First Financial Holding Co. Ltd. - Annual Report 2013

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2013 ANNUAL REPORT
Date：Feb. 28, 2014
This report is also available at our website.
(http://www.firstholding.com.tw)
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This English version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail.

*Contents*
Financial Highlights	02
Letter to Shareholders	04
Company Profile	1 1
Corporate Governance	16
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Capital Overview	32
Subsidiaries Overview	35
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Corporate Social Responsibilities	53
Financial Information	58
General Information	237

FIRST FINANCIAL HOLDING CO., LTD.

Financial Highlights

2013 Net Income Breakdown by Subsidiaries

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2013 Net Income % of Group1 First Bank
97.9%
�� 97.9% First Securities
�� 1.3% FSITC
First-Aviva
�� 103 0.9%
��2 �� First Financial AMC
Others
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1.3% 1.4%
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(0.2%)
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(1.3%)
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Net Revenue
32,559
Consolidated basis and
in NT$ mn 35,273
36,466
Net Income
7,471
Consolidated basis,
in NT$ mn 10,169
10,877
EPS
1.01
Consolidated basis,
in NT$ 1.18
1.26
ROAE
6.38
Consolidated basis,
in % 7.86
7.94
ROAA
0.36
Consolidated basis,
in % 0.48
0.50
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2013 ANNUAL REPORT

FFHC at a Glance

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2013 2012 2011
Income statements (in NT$ mn)
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Balance sheet (in NT$ mn)
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Dividends (in NT$)
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��3 0.70 ��
��3 1.20 1.10 1.00
Ratios (%)
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�� 103.37 ��
�� 123.00
Credit Ratings
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FIRST FINANCIAL HOLDING CO., LTD.

Letter To Shareholders

Dear Shareholders,

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2013: A transition year for the postquantitative easing world

Chairman, First Financial ��

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2013 ANNUAL REPORT

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2013: A record-setting year for First Financial Holding Company

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FIRST FINANCIAL HOLDING CO., LTD.

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�� The Banker ��

Enhanced connectivity between overseas branches as a profit driver

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2013 ANNUAL REPORT

President, First Financial ��

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◆ First Bank

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FIRST FINANCIAL HOLDING CO., LTD.

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◆ First Securities

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◆ First Securities Investment Trust (FSITC)

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◆ First-Aviva Life Insurance

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

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2013 ANNUAL REPORT

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2014 strategic initiatives and business plans: Forward-looking value creation

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Focus on new markets: Seizing opportunities from liberalization of cross-strait policies

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New model: Building cross-border service platforms targeted at Asia-Pacific region

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New product development: Strengthening integrated product planning within the group

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FIRST FINANCIAL HOLDING CO., LTD.

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New value: Enhancing long-term return on shareholders’ equity

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Exemplary performance: Setting standards as a socially responsible corporation

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Credit rating: A sound groundwork and

trustworthy management

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The ratings of various rating agencies
in 2013 are as follows:
First Financial Holding
ST LT Outlook
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First Bank
ST LT Outlook
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First Securities
ST LT Outlook
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Ching-Nain Tsai Chairman, First Financial

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2013 ANNUAL REPORT

Company Profile

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FIRST FINANCIAL HOLDING CO., LTD.

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2013 ANNUAL REPORT

Our Businesses

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First Bank

IFRS Compliant

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Net Income in NT$ mn
2013 2012
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FIRST FINANCIAL HOLDING CO., LTD.

First Securities

IFRS Compliant

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Net Income in NT$ mn
2013 2012
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First Securities Investment Trust

IFRS Compliant

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Net Income in NT$ mn
2013 2012
103 109
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First-Aviva Life Insurance

IFRS Compliant

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Net Income in NT$ mn
2013 2012
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2013 ANNUAL REPORT

First Financial AMC

IFRS Compliant

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Net Income in NT$ mn
2013 2012
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First Venture Capital

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First Consulting

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First P&C Insurance Agency

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FIRST FINANCIAL HOLDING CO., LTD.

Corporate Governance

Group Structure

FFHC Subsidiaries & Affiliates

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First Financial Holding Co., Ltd.
First Commercial Bank First Commercial Bank (U.S.A.)
100% owned 100% owned
FCB Leasing Co., Ltd. FCBL Capital Int’l (B.V.I.) Ltd.
100% owned 100% owned
First Insurance Agency Co., Ltd. FCB International Leasing Ltd.
100% owned 100% owned
East-Asia Real Estate FCB Lease(Xiamen) Ltd.
Management Co., Ltd.
30% owned
First Securities Inc. First Capital Management Inc.
100% owned 100% owned
FSC Asia Investment Limited First Worldsec Securities Limited
100% owned 100% owned
First Securities Investment Trust Co., Ltd.
100% owned
First Financial Assets Management Co., Ltd. First Financial Assets Management (B.V.I.) Ltd.
100% owned 100% owned
First Venture Capital Co., Ltd. First Financial Leasing (Chengdu) Ltd.
100% owned 100% owned
First Financial Management Consulting Co., Ltd.
100% owned
First Property & Casualty Insurance Agency Co., Ltd.
100% owned
First-Aviva Life Insurance Co., Ltd.
51% owned
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2013 ANNUAL REPORT

FFHC Operational Structure

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General Meeting of Shareholders
Auditing
Chief Auditor
Department
Board of Directors
Strategic Development
Chairman & Directors Committee
Risk Management
Committee
Audit Remuneration
Committee Committee Corporate Social
Responsibility Committee
President Business Decisions
Committee
IT Development
Committee
Marketing Integration
Executive Vice President
Committee
Administration Information Strategy
Management Dept. Technology Dept. Planning Dept.
Risk Business
Management Dept. Development Dept.
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Board Structure and Composition

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FIRST FINANCIAL HOLDING CO., LTD.

