulting in deferred income tax assets (liabilities), loss carryforward, investment tax credit and other tax effects were as follows: Amount Deductible temporary difference due to provision for impairment loss on assets Deductible temporary difference due to allowance for market decline of foreclosed properties received Taxable temporary difference due to unrealized gains on foreign exchange and derivative instruments Taxable temporary difference due to investment income recognized under equity method Deductible temporary difference due to provision for cumulative translation adjustments Deductible temporary difference due to estimation of operating loss Deductible temporary differences due to other reasons Effects of loss carryforward Investment tax credit Total ĵĶ
$
December 31,2008 Tax effect
328,096
$
106,459
$
82,024 26,615
(5,345,823)
(1,336,456)
(3,040,128)
(760,032)
1,998,584
499,646
217,000 662,916 19,072,851 332,684 14,332,639
54,250 165,729 4,768,213 83,171 3,583,160
$
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31,2007 Amount Tax effect Deductible temporary difference due to provision for impairment loss on assets Deductible temporary difference due to provision for the limitation of guarantee reserves and bad debt expenses Deductible temporary difference due to allowance for market decline of foreclosed properties received Taxable temporary difference due to unrealized gains on foreign exchange and derivative instruments Taxable temporary difference due to investment income recognized under equity method Deductible temporary difference due to provision for cumulative translation adjustments Deductible temporary differences due to other reasons Effects of loss carryforward Investment tax credit Less:Allowance for evaluation Total
$
273,464
$
68,366
78,874
19,719
520,794
130,199
(4,111,071)
(1,027,758)
(3,040,128)
(760,032)
$
1,042,495 373,989 20,924,632 95,919 (78,874) 16,080,094
$
260,624 93,497 5,231,158 23,980 (19,719) 4,020,034
$
December 31, 2008 19,072,851
$
December 31, 2007 20,924,632
Information on loss carryforward: The last year for loss carryforward Year 2016 (Note)
Note: According to the amendment of the Income Tax Act published by Presidential Decree Letter No. 09800014571 of January 21, 2009, a revision of Article 39 of the Income Tax Act extends the period for loss carryforward between profits and losses from five years to ten years. Under the new rules, the period of loss carryforward can be extended from year 2011 to 2016. For the years ended December 31, 2008 and 2007, under the consolidated corporate income tax return, the Bank had a net operating loss carryforward of $369,357 and $488,206, respectively, accounted for under receivables, of which $205,331 and $382,029 had been collected during 2008 and 2007, respectively. Chinatrust Commercial Bank Co., Ltd. (not restated) The Bank’s income tax returns through 2002 were examined by the Tax Authority. Under these examinations, the Tax Authority disallowed the tax credit being claimed on taxes withheld for accrued interest on bonds totaling $851,428 for the years from 1994 to 2002. The Bank reached an agreement with the National Tax Administration to receive a refund equal to 65% of these withholding taxes, and the effect on income tax was recorded with proper accounting treatment accordingly. The Bank’s income tax return for 2001 was examined by the Tax Authority. The Bank disagreed with the result of the tax appeal on the non-taxable interest revenue of the OBU and the balance of the imputation credit account (ICA), and filed an administrative appeal. The Bank learned the judgment of the Taipei High Administrative Court on October 22, 2007, revealing that it had lost the administrative appeal regarding the income tax return for 2001 made to the Court of First Instance against the Taipei National Tax Administration. The effect on income tax was recorded with proper accounting treatment accordingly. ĵķ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! The Bank’s income tax return for 2002 was examined by the Tax Authority. The Bank disagreed with the result of the tax appeal on the non-taxable interest revenue of the OBU and filed an administrative appeal. The Bank learned the judgment of the Taipei High Administrative Court on March 17, 2008, revealing that it had lost the administrative appeal regarding the income tax return for 2002 made to the Court of First Instance against the Taipei National Tax Administration. The effect on income tax was recorded with proper accounting treatment accordingly. Chinatrust Bills Finance Corp. (dissolved) The income tax returns through 2004 were examined by the Tax Authority. With regard to the interest on investments in bonds attributable to the periods, Chinatrust Bills Finance Corp. reached an agreement with the National Tax Administration to receive a refund equal to 60% of the withholding taxes for accrued interest on bonds, and the proper accounting treatment was recorded accordingly. (U) IMPUTATION CREDIT ACCOUNT As of December 31, 2008, the balance of the stockholders’ imputation credit account amounted to $207,864. The actual tax-deductible ratios of cash dividends and stock dividends on distribution of earnings were 13.32% and 21.47%, respectively. The balance of accumulated deficit for year 2006 amounted to $(11,633,878), and therefore, there was no tax-credit ratio. All of the ending balance of undistributed retained earnings arose from earnings in 1998 and thereafter. (V) CAPITAL STOCK On April 27, 2007, the board of directors, on behalf of the shareholders, resolved to implement a capital increase through private placement at NT$25 (dollars) per share and to capitalize the capital surplus by issuing 400,000 thousand and 7,495 thousand new shares, respectively. The date of the capital increase was June 28, 2007, and as of July 17, 2007, the Bank had completed the relevant registration process. On August 17, 2007, the board of directors, on behalf of the shareholders, resolved to implement a capital increase through private placement at NT$25 (dollars) per share by issuing 500,000 thousand new shares. The date of the capital increase was September 26, 2007, and as of October 12, 2007, the Bank had completed the relevant registration process. On April 26, 2008, the Bank merged with Chinatrust Bills Finance Corp. by issuing 314,160 thousand common shares to exchange for the shares of Chinatrust Bills Finance Corp., and as of May 15, 2008, the Bank had completed the relevant registration process. A resolution on the 2007 earnings distribution of the Bank was approved by the board of directors on behalf of shareholders on May 28, 2008. The resolution was changed by the board of directors during a board meeting on August 13, 2008, and the Supervisor’s Report was received. As a result of the resolution, the Bank will capitalize undistributed retained earnings by issuing 598,313 thousand new shares, and as of October 24, 2008, the Bank had completed the relevant registration process. ĵĸ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! As of December 31, 2008, the Bank’s authorized capital was $80,000,000, and paid-in capital for common stock was $71,731,860. (W) EARNINGS DISTRIBUTION AND DIVIDEND POLICY As a subsidiary of Chinatrust Financial Holding Company, Ltd., the Bank is required to fulfill the operating fund demands of the parent company and to maintain its own capital adequacy ratio. Therefore, common stock dividends and bonuses are generally distributed as cash dividends. The Bank adopts a constant and balanced dividend policy through annual common stock dividends and distribution of bonuses. The above-mentioned methodology is merely a guideline used to select an appropriate dividend policy. In consideration of current operations and capital budget planning for the next year, an appropriate dividend distribution ratio is selected. Annual earnings, if any, are used to pay taxes, to make certain adjustments in accordance with SFAS, and to offset cumulative losses. Then 30% of the remaining earnings is appropriated as legal reserve. Before the legal reserve balance reaches an amount equal to total paid-in capital, cash dividends are limited to 15% of total paid-in capital. When the legal reserve balance reaches an amount equal to total paid-in capital, the above restriction no longer applies. After the appropriation of legal reserve and special reserve according to law or regulation, the total amount of employee bonuses ranges from 0.01% to 0.05% of the remaining balance. Any additional distribution of the remaining amount after distribution plus the beginning balance of undistributed retained earnings will be proposed by the board of directors with a resolution approved by the board of directors on behalf of shareholders during a shareholders’ meeting. In years when the Bank makes a profit without violating Article 50 of the Banking Law, at least 10% of dividends will be appropriated and distributed in cash. Distribution of employee bonuses and the percentage actually distributed within the range of appropriation mentioned previously are subject to resolutions by the board of directors. For the year ended December 31, 2008, the Bank estimated the amount of employee bonuses at about $2,339 and recognized it as the Bank’s current-period expenses based on the Bank’s net income after tax for the current period and the most appropriate estimate within the percentage range provided in the Bank’s articles of incorporation. However, if later the actual allocation amount pursuant to a resolution of the Bank’s board of directors on behalf of shareholders or a resolution of a shareholders’ meeting of the parent company is different from the estimated number, the difference would be recognized in the profit or loss of the next year. A resolution on offsetting the 2006 deficit was approved by the board of directors on behalf of shareholders on April 27, 2007. A resolution on 2007 earnings distribution of the Bank was approved by the board of directors on behalf of shareholders on May 28, 2008, and the resolution was changed by the board of directors during a board meeting on August 13, 2008. The distribution of employee bonuses after adjustment amounted to $3,372. ĵĹ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! The relevant information on employee bonuses approved by the board of directors on behalf of shareholders can be accessed through the Market Observation Post System or other sites. (X) SHARE-BASED PAYMENT As of December 31, 2008, the Bank had set out the measurement principles and specific requirements for the share-based payment transactions for the three years from 2004 to 2006:
Grant date Grant number Exercise period Exercise price at grant date
Management stock appreciation rights plan for the years 2004 2005 2006 2005.2.4 2006.1.26 2007.2.14 85,573 44,003 45,537 (1) 2007.1.1~2007.6.30 2008.1.1~2008.6.30 (1) 2009.1.1~2009.6.30 (2) 2008.1.1~2008.6.30 (2) 2010.1.1~2010.6.30 $
33
$
25.86
$
22
Regarding the implementation of the preceding plan, the Bank could choose to proceed with the delivery of treasury stock of Chinatrust Financial Holding Company, Ltd. or cash settlement according to the quantity of treasury stock it currently held. When rights are exercised, the Bank has the right to make settlement in cash when an employee retires or is disqualified from receiving shares. When employees terminate their employment or are on leaves of absence without pay, they forfeit their stock appreciation rights. As of December 31, 2008, due to the recent volatility in stock prices, the Bank had decided to extend the exercise period of the 2006 management stock appreciation rights plan from January 1 to June 30, 2010. In addition, the 2008 long-term incentive plan was approved by the executive committee of the Bank on January 15, 2009. The share options granted under this share-based payment arrangement were 66,299 units, and the exercise price at grant date was NT$13.01 (dollars). The share-based payment arrangement is cash-settled, with the exercise period from January 1 to December 31, 2011. The current year’s service cost is recognized by the Bank in proportion to the vesting period for the year ended December 31, 2008. Disclosures for the Bank’s stock appreciation rights plan: For the year ended December 31, 2008 Management stock appreciation rights plan for the years 2004 2005 2006 WeightedWeightedWeightedaverage average average exercise exercise exercise Number price Number price Number price Outstanding at the beginning of the period Granted during the period Forfeited during the period Exercised during the period Expired during the period Outstanding at the end of the period Exercisable at the end of the period
16,972 15,548 1,424 -
23.29 23.29 23.29 23.29 23.29 23.29 23.29 ĵĺ
36,078 34,442 1,636 -
22.56 22.56 22.56 22.56 22.56 22.56 22.56
45,184 3,971 3,755 703 44,697 -
22.00 22.00 22.00 22.00 22.00 22.00 22.00
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! For the year ended December 31, 2007 Management stock appreciation rights plan for the years 2004 2005 2006 WeightedWeightedWeightedaverage average average exercise exercise exercise Number price Number price Number price Outstanding at the beginning of the period Granted during the period Forfeited during the period Exercised during the period Expired during the period Outstanding at the end of the period Exercisable at the end of the period
69,238 52,266 16,972 16,972
23.29 23.29 23.29 23.29 23.29 23.29 23.29
40,691 4,613 36,078 -
22.56 22.56 22.56 22.56 22.56 22.56 22.56
45,694 510 45,184 -
22.00 22.00 22.00 22.00 22.00 22.00 22.00
For the year ended December 31, 2008, the weighted-average stock prices on the date that the Bank’s employees actually exercised the stock appreciation rights of 2004, 2005 and 2006 were NT$28.93 (dollars), NT$28.84 (dollars) and NT$25 (dollars), respectively. As of December 31, 2008, the weighted-average remaining contractual term for the share options outstanding as a result of the adoption of the stock appreciation rights plan in 2006 was 1.5 years. In accordance with SFAS No. 39, the Bank recognizes expenses as a result of the adoption of share-based payment agreements. The disclosures of pro-forma net income and EPS for the period were as follows:
Net income EPS
Recognized net income Pro-forma net income Recognized EPS Pro-forma EPS
For the years ended D ecember 31, 2008 2007 12,551,841 $ 10,614,773 12,615,691 10,550,923 1.75 1.77 1.76 1.75
$
(Y) EPS For the years ended December 31 2007 After tax Before tax After tax $ 12,615,691 $ 12,919,962 $ 10,614,773 (63,850) $ 12,551,841 $ 12,919,962 $ 10,614,773
2008 Basic EPS Net income from continuing operations Cumulative effect of changes in accounting principles Net income attributable to common shareholders Weighted-average shares of common stock outstanding (in thousands) Basic EPS (in dollars): Net income from continuing operations Cumulative effect of changes in accounting principles Net income Basic EPS—retroactive adjustment Weighted-average shares of stock outstanding— retroactive adjustment (in thousands) Basic EPS—after retroactive adjustment (in dollars)
Before tax $ 14,341,278 (83,494) $ 14,257,784 7,173,186 $
2.00 (0.01) 1.99
$
7,173,186 $ $
1.76 (0.01) 1.75
6,012,681 $ $
2.15 2.15
$
6,559,835 1.97
6,012,681 $ $
1.77 1.77
$
6,559,835 1.62
No diluted EPS have been presented for the year ended December 31, 2008, as the Bank’s implementation of share-based payment transactions would proceed with the delivery of stock of the parent company, Chinatrust Financial Holding Company, Ltd., or cash settlement. Ķı
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (Z) FINANCIAL INSTRUMENTS (a)
Fair value of financial instruments December 31, 2008 Book value Fair value
Financial assets Non-Derivative Financial Instruments Cash Due from Central Bank and call loans to banks Financial assets measured at fair value through profit or lossѧnet Securities purchased under resell agreements Receivables ѧnet Loansѧnet Available-for-sale financial assetsѧnet Held-to-maturity financial assets Other financial assetsѧ net Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Warrants Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Commodity futures Equity swaps Equity index futures Hedging purpose: Non-delivery forwards Interest rate swaps
$
ĶIJ
35,547,192
$
35,547,192
89,351,447
89,351,447
76,313,291 2,196,787 112,066,493 837,211,803 84,579,831 168,134,913 17,252,940
76,313,291 2,196,787 112,066,493 837,211,803 84,579,831 168,949,621 17,271,184
1,858,229 4,281,595 4,084,966 1,955,949 62,264,994 16,284,472 6,331 102,446 391,784 7,190 61,531 241 46,766 8,988
1,858,229 4,281,595 4,084,966 1,955,949 62,264,994 16,284,472 6,331 102,446 391,784 7,190 61,531 241 46,766 8,988
15,614 2,739,050
15,614 2,739,050
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31, 2008 Book value Fair value
Financial liabilities Non-Derivative Financial Instruments Deposits from Central Bank and other banks Due to Central Bank and other banks Financial liabilities measured at fair value through profit or loss Securities sold under repurchase agreements Payables Deposits and remittances Financial debentures Other financial liabilities Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Interest rate futures Commodity futures Equity swaps Equity index futures Hedging purpose: Interest rate swaps
$
Ķij
17,360,924 4,762,580
$
17,360,924 4,762,580
2,287,890 72,156,210 43,681,210 1,144,742,834 91,728,631 1,065,952
2,287,890 72,156,210 43,681,210 1,144,742,834 91,728,631 1,065,952
1,322,179 4,323,544 4,441,683 2,182,030 60,059,598 17,674,660 360,160 286,635 7,190 61,252 21,826 444 46,766 1,207
1,322,179 4,323,544 4,441,683 2,182,030 60,059,598 17,674,660 360,160 286,635 7,190 61,252 21,826 444 46,766 1,207
14,055
14,055
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31, 2007 Book value Fair value
Financial assets Non-Derivative Financial Instruments Cash Due from Central Bank and call loans to banks Financial assets measured at fair value through profit or lossѧnet Securities purchased under resell agreements Receivables ѧnet Loansѧnet Available-for-sale financial assetsѧnet Held-to-maturity financial assets Other financial assetsѧ net Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Warrants Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Interest rate futures Margin trading Equity swaps Equity index swaps Hedging purpose: Non-delivery forwards Interest rate swaps
$
ĶĴ
16,906,044
$
16,906,044
140,475,818
140,475,818
65,420,305 2,646,683 135,547,117 793,951,969 124,204,847 138,000,532 11,143,632
65,420,305 2,646,683 135,547,117 793,951,969 124,204,847 137,813,438 11,158,980
833,270 3,045,364 3,669,571 592,104 18,157,844 4,978,566 1,037 240,348 65,444 18,516 85,846 11,404 64,395 20,017 24,016
833,270 3,045,364 3,669,571 592,104 18,157,844 4,978,566 1,037 240,348 65,444 18,516 85,846 11,404 64,395 20,017 24,016
1,230 373,081
1,230 373,081
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31,2007 Book value Fair value
Financial liabilities Non-Derivative Financial Instruments Deposits from Central Bank and other banks Due to Central Bank and other banks Financial liabilities measured at fair value through profit or loss Securities sold under repurchase agreements Payables Deposits and remittances Financial debentures Other financial liabilities Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Margin trading Equity swaps Hedging purpose: Non-delivery forwards Interest rate swaps
$
Ķĵ
45,190,659 5,199,007
$
45,190,659 5,199,007
2,708,883 88,132,665 54,565,250 1,101,157,675 84,735,663 2,041,602
2,708,883 88,132,665 54,565,250 1,101,157,675 84,735,663 2,041,602
565,228 2,923,581 3,709,435 1,957,894 15,627,475 7,600,179 164,170 49,052 18,994 85,781 1,433 21,930
565,228 2,923,581 3,709,435 1,957,894 15,627,475 7,600,179 164,170 49,052 18,994 85,781 1,433 21,930
1,372 459,943
1,372 459,943
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (b) Methods and assumptions used by the Bank for fair value evaluation of financial instruments were as follows: 1. Fair value of short-term financial instruments is estimated by their book value on the balance sheet date. Since these instruments have short-term maturities, the book value is adopted as a reasonable basis in estimating the fair value. The method is applied to cash, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, deposits from Central bank and other banks, remittances, securities sold under repurchase agreements, and payables. 2. If there is a quoted price in an active market for the financial asset, including financial instruments measured at fair value through profit or loss, and available-for-sale, held-to-maturity and hedging derivative financial assets, the quoted price is regarded as its fair value. If there is no quoted price in an active market for the financial asset, its fair value is estimated on the basis of the result of a valuation technique that refers to quoted prices provided by financial institutions. The discounted cash flow technique is used to estimate the fair value of a debt instrument where an active market does not exist. The estimates, hypotheses and discount rates for valuation refer to quoted prices, from financial institutions, of financial instruments having substantially the same terms and characteristics, including the credit quality of debtors, the remaining term over which the contractual interest rate is fixed, the remaining term to repayment of the principal, and the currency in which the payments are to be made. Fair value of debt investments without an active market accounted for under other financial assets is determined by the methods described above, and recorded in accordance with the “Regulations Governing the Preparation of Financial Reports by Publicly Held Banks” at cost after amortization. Fair value for an equity investment is determined based on either the price calculated using a valuation technique or its book value. 3. Loans and deposits are both classified as interest-bearing financial assets and liabilities; therefore, the book value of both financial assets and liabilities is equivalent to their fair value. The net book value of the non-accrual account, after deducting provision for credit loss, is adopted as the fair value. 4. Fair value of long-term liabilities is estimated by the present value of expected future cash flows. The discount rate is based on rates of equivalent loans available elsewhere, that is, loans with similar maturity date and terms (close to the maturity date.) 5. Fair value of financial derivatives is established by the amount of cash to be paid or to be received, assuming that the contract will be terminated on the balance sheet date. In general, it includes unrealized gains or losses on outstanding contracts of the current period. There are reference reports from financial institutions for most financial derivatives.