Board of Directors

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Delegate of MOF

Chairman Ching-Nain Tsai

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Delegate of MOF

Director Yi-Hsin Wang

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Delegate of MOF

Director & President Jin-Der Chiang

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Delegate of MOF

Director Ming-Ren Chien

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Delegate of MOF

Director Hsien-Feng Lee

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Director Shang-Wu Yu

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Delegate of MOF

Director Hung-Chi Huang

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Delegate of Bank of Taiwan

Director Hsiu-Chuan Ko

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2013 ANNUAL REPORT

Delegate of Bank of Taiwan

Director Hsien-Heng Lee

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Delegate of Golden Garden Investment Co.

Director Tien-Yuan Chen

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Independent Director

Yophy Huang

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- Tay Chang Wang

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Director Chi-Hsun Chang

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Shyan-Yuan Lee

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Delegate of Global Investment Co., Ltd

Director An-Fu Chen

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FIRST FINANCIAL HOLDING CO., LTD.

Shares Holding of Directors

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Shareholding Current Spouse & Minor
When Elected Shareholding Shareholding
Title Name
Shares % Shares % Shares %
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2013 ANNUAL REPORT

Professional Qualification and Independence Analysis of Directors

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Meet one of the Following Professional
Independence Criteria
Qualification requirements, Together with at
(Note)
Least five Years Work Experience
An instructor A judge, public Have work
Criteria of higher prosecutor, experience in
position in attorney, certified Commerce,
Number
Commerce, public accountant Law, Finance
of Other
Law, Finance, or other or Accounting
Account. professional or or other Public Co.,
in which the
or other technical specialist necessary for
individual is
academic who has passed the business
dept. related a national exam. of the Co. 1 2 3 4 5 6 7 8 9 10 Concurrently
to the And been awarded Serving as an
business of a certificate in Independent
Name the Co., at a professional Director
public or necessary for the
private junior business of the Co.
college,
college or
university.
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FIRST FINANCIAL HOLDING CO., LTD.

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Board Meeting

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Independence & Transparency

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Attendance at Board Meetings

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2013 ANNUAL REPORT

Directors Meeting Attendance

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Name Attendance Attendance by Attendance Notes
in Person (B) Proxy Rate (%)(B/A)
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FIRST FINANCIAL HOLDING CO., LTD.

Audit Committee & Remuneration Committee

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Audit Committee Meeting Attendance

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Attendance Attendance Attendance Rate
Name Notes
in Person (B) by Proxy (%)(B/A)
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� 1 83.00
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Remuneration Committee Meeting Attendance

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Attendance Attendance Attendance Rate
Name Notes
in Person (B) by Proxy (%)(B/A)
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2013 ANNUAL REPORT

Elements of Compensation of Directors

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Items Delivery Policy
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FIRST FINANCIAL HOLDING CO., LTD.

Remuneration

Directors’ Annual Remuneration at First Financial Holding and Group

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Remuneration Ratio of
(A+B+C+D) to net
Base Compensation(A) Severance Pay(B) Bonus(C) Reimbursed Pay(D) income (%)
Delegates
FHC FHC FHC FHC
FHC FHC FHC FHC Group FHC FHC
Group Group Group Group
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Relevant remuneration received by directors who are also employees
Ratio of
(A+B+C+D+E+F+G)
Salary, Bonus and Profit-sharing from Stock
Severance Pay(F) to net income (%) Compensation
Allowance(E) Employee Bonus(G) Option(H)
paid to directors
Delegates
from invested co.,
other than group
FHC FHC Group
FHC FHC FHC
FHC FHC FHC Group FHC FHC
Group Cash Stock Cash Stock Group Group
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�� 0 0 0 0 0 0 0.9990 1.2331 ��
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2013 ANNUAL REPORT

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Name of Directors
Bracket Total of (A+B+C+D) Total of (A+B+C+D+E+F+G)
FHC FHC Group FHC FHC Group
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Comparison of Remuneration for Directors in the Most Recent Two Fiscal Years

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Ratio of total remuneration paid to directors and supervisors to net income
Year
FHC FHC Group
2013 0.9990% 1.2331%
2012 ��
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FIRST FINANCIAL HOLDING CO., LTD.

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FFHC Management Team

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2013 ANNUAL REPORT

FFHC Management Team

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President

- Jin Der Chiang

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Advisor & Head of Risk Mgt. Dept.

- Ming Hua Cheng

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Head of IT Dept.

Chin-Fu Lee

EVP & Head of Strategy Planning Department/Spokesperson

Chung-Huei Yeh

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VP & Acting Head of Business Development Dept.

Jen-Yu Lai

Chief Auditor

Yau-Tain Shih

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VP & Head of Auditing Dept.

- Ding Ming Liao

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Advisor & Head of Admin. Mgt. Dept

Hann-Chyi Lin

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FIRST FINANCIAL HOLDING CO., LTD.

Executives’ Annual Remuneration

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Executives’ Annual Remuneration at First Financial Holding and Group

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Bonus and
Salary(A) Severance Pay(B) Profit-sharing Employee Bonus(D)
Allowance(C)
Title
FHC FHC Group
FHC FHC FHC
FHC FHC FHC
Group Group Group
Cash Stock Cash Stock
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Ratio of (A+B+C+D) to Exercisable Employee
Any compensation from
net income(%) Stock Option
Title an invested Co. other than
group
FHC FHC Group FHC FHC Group
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2013 ANNUAL REPORT

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Name of President and Executive Officers
Bracket
FHC FHC Group
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Comparison of Remuneration for Executives in the Most Recent Two Fiscal Years

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Ratio of Total Remuneration paid to executives to net income
Year
FHC FHC Group
2013 ��
2012 0.1027% ��
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FIRST FINANCIAL HOLDING CO., LTD.

Capital Overview

Share Capital

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FFHC Ownership Structure

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Shareholders Breakdown by Owners Type

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Shareholders Number Share-held Holding %
�� 19.01
�� 18.73
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�� 20.90
�� 100.00
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Major Shareholders

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Shareholders Share-held Holding %
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�� 7.72
�� 2.89
�� 2.70
�� 2.33
�� 2.20
�� 2.10
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�� 1.27
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2013 ANNUAL REPORT

Share Price Information

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Share Price Information on Taiwan Stock Exchange

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2009 2010 2011 2012 2013 2014
�� 19.70 ��
�� 12.20 �� 17.70
�� 18.03 20.31 �� 17.98 18.12
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GDR Price Information on the Luxembourg Stock Exchange

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2009 2010 2011 2012 2013 2014
�� 18.87 13.21 ��
�� 7.13 9.83 �� 11.29 ��
�� 12.10 �� 11.91 12.13 11.99
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Dividend

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FIRST FINANCIAL HOLDING CO., LTD.

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Dividend Payout History

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2009 2010 2011 2012 2013
�� 1.01 1.18 ��
�� 0.30 ��
�� 0.70
�� 0.90 1.00 1.10 1.20
�� 38.13% ��
�� 99.01% 93.22% ��
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2013 ANNUAL REPORT

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Subsidiaries Overview

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FIRST FINANCIAL HOLDING CO., LTD.

First Bank Overview

�� The Banker ��

2013 Net Revenue Breakdown

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Net interest income Net fee income Other income
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Financial Highlights First Bank

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2012 2013
Income statements (in NT$ mn)
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2013 ANNUAL REPORT

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2012 2013
��
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Balance sheet (in NT$ mn)
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Ratios (%)
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�� 8.31
�� 10.90
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Credit Ratings	Credit Ratings
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FIRST FINANCIAL HOLDING CO., LTD.

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First Bank Business Units & Functional Centers

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First Bank President ��

2013 ANNUAL REPORT

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FIRST FINANCIAL HOLDING CO., LTD.

First Bank Capital Adequacy

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2012 2013
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	2012	2013

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��	��	10.90

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2013 ANNUAL REPORT

First Securities Overview

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2013 Net Revenue Breakdown

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Net brokerage commissions Net principle transaction gains Net interest income Other income
�� 292 297 ��
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Financial Highlights First Securities

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2012 2013
Income statement (inNT$ mn)
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�� 282 297
�� 79 ��
�� 100 292
�� 110 ��
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�� 21 73
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FIRST FINANCIAL HOLDING CO., LTD.

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2012 2013
��
�� 0 0
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Balance sheet (in NT$ mn)
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Ratios (%)
�� 2.19
�� 0.80
Credit Ratings
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2013 global market snapshot: A mixed picture over stability and uncertainty

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2013 ANNUAL REPORT

A challenging year

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◆ Retail Brokerage

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◆ Underwriting

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◆ Financial products

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◆ Proprietary trading and research

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FIRST FINANCIAL HOLDING CO., LTD.

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2013 ANNUAL REPORT

First Securities Investment Trust Overview

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Financial Highlights First Securities Investment Trust

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2012 2013
Income statement (in NT$ mn)
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�� 9 8
�� 131 ��
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�� 0 0
�� 109 103
Balance sheet (in NT$ mn)
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�� 982 ��
Asset under management
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FIRST FINANCIAL HOLDING CO., LTD.

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Domestic Mutual Fund Market

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Type 2012 2013 Change
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�� 120 121 1.3%
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2013 ANNUAL REPORT

First Securities Investment Trust’s Asset under Management

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Type 2012 2013 Change
��1 282 273 ��
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�� 822 ��
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Domestic funds: ��
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Global funds: ��
Fixed-income funds: ��

Business objectives and outlook for 2014

◆ Launches of new funds and consolidation of existing funds: ��

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◆ Expansion of distribution networks through development of alternative sales channels: ��

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FIRST FINANCIAL HOLDING CO., LTD.

Development of discretionary management business: ��
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Enhancement of digital marketing capability: ��

◆ Collaboration with affiliate First Bank, to enlarge share in dollar cost averaging programs:

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◆ A China team designated to explore growth opportunities in China: ��

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2013 ANNUAL REPORT

First-Aviva Life Insurance Overview

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Financial Highlights First-Aviva Life Insurance

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2012 2013
Income statement (in NT$ mn)
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Balance sheet (in NT$ mn)
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�� 973
Ratios (%)
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FIRST FINANCIAL HOLDING CO., LTD.

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FYP (NT mn) Percent (%)
�� 87.8%
�� 1.3%
�� 7.7%
�� 3.2%
�� 100.0%
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2013 ANNUAL REPORT

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FYP (NT mn) Percent (%)
�� 90.3%
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FIRST FINANCIAL HOLDING CO., LTD.

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Corporate Social Responsibilities

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FIRST FINANCIAL HOLDING CO., LTD.

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2013 ANNUAL REPORT

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2013 ANNUAL REPORT

F i n a n c i a l I n f o r m a t i o n

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2013 ANNUAL REPORT

FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

FIRST FINANCIAL HOLDING CO., LTD.