ĶĶ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (c) The fair values of the financial instruments of the Bank which were based on quoted market prices or determined by using certain valuation techniques were as follows: December 31, 2008 Based on quoted Determined by using market prices valuation techniques
Financial assets Non-Derivative Financial Instruments Cash Due from Central Bank and call loans to banks Financial assets measured at fair value through profit or lossѧnet Securities purchased under resell agreements Receivablesѧnet Loansѧnet Available-for-sale financial assetsѧnet Held-to-maturity financial assets Other financial assetsѧnet Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Warrants Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Commodity futures Equity swaps Equity index futures Hedging purpose: Non-delivery forwards Interest rate swaps
$
Ķķ
-
$
35,547,192
-
89,351,447
9,617,492 50,563,675 1,954,175 -
66,695,799 2,196,787 112,066,493 837,211,803 34,016,156 166,995,446 17,271,184
94,405 6,331 241 8,988
1,858,229 4,281,595 4,084,966 1,955,949 62,264,994 16,190,067 102,446 391,784 7,190 61,531 46,766 -
-
15,614 2,739,050
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31, 2008 Based on quoted Determined by using market prices valuation techniques
Financial liabilities Non-Derivative Financial Instruments Deposits from Central Bank and other banks Due to Central Bank and other banks Financial liabilities measured at fair value through profit or loss Securities sold under repurchase agreements Payables Deposits and remittances Financial debentures Other financial liabilities Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Interest rate futures Commodity futures Equity swaps Equity index futures Hedging purpose: Interest rate swaps
$
Ķĸ
-
$
17,360,924 4,762,580
2,287,890 -
72,156,210 43,681,210 1,144,742,834 91,728,631 1,065,952
107,617 21,826 444 1,207
1,322,179 4,323,544 4,441,683 2,182,030 60,059,598 17,567,043 360,160 286,635 7,190 61,252 46,766 -
-
14,055
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31, 2007 Based on quoted Determined by using market prices valuation techniques
Financial assets Non-Derivative Financial Instruments Cash Due from Central Bank and call loans to banks Financial assets measured at fair value through profit or lossѧnet Securities purchased under resell agreements Receivablesѧnet Loansѧnet Available-for-sale financial assetsѧnet Held-to-maturity financial assets Other financial assetsѧnet Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Warrants Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Interest rate futures Margin trading Equity swaps Equity index futures Hedging purpose: Non-delivery forwards Interest rate swaps
$
ĶĹ
-
$
16,906,044
-
140,475,818
20,261,169 50,761,050 4,133,356 -
45,159,136 2,646,683 135,547,117 793,951,969 73,443,797 133,680,082 11,158,980
60,138 1,037 11,404 24,016
833,270 3,045,364 3,669,571 592,104 18,157,844 4,918,428 240,348 65,444 18,516 85,846 64,395 20,017 -
-
1,230 373,081
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31, 2007 Based on quoted Determined by using market prices valuation techniques
Financial liabilities Non-Derivative Financial Instruments Deposits from Central Bank and other banks Due to Central Bank and other banks Financial liabilities measured at fair value through profit or loss Securities sold under repurchase agreements Payables Deposits and remittances Financial debentures Other financial liabilities Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Margin trading Equity swaps Hedging purpose: Non-delivery forward Interest rate swaps
$
-
$
45,190,659 5,199,007
2,708,883 -
88,132,665 54,565,250 1,101,157,675 84,735,663 2,041,602
83,185 -
565,228 2,923,581 3,709,435 1,957,894 15,627,475 7,516,994 164,170 49,052 18,994 85,781 1,433 21,930
-
1,372 459,943
(d) For the years ended December 31, 2008 and 2007, unrealized gains (losses) recognized from the fair value evaluation of financial instruments by using valuation techniques amounted to $1,531,020 and $(1,314,556), respectively. (e) For the years ended December 31, 2008 and 2007, the interest income arising from the financial assets and liabilities which were not carried at fair value through profit or loss by the Bank amounted to $49,540,752 and $54,059,269, respectively, while the interest expenses amounted to $24,945,924 and $27,345,326, respectively. For the years ended December 31, 2008 and 2007, adjustments of available-for-sale financial assets recognized as adjustments of stockholders’ equity amounted to $(5,157,206) and $(1,531,826), respectively; losses resulting from such adjustments were recognized in current profit or loss on available-for-sale financial assets amounting to $(419,796) and $(547,919), respectively.
Ķĺ
CHINATRUST COMMERCIAL BANK CO., LTD. (CONT’D) NOTES TO FINANCIAL STATEMENTS ! (f)
Financial risk information
! ! !
1. Market risk Currency/ Country
December 31, 2008
December 31, 2007
$
$
FX factor sensitivity (FX Delta) EUR JPY USD Others Interest rate factor sensitivity (PVBP) Cross currency swaps curve
Interest rate swaps curve
Forward curve
Bond yields curve
441,416 30,624 2,520,538 165,881
JPY NTD Others EUR JPY NTD USD Others EUR JPY NTD Others NTD USD
(17) 993 (4) (58) 1,868 (401) (1,979) (88) 403 (545) 186 (31,573) (2,729)
Taiwan U.S.A.
542,071 (73,466)
260,843 (196,525) 3,720,866 3,116,922
(104) 3,373 207 126 737 4,963 (330) (169) 43 267 (455) (30,986) (2,391)
Equity factor sensitivity (Equity Delta) 2,001,719 ʳ
The Bank is exposed to market risk via trading and non-trading activities, including spot and derivative financial instrument transactions, bound by market risk limits approved by the board. The objectives of such exposures are mainly to satisfy its customers’ financing, hedging or investment needs and to establish the Bank’s proprietary positions. The Bank takes proprietary positions to manage its own exposures as well as to generate profits. The Bank utilizes market risk factor sensitivity as a tool to manage market risk. Market risk factor sensitivity of a position is defined as the change in the value of the position with respect to a unit shift of a particular market risk factor. Market risk factors include interest rates, foreign exchange rates, and equity. The calculation of the market risk factor sensitivity is obtained by measuring the effect of one unit increase in market risk factor, including interest rates, foreign exchange rates and equity. The difference in the before and after position is referred to as market risk factor sensitivity, which is used to disclose the effect of value changes due to having various positions with market risk. ķı
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Foreign exchange rate factor sensitivity (FX Delta) represents the change in the net present value of the foreign exchange positions with respect to a 100% change in the underlying currency’s exchange rate. The FX Delta risk is composed of the FX exposure of derivatives, the foreign exchange positions for hedging purposes, and the foreign currency cash position. Interest rate factor sensitivity (PVBP, present value of one basis point) represents the change in the net present value of the interest rate positions with respect to a parallel shift of 0.01% (1 bp) in the term structure of yield curves. The Bank’s interest rate products include bonds, interest rate swaps, FRA, caps/floors, and structured products composed of such products. Equity factor sensitivity (Equity Delta) represents the change in the net present value of the equity positions with respect to a 100% change in the underlying stock or index prices. The Bank’s equity portfolios include stocks, convertible bonds, equity index options and equity options. Nationality recognition is determined by the country of the competent supervisory authority of the stock exchange where the underlying stocks of the equity portfolios are traded. The Bank sets the market risk limits by first taking into consideration the market movement prediction, its net worth, and the revenue budgets of the risk-taking units to estimate its exposure to market risk. The Bank then incorporates correlation coefficients estimation among different market risk factors along with a value-at-risk approach to analyze whether the potential loss is justifiable based on the revenue budgets. The market risk limits are determined based on the above analysis, the experience of the trader, and the risk appetites of the Bank. 2. Credit risk Possible loss may occur in the event of non-performance by counterparties to financial instrument contracts issued or held by the Bank. However, the credit rating of the counter-parties will be determined before entering into transactions such as loans, loan commitments and certain guarantees. Moreover, the sufficiency of collateral provided by counter-parties will also be evaluated. If the counterparty or third party fails to perform the obligation, the Bank is granted the right to request an injunction regarding that collateral. Therefore, the credit risk is reduced. Such procedures have effectively reduced the credit risk of the Bank. Furthermore, the transaction amount is within the range of the credit rating, so the possibility of breaching the contract is low. The possible reduction of the fair value of the credit line and the net settlement of collateral received are not considered when disclosing the maximum exposure to credit risk. The amount of credit risk of the Bank refers to contracts with positive fair value on the balance sheet date.
ķIJ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! The analysis of the maximum exposure to credit risk of the financial instruments held was as follows:
December 31, 2008 Maximum exposure to Book value credit risk
Financial instruments Non-Derivative Financial Instruments Financial assets measured at fair value through profit or lossѧnet Securities purchased under resell agreements Receivablesѧnet Loansѧnet Available-for-sale financial assetsѧnet Held-to-maturity financial assets Other financial assetsѧnet Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Warrants Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Commodity futures Equity swaps Equity index futures Hedging purpose: Non-delivery forwards Interest rate swaps
$
ķij
76,313,291
$
76,313,291
2,196,787 112,066,493 837,211,803 84,579,831 168,134,913 17,252,940
2,196,787 112,066,493 837,211,803 84,579,831 168,134,913 17,252,940
1,858,229 4,281,595 4,084,966 1,955,949 62,264,994 16,284,472 6,331 102,446 391,784 7,190 61,531 241 46,766 8,988
1,858,229 4,281,595 4,084,966 1,955,949 62,264,994 16,284,472 6,331 102,446 391,784 7,190 61,531 241 46,766 8,988
15,614 2,739,050
15,614 2,739,050
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31, 2007 Maximum exposure to Book value credit risk
Financial instruments Non-Derivative Financial Instruments Financial assets measured at fair value through profit or lossѧnet Securities purchased under resell agreements Receivablesѧnet Loansѧnet Available-for-sale financial assetsѧnet Held-to-maturity financial assets Other financial assetsѧnet Derivative Financial Instruments Trading purpose: Forwards Non-delivery forwards Currency swaps Cross currency swaps Interest rate swaps Options Warrants Asset swaps Credit default swaps Commodity-linked interest rate swaps Commodity-linked forward contracts Interest rate futures Margin trading Equity swaps Equity index futures Hedging purpose: Non-delivery forwards Interest rate swaps
$
65,420,305
$
65,420,305
2,646,683 135,547,117 793,951,969 124,204,847 138,000,532 11,143,632
2,646,683 135,547,117 793,951,969 124,204,847 138,000,532 11,143,632
833,270 3,045,364 3,669,571 592,104 18,157,844 4,978,566 1,037 240,348 65,444 18,516 85,846 11,404 64,395 20,017 24,016
833,270 3,045,364 3,669,571 592,104 18,157,844 4,978,566 1,037 240,348 65,444 18,516 85,846 11,404 64,395 20,017 24,016
1,230 373,081
1,230 373,081
ʳ
Information on concentrations of credit risk Significant concentrations of credit risk exist when there are significant exposures to an individual counterparty to a transaction or a number of related counterparties engage in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. There are no significant concentrations of credit risk within the Bank in terms of a single client or counterparty to a transaction, or clients located in nearby regions, except for clients being in a single industry with similar industrial characteristics.
ķĴ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Contracts with concentration of credit risk were as follows: (In Millions of New Taiwan Dollars) By Industry
December 31, 2008 $ 395,632 178,701 43,994 35,659 14,823
Individual Clients Manufacturing Sector Financial Industry Public Sector Construction Industry
December 31, 2007 $ 396,344 150,177 47,319 31,783 12,814
Financial instruments with off-balance-sheet credit risk Since the Bank provides loans and issues credit cards, it has substantial credit commitments, most of which are confined to one year. Furthermore, the Bank provides guarantee endorsements, guarantee endorsements for commercial paper, and commercial letters of credit as a guarantee for clients’ obligations to third parties (included in loan commitments). Contract amounts of financial instruments with off-balance-sheet credit risk were as follows: December 31, 2008 $ 631,165,475 403,428,472 $ 1,034,593,947
Unused lines of credit Unused credit card commitments
December 31, 2007 $ 891,036,930 418,023,305 $ 1,309,060,235
As of December 31, 2008 and 2007, non-cancelable credit limits of unused credit facilities were $133,410,678 and $147,302,986, respectively. Since these financial instruments are not settled prior to maturity, the contract amount does not represent cash outflow in the future; that is, demand for cash in the future is lower than the contract amount. If lines of credit are reached and collateral or other guarantees are completely worthless, credit risk is equivalent to the contract amount, which is the maximum possible loss. However, prior to providing loans, guarantee endorsements, guarantee endorsements for commercial paper, and commercial letters of credit, the Bank performs a strict credit review and grants appropriate lines of credit based upon review results. For credit card facilities, no collateral is required, but the credit status of the credit card holder is closely monitored, and the credit limit will be amended if necessary. When providing a guarantee endorsement for commercial paper for a client with a specific risk, the Bank will request the client to furnish appropriate collateral. The acceptable collateral for guarantee endorsement for commercial paper includes bonds, time deposits, securities and real estate. If the counterparty fails to comply with its obligation, the Bank is granted the right to dispose of that collateral, and the credit risk of the Bank is therefore reduced. ķĵ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 3. Liquidity risk Since notional principals of financial derivatives, rather than the amounts actually paid or received, are generally used to calculate payables or receivables of parties to transactions, amounts settled are generally lower than notional principals. Since financial derivatives held by the Bank are denominated in major currencies with active trading and reverse transactions are readily available to offset positions, liquidity risk is deemed to be low. The Bank sets a maximum cumulative outflow (MCO) benchmark in monitoring the maturity of the assets and liabilities on the settlement date. In order to prevent over-reliance on short-term funds, the management sets a benchmark in monitoring the short-term borrowings and repurchase transactions. Those indexes are within the benchmark pre-set; therefore, liquidity risk is considered low. 4. Cash flow risk and fair value risk arising from interest rate fluctuation In considering the possibility of future cash flow risk arising from floating-interest-rate assets and liabilities due to market interest rate fluctuation, the Bank entered into interest rate swap transactions to hedge against the cash flow risk arising from market interest rate fluctuation. A.