PWCR13000164

Report of Independent Accountants

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

We have audited the accompanying consolidated balance sheets of First Financial Holding Co., Ltd. (“the Company”) and its subsidiaries (collectively the “First Group”) as of December 31, 2013, December 31, 2012, and January 1, 2012 and the related consolidated statements of comprehensive income, of changes in equity, and of cash flows for the years ended December 31, 2013 and 2012. These consolidated financial statements are the responsibility of the First Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Group as of December 31, 2013, December 31, 2012, and January 1, 2012 and the results of its operations and its cash flows for the years ended December 31, 2013and 2012 in conformity with the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”, “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, “Regulations Governing the Preparation of Financial Reports by Public Banks”, “Regulations Governing the Preparation of Financial Reports by Securities Firms”, “Regulations Governing the Preparation of Financial Reports by Insurance Companies”, “Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants” and International Financial Reporting Standards (“IFRS”), International Accounting Standard (“IAS”), IFRS Interpretations Committee (“IFRIC”), and Standing Interpretations Committee (“SIC”), as endorsed by the Financial Supervisory Commission (“FSC”).

PricewaterhouseCoopers, Taiwan

March 20, 2014

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and of cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

2013 ANNUAL REPORT

					2	6	1	4	-	3	-	65	-	16	-	1	-	2	-	-	-	100		8	-	1	-	1	-	3	-	77	2	-		1	-	-	-	1	-	-	94
				%
			1-Jan-12	AMOUNT	47,962,128	128,604,929	20,826,136	83,135,860	4,766,169	65,736,785	1,992,896	1,356,584,190	2,854	320,672,462	1,645,213	16,079,031	6,496,054	28,071,911	213,077	1,659,575	3,387,843	2,087,837,113		152,998,908	79,073	26,005,392	110,978	14,247,214	4,657,824	63,654,703	800,367	1,611,167,355	34,700,000	1,250,000		12,912,331	4,982,290	560,486	1,603	24,869,297	5,759,717	3,091,981	1,961,849,519
					$																	$		$
					3	6	1	4	-	3	-	68	-	13	-	1	-	1	-	-	-	100		7	-	1	-	1	-	3	-	77	2	-		1	-	-	-	2	-	-	94
				%
FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES	CONSOLIDATED BALANCE SHEETS	(Expressed in thousands of New Taiwan dollars)	31-Dec-13 31-Dec-12	Notes AMOUNT % AMOUNT	6(1) and 12 $ 56,683,394 3 $ 54,146,964	6(2) and 12 162,586,971 7 121,161,949	6(3) and 12 46,428,396 2 19,091,303	6(8) and 12 97,397,287 4 84,191,433	6(4) 3,469,271 - 3,787,060	6(5) and 12 69,439,025 3 64,135,777	2,294,922 - 2,345,422	6(6) and 12 1,431,075,270 63 1,436,468,824	6(7) 4,690 - 1,362	6(9) 304,110,961 14 278,537,163	6(10) 1,819,442 - 1,635,604	6(11) 44,970,823 2 18,265,284	6(12) 8,790,550 1 6,701,162	6(13) 28,464,750 1 28,299,232	345,807 - 304,425	6(41) 1,665,697 - 1,655,232	6(14) 3,838,096 - 3,550,692	$ 2,263,385,352 100 $ 2,124,278,888		6(15) and 12 $ 141,375,782 6 $ 153,181,697	69,243 - 78,151	6(16) and 12 15,013,079 1 21,864,965	6(17) 7,973 - 44,584	6(18) 14,215,809 1 7,431,152	6(19) 5,791,670 - 3,802,797	6(20) 63,210,669 3 65,848,043	2,302,121 - 1,893,892	6(21) and 12 1,731,889,637 77 1,621,998,950	6(22) 49,700,000 2 49,700,000	6(23) 2,718,078 - 1,158,070	6(24)	13,972,124 1 13,564,448	5,217,358 - 5,415,028	558,614 - 553,478	8,694 - 1,548	6(25) 66,717,864 3 35,904,635	6(41) 5,763,392 - 5,763,377	6(26) 3,647,092 - 3,350,074	2,122,179,199 94 1,991,554,889	(continued)
				ASSETS	Cash and cash equivalents	Due from the Central Bank and call loans to banks	Financial assets at fair value through profit or loss	Available-for-sale financial assets, net	Securities purchased under resell agreements	Receivables, net	Current tax assets	Loans discounted, net	Reinsurance contract assets, net	Held-to-maturity financial assets, net	Investments accounted for using equity method, net	Other financial assets, net	Investment property, net	Property and equipment, net	Intangible assets, net	Deferred income tax assets, net	Other assets, net	Total Assets	LIABILITIES AND EQUITY	Deposits from the Central Bank and banks	Due to the Central Bank and banks	Financial liabilities at fair value through profit or loss	Derivative financial liabilities for hedging	Securities sold under repurchase agreements	Commercial papers issued, net	Payables	Current tax liabilities	Deposits	Bonds payable	Other borrowings	Provisions	Provisions for insurance	Provisions for employee benefits	Provisions for guarantee liabilities	Other provisions	Other financial liabilities	Deferred tax liabilities	Other liabilities	Total Liabilities

FIRST FINANCIAL HOLDING CO., LTD.

							4	1		-	-	1		-	-	6	100
				%
			1-Jan-12	AMOUNT			76,654,347	18,583,439		6,488,624	4,162,118	16,409,922		3,043,205	645,939	125,987,594	2,087,837,113
							$										$
							4	1		-	-	1		-	-	6	100
				%
FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES	CONSOLIDATED BALANCE SHEETS	(Expressed in thousands of New Taiwan dollars)	31-Dec-13 31-Dec-12	Notes AMOUNT % AMOUNT	6(27)		$ 86,535,092 4 $ 81,253,607	18,200,167 1 18,200,167	6(28)	8,266,238 - 7,248,854	4,128,990 - 4,128,990	19,446,949 1 18,450,625	6(29)	4,151,813 - 2,861,248	476,904 - 580,508	141,206,153 6 132,723,999	$ 2,263,385,352 100 $ 2,124,278,888	The accompanying notes are an integral part of these consolidated financial statements.
				LIABILITIES AND EQUITY	Equity attributable to owners of the parent	Capital	Common stock	Capital surplus	Retained earnings	Legal reserve	Special reserve	Unappropriated earnings	Other equity interest	Other equity interest	Non-controlling interests	Total equity	TOTAL LIABILITIES AND EQUITY