Information on expected interest rate reset date and maturity date As of December 31, 2008 and 2007, the reset and maturity dates were not affected by the contract date. The interest rate risk exposures on assets and liabilities were as shown below. Non-derivative financial assets and liabilities were presented at book value (prior to deducting allowance for bad debts, evaluation adjustments, and accumulated impairment), and derivative financial assets and liabilities were presented at book value allocated to time bands by reference to the earlier of the next interest rate reset date or maturity date. The financial instruments held or issued were as follows:
ķĶ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! December 31, 2008 Between Between 181 days and 1 year Over 1 year 91 and 180 days
Between 0 and 90 days Assets Interest-rate-sensitive assets Due from and call loans to banks Non-derivative financial assets measured at fair value through profit or loss Derivative financial assets measured at fair value through profit or loss Securities purchased under resell agreements Loans Available-for-sale financial assets Held-to-maturity financial assets Other financial assets Liabilities Interest-rate-sensitive liabilities Deposit from Central Bank and other banks Due to Central Bank and other banks Non-derivative financial liabilities measured at fair value through profit or loss Derivative financial liabilities measured at fair value through profit or loss Securities sold under repurchase agreements Deposits Financial debentures Other financial liabilities
$ 65,069,833
$
5,712,569
$ 3,062,012
75,221,746
400,000
-
-
75,621,746
66,018,658
7,513,179
3,617,877
3,162,446
80,312,160
2,196,787
-
-
-
2,196,787
706,446,438 21,949,293 118,862,845 8,502,666
35,898,524 2,848,105 18,991,000 (2,711,549)
15,869,168
1,312,205
$
Total
25,035,015 5,647,975 3,404,787 (359,796)
23,981,691
71,093,053 46,295,037 26,876,281 (1,543,524)
36,000
-
$
97,826,105
838,473,030 76,740,410 168,134,913 3,887,797
17,217,373
4,762,580
-
-
-
4,762,580
2,201,156
-
-
-
2,201,156
63,540,421
8,058,571
2,821,939
5,386,971
79,807,902
71,267,549
757,110
131,551
-
72,156,210
499,897,643 45,613,377 14,055
477,592,644 5,079,067 -
142,311,688 -
14,203,084 38,319,301 139,193
1,134,005,059 89,011,745 153,248
Chinatrust Commercial Bank Co., Ltd. (not restated)
Between 0 and 90 days Assets Interest-rate-sensitive assets Due from and call loans to banks Non-derivative financial assets measured at fair value through profit or loss Derivative financial assets measured at fair value through profit or loss Loans Available-for-sale financial assets Held-to-maturity financial assets Other financial assets Liabilities Interest-rate-sensitive liabilities Deposit from Central Bank and other banks Due to Central Bank and other banks Derivative financial liabilities measured at fair value through profit or loss Securities sold under repurchase agreements Deposits Financial debentures Other financial liabilities
$
76,261,211
December 31, 2007 Between Between 181 days 91 and 180 days and 1 year
Over 1 year
Total
$
4,471,585
$ 25,027,030
$ 139,926,157
-
-
31,687,295
31,687,295
34,166,331 -
$
20,427,511
4,303,689
2,583,382
577,685,093 50,763,766 79,872,012 9,353,129
39,865,652 15,988,686 8,541,000 350,676
36,557,125 7,678,749 25,330,425 -
2,452,961
42,963,612
429,047
18,000
-
43,410,659
5,199,007
-
-
-
5,199,007
17,513,504
4,085,042
2,706,362
6,223,325
30,528,233
58,780,483
598,843
22,691
-
59,402,017
497,139,217 43,891,775 457,272
478,023,208 6,550,000 4,043
105,993,941 300,000 -
8,019,972 27,350,000 162,945
1,089,176,338 78,091,775 624,260
141,464,958 32,353,846 24,257,095 (7,355,907)
29,767,543 795,572,828 106,785,047 138,000,532 2,347,898
Note: The above analysis excludes non-interest-bearing assets and liabilities, equity instruments, and accumulated impairment. ķķ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Chinatrust Bills Finance Corp. (dissolved)
Less than 30 days Liabilities Corporate bonds payable
$
-
December 31, 2007 Between Between 91 days 31 and 90 days and 1 year
Between 1 and 7 years
$
$
1,500,000
$
2,000,000
-
Total $
3,500,000
B. Effective interest rates (excluding financial assets held for trading) As of December 31, 2008 and 2007, the effective interest rates of financial instruments held or issued by the Bank were classified by currency as follows:
Financial instruments Assets Due from Central Bank Due from and call loans to other banks Securities purchased under resell agreements Available-for-sale financial assets Held-to-maturity financial assets Loans Receivablesѧcredit card Liabilities Deposits Due to other banks Borrowing and other financing Securities sold under repurchase agreements
December 31, 2008 NTD USD 0.93% 2.01% 2.37% 2.42% 2.15% 3.79% 15.63%
1.56% 1.81% 4.57% 3.73% -
1.47% 1.74% 2.91% 1.89%
0.59% 0.87% 0.79% 4.28%
Chinatrust Commercial Bank Co., Ltd. (not restated)
Financial instruments Assets Due from Central Bank Due from and call loans to other banks Securities purchased under resell agreements Available-for-sale financial assets Held-to-maturity financial assets Debt investment without active market Loans Receivablesѧcredit card Liabilities Deposits Due to other banks Borrowing and other financing Securities sold under repurchase agreements ķĸ
December 31, 2007 NTD USD 0.95% 2.05% 0.21% 1.99% 1.99% 3.81% 14.26%
2.96% 5.12% 3.97% 4.51% 4.65% -
1.30% 1.80% 2.68% 1.74%
0.86% 1.04% 1.35% 5.17%
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Chinatrust Bills Finance Corp. (dissolved) Please refer to Note 10(D). C. Effects of interest rate risk exposure arising from hedge transactions The effects of interest rate risk exposure from hedge transactions of the Bank are presented based on the present value of one basis point (PVBP) as follows: PVBP December 31,
Hedging instruments
Hedged items Fair value hedge Structured deposits in USD Financial debentures in NTD ϛ Subordinate debentures in USD Cash flow hedge Financial debentures in NTD ϛ
2008
2007
Interest rate swaps ϛ ϛ ϛ
USD NTD USD USD
(3,187) (285)
(13) (9,505) (67) (320)
Interest rate swaps ϛ
NTD USD
(2) 6
(875) -
(g) Fair value and cash flow hedges 1. Fair value hedge In order to minimize the risk from future market interest rate fluctuation, the Bank entered into interest rate swap transactions, where the interest rate payable on fixed-interest-rate debts issued has been swapped with the floating interest rate to reduce such interest risk. The Bank further entered into non-delivery forwards; these contracts are principally to hedge against the foreign exchange fluctuation of USD working capital of the domestic banking unit.
Hedged items Structured deposits in USD Perpetual subordinated debentures in USD Subordinated debentures in NTD Financial debentures in NTD Capital of Domestic Banking Unit in USD
Designated hedging instruments Fair value December 31, 2008 2007 Interest rate swaps $ $ (41,253)
Financial assets designated as hedging instruments
ϛ ϛ ϛ Non-delivery forwards
ķĹ
2,471,242 (14,055) 244,393 15,614
350,676 (372,979) (40,832) (142)
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 2. Cash flow hedge In order to minimize the uncertainty of future cash flow risk from future market interest rate fluctuation, the Bank entered into interest rate swap transactions, where the structural interest rate payable on structural debts issued has been swapped with a fixed interest rate.
Hedged items Financial debentures in NTD
Designated hedging instruments Financial Fair value instruments designated as December December hedging instruments 31, 2008 31, 2007 Interest rate swaps
ʵ
$
ʵ
23,415
Expected recognition period of gain or loss
(4,043)
None
2006~2008
21,569
2009~2011
2009~2011
For the years ended December 31, 2008 2007
Items Amount of current adjustment to equity
(h)
$
Expected period of cash flow
$
4,416
$
83,868
Risk control and hedging strategy The objective of market risk management is to set a reasonable market risk allowance to attain the maximum economic benefit. In order to achieve the goal of risk management, the Bank applies various risk controls, which include estimating a reasonable risk allowance, setting an appropriate market risk quota, and constructing efficient hedging strategies, to lower the potential adverse impacts on net interest revenue and market price fluctuation. The Bank’s hedging mechanisms include cash flow hedge and fair value hedge. Under cash flow hedge, transactions with variable future cash flows arising from interest-earning assets and interest-bearing liabilities will be converted into transactions with more constant cash flows in order to minimize the variability in cash flows. Under fair value hedge, the exposure to transactions with fixed income or structured transactions will be mitigated through the use of derivative financial instruments, which will minimize the exposure to change in fair value of an asset or liability.
ķĺ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (AA) (a)
INFORMATION ON RECLASSIFICATION OF FINANCIAL ASSETS Commencing from July 1, 2008, the Company retroactively adopted the second amendment of SFAS No. 34 “Financial Instruments: Recognition and Measurement” and proceeded to reclassify its financial assets. The fair value at the reclassification date was determined as follows: For the year ended December 31, 2008 Reclassified Available-for-sale financial assets Items which were initially classified as financial assets held for trading
$
12,567,964
Due to the dramatic changes in the domestic and global financial and economic trends in recent periods, where the facts and circumstances indicated that the situations were those rare ones stated in item 1, (3) N of paragraph 104 of SFAS No. 34 “Financial Instruments: Recognition and Measurement,” the Bank reclassified its stock investments to available-for-sale financial assets from those classified as held for trading at initial recognition. (b)
Book value and fair value of financial assets which were reclassified For the year ended December 31, 2008 Book value Fair value Available-for-sale financial assets
(c)
$
6,325,415
$
6,325,415
Recognizing reclassification of financial assets measured at fair value through profit or loss in gain or loss or in equity Items which were classified as financial assets held for trading Losses on financial assets The amount recognized measured at fair value in profit or loss under through profit or loss if reclassification not reclassified For the year ended December 31, 2008
$
(6,242,549)
$
-
For the years ended December 31, 2008 and 2007, gains (losses) on the Bank’s financial assets prior to the reclassification of financial assets from the trading category amounted to $1,546,826 and $(2,209,752), respectively.
ĸı
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 5.
RELATED-PARTY TRANSACTIONS (A) Names of the related parties and their relationship with the Bank Name of Related Party
Relationship with the Bank
Chinatrust Financial Holding Company, Ltd. Chinatrust (Philippines) Commercial Bank Corporation PT Bank Chinatrust Indonesia CTC Bank of Canada Chinatrust Capital Corporation Grand Bills Finance Corporation GCB Finance (HK) Limited Chinatrust Forex Corporation Chinatrust Securities Investment Consultancy Co., Ltd. Chinatrust Bank (U.S.A.) CTC Group Inc. Taiwan Institute of Economic Research Chung Cheng Investment Co., Ltd. Overseas Investment & Development Co., Ltd. China Development Industrial Bank Chinatrust Securities Co., Ltd. CTCB (Mauritius) Holding Company, Ltd. Chinatrust Asia Limited Chinatrust Insurance Brokers Corp., Ltd. Chinatrust Venture Capital Corp. Chinatrust Asset Management Co., Ltd. Chinatrust Security Co., Ltd. CT Opportunity Investment Company Tuo Yu Asset Management Servicing Co., Ltd. Chung Shin-1 Asset Management Co., Ltd. Taiwan Lottery Co., Ltd. Chinatrust Charity Foundation Chinatrust Culture Foundation Chailease Finance Co., Ltd. Chinatrust Recreation Company, Ltd. United Engineering Corp. Tectonics Laboratories Co., Ltd. Advanced Synchronous Solutions Company Limited Linearity Company Limited Doppler Precision Co., Ltd. Other related parties
ĸIJ
Parent company of the Bank An investee company carried under the equity method ϣ ϣ ϣ ϣ ϣ ϣ(Liquidating) ϣ An investee company carried under equity method by Chinatrust Capital Corporation An immediate family member of the President of the Bank (resigned in year 2007) is its Chairman ϣ ϣ The Bank is its Chairman An immediate family member of the Chairman of the parent company is its Chairman Controlled by the same company which controls the Bank ϣ ϣ ϣ ϣ ϣ ϣ ϣ ϣ ϣ ϣ The Bank contributed over 1/3 of its total funds ϣ Related party in substance ϣ! ϣ ϣ (Note 1) ϣ ϣ ϣ Including directors, supervisors, managers and their families, spouses, etc. (Note 2 and Note 7(D))
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Note 1: Steven C. Z. Cheng, the former general manager of the Institutional Group of the Bank, had the authority to sign for major bank accounts of these related parties in substance without prior notice to the board of the Bank. The Bank and its parent company, Chinatrust Financial Holding Company, Ltd., were not involved with the fund management of these companies. For the major bank accounts of these related parties in substance, the person with signing authority had been changed to non-related parties, and the accounts had been closed as of December 31, 2006. Steven C.Z. Cheng, the former general manager of the Institutional Group of the Bank, resigned in March 2007. Note 2: According to the 2007 Chong-Su-Zi No. 19 Criminal Judgment delivered by the Taipei District Court on October 7, 2008, Red Fire Developments Limited (Red Fire), a counterparty to the Bank’s structured notes transaction, was substantially controlled by Mr. Steven C.Z. Cheng, the former general manager of the Institutional Group of the Bank, at that time, and hence the transaction was deemed a related-party transaction between Red Fire and the Bank. However, regarding the relationship described as aforesaid, Mr. Steven C.Z. Cheng had never reported it to the board members of the Bank or of the Bank’s parent company, Chinatrust Financial Holding Company, Ltd. Pursuant to the judgment and the principle of substantial recognition, the Bank deemed Red Fire as a related party in substance. (B) Significant transactions between related parties and the Bank (a)
Lease For the years ended December 31, 2008 and 2007, rental revenue the Bank received from related parties for the rental of buildings and parking spaces amounted to $46,136 and $48,541, constituting 30.42% and 32.10%, respectively, of total rental income. For the years ended December 31, 2008 and 2007, the guarantee deposit for the use of space and machinery received from related parties amounted to $4,520 and $3,695, respectively. For the years ended December 31, 2008 and 2007, the guarantee deposit for renting a safe deposit box from related parties amounted to $5, and the rental of a safe deposit box from related parties amounted to $9.
(b) Commissions and service fees For the years ended December 31, 2008 and 2007, the Bank traded listed and OTC securities through Chinatrust Securities Co., Ltd. and paid brokerage fees to Chinatrust Securities Co., Ltd. amounting to $11,085 and $13,084, respectively. (c) Site usage fee For the years ended December 31, 2008 and 2007, the Bank paid Chinatrust Securities Co., Ltd. site usage fees and other related expenses for operations amounting to $24,198 and $29,502 ($1,890 and $2,352 accounted for under payables), respectively.