2013 ANNUAL REPORT

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

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

Interest income
Interest expense
Net interest income
Net income except interest
Net service fee and commission income
Net loss from insurance operations
Gains on financial assets (liabilities) at
fair value through profit or loss
Gains on investment property
Realized gains on available-for-sale
financial assets
Foreign exchange gains
Reversal of impairment loss
(impairment loss) on assets
Share of profit of associates accounted
for using equity method
Net other non-interest income
Net income
Bad debt expense and guarantee liability
provisions
Net change in provisions for insurance
liabilities
Operating expenses
Employee benefits expense
Depreciation and amortization expense
Other general and administrative
expense
Income from continuing operations
Tax expense
Profit

For theyears ended december 31,
Change
Percentage
2013
2012
Notes
Amount
%
Amount
%
%
$ 38,131,760
105
$ 36,795,212
104
4
(
12,199,328 ) (
34 ) (
11,727,912 ) (
33 )
4
6(30)
25,932,432
71
25,067,300
71
3
6(31)
6,631,884
18
6,134,927
17
8
6(32)
688,025
2
718,934
2
(
4 )
858,780
3
1,398,447
4
(
39 )
87,857
-
93,614
-
(
6 )
6(34)
314,828
1
380,385
1
(
17 )
1,368,237
4
650,740
2
110
6(40)
3,046
-
(
167,728 )
-
102
6(10)
96,810
-
37,933
-
155
6(35) and 12
484,333
1
958,617
3
(
49 )
36,466,232
100
35,273,169
100
3
(
4,046,506 ) (
11 ) (
3,551,393 ) (
10 )
14
6(36)
(
397,078 ) (
1 ) (
652,170 ) (
2 ) (
39 )
6(37)
(
12,870,019 ) (
35 ) (
12,999,543 ) (
37 ) (
1 )
6(38)
(
880,711 ) (
3 ) (
862,637 ) (
2 )
2
6(39) and 12 (
5,222,764 ) (
14 ) (
5,060,204 ) (
14 )
3
13,049,154
36
12,147,222
35
7
6(41)
(
2,172,180 ) (
6 ) (
1,977,776 ) (
6 )
10
10,876,974
30
10,169,446
29
7

(Continued)

FIRST FINANCIAL HOLDING CO., LTD.

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

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

		For the	years ended December 31,	years ended December 31,	years ended December 31,
		2013	% 2 ( $ 1 - ( - ( - 3 ( 33 $ 30 $ - ( 30 $ 33 $ - ( 33 $ 1.26 $		2012
		Amount 695,783 398,307 75,861 87,027 4,614 1,261,592 12,138,566 10,888,641 11,667 ) 10,876,974 12,242,170 103,604 ) 12,138,566
Other comprehensive income Exchange differences on translation Unrealized losses on valuation of available-for-sale financial assets Actuarial gains (losses) on defined benefit plans Share of other comprehensive income of associates accounted for using equity method Income tax related to components of comprehensive income Other comprehensive (loss) income, net of tax Total comprehensive income Profit (loss), attributable to: Profit , attributable to owners of parent Loss, attributable to non-controlling interests Comprehensive income attributable to: Comprehensive income, attributable to owners of parent Comprehensive loss, attributable to non-controlling interests Earnings per share Basic and diluted earnings per share from continuing operations, net of income tax	$

	$			$
	$			$
	$			$
	$			$
	$			$
	$			$

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

2013 ANNUAL REPORT

									Total		$ 125,987,594			-	3,066,174)	-	-	10,169,446	367,093)	-	226	$ 132,723,999		$ 132,723,999			-	3,656,412)	-	10,876,974		1,261,592	$ 141,206,153
								Non-controlling	interest		$ 645,939			-	- (	-	-	( 56,954)	( 8,587) (	-	110	$ 580,508		$ 580,508			-	- (	-	( 11,667)		( 91,937)	$ 476,904
									Total		$125,341,655			-	3,066,174)	-	-	10,226,400	358,506 )	-	116	$132,143,491		$132,143,491			-	3,656,412)	-	10,888,641		1,353,529	$140,729,249
															(				(									(
FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES	CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY	(Expressed in thousands of New Taiwan dollars)	Equity attributable to owners of the parent	Retained Earnings Other equity	Exchange	difference on Unrealized gain	translation of or loss on	Common Capital Unappropriated foreign financial available-for-sale	stock surplus Legal reserve Special reserve earnings statements financial assets	2012	Balance at January 1, 2012 $76,654,347 $18,583,439 $ 6,488,624 $ 4,162,118 $ 16,409,922 $ - $ 3,043,205	Appropriation of prior year's earnings	(Note)	Legal reserve appropriated - - 760,230 - ( 760,230) - -	Cash dividends of ordinary shares - - - - ( 3,066,174) - -	Stock dividends of ordinary shares 4,215,988 - - - ( 4,215,988) - -	Reversal of special reserve - - - ( 32,563) 32,563 - -	Profit for the year - - - - 10,226,400 - -	Other comprehensive loss for the year - - - - ( 176,549) ( 1,002,850) 820,893	Stock dividends from capital surplus 383,272 ( 383,272) - - - - -	Others - - - ( 565) 681 - -	Balance at December 31, 2012 $81,253,607 $18,200,167 $ 7,248,854 $ 4,128,990 $ 18,450,625 ($ 1,002,850) $ 3,864,098	2013	Balance at January 1, 2013 $81,253,607 $18,200,167 $ 7,248,854 $ 4,128,990 $ 18,450,625 ($ 1,002,850) $ 3,864,098	Appropriation of prior year's earnings	(Note)	Legal reserve appropriated - - 1,017,384 - ( 1,017,384) - -	Cash dividends of ordinary shares - - - - ( 3,656,412) - -	Stock dividends of ordinary shares 5,281,485 - - - ( 5,281,485) - -	Profit for the year - - - - 10,888,641 - -	Other comprehensive income for the	year - - - - 62,964 782,810 507,755	Balance at December 31, 2013 $86,535,092 $18,200,167 $ 8,266,238 $ 4,128,990 $ 19,446,949 ($ 220,040) $ 4,371,853	Note�Directors' and supervisors' remuneration and employees' bonus have been deducted from the consolidated statement ofcomprehensiveincome, please refer to Note 4 (28).

FIRST FINANCIAL HOLDING CO., LTD.

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

(Expressed in thousands of New Taiwan dollars)

			For the years ended December 31,	For the years ended December 31,
			2013	2012
CASH FLOWS FROM OPERATING ACTIVITIES
Profit from continuing operations before tax		$	13,049,154	$	12,147,222
Adjustments to reconcile profit before tax to net cash (used in) provided by
operating activities
Income and expenses having no effect on cash flows
Depreciation of investment property			12,198		6,685
Depreciation of property and equipment			715,353		706,963
Depreciation of leased assets			254,875		223,971
Amortization expense			165,358		155,674
Provision for bad debt expense			7,214,906		5,968,276
Interest income	(		38,131,760 )	(	36,795,212 )
Interest expense			12,199,328		11,727,912
Dividend income	(		760,515 )	(	807,870 )
Net change in insurance liability	(		400,614		657,404
Net change in provisions for foreign exchange price fluctuation			4,440		-
Share of loss of associates accounted for using equity method	(		96,810 )	(	37,933 )
Loss (gain) on disposal of property and equipment			24,863	(	252,525 )
Loss on disposal of foreclosed properties			147		148
Reversal of impairment loss (impairment loss) on assets	(		3,046 )		167,728
Changes in operating assets and liabilities
Changes in operating assets
Increase in due from the Central Bank	(		2,742,552 )	(	155,297 )
(Increase) decrease in financial assets at fair value through profit or
loss	(		27,337,093 )		1,734,833
Increase in available-for-sale financial assets	(		12,807,468 )	(	325,670 )
(Increase) decrease in receivables	(		5,325,860 )		1,074,135
Increase in discounted and loans	(		1,441,874 )	(	85,525,224 )
(Increase) decrease in held-to-maturity financial assets	(		25,573,798 )		42,123,846
Increase in reinsurance assets	(		834 )	(	56 )
(Increase) decrease in other financial assets	(		23,134,347 )		102,116
Decrease (increase) in other assets			10,970	(	187,149 )
Changes in operating liabilities
(Decrease) increase in deposits from the Central Bank and banks	(		11,805,915 )		182,789
Decrease in financial liabilities at fair value through profit or loss	(		6,851,886 )	(	4,140,427 )
Decrease in derivative financial liabilities for hedging	(		36,611 )	(	66,394 )
(Decrease) increase in payables	(		2,665,288 )		2,174,013
Increase in deposits and remittances			109,890,687		10,831,595
(Decrease) increase in provisions	(		122,807 )		214,674
Increase in other financial liabilities			26,472,682		8,590,681
Increase in other liabilities			297,018		258,093
Cash flows provided by (used in) operations			11,874,129	(	29,244,999 )
Interest received			37,743,458		37,223,349
Interest paid	(		12,171,414 )	(	11,708,585 )
Dividend received `			760,831		807,594
Income tax paid	(		1,719,366 )	(	1,189,310 )
Net cash flows provided by (used in) operating activities			36,487,638	(	4,111,951 )

(Continued)

2013 ANNUAL REPORT

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

(Expressed in thousands of New Taiwan dollars)

		Forthe years endedDecember31,	Forthe years endedDecember31,	Forthe years endedDecember31,
		2013		2012
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of investment properties	( $	1,741,880 )	( $	203,643 )
Acquisition of property and equipment	(	1,246,788 )	(	586,126 )
Acquisition of leased assets	(	685,822 )	(	291,827 )
Acquisition of intangible assets	(	201,985 )	(	240,508 )
Acquisition of other assets	(	21,690 )		-
Cash paid for the construction allotment		-	(	41,188 )
Proceeds from disposal of property and equipment		2,164		28
Proceeds from disposal of leased assets		136,283		106,367
Proceeds from disposal of other assets		2,571		-
Proceeds from capital reduction of other financial assets		750,000		-
Net cash flows used in investing activities	(	3,007,147 )		1,256,897 )
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in due to the Central Bank and banks	(	8,908 )	(	922 )
Increase (decrease) in commercial papers payable		1,988,873	(	855,027 )
Increase (decrease) in securities sold under repurchase
agreements		6,784,657	(	6,816,062 )
Proceeds from issuing financial bonds		-		15,000,000
Increase (decrease) in other borrowings		1,560,008	(	91,930 )
Cash dividends paid	(	3,656,412 )	(	3,066,174 )
Net cash flows provided by financing activities		6,668,218		4,169,885
Effect of exchange rate changes on cash and cash equivalents		752,402	(	1,193,587 )
Net increase (decrease) in cash and cash equivalents		40,901,111	(	2,392,550 )
Cash and cash equivalents at beginning of period		136,430,306		138,822,856
Cash and cash equivalents at end of period	$	177,331,417	$	136,430,306
The components of cash and cash equivalents�
Cash and cash equivalents as per consolidated balance sheet	$	56,683,394	$	54,146,964
Due from the Central Bank and call loans to banks qualified
as cash and cash equivalents as defined by IAS No. 7		117,178,752		78,496,282
Securities purchased under resell agreements qualified as
cash and cash equivalent as defined by IAS No. 7		3,469,271		3,787,060
Cash and cash equivalents at end of reporting period	$	177,331,417	$	136,430,306

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

FIRST FINANCIAL HOLDING CO., LTD.