ĸij
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (d) Donations
Related party Chinatrust Culture Foundation Chinatrust Charity Foundation Total
$ $
For the years ended December 31, 2008 2007 42,060 $ 45,156 68,983 28,000 111,043 $ 73,156
(e) Guarantees Maximum balance Related party Grand Bills Finance Corporation $ 1,533,000
Chailease Finance Co., Ltd. PT Bank Chinatrust Indonesia
122,400 23,651
Maximum balance Related party Grand Bills Finance Corporation $ 1,533,000
Chailease Finance Co., Ltd. PT Bank Chinatrust Indonesia
214,200 75,452
For the year ended December 31, 2008 Ending Guarantee Interest Collateral balance reserve rate $1,533,000 $ 0.10% Central government bonds, financial debentures and structural deposits 0.90% None 0.00% None
For the year ended December 31, 2007 Ending Guarantee Interest Collateral balance reserve rate $ 1,533,000 $ 0.10% Central government bonds, NCD and structural deposits 0.90% None 122,400 23,831 0.25% None
The above commission and service rates are substantially the same as for comparable transactions with third-party counterparties. (f)
Loans
Categories Consumer loanЁ employee Home loan mortgage Others
ϣ ϣ
For the year ended December 31, 2008 Settlement status No./name of Maximum Ending Normal Overdue related parties balance balance loans loans Collateral 40 $ 19,934 $ 10,926 $ 10,926 $ - Automobile 143 Chailease Finance Co., Ltd. Chinatrust Security Co., Ltd. Others
573,768 339,000
450,445 138,162
450,445 138,162
-
Real estate Real estate and machinery
30,000
-
-
-
None
12,519
3,962
3,962
-
ĸĴ
ϣ
Loan conditions (Note) ϣ ϣ
ϣ ϣ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! !
Categories Consumer loanЁ employee
No./name of related parties 39
For the year ended December 31, 2007 Settlement status Maximum Ending Normal Overdue balance balance loans loans Collateral $ 14,408 $ 7,897 $ 7,897 $ - Automobile
Home loan mortage 130 Others Chailease Finance Co., Ltd.
ϣ ϣ
CTC Group Inc. Chinatrust Culture Foundation
ϣ
Others
568,369 1,770,000
457,919 339,000
457,919 339,000
-
635,280 296
583,974 -
583,974 -
-
1,192
783
783
Real estate Listed/OTC securities, notes receivableЁ cheque and machinery Real estate None
-
ϣ
Loan conditions (Note) ϣ ϣ
ϣ ϣ ϣ
Note: The above rates of loans are substantially the same as for comparable transactions with third-party counterparties. (g) Deposits For the year ended December 31, 2008 Maximum Related party CT Opportunity Investment Company
Ending
Range of
Interest
balance 4,092,938
balance $ 3,457,762
Chinatrust Financial Holding Company, Ltd.
8,598,680
3,735,644
0~2.19%
52,962
Chinatrust Securities Co., Ltd.
2,008,881
1,130,631
0~2.71%
18,266
Grand Bills Finance Corporation
1,753,991
752,030
0~1.30%
13,849
Chinatrust Venture Capital Corp.
802,447
427,740
0~3.90%
8,613
Taiwan Lottery Co., Ltd.
767,881
278,256
0~1.86%
4,237
Chailease Finance Co., Ltd.
307,310
191,139
0~2.73%
2,344
3,209,038
192,198
0.01~3.90%
3,570
Chinatrust Charity Foundation
279,046
212,609
0~1.74%
625
Chinatrust Asia Limited
152,187
146,209
0~7.55%
3,653
$
Chinatrust Asset Management Co., Ltd.
Overseas Investment & Development Co., Ltd.
interest rates expense 0.01~4.30% $ 77,380
148,094
126,782
0~4.20%
3,150
Chinatrust Insurance Brokers Corp. Ltd. Chinatrust (Philippines) Commercial Bank Corporation GCB Finance (HK) Limited
1,682,754
885,469
0~0.10%
507
208,762
208,762
0.10~0.35%
46
428,092
343,263
0~2.00%
Others
3,470,327
1,122,806
14,736
$ 27,910,428
$ 13,211,300
$ 204,047
Total
ĸĵ
109
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! For the year ended December 31, 2007 Maximum Related party CT Opportunity Investment Company
Ending
Range of
Interest
balance 3,326,206
balance $ 3,326,206
24,985,180
1,425,796
0~5.50%
427,066
Grand Bills Finance Corporation
2,172,372
1,751,811
0~1.73%
23,614
Chinatrust Insurance Brokers Corp., Ltd.
1,699,098
267,500
0~0.10%
637
Chinatrust Securities Co., Ltd.
4,720,422
845,076
0~2.53%
14,357
$
Chinatrust Financial Holding Company, Ltd.
interest rates expense 0.01~5.09% $ 150,836
GCB Finance (HK) Limited
333,420
333,420
0.01~0.10%
Chinatrust Venture Capital Corp.
612,876
422,909
0~5.63%
375,647
146,292
0~1.57%
Chinatrust Asset Management Co., Ltd.
Taiwan Lottery Co., Ltd.
1,302,812
177,465
0.10~5.24%
Taiwan Institute of Economic Research
236,891
198,943
0~2.61%
158 13,776 904 7,328 310
Overseas Investment & Development Co., Ltd.
160,553
148,336
0~4.60%
4,009
Chinatrust Asia Limited
173,153
147,874
0~5.70%
7,579
0~2.54%
Chailease Finance Co., Ltd. Others Total
195,584
159,724
4,314,508
1,385,073
13,831
1,347
$ 44,608,722
$ 10,736,425
$ 665,752
The deposits interest rates above on deposits are substantially on the same terms as for comparable transactions with third-party counterparties. (h) Call loans to banks
Related party Chinatrust (Philippines) Commercial Bank Corporation PT Bank Chinatrust Indonesia Chinatrust Bank (U.S.A) Grand Bills Finance Corporation Total
Related party Chinatrust (Philippines) Commercial Bank Corporation PT Bank Chinatrust Indonesia Total
For the year ended December 31, 2008 Range of Ending balance interest rates Interest income $
657,200 657,200
$
0.75~8.25% 2.35~5.50% 0.50% 1.51~2.07%
$
$
2,057 1,252 46 120 3,475
For the year ended December 31, 2007 Range of Ending balance interest rates Interest income $
47,527 324,430 371,957
$
ĸĶ
1.44~5.56% 5.00~5.80%
$ $
2,373 1,386 3,759
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (i)
Due to banks December 31, Related party PT Bank Chinatrust Indonesia Chinatrust (Philippines) Commercial Bank Corporation Total
2008
2007
$
24,874 103,850
$
9,628 6,173
$
128,724
$
15,801
In accordance with international practice, the above accounts are non-interest-bearing items. (j)
Due from banks December 31, Related party Chinatrust (Philippines) Commercial Bank Corporation Chinatrust Bank (U.S.A.) CTC Bank of Canada Total
2008
2007
$
13,242
$
1,639,856 1,870 1,654,968
$
877
$
17,292 13,177 31,346
In accordance with international practice, the above accounts are non-interest-bearing items. (k) Financial derivatives December 31, 2008
Related party China Development Industrial Bank Ƀ
Derivative financial instruments Swaption Interest rate swaps
Ƀ
Interest rate swaps
Ƀ
Currency swaps
Ƀ
Currency swaps
Ƀ
Spot exchange
Grand Bills Finance Corporation
Interest rate swaps
Contract period 2008.09.04~ 2009.05.11 2008.03.13~ 2012.03.14 2006.09.27~ 2013.11.25 2008.06.05~ 2009.06.09 2008.12.23~ 2009.09.28 2008.12.31~ 2009.01.06 2004.12.22~ 2010.01.25
Notional principal NTD 9,000,000
Balance sheet Unrealized Ending profit/loss Account balance $ (153,242) (Note 2) $ (96,242)
KRW
50,000,000
(37,122)
(Note 2)
(37,122)
NTD
11,994,000
81,276
(Note 1)
63,037
NTD
1,926,100
(4,185)
(Note 2)
(4,185)
USD
60,000
537
(Note 1)
537
USD
1,000
(59)
(Note 2)
(59)
NTD
1,500,000
(20,369)
(Note 2)
(16,951)
December 31, 2007
Related party China Development Industrial Bank Grand Bills Finance Corporation
Derivative financial instruments Interest rate swaps Interest rate swaps
Contract period 2006.09.27~ 2012.12.24 2004.12.22~ 2010.01.25
Notional principal NTD 5,400,000 NTD
1,500,000
Balance sheet Unrealized Ending profit/loss Account balance $ (19,882) (Note 2) $ (18,239) (17,936)
(Note 1)
3,417
Note 1: Accounted for under financial assets measured at fair value through profit or loss. ĸķ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Note 2: Accounted for under financial liabilities measured at fair value through profit or loss. (l)
Trading of bills and bonds
Related party Chinatrust Securities Co., Ltd. Grand Bills Finance Corporation China Development Industrial Bank
For the year ended December 31, 2008 Bills and Bills and bonds purchased bonds sold $ 4,771,107 $ 3,793,147 5,643,702 4,240,251 4,232,307 5,497,621
Related party Chinatrust Securities Co., Ltd. Grand Bills Finance Corporation China Development Industrial Bank Chinatrust Insurance Brokers Corp., Ltd. Chailease Finance Co., Ltd. United Engineering Corp. Chung Cheng Investment Co., Ltd.
For the year ended December 31, 2007 Bills and Bills and bonds purchased bonds sold $ 898,568 $ 1,449,040 19,254,606 16,361,697 7,062,974 12,650,576 458,108 649,006 29,951 922,325 -
(m) Securities sold under repurchase agreements
For the year ended December 31, 2008 Related party Ending balance Chinatrust Financial Holding Company, Ltd. $ 423,058 Chinatrust Insurance Brokers Corp., Ltd. Chinatrust Securities Co., Ltd. Chinatrust Asset Management Co., Ltd. 717,146 Chinatrust Venture Capital Corp. 487,400 Chung Shin-1 Asset Management Co., Ltd. 361,937
Interest payable $ 77 720 517 416
Interest expenses $ 9,247 3,416 16 5,441 2,073 2,033
For the year ended December 31, 2007 Related party Ending balance Chinatrust Financial Holding Company, Ltd. $ 2,670,187 501,415 Chinatrust Insurance Brokers Corp., Ltd. Chinatrust Asset Management Co., Ltd. 453,229 Chinatrust Venture Capital Corp. Chung Shin-1 Asset Management Co., Ltd. 100,269
ĸĸ
Interest payable $ 554 152 115 56
Interest expenses $ 97,037 5,316 3,479 339 355
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (n) Others For the years ended December 31, 2008 and 2007, the Bank received payments of transaction fees from PT Bank Chinatrust Indonesia amounting to $55,341 and $27,879, respectively, for loans to Indonesian workers. For the years ended December 31, 2008 and 2007, the Bank received payments of computer information and related fees from Chinatrust Financial Holding Company, Ltd. amounting to $21,085 ($3,479 accounted for under receivables) and $21,670, respectively. In addition, the advance rent receipts for buildings for the year ended December 31, 2008, amounted to $584. For the years ended December 31, 2008 and 2007, the Bank received payments of computer information and other handling fees from Chinatrust Securities Co., Ltd. amounting to $6,846 and $5,107, respectively ($4,799 and $3,231, respectively, accounted for under receivables). Furthermore, for the years ended December 31, 2008 and 2007, the Bank paid computer system information fees, handling fees for proxy solicitation, trust-service fees and consultant fees to Chinatrust Securities Co., Ltd. amounting to $9,006 and $6,289, respectively ($4,126 and $4,889, respectively, accounted for under payables). For the years ended December 31, 2008 and 2007, the Bank received payments of bond maintenance fees and joint marketing operation fees from Chinatrust Insurance Brokers Corp., Ltd. amounting to $1,014,065 and $800,126, respectively ($74,311 and $76,734, respectively, accounted for under other receivables). For the years ended December 31, 2008 and 2007, the Bank received payments of computer information fees from Chinatrust Venture Capital Corp. amounting to $20 and $21, respectively. For the years ended December 31, 2008 and 2007, the Bank received payments of central depository fees, registered stock fees and computer information fees from Chinatrust Asset Management Co., Ltd. amounting to $18 and $101, respectively. For the years ended December 31, 2008 and 2007, the Bank received payments of computer information fees from Chung Shin-1 Asset Management Co., Ltd. amounting to $18 and $19, respectively. For the years ended December 31, 2008 and 2007, the Bank received payments of computer information fees from Tuo Yu Asset Management Servicing Co., Ltd. amounting to $16 and $18, respectively. For the years ended December 31, 2008 and 2007, the Bank paid Chinatrust Security Co., Ltd. security fees amounting to $82,919 and $86,446, respectively ($8,356 and $10,147, respectively, accounted for under payables). For the years ended December 31, 2008 and 2007, the Bank paid Chinatrust Recreation Company, Ltd. sponsor fees amounting to $152,250 and $94,500, respectively. ĸĹ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! The Bank signed a management consulting contract with Taiwan Lottery Co., Ltd. in 2007 and received a guarantee deposit of $500,000 according to the contract (returned in July 2008). For the years ended December 31, 2008 and 2007, the Bank paid Taiwan Lottery Co., Ltd. management consulting service fees amounting to $834,448 and $914,286, respectively, of which $84,469 and $115,722, respectively, were accounted for under payables. Pursuant to the supplementary agreement, for the year ended December 31, 2008, Taiwan Lottery Co., Ltd. received excess management consulting service fees amounting to $85,748; please refer to Note 7(B) for more detailed information about the supplementary agreement. Furthermore, for the year ended December 31, 2007, the Bank sold office and UPS equipment to Taiwan Lottery Co., Ltd. amounting to $1,020 with a gain of $27. For the years ended December 31, 2008 and 2007, the Bank received payments for machine relocation from Taiwan Lottery Co., Ltd. amounting to $6,288 and $5,940, respectively ($334 and $5,940, respectively, accounted for under receivables). Furthermore, for the years ended December 31, 2008 and 2007, the Bank received guarantee deposits from Taiwan Lottery Co., Ltd. amounting to $283. For the years ended December 31, 2008 and 2007, the Bank received payments of computer information fees from CT Opportunity Investment Company amounting to $17 and $18 (accounted for under receivables), respectively. For the years ended December 31, 2008, the Bank received payments of management fees from CT Opportunity Investment Company amounting to $3. With regard to the transfer of the right to claim for repayment from Red Fire between the Bank and the institutional directors of the Bank’s parent company, Chinatrust Financial Holding Company, Ltd.; please refer to Note 7(D) for more information. (o) Other significant overseas related-party legal matters for prior years The former management team of Chinatrust Financial Holding Company, Ltd., the Bank’s parent company, including the Vice Chairman, Chief Strategic Officer, Chief Compliance Officer, and Chief Financial Officer, and the Bank’s former General Manager of the Institutional Group and Senior Vice President of the Finance Department were involved in inadequate authorization of the US$390 million structured notes transaction with Red Fire Developments Limited. For the legal information related to this case, please refer to Note 7(D). In November 2005, the Bank formally contracted with Tectonics Laboratories Co., Ltd. to purchase real estate located at Cheng Ching Lake for use as the second training center with a purchase price of $950,000, which was fully paid in December 2005. The ownership of that real estate was completely transferred in January 2006. Tectonics Laboratories Co., Ltd. realized a gain of approximately $87,821 from this transaction. At the end of 2006, the book value of that real estate was reduced by $87,821 for the sake of conservatism.
ĸĺ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Between March and April 2006, the Bank sold its non-performing loans as follows: The Bank sold the non-performing loans made to Hua Wang Electric Industry Ltd. to Linearity Company Limited for $180,329; sold the non-performing loans made to Corwell Development Corp. to Doppler Precision Co., Ltd. for $44,062; and sold the non-performing loans made to Banyu Paper Mill Co., Ltd. to Tectonics Laboratories Co., Ltd. for $40,000. No gain or loss was realized from these sales because the selling prices were determined based on the book value of the loans after deducting the provision for the losses. In July 2006, however, these sales transactions were canceled, and all of the sales proceeds were returned. In March 2005, the Bank sold its non-performing loans made to Fengshan Credit Cooperative with a book value of $840,000 (original principal was $5,900,000) to Advanced Synchronous Solutions Company Limited for $840,000. No gain or loss was realized from this transaction because the selling price was determined based on the book value of the loans after deducting the provision for losses. (C) Key management personnel compensation in total For the years ended December 31, 2008 and 2007, the aggregate fees and compensation paid to the directors, supervisors, general managers, vice general managers and other senior management of the Bank were as follows:
Salaries Cash awards and special allowances Transportation allowances and business expenses Employee bonuses
$
$
For the years ended December 31, 2008 2007 222,757 $ 307,363 720 2,140 532,980 $
209,693 407,215 2,310 619,218
ʳ
The aggregate amounts above include supervisors’ remuneration and estimated employee bonuses; please refer to Note 4(W) Earnings Distribution and Dividend Policy for detailed information regarding the estimation method.