FIRST FINANCIAL HOLDING CO., LTD. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Indicated)

1. Organization and business

(1) First Financial Holding Co., Ltd. (the “Company” or “FFHC”) was incorporated as a company limited by shares under the provisions of the Company Law of the Republic of China (R.O.C.). FFHC commenced the preparation for its incorporation on November 27, 2001. On January 2, 2003, the Company was established through a share swap with First Commercial Bank Co., Ltd. (“FCB”) in accordance with the Financial Holding Company Act and other related regulations, whereby FCB became its wholly-owned subsidiary with the approval from the Securities and Futures Commission (“SFC”), renamed as the Securities and Futures Bureau, Financial Supervisory Commission R.O.C. (“SFB”). The Company was listed on the Taiwan Stock Exchange (“TSE”) on the same date. On July 31, 2003, the Company acquired First Securities Inc. (“FS”), Mingtai Fire & Marine Insurance Co., Ltd. (“MFMI”) and First Securities Investment Trust Co., Ltd. (FSIT), as wholly-owned subsidiaries. On May 31, June 2, June 10, September 16, 2004 and November 19, 2007, the Company established subsidiaries namely First Financial Asset Management Co., Ltd., (“FFAM”), First Venture Capital Co., Ltd., (“FVC”), First Financial Management Consulting Co., Ltd. (“FFMC”), First P&C Insurance Agency Co., Ltd. (“FPCIA”) and First-Aviva Life Insurance Co., Ltd. (“FALI”), respectively. The Company engages mainly in the investment and management of financial institutions as approved by the authorities. As of December 31, 2013, the Company and its subsidiaries (collectively referred herein as the “First Group”) had 8,869 employees.
(2) On September 2, 2005, the Company completed the sale of all its common stocks in Mingtai Fire & Marine Insurance Co., Ltd. to Mitsui Sumitomo Insurance Co., Ltd.

2013 ANNUAL REPORT

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

These consolidated financial statements were authorized for issuance by the Board of Directors on March 20, 2014.

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

Not applicable as it is the first-time adoption of IFRSs by the First Group this year.

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

IFRS 9, ‘Financial Instruments’: Classification and measurement of financial instruments

A.The International Accounting Standards Board (“IASB”) published IFRS 9, ‘Financial Instruments’, in November, 2009, which will take effect on January 1, 2013 with early application permitted (Through the amendments to IFRS 9 published on November 19, 2013, the IASB has removed the previous mandatory effective date, but the standard is available for immediate application). Although the FSC has endorsed IFRS 9, FSC does not permit early application of IFRS 9 when IFRSs are adopted in R.O.C. in 2013. Instead, enterprises should apply International Accounting Standard No. 39 (“IAS 39”), ‘Financial Instruments: Recognition and Measurement’ reissued in 2009.
B. IFRS 9 was issued as the first step to replace IAS 39. IFRS 9 outlines the new classification and measurement requirements for financial instruments, which might affect the accounting treatments for financial instruments of the First Group.
C. The First Group has not evaluated the overall effect of the IFRS 9 adoption. However, based on preliminary evaluation, it was noted that the IFRS 9 adoption might have an impact on those instruments classified as ‘available-for-sale financial assets’ held by the First Group, as IFRS 9 specifies that the fair value changes in the equity instruments that meet certain criteria may be reported in other comprehensive income, and such amount that has been recognized in other comprehensive income should not be reclassified to profit or loss when such assets are derecognized. The First Group recognized gain (or loss) on debt instruments and on equity instruments amounting to ($1,219,637) and $1,635,455, respectively, in other comprehensive income in 2013.
IFRSs issued by IASB but not yet endorsed by the FSC
A. The following are the assessment of new standards, interpretations and amendments issued by IASB but not yet endorsed by the FSC (application of the new standards and amendments should follow the regulations of the FSC):

New Standards, Interpretations and Amendments Limited exemption from	Major Amendments The amendment provides first-time adopters	IASB Effective Date
		July 1, 2010

FIRST FINANCIAL HOLDING CO., LTD.

New Standards, Interpretations
and Amendments
comparative IFRS 7 disclosures
for first-time adopters
(amendment to IFRS 1)
Improvements to IFRSs 2010
IFRS 9, ‘Financial instruments:
Classification and measurement
of financial liabilities’
Disclosures - transfers of
financial assets (amendment to
IFRS 7)
Severe hyperinflation and
removal of fixed dates for
first-time adopters (amendment
to IFRS 1)

IASB
Major Amendments
Effective Date
of IFRSs with the same transition relief that
existing IFRS preparers received in IFRS 7,
‘Financial Instruments: Disclosures’ and
exempts first-time adopters from providing
the additional comparative disclosures.
Amendments to IFRS 1, IFRS 3, IFRS 7,
IAS 1, IAS 34 and IFRIC 13.
January 1, 2011
IFRS 9 requires gains and losses on financial
liabilities designated at fair value through
profit or loss to be split into the amount of
change in the fair value that is attributable to
changes in the credit risk of the liability,
which
shall
be
presented
in
other
comprehensive income, and cannot be
reclassified
to
profit
or
loss
when
derecognising the liabilities; and all other
changes in fair value are recognised in profit
or loss. The new guidance allows the
recognition of the full amount of change in
the fair value in the profit or loss only if
there is reasonable evidence showing on
initial recognition that the recognition of
changes in the liability's credit risk in other
comprehensive income would create or
enlarge
an
accounting
mismatch
(inconsistency) in profit or loss. (That
determination is made at initial recognition
and is not reassessed subsequently.)
January 1, 2015
The amendment enhances qualitative and
quantitative disclosures for all transferred
financial assets that are not derecognised and
for
any
continuing
involvement
in
transferred assets, existing at the reporting
date.
July 1, 2011
When an entity’s date of transition to IFRSs
is on, or after, the functional currency
normalisation date, the entity may elect to
measure all assets and liabilities held before
the functional currency normalisation date at
fair value on the date of transition to IFRSs.
First-time adopters are allowed to apply the
derecognition requirements in IAS 39,
‘Financial instruments: Recognition and
July 1, 2011