Ĺı
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 6.
PLEDGED ASSETS Pledged assets of the Bank were as follows:
As sets F ina nc ia l assets measured a t fair value thr oug h profit or loss
Ava ilable-for-sale financ ial ass ets
Type of securities D ecem be r 3 1, 2008 Decem ber 31, 2007 P urpose of co llater al NCD $ $ 900,000 Depo sits of real-tim e gro ss se ttle ment syste m ϣ
-
920,000
ϣ
-
1,160,000
3,620,000
7,000,000 -
-
950,000
17 ,200,000 391,000
16,000,000 391,000
Governm ent bond
50,000
50,000
Depo sits for issuing financial liabilities Inter-bank borro wing and se cured o ve rd ra ft Daytim e ove rdrafts Depo sits for issuing financial liabilities M argin re quire me nt fo r trading in deriva tive s Daytim e ove rdrafts Guarantee fulfilme nt of supe rficies T rust funds re serve
NCD Governm ent bond
50,000 -
50,000
Depo sits for bills de aler ϣ
150,000 685,200 40,000
150,000 883,200 -
ϣ T im e deposit
70,000
300,000 70,000
ϣ
10,000
10,000
ϣ
10,000
-
ϣ
-
835,000
ϣ
-
700,000
ϣ
-
2,665,000
ϣ
-
210,000
ϣ
-
200,000
ϣ
-
20,000
1,150 108,700
67,483 149,400
NCD Governm ent bond ϣ
H eld-to-m atur ity financial assets
NCD ϣ
ϣ ϣ ϣ
O ther financial ass ets
Re ceivables
ϣ Matured sec urities c lassified under o the r receivab le
Bo nd settle me nt rese rves Litigation and o the r deposits Underwriting guarantee depo sit for securitie s dealer Note Operational guarantee deposit for se curities de aler Guarantee dep osit for future s dea le r Chunghwa Te le com Co ., L td. guarantee fulfilme nt Depo sits of real-tim e gro ss se ttle ment syste m Inter-bank borro wing and se cured o ve rd ra ft Depo sits for issuing financial liabilities Guarantee dep osit for shortterm se curitie s d ealer Guarantee dep osit for bo nd se ttle ment syste m Guarantee dep osit for bo nd dea le r Other d eposits Litigation and o the r deposits
Note: Guarantee fulfillment for purchase and assumption of EBH. As of December 31, 2008 and 2007, the Bank’s non-cancellable letter of credit of $750,000 was a guarantee deposit to serve as lottery contractor.
ĹIJ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 7.
SIGNIFICANT COMMITMENTS AND CONTINGENCIES (A) Securities sold under repurchase agreements:
Assets Financial assets measured at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Total
Assets Financial assets measured at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Total
Par value $ 6,876,200
$
$
$
December 31, 2008 Designated Selling price (Note) repurchase amount $ 6,844,785 $ 6,846,672
40,821,200
44,095,017
44,130,650
19,738,300
21,216,408
21,250,128
67,435,700
Par value 11,726,700
$
72,156,210
$
December 31, 2007 Designated Selling price (Note) repurchase amount $ 11,676,588 $ 11,683,353
36,226,804
36,261,145
36,341,700
40,229,273
40,279,939
$
88,132,665
$
Prior to June 1, 2009 Prior to July 27, 2009
72,227,450
32,621,700
80,690,100
Designated repurchase date Prior to Feburary 2, 2009
Designated repurchase date Prior to Feburary 15, 2008 Prior to April 21, 2008 Prior to September 15, 2008
88,224,437
Note: Accounted for under securities sold under repurchase agreements. (B) Major commitments and contingencies:
Contingent liabilities from guarantee and letter of credit business Commercial paper to Central Bank for banks’ clearance Client notes in custody Receivables for other banks from syndicated loans Marketable securities in custody Travellers’ cheques in custody available for sale Special purpose trust accounts Total
December 31, 2008
December 31, 2007
$
$
$
Ĺij
66,807,731
74,882,931
4,486,039
6,570,600
101,208,822
117,997,372
42,520,602
41,831,448
212,506,137
797,414,125
317,482
418,971
1,079,022,106 1,506,868,919
1,005,273,740 2,044,389,187
$
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! On July 31, 2007, the Bank renewed the services contract for information resources supply with International Business Machines in replacement of the original contract initially signed in 2005, and this action authorized a five-year contract term commencing July 31, 2007, and ending July 30, 2012, for the amount of $1,654 million, which includes a fixed monthly fee of $19,301 comprising a host computer lease fee, an authorization fee, and an annual software maintenance fee. The Bank was designated by the Ministry of Finance (the “MOF”) as the issuing institution of the public-welfare lottery for a period of seven years commencing from January 1, 2007, and ending on December 31, 2013. The Bank was authorized to utilize and issue traditional lottery, scratch-and-win lottery, and computerized lottery tickets. The Bank receives a commission for issuing lottery tickets, representing 4.35% of the total lottery sales amount. The commission will be settled monthly; meanwhile, the Bank’s profit will be what remains after a fixed payment of $2,086,800 to the MOF per year. However, if the amount of annual total lottery sales is less than 80% of promised sales, which is $75.5 billion, then the Bank needs to pay 26.75% of the shortage between the promised and actual sales amount to the government. On May 18, 2006, the Bank signed a purchase contract for lottery software, hardware and maintenances services with LotRich Information Co. for the amount of $1,159,185, which includes a six-year maintenance services contract term commencing August 2008 and ending July 2014 for the amount of $638,880. The Bank entrusted Taiwan Lottery Co., Ltd. to operate the public-welfare lottery’s ticket issuing, sales, promotion, drawing, payment of prize, and management, with a contract period from January 1, 2007, to June 30, 2014. The Bank will disburse 1.5% of the total lottery sales amount as commission to Taiwan Lottery Co., Ltd. monthly. Additionally, if the annual total lottery sales amount is over $90 billion, the commission for the excess part (over $90 billion) will be equal to 1.8% of the total excess lottery sales amount. The Bank signed an amended contract with Taiwan Lottery Co., Ltd. on July 9, 2008, and rescinded the guarantee deposit amounting to $500,000. In addition, the Bank will disburse 1.20% of the total lottery sales amount as commission to Taiwan Lottery Co., Ltd. monthly from January 1, 2008. Additionally, if the annual total lottery sales amount is over $90 billion, the commission for the excess part will be equal to 1.50% of the total excess lottery sales amount. On September 30, 2008, the Bank awarded the contract for its new headquarters building project located in NanKang to Da Cin Construction Co., Ltd. with a total construction cost of $1.48 billion. From the date of contract, different percentages of the total construction cost will be paid at different stages: 10% for pre-payment, 80% for progress payment (monthly payment made as work progresses under a contract), and 10% for final payment (pay separately 5%, 1.5%, 2%, 1%, and 0.5%).
ĹĴ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (C) Pursuant to Article 17 of the Enforcement Rules of the Trust Enterprise Act, the Bank revealed its annotated trust information as follows:
Trust assets Cash in banks Bonds Stocks Funds Short-term notes and securities under resell agreements Other investments Receivables Real estateѧ net Securities under custody Other assets Total trust assets
Trust liabilities Payables Other liabilities Trust capital Reserves and accumulated profits Total trust liabilities
Trust Balance Sheets December 31, 2008 $ 32,030,031 150,578,324 82,346,836 441,592,106 337,016
$
$
1,926,546 7,955,944 8,185,943 352,770,230 1,299,130 1,079,022,106
$
Trust Balance Sheets December 31, 2008 $ 354,843,657 755,598 740,147,902 (16,725,051) $ 1,079,022,106
December 31, 2007 20,600,972 187,213,803 192,130,618 567,244,104 1,230,367 5,993,761 17,618,884 5,479,848 7,761,383 1,005,273,740
December 31, 2007 547,123 1,936,927 894,662,428 108,127,262 $ 1,005,273,740 $
Note: Pursuant to FSC Jin-kuan-yin-(4) Interpretation No. 09685001711 “Securities investment trust contracts belong to totten trust” dated March 27, 2007, the account related to the custody business involving securities investment trust funds should be classified in the trust account from January 1, 2008.
Investment items Bonds Stocks Funds Short-term notes and securities under resell agreements Securities under custody Other investments Real estateѧ net Land Buildings Accumulated depreciation ѧ Buildings Subtotal Other assets O ther prepayments D eferred expenses Loan claims Refundable d eposits Total
Trust Acco unt Property Catalogue December 31, 20 08 $ 150,578,324 82,346,836 441,592,106 337,016
$ Ĺĵ
$
December 31, 2007 187,213,8 03 192,130,6 18 567,244,1 04 1,230,3 67
352,770,230 1,926,546
5,993,7 61
7,965,686 249,831
5,251,3 19 251,9 61
(29,574) 8,185,943
(23,4 32) 5,479,8 48
259 138 1,246,138 43,846 1 ,039,027,382
$
2 75 7,678,0 28 43,8 04 967,014,6 08
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Trust Account Statement of Income
Trust income Trust expenses Net (loss) income before tax Income tax expense Net (loss) income after tax
$
$
For the years ended December 31, 2008 2007 53,062,666 $ 131,238,625 (72,674,034) (19,151,443) (19,611,368) 112,087,182 (10,489) (12,142) (19,621,857) $ 112,075,040
(D) Others During the period September to December 2005, the Hong Kong Branch of the Bank purchased overseas investments in structured notes linked to a basket of stocks with total face value of US$390 million for US$392,633 thousand from Barclays Bank PLC. This investment was authorized by the Bank’s board of directors. (The structured notes were originally linked to a basket of stocks; however, the portfolio focused mainly on the stock of Mega Financial Holding Company, when exercised.) On January 27, 2006, Chinatrust Financial Holding Company, Ltd., the Bank’s parent company, submitted to the FSC the formal application to invest in Mega Financial Holding Company; on the same day, the Hong Kong Branch of the Bank sold the structured notes to Red Fire for US$401,081 thousand with a gain of US$11,080 thousand. In order to pay for the structured notes, Red Fire redeemed the structured notes from Barclays Bank PLC with a gain of US$30,474,717.12. According to FSC Jin-Kuan-Yin-(6) No.09560003931, 09560003933, and 09560003934, dated July 25, 2006, the structured notes transaction was suspected to be a non-arm’s-length transaction with risk management and internal control deficiencies, which did not conform to sound business operation and the regulations of “The Banking Act of the Republic of China.” As a result of the improper transaction, the FSC required the Bank to pay a fine of $10,000 for certain deficiencies in the purchase and sale of overseas structured notes by the Hong Kong Branch of the Bank and requested it to recover the price difference of $1,003,533 on the structured notes that Red Fire had acquired and redeemed. Before resolving such deficiencies, the Bank was prohibited by the FSC from establishing new overseas branches and subsidiaries. Additionally, the Hong Kong Branch of the Bank was restrained from engaging in equity-linked derivative financial instrument transactions until July 20, 2007. Furthermore, the originally approved investment quota of 5% to 10% for investing in Mega Financial Holding Company, was adjusted to 5% to 6.1%. In March 2007, after the Bank and its parent company developed a related internal control system and submitted a specific improvement plan in compliance with the directions of the competent authorities, the FSC lifted the business restrictions on strategic reinvestment by the parent company and on engaging in establishing overseas branches and subsidiaries and the business of foreign-currency-denominated options on stocks listed in Taiwan by the Bank. As of June 21, 2007, the parent company, Chinatrust Financial Holding Company, Ltd., had disposed of the foregoing 3.9% stake in Mega Financial Holding Company.
ĹĶ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! In order to sustain overseas and domestic businesses, the directors of the Bank’s parent company, Chinatrust Financial Holding Company, Ltd., advanced the aforesaid price difference amounting to $1,003,533, which was accounted for under other revenues of the Bank in September 2006. On October 7, 2008, the judgment of the court of first instance (the Taipei District Court) indicated that the loss and damage that were inflicted on the Hong Kong Branch of Chinatrust Commercial Bank Co., Ltd. were as a result of a benefit obtained by Red Fire in connection with the redemption of structured notes. However, in the opinion of the advisory attorney appointed by the Bank and its parent company, Chinatrust Financial Holding Company, Ltd., “regardless of the fact that the judgment on the recognition of the “loss or damage” concept and the criterion for damage under the Civil Law and interests lost are not exactly identical, the Directors of Chinatrust Financial Holding Company, Ltd. had complied with Financial Supervisory Commission, Executive Yuan Rulings Jin-Kuan-Yin (6) No. 09560003930 and Jin-Kuan-Yin (6) 09560003932 to advance NT$1 billion to Chinatrust Commercial Bank Co., Ltd. to recover the price gap of US$30,474,717.12 as a result of the redemption of structured notes obtained by Red Fire as found in that judgment. Furthermore, according to the facts as recognized in the aforesaid judgment delivered by the District Court, Chinatrust Commercial Bank Co., Ltd. purchased overseas investments in structured notes with a total face value of US$390 million and sold the structured notes to Red Fire for US$410 million with a gain of US$11,080 thousand within two months after the date of purchase. With regard to the financial aspects, Chinatrust Commercial Bank Co., Ltd. had not suffered any loss or damage from the transactions in structured notes and equity investment in Mega Financial Holding Company which were indicated in the preceding judgment delivered by the District Court.” In addition, the Bank had previously agreed and promised to follow the directions of the FSC to recover the price gap of the aforesaid transaction from Red Fire and return it to members of the board of directors of the Bank’s parent company, Chinatrust Financial Holding Company, Ltd., if any money is recovered. In order to save the money and time that it may cost the Bank when it calls for prosecution of Red Fire afterwards and to enable the Bank to ultimately receive the advancement of $1,003,533 paid by members of the board of directors of the Bank’s parent company, Chinatrust Financial Holding Company, Ltd., a resolution was approved by the board of directors during the month of January 2009 that the Bank would give over the right to recover the price gap from Red Fire to Kuan Ho Construction & Development Co., Ltd. (hereinafter Kuan Ho Construction & Development) and Chung Chen Investment Co., Ltd. (hereinafter Chung Chen Investment), which are the institutional directors of the Bank’s parent company that originally advanced the price gap. Meanwhile, Kuan Ho Construction & Development and Chung Chen Investment have also released the Bank from the commitment that “the Bank has to recover the price gap from Red Fire and return it to members of the board of directors of the Bank’s parent company, Chinatrust Financial Holding Company, Ltd., if any money is recovered” and would need to make a claim against Red Fire by themselves afterwards.
Ĺķ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! On October 7, 2008, the judgment of the court of first instance (the Taipei District Court) was delivered (please refer to the Law and Regulations retrieval system of the Judicial Yuan, 2007 Chong-Su-Zi No. 19 Criminal Judgment for related information), and the case is now under review by the court of second instance. According to the opinion letter prepared by the advisory lawyers appointed by the Bank and its parent company, Chinatrust Financial Holding Company, Ltd., “with regard to the legal aspects, the case above is a criminal case, and since Chinatrust Financial Holding Company, Ltd. is a corporate entity, the employees’ individual criminal liability will not have any influence on Chinatrust Financial Holding Company, Ltd. Therefore, there should be no significant disadvantageous effects on the financial or business affairs of Chinatrust Financial Holding Company, Ltd. The judgment delivered by the District Court also indicated that the employees did not obtain any personal profits due to the aforesaid transaction, nor intend to engage in malpractice for personal gain or to do harm to the company. In addition, the criminal judgment delivered by the District Court is not yet finalized, and the attribution of responsibility, the question of whether Chinatrust Financial Holding Company, Ltd. is jeopardized due to this case, and the actual extent of that damage if it exists will be determined based on the judgment of the court of appeals in the future. Therefore, the judgment should not have any significant disadvantageous effects on the current financial or business affairs of Chinatrust Financial Holding Company, Ltd.” The Taipei District Court Prosecutors Office has also filed this case with the FSC to examine if the Bank’s parent company, Chinatrust Financial Holding Company, Ltd., had violated the law or the Company’s constitutions or had hindered sound risk management under Article No. 54 of the Financial Holding Company Act before the prosecutor indicted the former management on February 15, 2007. According to the appointed advisory lawyers’ opinion, because the information that prosecutors conveyed to the FSC is unknown, it is impossible to judge the consequences of that action upon the Bank. However, there should be no other disadvantageous effects upon the Bank and its parent company if that conveyed information is the same as the previous information based on which the FSC punished the Bank. The judiciary has requested the Bank to provide related information on the transactions between the Bank and Tectonics Laboratories Co., Ltd. and other related parties (please refer to Note 5(B) for further information); however, the Bank does not inform of the content and subject matter of the judicial investigation. In addition, as indicated by the legal consultant of the Bank’s parent company, pursuant to the regulations related to “Secret Investigation Principle” of the Code of Criminal Procedure, any persons involved in the investigation shall not disclose any information about the investigation during the investigation period. Recently, despite all kinds of statements that have been made in public after the Bank’s request for clarification of those matters from the defense attorney of the Bank’s former Chairman, Jeffery J.L. Koo Jr., the attorney remarked that “the case now is under investigation by the Special Investigation Division under the Supreme Prosecutors Office, and is not yet closed. Pursuant to Article 245, paragraph 1 of the Code of Criminal Procedure “Secret Investigation Principle,” it is inadvisable to disclose the related transaction details information to any institutions other than investigation agents or any other person.” Therefore, the impact of the aforesaid legal matters upon the Bank remains uncertain. Ĺĸ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! 8.
SIGNIFICANT CATASTROPHIC LOSSES: None.
9.
SIGNIFICANT SUBSEQUENT EVENTS As of January 20, 2009, pursuant to the resolution approved by the board of directors and the Chairman, the Bank will subscribe US$130 million of common stock issued by the Bank’s subsidiary Chinatrust Capital Corporation through private placement and planned to inject more capital into Chinatrust Bank (U.S.A.) through the reinvestment of the Bank’s subsidiary Chinatrust Capital Corporation. A total of 742.96 shares of common stock of the Bank’s subsidiary Chinatrust Capital Corporation will be issued pursuant to the private placement at US$174,974.90 per share for proceeds of US$130 million, which will be paid by the Bank in one lump sum on the subscription date. With regard to the transfer of the right to claim for repayment from Red Fire between the Bank and the institutional directors of the Bank’s parent company, Chinatrust Financial Holding Company, Ltd., please refer to Note 7(D) for more information.
10. OTHERS (A) In accordance with the FSC’s Securities and Futures Bureau (SFB) Ruling Letter No. (6) 0930004183 of September 3, 2004, the disclosures related to the Bank’s assuming all the assets and liabilities including operations of EBH are as follows: (a)
Brief introduction to transferor: The forerunner of EBH was first established in Hualien in February of 1950 as East Taiwan District Credit Cooperative and Savings Co., Ltd. Following deregulation, the company was reorganized in 1979 into the Enterprise Bank of Hualien and was authorized in 1989 to engage in cross-district operation in Taipei and Yilan. Recently, the core business of EBH has focused on small/medium enterprises and small-scale consumer loans through 31 branches (including trust department).
(b)
Purpose of the transfer of assets and liabilities, and regulatory basis: 1. Purpose: To create a successful and profitable branch network through 31 branches (including trust department) in the future. Furthermore, by expanding the branch channel, the Bank could provide customers more convenient and diversified financial services to gain long-term profitability. 2. Regulatory basis: Articles No. 58 and 62-4 of the Banking Act and Articles 5, 16 and 18 of the Financial Institutions Merger Act.
(c)
Effective date of the transfer: September 8, 2007.
(d)
Type, quantity, and amount of marketable securities issued for the transfer: None.
ĹĹ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (e)
Accounting treatment for assets acquired and liabilities assumed: 1. Accounting method for the transfer: The Bank assumed all the assets and liabilities including operations of EBH, and the difference in the amount of money received from the Resolution Trust Corporation (the “RTC”) and the net fair value of assets and liabilities is recognized as goodwill. 2. Relevant accounts and amounts of assets and liabilities assumed through the transfer: $
Assignment of assets Assignment of liabilities Net assignment of liabilities Less: Received from the RTC Goodwill
(f)
$
Amount 7,936,499 18,706,775 10,770,276 4,702,047 6,068,229
On September 10, 2007, the Bank received $4,490 million as cash subsidy from the RTC, and the remaining amount was settled pursuant to the contract.
Ĺĺ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (B) According to SFAS No. 25, the income statement of an acquiring company for the period in which a business combination occurs should include income (loss) of the acquired company after the date of acquisition (assuming the merger of EBH was effective on January 1, 2007). ʳ
Unit: In Thousands of New Taiwan Dollars For the year ended December 31, 2007 Interest income Less: Interest expenses Net interest income Non-interest income: Service fee and commission income Gains on financial assets or liabilities measured at fair value through profit or loss Realized losses on available-for-sale financial assets Realized gains on held-to-maturity financial assets Income from equity investments under equity method Foreign exchange losses
$
Amount 55,240,760 (27,545,990) 27,694,770 21,720,946 2,274,017 (554,400) 278 1,214,124 (189,578)
Impairment losses on assets Public-welfare lottery payment Other non-interest income Net revenue Bad debt expenses O perating expenses Personnel expenses Depreciation and amortization expenses Other general and administrative expenses Net income before tax Income tax expense
(1,017,490) (2,086,800) 655,371 49,711,238 (9,361,075) (12,556,372) (2,443,372) (12,761,790) 12,588,629 (2,304,752)
Net income
Earnings per share (EPS) Basic EPS Income from continuing operations Net income
ĺı
$
10,283,877
Before income tax
After income tax
$ $
$ $
2.09 2.09
1.71 1.71
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (C) Personnel, depreciation and amortization expenses were as follows: For the years ended December 31, 2008 2007 Operating expenses Operating expenses
Nature Personnel expenses Salary expenses Insurance expenses Retirement expenses Other personnel expenses Total personnel expenses Depreciation expenses Amortization expenses
$
10,689,946 558,482 618,917 622,614 12,489,959 1,746,566 592,334 14,828,859
$
10,681,881 519,392 557,762 529,013 12,288,048 1,839,837 566,200 14,694,085
Note: Excluding the depreciation of idle premises and equipment amounting to $18,071 and $14,439 for the years ended December 31, 2008 and 2007, respectively (accounted for under other non-interest income). (D) Maturity periods of the assets and liabilities of the Bank, average value of the Bank’s interest-bearing assets and liabilities, average interest rates (or yield), and significant net positions in foreign currencies were as follows: (a)
The analysis of the maturity periods of the assets and liabilities of the Bank was as follows:
Within 3 months Assets Due from banks $ 15,778,960 Due from Central Bank and 49,892,409 call loans to banks Financial assets measured at fair 73,643,884 value through profit or loss (Note 1) Securities purchased under resell 2,196,787 agreements 194,720,378 Loans (Note 2) Available-for-sale financial assets 25,021,244 (Notes 1 and 3) Held-to-maturity financial 119,639,546 assets Other financial assetsЁdebt investments without active market (Note 3) Liabilities Deposits from Central Bank and $ 11,592,304 other banks Due to Central Bank and other banks 310,580 Securities sold under repurchase 71,267,549 agreements Deposits and remittances (Note 3) 425,794,427 Financial debentures (Note 3) 1,300,000
December 31, 2008 Between Between 6 months 3 and 6 months and 1 year Over 1 year
Total
-
-
-
15,778,960
8,179,355
3,135,447
28,144,236
89,351,447
-
1,977,862
-
75,621,746
-
-
-
2,196,787
79,625,547
62,441,804
501,685,301
838,473,030
2,339,410
5,560,000
43,819,756
76,740,410
18,991,000
3,350,000
26,154,367
168,134,913
-
-
847,254
847,254
4,704,870 -
910,620 212,000
153,130 4,240,000
17,360,924 4,762,580
757,110
131,551
-
149,673,219 500,000
480,994,252 -
88,280,936 87,211,745
ĺIJ
72,156,210 1,144,742,834 89,011,745
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Chinatrust Commercial Bank Co., Ltd. (not restated)
Within 3 months
December 31, 2007 Between Between 6 months 3 and 6 months and 1 year Over 1 year
Assets Due from banks $ 2,187,870 Due from Central Bank and 96,296,395 call loans to banks Financial assets measured at fair 31,687,295 value through profit or loss (Note 1) Loans (Note 2) 171,544,368 Available-for-sale financial 46,918,785 assets (Note 1 and 3) 79,643,469 Held-to-maturity financial assets Other financial assetsЁdebt investments without active market Liabilities Deposits from Central Bank and $ 41,894,051 other banks Due to Central Bank and other banks D 384,884 Securities sold under repurchase 58,780,483 agreements Deposits and remittances (Note 3) 382,253,805 Financial debentures (Note 3) -
Total
-
-
-
2,187,870
16,062,529
1,326,424
26,659,509
140,344,857
-
-
-
31,687,295
67,680,671
66,666,441
489,681,348
795,572,828
18,399,962
8,781,705
32,684,595
106,785,047
8,391,000
25,816,885
24,149,178
138,000,532
-
-
1,821,805
1,821,805
1,135,505 -
18,000 209,310
363,103 4,604,813
43,410,659 5,199,007
598,843
22,691
-
59,402,017
113,296,585 2,000,000
493,349,609 300,000
112,333,992 75,791,775
1,101,233,991 78,091,775
Note 1: Excluding derivatives, funds, beneficiary certificates, and listed and OTC securities. Note 2: Excluding non-accrual accounts. Note 3: Excluding hedging adjustments or accumulated impairment losses.
ĺij
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Chinatrust Bills Finance Corp. (dissolved)
Within 1 month Assets Cash and cash equivalents Due from Central Bank and call loans to banks Financial assets measured at fair value through profit or lossѧnet Securities purchased under resell agreements Receivablesѧnet Available-for-sale financial assetsѧnet Other financial assetsѧnet Other assets Refundable deposits Total assets Liabilities Due to banks Financial liabilities measured at fair value through profit or loss Securities sold under repurchase agreements Payables Corporate bonds payable Custody expenses payable Total liabilities Net liquidity gap
$
Between 1 and 3 months
December 31, 2007 Between 3 months Between and 1 year 1 and 7 years
Over 7 years
Total
20,797
-
-
-
-
20,797
130,961
-
-
-
-
130,961
7,543,875
6,562,313
5,791,972
150,974
31,594
20,080,728
2,793,588
-
-
-
-
2,793,588
42,368
56,417
291,265
11,773
-
401,823
499,899
-
1,147,137
9,923,845
4,612,329
16,183,210
9,266 11,040,754
320,000 6,938,730
4,310,000 11,540,374
21,569 12,246 10,120,407
937,988 5,581,911
21,569 9,266 5,580,234 45,222,176
$ 1,780,000
-
-
-
-
1,780,000
2,708,883
-
2,093
92,066
-
2,803,042
28,595,623
281,930
-
-
-
28,877,553
30,473 312,403 6,626,327
30,863 32,956 11,507,418
453 6,700,000 6,792,519 3,327,888
5,581,911
92,168 6,700,000 9,266 40,262,029 4,960,147
30,379 9,266 33,124,151 $(22,083,397)
(b) Average value of the Bank’s interest-bearing assets and liabilities and average interest rates (or yield) were as follows: For the year ended December 31, 2008 Average Average value interest rate (%)
Nature Assets: Due from Central Bank
$
Due from and call loans to banks Financial assets measured at fair value through profit or loss Securities purchased under resell agreements Available-for-sale financial assets Held-to-maturity financial assets Debt investment without active market
40,034,847
0.93
136,502,303 43,904,600
2.59 2.06
824,843
2.37
79,852,428 192,488,529
2.60 2.16
996,918
LoansѧNTD Loansѧforeign currency
-
682,690,019 142,752,001
3.79 4.43
27,881,859
15.63
DepositsѧNTD
891,582,034
1.47
Depositsѧforeign currency Call loans from banks Borrowing and other financing
254,293,423 75,035,837 90,972,580
2.07 0.88 3.41
69,339,498
1.89
Credit card receivable Liabilities:
Securities sold under repurchase agreements ĺĴ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Chinatrust Commercial Bank Co., Ltd. (not restated)
For the year ended December 31, 2007 Average Average value interest rate (%)
Nature Assets: Due from Central Bank
$
41,276,198
0.95
Due from and call loans to banks Financial assets measured at fair value through profit or loss Securities purchased under resell agreements
167,020,821 27,987,064
3.81 0.62
6,356,914
0.21
Available-for-sale financial assets Held-to-maturity financial assets
162,250,272 120,658,933
2.39 2.12
Debt investment without active market LoansѧNTD
1,920,880 664,865,620
2.73 3.81
110,806,919 35,121,541
5.98 14.26
925,397,113 236,324,159
1.30 3.12
72,800,643 80,154,579 61,140,120
1.29 3.50 1.80
Loansѧforeign currency Credit card receivable Liabilities: DepositsѧNTD Depositsѧforeign currency Call loans from banks Borrowing and other financing Securities sold under repurchase agreements
Chinatrust Bills Finance Corp. (dissolved)
For the year ended December 31, 2007 Average Average value interest rate (%)
Nature Assets: Cash and bank deposits Call loans to banks Financial assets measured at fair value through profit or loss Securities purchased under resell agreements Available-for-sale financial assets
$
Liabilities: Call loans from banks Securities sold under repurchase agreements Corporate bonds payable
ĺĵ
6,685,538 62,521 25,271,404
2.00 1.90 1.91
2,754,828 27,108,370
(0.66)
2,496,342 44,476,009 6,700,000
1.96 1.73 1.89
2.00
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (c) Significant net positions in foreign currencies were as follows: December 31, 2008 Foreign currency NTD amount amount USD 138,644 4,555,846 KRW 20,168,902 524,391 EUR 5,971 276,601 CNY 43,913 211,442 PHP 238,437 164,999
December 31, 2007 Foreign currency NTD amount amount USD 124,970 4,054,407 CNY 262,612 1,166,456 HKD 119,403 496,598 JPY 1,020,144 295,638 AUD 8,607 246,066
(E) Supplementary disclosures of asset quality, concentration of credit extensions, interest rate sensitivity information, profitability, and the structure analysis of assets and liabilities time to maturity are as follows: (a) Asset quality M o n th /Y e a r C a t eg o r ie s/It em s C o r p o r ate fin an c e
C o n s um er fin an c e
S ec ur ed U n s ecu r ed R esid en tial m ortg ag e s C ash car d s M ic r o c r e di t loa ns
O th er s
N o n - pe rf o rm in g lo a n s $ 1 ,1 0 8 ,4 6 2 1 ,6 5 3 ,3 5 5
O r ig in al P u r chase S ecu r ed U n se cu r ed
T o tal lo an b us in ess
$
4 ,5 2 2 ,5 4 3 2 8 7 ,4 3 2 5 8 7 ,0 6 5 720 3 8 ,2 6 4 7 7 8 ,6 8 4 8 ,9 7 6 ,5 2 5
$
1 0 2 , 7 3 0 ,1 1 4 3 6 8 , 5 6 6 ,8 7 3 3 0 4 , 5 2 1 ,8 0 0 9 , 9 0 1 ,6 9 2 2 2 , 6 4 6 ,7 3 3 5 ,3 1 5 4 , 9 5 9 ,5 3 2 3 2 , 4 0 1 ,5 4 1 8 4 5 , 7 3 3 ,6 0 0
O v erd u e rece iv a b le s C re d it car d s W ith o u t- r eco u r se f acto r in g
T o t a l lo a ns
B a la n ce o f re ceiv a b les
7 8 1 ,1 7 5 -
C a t eg o r ie s/It em s C o r p o r ate fin an c e
C o n s um er fin an c e
S ec ur ed U n s ecu r ed R esid en tial m o rtg ag e C ash car d s M ic r o O r ig in al c r e di t P u r ch ase loa ns S ecu r ed O th er s U n se cu r ed
T o tal lo an b us in ess
$
5 ,4 2 1 ,6 2 8 4 1 7 ,4 9 0 4 3 4 ,1 2 2 618 9 0 ,8 1 5 9 5 5 ,4 9 2 1 1 ,5 0 0 ,5 9 8
C re d it car d s W ith o u t- r eco u r se f acto r in g
$
1 .2 3 %
9 1 8 ,9 2 9
- %
7 7 ,8 0 3
T o t a l lo a ns 1 0 5 , 4 6 4 ,2 1 8 3 2 3 , 0 6 6 ,2 2 1
B a la n ce o f re ceiv a b les
1 ,0 3 1 ,2 3 0 -
A llo w a n ce f o r cre dit lo sse s
3 4 , 0 3 0 ,1 7 9
2 9 8 , 7 7 3 ,1 2 2 1 4 , 1 9 0 ,0 4 3 2 5 , 8 5 4 ,1 9 6 9 ,2 1 0 5 , 5 6 6 ,4 2 4 3 1 , 0 2 4 ,8 6 5 8 0 3 , 9 4 8 ,2 9 9
O v erd u e rece iv a b le s
D e lin q u en cy ra t io
6 3 , 4 3 1 ,9 7 4
M o n th /Y e a r N o n -pe rfo rm in g lo a n s $ 1 ,9 3 3 ,3 6 1 2 ,2 4 7 ,0 7 2
D ece m b er 3 1 , 2 0 0 8 N on- p er fo r m in g A llo w a n ce f o r lo a n s ra t io cre dit lo sse s 1 .0 8 % 3 ,3 9 7 ,2 8 8 0 .4 5 % 1 .4 9 % 2 ,7 2 8 ,5 2 1 2 .9 0 % 2 9 5 ,6 4 0 2 .5 9 % 8 6 5 ,5 1 0 1 3 .5 5 % 0 .7 7 % 1 ,2 6 9 ,0 1 6 2 .4 0 % 1 .0 6 % 8 ,5 5 5 ,9 7 5
D ece m b er 3 1 , 2 0 0 7 N on- p er fo r m in g A llo w a n ce f o r lo a n s ra t io cre dit lo sse s 1 .8 3 % 4 ,5 4 4 ,1 3 3 0 .7 0 % 1 .8 1 % 2 ,9 4 4 ,2 1 6 2 .9 4 % 4 1 7 ,4 9 0 1 .6 8 % 7 2 8 ,0 2 5 6 .7 1 % 1 .6 3 % 1 ,3 7 0 ,0 4 4 3 .0 8 % 1 .4 3 % 1 0 ,0 0 3 ,9 0 8 D e lin q u en cy ra t io
A llo w a n ce f o r cre dit lo sse s
7 0 , 4 2 6 ,9 9 8
1 .4 6 %
1 ,0 3 1 ,2 3 1
4 7 , 7 7 7 ,6 3 1
- %
1 4 3 ,8 4 2
C o v era g e r a tio 1 23 . 0 1 % 60.33% 1 02 . 8 6 % 1 47 . 4 3 % - % 1 55 . 3 4 % 95.32% C o v era g e r a tio 1 17 . 6 3 % - %
C o v era g e r a tio 1 08 . 7 0 % 54.31% 1 00 . 0 0 % 1 67 . 7 0 % 1 30 . 9 4 % 86.99% C o v era g e r a tio 1 00 . 0 0 % - %
Note 1: Non-performing loans represent the amount of overdue loans as reported in accordance with the “Regulations on the Procedures for Banking Institutions to Evaluate Assets and Deal with Past Due/Non-performing Loans.” The credit card overdue loans represent the amount of overdue loans as reported in accordance with Jin-Kuan-Yin-(4)-Zi No. 0944000378, dated July 6, 2005. Note 2: Non-performing loans ratio = Non-performing loans ÷ total loans; Credit card delinquency ratio = Overdue receivables ÷ balance of receivables. ĺĶ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Note 3: Coverage ratio for loans = allowance for credit losses ÷ non-performing loans; Coverage ratio for credit card = allowance for credit losses ÷ overdue receivables. Note 4: For residential mortgage loans, a borrower provides his/her (or spouse’s or minor child’s) house as collateral in full and pledges it to the financial institution for the purpose of obtaining funds to purchase property and to construct or repair a house. Note 5: Microcredit loan is defined by Jin-Kuan-Yin-(4)-Zi No. 09440010950, dated December 19, 2005, and does not include credit cards or cash cards. Note 6: Others in consumer finance are secured and unsecured consumer loans other than residential mortgage loans, cash cards, and microcredit loans, and do not include credit cards. Note 7: In accordance with Jin-Kuan-Yin-(5)-Zi No. 094000494, dated July 19, 2005, the amounts of without-recourse factoring will be classified as overdue receivables within three months from the date that suppliers or insurance companies resolve not to compensate the loss. Note 8: Supplemental disclosures: (a) Loans which are made pursuant to a contract under a debt negotiation plan need not be reclassified as non-performing loans: a total amount of $2,172,539. (b) Loans which arise pursuant to a contract under a debt liquidation plan and a debt relief plan and need not be reclassified as overdue receivables: none. (c) Receivables which arise from a contract under a debt negotiation plan need not be reclassified as overdue receivables: a total amount of $3,359,350. (d) Receivables which are made pursuant to a contract under a debt liquidation plan and a debt relief plan and need not be reclassified as non-performing loans: none. Note 9: The above information excluded non-accrual loans arising from guarantees. Please refer to other liabilities for further information about relevant allowance for credit losses.
ĺķ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (b) Concentration of credit extensions D ecem ber 31, 2008
1
C ontinental E ngineering C orporation
19,488,317
C redit am ount to stockholders' equity ratio (% ) 16.98%
2
Q isda C orporation (originally: B enQ )
15,771,468
13.74%
3
Far E astern
14,424,090
12.57%
4
C hi M ei C orporation
12,840,630
11.19%
5
Form osa P lastics C orporation
11,525,573
10.04%
6
U ni-P resident
9,388,357
8.18%
7
W alsin Lihwa
8,208,757
7.15%
8
UMC
7,586,154
6.61%
9
K inpo E lectronics, Inc.
5,829,905
5.08%
10
T P V T echnology Ltd.
5,569,773
4.85%
R anking
E nterprise group
C redit am ount $
D ecem ber 31, 2007
18,193,792
C redit am ount to stockholders' equity ratio (% ) 16.82%
Q isda C orporation (originally: B enQ )
13,919,491
12.87%
3
Form osa P lastics C orporation
12,551,038
11.61%
4
Far E astern
11,363,876
10.51%
5
M O R G A N ST A N LE Y
10,000,000
9.25%
6
U ni-P resident
9,154,274
8.47%
7
Shin K ong
9,014,178
8.34%
8
C hi M ei C orporation
8,835,721
8.17%
9
W alsin Lihwa
8,270,617
7.65%
10
UMC
7,063,056
6.53%
R anking
E nterprise group
C redit am ount
1
C ontinental E ngineering C orporation
2
$
Note 1: Ranking the top ten enterprise groups other than government or stated-owned enterprises according to their total outstanding loan balance of enterprise group. Note 2: Enterprise group is as defined in Article 6 of the “Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings”. Note 3: The total outstanding credit amount is the sum of the balances of all loan types (including import and export bill negotiations, loans, overdrafts, short/medium/long-term secured and unsecured loans, receivables from securities lending, and non-accrual loans), bills purchased, without-recourse factoring, acceptances receivable, and guarantees receivable. ĺĸ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (c) Interest rate sensitivity information 1. Sensitivity analysis of interest rate for assets and liabilities (New Taiwan Dollars)
1~90 days (inclusive) $ 819,057,794 427,412,824 391,644,970
December 31, 2008 91~180 days 181 days~1 year (inclusive) (inclusive) 31,670,172 32,286,239 403,583,862 129,358,298 (371,913,690) (97,072,059)
Interest-rate-sensitive assets Interest-rate-sensitive liabilities Interest rate sensitivity gap Net worth Ratio of interest-rate-sensitive assets to liabilities (%) Ratio of interest rate sensitivity gap to net worth (%)
Over 1 year 162,490,922 52,642,429 109,848,493
Total 1,045,505,127 1,012,997,413 32,507,714 114,792,363 103.21 28.32
Chinatrust Commercial Bank Co., Ltd. (not restated)
1~90 days (inclusive) $ 664,413,681 435,176,183 229,237,498
December 31, 2007 91~180 days 181 days~1 year (inclusive) (inclusive) 47,526,508 63,865,805 422,141,395 100,328,292 (374,614,887) (36,462,487)
Interest-rate-sensitive assets Interest-rate-sensitive liabilities Interest rate sensitivity gap Net worth Ratio of interest-rate-sensitive assets to liabilities (%) Ratio of interest rate sensitivity gap to net worth (%)
Over 1 year 212,728,462 35,050,155 177,678,307
Total 988,534,456 992,696,025 (4,161,569) 103,403,399 99.58 (4.02)
Chinatrust Bills Finance Corp. (dissolved) December 31, 2007 1~90 days 91~180 days 181 days~1 year (inclusive) (inclusive) (inclusive) $ 17,880,763 6,889,236 4,359,873 33,375,766 2,093 (15,495,003) 6,889,236 4,357,780
Interest-rate-sensitive assets Interest-rate-sensitive liabilities Interest rate sensitivity gap Net worth Ratio of interest-rate-sensitive assets to liabilities (%) Ratio of interest rate sensitivity gap to net worth (%)
Over 1 year 15,656,729 6,792,066 8,864,663
Total 44,786,601 40,169,925 4,616,676 4,735,557 111.49 97.49
ĺĹ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Note 1: Listed amounts of the head office, domestic branches, offshore banking unit, and overseas branches (excluding foreign currency amounts) are denominated in NTD. Note 2: Interest-rate-sensitive assets and liabilities are determined by the revenue or cost of various rates spreads between interest-earning assets and interest-bearing liabilities. Note 3: Interest rate sensitivity gap Interest-rate-sensitive liabilities.
=
Interest-rate-sensitive
í
assets
Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest-rate-sensitive assets ÷ Interest-rate-sensitive liabilities (denominated in NTD). 2. Sensitivity analysis of the interest rate for assets and liabilities (U.S. Dollars) Decenber 31, 2008 (In Thousands of U.S. Dollars, %) 1~90 days (inclusive) Interest-rate-sensitive assets
$
Interest-rate-sensitive liabilities Interest rate sensitivity gap
91~180 days (inclusive)
181 days~1 year (inclusive)
Over 1 year
5,163,957
719,414
128,662
108,486
5,321,198
2,160,119
303,577
307
(1,440,705)
(174,915)
(157,241)
108,179
Net worth
Total 6,120,519 7,785,201 (1,664,682) 3,493,377
Ratio of interest-rate-sensitive assets to liabilities (%)
78.62
Ratio of interest rate sensitivity gap to net worth (%)
(47.65)
Chinatrust Commercial Bank Co., Ltd. (not restated) December 31, 2007 (In Thousands of U.S. Dollars, %) 1~90 days (inclusive) Interest-rate-sensitive assets Interest-rate-sensitive liabilities Interest rate sensitivity gap
$
91~180 days (inclusive)
181 days~1 year (inclusive)
Over 1 year
Total
4,362,101
1,448,298
698,443
208,168
6,717,010
4,661,904
2,024,335
198,295
27,977
6,912,511
500,148
180,191
(299,803)
(576,037)
Net worth
(195,501) 3,187,233
Ratio of interest-rate-sensitive assets to liabilities (%)
97.17
Ratio of interest rate sensitivity gap to net worth (%)
(6.13)
ĺĺ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Note 1: Listed amounts of the head office, domestic branches, offshore banking unit and overseas branches (excluding contingent assets and liabilities) are denominated in U.S. dollars. Note 2: Interest-rate-sensitive assets and liabilities are determined by the revenue or cost of various rate spreads between interest-earning assets and interest-bearing liabilities. Note 3: Interest rate sensitivity gap Interest-rate-sensitive liabilities.
=
Interest-rate-sensitive
assets
í
Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest-rate-sensitive assets ÷ Interest-rate-sensitive liabilities (denominated in U.S. dollars). (d) Profitability December 31, 2008 0.91 0.80 12.79 11.26 24.79
Items Return on assets ratio (in year) Return on equity ratio (in year) Net income ratio
Before income tax After income tax Before income tax After income tax
Unit: % December 31, 2007 0.84 0.69 14.05 11.55 21.43
Note 1: Return on assets ratio = Net income (loss) before/after income tax ÷ average total assets. Note 2: Return on equity ratio = Net income (loss) before/after income tax ÷ average total equity. Note 3: Net income ratio = Net income after income tax ÷ Net revenue. Note 4: Net income (loss) before/after tax represents accumulated income (loss) of the current year. (e)
Structure analysis of assets and liabilities time to maturity 1. Structure analysis of New Taiwan Dollars time to maturity December 31, 2008 (In Millions of New Taiwan Dollars) Total Major capital inflow at maturity Major capital outflow at maturity Gap
$
1~30 days
Amount remaining to due date 31~90 days 91~180 days 181 days~1 year
Over 1 year
1,713,810
465,683
280,670
185,619
152,371
629,467
1,650,149 63,661
369,596 96,087
298,644 (17,974)
224,761 (39,142)
281,901 (129,530)
475,247 154,220
ʳ
IJıı
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Chinatrust Commercial Bank Co., Ltd. (not restated) December 31, 2007 (In Millions of New Taiwan Dollars) Total Major capital inflow at maturity Major capital outflow at maturity Gap
$
1~30 days
Amount remaining to due date 31~90 days 91~180 days 181 days~1 year
Over 1 year
1,602,477
355,756
164,659
149,517
202,429
730,116
1,529,936 72,541
326,942 28,814
183,172 (18,513)
184,032 (34,515)
602,164 (399,735)
233,626 496,490
ʳ
Note: Listed amounts of the head office and domestic branches (excluding foreign currency amounts) are denominated in NTD. 2. Structure analysis of U.S. Dollars time to maturity December 31, 2008 (In Thousands of U.S. Dollars) Total Major capital inflow at maturity Major capital outflow at maturity Gap
$ 24,240,413 24,194,710 45,703
1~30 days
Amount remaining to due date 31~90 days 91~180 days 181 days~1 year
Over 1 year
7,717,543
6,155,698
3,930,806
2,136,178
4,300,188
8,363,328 (645,785)
5,963,726 191,972
4,801,923 (871,117)
2,660,034 (523,856)
2,405,699 1,894,489
ʳ ʳ
Chinatrust Commercial Bank Co., Ltd. (not restated) December 31, 2007 (In Thousands of U.S. Dollars) Total Major capital inflow at maturity Major capital outflow at maturity Gap
1~30 days
Amount remaining to due date 31~90 days 91~180 days 181 days~1 year
Over 1 year
$ 22,735,412
9,060,321
4,779,482
3,576,537
1,004,466
4,314,606
22,359,639 375,773
6,113,676 2,946,645
4,528,281 251,201
3,787,428 (210,891)
4,413,322 (3,408,856)
3,516,932 797,674
ʳ
Note: Listed amounts of the head office, domestic branches, offshore banking unit and overseas branches are denominated in U.S. dollars.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (f)
Capital adequacy Capital adequacy ratios of the Bank: (In Thousands of New Taiwan Dollars,%) Period
Analysis item Eligible capital
Tier 1 capital Tier 2 captial Tier 3 captial Eligible Capital
Standardized approach Internal ratings-based approach Securitization Basic indicator approach Risk-weighted Operational risk Standardized approach assets Advanced measurement approach Standardized approach Market risk Internal model approach Total Capital adequacy ratio Tier 1 capital / Risk-weighted assets ratio Tier 2 capital / Risk-weighted assets ratio Tier 3 capital / Risk-weighted assets ratio Common stock equity / Total assets ratio Credit risk
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December 31, 2008 $ 96,241,954 29,537,215 3,772,222 129,551,391 890,069,040 94,465,785 66,013,883 1,050,548,708 12.33% 9.16% 2.81% 0.36% 4.52%
Chinatrust Commercial Bank Co., Ltd. (not restated) December 31, 2007 85,502,247 22,084,310 4,298,449 111,885,006 886,439,679 95,369,559 75,222,861 1,057,032,099 10.58% 8.09% 2.09% 0.41% 4.21%
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Capital adequacy ratios of the Bank and its subsidiaries: (In Thousands of New Taiwan Dollars,%) Chinatrust Commercial Period Bank Co., Ltd. and its subsidiaries (not restated) December 31, December 31, 2008 2007 Analysis item $ 106,752,997 95,323,621 Tier 1 capital Tier 2 captial 37,326,673 30,584,034 Eligible capital Tier 3 captial 4,805,713 4,638,678 Eligible Capital 148,885,383 130,546,333 Standardized approach 992,352,539 990,325,969 Credit risk Internal ratings-based approach Securitization Basic indicator approach Risk-weighted Operational risk Standardized approach 101,833,525 101,944,483 assets Advanced measurement approach 84,099,972 81,176,862 Standardized approach Market risk Internal model approach 1,178,286,036 1,173,447,314 Total 12.64% 11.13% Capital adequacy ratio Tier 1 capital / Risk-weighted assets ratio 9.06% 8.12% Tier 2 capital / Risk-weighted assets ratio 3.17% 2.61% Tier 3 capital / Risk-weighted assets ratio 0.41% 0.40% Common stock equity / Total assets ratio 4.24% 3.94%
Capital adequacy ratios of Chinatrust Bills Finance Corp. (dissolved): (In Thousands of New Taiwan Dollars,%) Period
Analysis item Eligible capital Risk-weighted assets Capital adequacy ratio
16.15% 19.81% 0.90% 10.47% 855.47%
Tier 1 capital / Risk-weighted assets ratio Tier 2 capital / Risk-weighted assets ratio Tier 3 capital / Risk-weighted assets ratio Common stock equity / Total assets ratio Total liability / Total equity ratio
(F)
December 31, 2007 $ 3,860,140 23,907,476
Significant contracts: Please refer to Note 7(B) for further information.
(G) The income and expenses arising from the joint marketing operation and information interoperability amongst the Financial Holding Company’s subsidiaries were allocated as follows: The joint marketing expenses between the Bank and Chinatrust Insurance Brokers Corp., Ltd. are allocated to each project item based on the insurance revenue ratio, actual marketing costs of insurance products, labor hours, profitability, etc. For the years ended December 31, 2008 and 2007, the Bank allocated fees to Chinatrust Insurance Brokers Corp., Ltd. amounting to $1,013,903 and $799,977, respectively. IJıĴ
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! In order to optimize the benefits efficiently and effectively, the Bank and Chinatrust Insurance Brokers Corp., Ltd. share and use each other’s information for operations, whereas both companies individually recognize their own profits from the sales of products and services. (H) Financial statement restatement The Bank merged with Chinatrust Bills Finance Corp. on April 26, 2008, and since both merging entities were wholly owned subsidiaries of Chinatrust Financial Holding Company, Ltd., pursuant to Interpretations (91) No. 243 and 244 issued by the Accounting Research and Development Foundation, the merger of the Bank and Chinatrust Bills Finance Corp. could qualify as a reorganization, and thus both merging entities’ assets and liabilities were recorded at the book value on a consolidated basis. Additionally, in accordance with Interpretation (95) No. 141, when the Bank prepared comparative financial statements, the financial statements of the Bank were retroactively restated to reflect the merger assuming both entities had merged on January 1, 2007, and the assets and liabilities of Chinatrust Bills Finance Corp. were merged into the Bank’s assets and liabilities at the book value. The Bank acquired all assets and liabilities of Chinatrust Bills Finance Corp. by issuing 314,160 thousand common shares in a 0.77-for-1 exchange for the shares of Chinatrust Bills Finance Corp. The net assets of Chinatrust Bills Finance Corp. acquired by the Bank amounted to $4,971,744, and the composition of net assets was as follows: Item Cash and cash equivalents Due from central bank Financial assets measured at fair value through profit or loss
$
Amount 44,379 3,510,000 11,111,376 11,638,105
Available-for-sale financial assets—net Other receivables—net
394,150 144,017
Other financial assets—net
1,663 2,159
Premises and equipment—net Intangible assets—net
16,502
Other assets Securities sold under repurchase agreements
(14,808,015) (110,233)
Payables
(6,700,000)
Corporate bonds payable
(89,189)
Financial liabilities measured at fair value through profit or loss Other liabilities
(183,170) $
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Each major asset, which increased due to the merger of the Bank and Chinatrust Bills Finance Corp., is provided for future operational use; therefore, there are no current plans for any significant disposal of these assets. In addition, the operating results of Chinatrust Bills Finance Corp. for the year ended December 31, 2007, have been recorded in the income statements of the Bank for the year ended December 31, 2007, and the Bank’s financial statements for the year ended December 31, 2007, have been retroactively restated. (I) Account reclassification: Certain accounts in the financial statements for the year ended December 31, 2007, have been reclassified to be consistent with the presentation of the current-period financial statements.
11. DISCLOSURES REQUIRED (A) Related information on significant transactions: (a) Cumulative purchase or sale of the same investee’s capital stock up to $300,000 or 10% of paid-in capital: None. (b) Acquisition of real estate up to $300,000 or 10% of paid-in capital: (In Thousands of New Taiwan Dollars) Previous transfer data when counter-party is related party!
Acquiring Name of Transaction Transaction Payment CounterRelationship company! property! date amount! status party
Chinatrust Collateral Commercial (Land) Bank Co., Ltd.
(Note 1)
$335,306
Paid
Hualon Co., Ltd.
None
Acquisition
Reference for Other purpose acquisition additional and use Relationship Transfer Amoun price term Owner N/A
with issuer
date
t
N/A
N/A
-
status
(Note 2)
Processed according to the acquisition method
None
Note 1: The actual acquisition date was December 26, 2007. The real estate transfer certificate was issued by the Court on January 9, 2008, and it was received by the Bank on January 24, 2008. Note 2: The acquisition price is determined based on the price announced by Taiwan Financial Asset Service Corporation and the appraisal report published by Union Real Estate Consultant commissioned by the Court.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! !
!
(c) Disposal of real estate up to $300,000 or 10% of paid-in capital: (In Thousands of New Taiwan Dollars) Name of Original Name of Transaction disposing acquisition property date company date Chinatrust Collateral Commercial (Land) Bank Co., Ltd.
2008.01.25
Book value
2008.01.09 $335,306
Gain (loss) Transaction Collection on amount status disposition (Note 1) $335,306
The transaction amounts were fully received
-
Counterparty Tung Tsun Yang, Ming Hsiang Wang, Jang Chi Yeh, Shih Jen Li, Hsiu Yu Hsu
Reference Other Relation- Disposition for additional ship purpose disposition term price None
Processed Book value according to the acquisition method
None
(d) Discount on commission fees for transactions with related parties up to $5,000: None. (e) Receivables from related parties up to $300,000 or 10% of paid-in capital: None. (f) The transaction information on NPL disposition: (1) Summary table of NPL disposal: None. (2) Disposal of a single batch of NPL up to $1,000,000 (excluding sales to related parties), and information on each transaction: None. (g) Types of securitization instruments approved to be issued pursuant to financial asset securitization rules or real estate securitization rules and other relevant information: None. (h) Other significant transactions that may have substantial influence upon the decisions made by financial statement users: Please refer to Notes 5 and 7(D).
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! !
(B) Related information on investee companies: (a) Names and locations of, and relevant information on, investees upon which the Bank exercises significant influence: (In Thousands of New Taiwan Dollars/Thousands of shares) Names of investee company
Address
Main business scope
Shareholding ratio
Investment gain (loss) recognized
Carrying value
Aggregate shareholding of the Company and its subsidiaries No. of shares!
No. of pro forma shares
Total
Remark
Number of Shareholding ratio! shares!
!
Chinatrust (Philippines) Commercial Bank Corporation
3rd Fl., Tower One, Ayala Triangle, Ayala Avenue cor. Paseo De Roxas, Metro Manila, Makati, Philippines
Commercial banking and financing business !
99.41 %
3,625,552
43,610
246,497
-
246,497
99.41 %
-
PT Bank Chinatrust Indonesia
16th F1,Wisma Tamara, JI Jenderal Sudirman Kev. 24 Jakarta 12920, Indonesia
Commercial banking and financing business
99.00 %
3,753,558
690,349
1
-
1
99.00 %
-
60.00 %
20,760
123
50,000
-
50,000
100.00 %
Company in liquidation
Chinatrust Forex 3rd Fl., Tower One, Foreign exchange Corporation Ayala Triangle, Ayala Avenue cor. brokerage Paseo De Roxas, Metro Manila, Makati, Philippines CTC Bank of Canada
1518 West Broadway, Vancouver, B.C., Canada, V6J 1W8
Commercial banking and financing business
100.00 %
561,941
21,231
1,500
-
1,500
100.00 %
-!
Chinatrust Securities Investment Consultancy Co., Ltd.
No. 3 Sung-Shou Road, Taipei, 7F
Securities investment and consultancy services
99.40 %
9,947
(239)
998
-
998
99.80 %
Company in liquidation
Chinatrust Capital Corporation
22939 Hawthorne Boulevard, 2nd Floor, Torrance, CA 90505
Securities investment business !
100.00 %
7,677,139 (1,156,932)
1
-
1
100.00 %
-!
Grand Bills Finance Corporation !
11F., No.560, Sec. 4, Proprietary Jhongsiao E. Rd., trading, Taipei City brokerage of short-term bills, underwriting
21.15 %
1,731,854
33,817
114,399
-
114,399
21.15 %
-
GCB Finance (HK) Limited
Suite 2812, Two International Finance Centre, 8 Finance Street, Central Hong Kong
100.00 %
367,913
3,221
50,000
-
50,000
100.00 %
-
Chinatrust Bank 22939 Hawthorne (USA) Boulevard, 2nd Floor, Torrance, CA 90505 Chinatrust Capital Statutory Trust II
22939 Hawthorne Boulevard, 2nd Floor, Torrance, CA 90505
Corporate loans
Commercial banking and financing business
-
-
-
Common Share 1 Preferred Share 100
-
Special Purpose Entity (“SPE”)
-
-
-
774
-
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100.00 % Common Share 1 Preferred Share 100! 774
Note
-!
-
CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! Note:100% of common shares of the SPEs are held by the Bank’s subsidiary Chinatrust Capital Corporation; the common shares of the SPEs account for approximately 3% of the SPE’s total equity. (b) Loans to other businesses or individuals: not applicable to banking subsidiaries; others: None. (c) Endorsements and guarantees for others: not applicable to banking subsidiaries; others: None. (d) Marketable securities held as of December 31, 2008: not applicable to banking subsidiaries; others: (In Thousands of New Taiwan Dollars/Thousands shares) Name of company holding securities Chinatrust Capital Corporation
ϣ
Marketable Relationship with Account securities type the securities issuer and name of SPE
Chinatrust Bank (U.S.A.) Chinatrust Capital Statutory Trust II
December 314, 2008
No. of shares Book value
An investee of the Investments Common 1 bank accounted for under equity shares Preferred shares under equity method method 100 Ƀ
Common shares
Ƀ
774
Shareholding Market price (Note2) ratio
Remark
$7,933,246
100.00%
$7,933,246
-
$25,434
Note1
$25,434
-
Note 1: 100% of common shares of the SPEs are held by the Bank’s subsidiary Chinatrust Capital Corporation; the common shares of the SPEs account for approximately 3% of the SPE’s total equity. Note 2:
The price of the non-listed or non-OTC-listed securities held by the Bank’s subsidiaries will be equivalent to the securities’ net equity on the balance sheet date determined by the shareholding ratio of the Bank’s subsidiaries.
(e) Cumulative purchase or sale of the same investee’s capital stock up to $300,000 or 10% of paid-in capital: not applicable to banking subsidiaries; others: None. (f) Acquisition of real estate up to $300,000 or 10% of paid-in capital: None. (g) Disposal of real estate up to $300,000 or 10% of paid-in capital: None. (h) Discount on commission fees for transaction with related parties up to $5,000: None. (i) Receivables from related parties up to $300,000 or 10% of paid-in capital: None. (j) Financial derivative transactions: not applicable to banking subsidiaries; others: None.
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CHINATRUST COMMERCIAL BANK CO., LTD. NOTES TO FINANCIAL STATEMENTS (CONT’D)
! ! (k) Information on NPL disposal transaction (1) Summary table of NPL disposal: Trade date 2008.5.8
CounterDebt Book value Selling price Gain (loss) on party component disposition Bank of America Secured PHP75,275 PHP78,201 PHP2,926 loan thousand thousand thousand
Additional term None
Relationship
None
(2) Disposal of a single batch of NPL up to $1,000,000 (excluding sales to related parties), and information on each transaction: None. (l) Types of securitization instruments approved to be issued pursuant to financial assets securitization rules or real estate securitization rules and other relevant information: None. (m)Other significant transactions that may have substantial influence upon the decisions made by financial statement users: None. 12. BUSINESS SEGMENT FINANCIAL INFORMATION (A) Industry segment information: The Bank’s operation is only for commercial banking business. Therefore, no disclosure of industry segment information is required. (B) Geographic information: Disclosure of financial information of the Bank’s International Department is not required since its revenues or identifiable assets represent less than 10% of the Bank’s total operating revenues or total assets, respectively. Therefore, no disclosure of geographic segment information is required. (C) Export sales information: Not applicable. (D) Information on major customers: Not applicable.
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Appendix 2
CHINATRUST COMMERCIAL BANK CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007 AND INDEPENDENT AUDITORS’ REPORT
ADDRESS:
NO. 3 SUNG-SHOU ROAD, TAIPEI, TAIWAN, R.O.C.
TELEPHONE NUMBER: 886-2-2722-2002
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! !
Independent Auditors’ Report The Board of Directors Chinatrust Commercial Bank Co., Ltd. We have audited the accompanying consolidated balance sheets of Chinatrust Commercial Bank Co., Ltd. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of Chinatrust Commercial Bank Co., Ltd.’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chinatrust Commercial Bank Co., Ltd. and subsidiaries as of December 31, 2008 and 2007, and the consolidated results of their operations and cash flows for the years then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Publicly Held Banks, the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and generally accepted accounting principles in the Republic of China. As stated in Notes 3 and 4(AA), commencing from July 1, 2008, Chinatrust Commercial Bank Co., Ltd. adopted the second amendment of Republic of China Statement of Financial Accounting Standards (SFAS) No. 34 “Financial Instruments: Recognition and Measurement” and proceeded to reclassify its financial assets. This resulted in an increase in after-tax consolidated net income of NT$ 6,242,549 thousand and an increase in EPS of NT$ 0.87 for the year ended December 31, 2008.
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! ! As stated in Notes 1 and 10(H), Chinatrust Commercial Bank Co., Ltd. merged with Chinatrust Bills Finance Corp., a wholly owned subsidiary of Chinatrust Financial Holding Company, Ltd., in a stock conversion transaction on April 26, 2008. After the merger, Chinatrust Commercial Bank Co., Ltd. was the surviving entity and incorporated Chinatrust Bills Finance Corp., which was dissolved. Pursuant to Interpretations (91) No. 243 and 244 issued by the Accounting Research and Development Foundation, the merger could qualify as a reorganization, and thus both merging entities’ assets and liabilities should recorded at the book value on a consolidated basis. Additionally, in accordance with Interpretation (95) No. 141, when Chinatrust Commercial Bank Co., Ltd. prepared comparative financial statements, the financial statements of Chinatrust Commercial Bank Co., Ltd. were retroactively restated to reflect the merger assuming both entities had merged on January 1, 2007. As stated in Notes 5 and 7(D), Chinatrust Commercial Bank Co., Ltd. Hong Kong Branch was assessed an administrative fine and prohibited from engaging in certain business activities by the Financial Supervisory Commission (FSC) due to its flawed process for disposing of overseas structured notes. The FSC lifted the business restrictions described above in March 2007 after certain operating deficiencies had been corrected and improved by Chinatrust Commercial Bank Co., Ltd. This case, whose investigation has been concluded by the Taipei District Court Prosecutors Office and for which the judgment of the Court of first instance has been given by the Taipei District Court, has been filed with the FSC to examine if Chinatrust Commercial Bank Co., Ltd.’s parent company, Chinatrust Financial Holding Company, Ltd., had breached the regulations of the Financial Holding Company Law. The cases as stated in Note 7(D) are still under investigation by the authority and the judiciary, and the results remain uncertain.
Taipei, Taiwan, R.O.C. February 24, 2009
Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures, and practices to audit such financial statements are those generally accepted and applied in the Republic of China.
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