2013 ANNUAL REPORT

New Standards, Interpretations
and Amendments
Deferred tax: recovery of
underlying assets (amendment to
IAS 12)
IFRS 10, ‘Consolidated financial
statements’
IFRS 11,‘Joint arrangements’
IFRS 12,‘Disclosure of interests
in other entities’
IAS 27,‘Separate financial
statements’ (as amended in 2011)
IAS 28,‘Investments in
associates and joint ventures’(as
amended in 2011)

IASB
Major Amendments
measurement’, prospectively from the date
of transition to IFRSs, and they are allowed
not to retrospectively recognize related gains
on the date of transition to IFRSs.
Effective Date

The
amendment
gives
a
rebuttable
presumption that the carrying amount of
investment properties measured at fair value
is recovered entirely by sale, unless there
exists any evidence that could rebut this
presumption.
The
amendment
also
replaces SIC 21, ‘Income taxes—recovery of
revalued non-depreciable assets’.
January 1, 2012

The standard builds on existing principles by
identifying the concept of control as the
determining factor in whether an entity
should be included within the consolidated
financial statements of the parent company.
The standard provides additional guidance to
assist in the determination of control where
it is difficult to assess.
January 1, 2013
Judgments applied when assessing the types
of joint arrangements-joint operations and
joint ventures, the entity should assess the
contractual rights and obligations instead of
the legal form only. The standard also
prohibits the proportional consolidation for
joint ventures.
January 1, 2013
The standard requires the disclosure of
interests
in
other
entities
including
subsidiaries, joint arrangements, associates
and unconsolidated structured entities.
January 1, 2013
The standard removes the requirements of
consolidated financial statements from IAS
27 and those requirements are addressed in
IFRS
10,
‘Consolidated
financial
statements’.
January 1, 2013
As consequential amendments resulting
from the issuance of IFRS 11, ‘Joint
arrangements’, IAS 28 (revised) sets out the
requirements for the application of the
equity
method
when
accounting
for
investments in joint ventures.
January 1, 2013

FIRST FINANCIAL HOLDING CO., LTD.

New Standards, Interpretations
and Amendments
IFRS 13, ‘Fair value
measurement’
IAS 19 revised, ‘Employee
benefits’ (as amended in 2011)
Presentation of items of other
comprehensive income
(amendment to IAS 1)
Disclosures—Offsetting
financial assets and financial
liabilities (amendment to IFRS
7)
Offsetting financial assets and
financial liabilities (amendment
to IAS 32)

IASB
Major Amendments
Effective Date
IFRS 13 aims to improve consistency and
reduce complexity by providing a precise
definition of fair value and a single source of
fair value measurement and disclosure
requirements for use across IFRSs. The
requirements do not extend the use of fair
value accounting but provide guidance on
how it should be applied where its use is
already required or permitted by other
standards within IFRSs.
July 1, 2013
The revised standard eliminates corridor
approach and requires actuarial gains and
losses to be recognised immediately in other
comprehensive income. Past service costs
will be recognised immediately in the period
incurred. Net interest expense or income,
calculated by applying the discount rate to
the net defined benefit asset or liability,
replace the finance charge and expected
return on plan assets. The return of plan
assets, excluding net interest expense, is
recognised in other comprehensive income.
January 1, 2013
The amendment requires profit or loss and
other comprehensive income (OCI) to be
presented separately in the statement of
comprehensive
income.
Also,
the
amendment requires entities to separate
items presented in OCI into two groups
based on whether or not they may be
recycled to profit or loss subsequently.
July 1, 2012
The amendment requires disclosures to
include quantitative information that will
enable users of an entity’s financial
statements to evaluate the effect or potential
effect of netting arrangements.
January 1, 2013
The amendments clarify the requirements
for offsetting financial instruments on the
statement of financial position: (i) the
meaning
of
'currently
has
a
legally
enforceable right to set off the recognised
amounts'; and (ii) that some gross settlement
mechanisms with certain features may be
considered equivalent to net settlement.
January 1, 2014

2013 ANNUAL REPORT

New Standards, Interpretations
and Amendments
Government loans (amendment
to IFRS 1)
Improvements to IFRSs
2009-2011
Consolidated financial
statements, joint arrangements
and disclosure of interests in
other entities: Transition
guidance (amendments to IFRS
10, IFRS 11 and IFRS 12)
Investment entities (amendments
to IFRS 10, IFRS 12 and IAS
27)
IFRIC 21, ‘Levies’
Recoverable amount disclosures
for non-financial assets
(amendments to IAS 36)
Novation of derivatives and
continuation of hedge

IASB
Major Amendments
Effective Date
The amendment provides exception to
first-time adopters to apply the requirements
in IFRS 9, ‘Financial instruments’, and IAS
20, ‘Accounting for government grants and
disclosure
of
government
assistance’,
prospectively to government loans that exist
at the date of transition to IFRSs; and
first-time adopters should not recognise the
corresponding benefit of the government
loan at a below-market rate of interest as a
government grant.
January 1, 2013
Amendments to IFRS 1, IAS 1, IAS 16, IAS
32 and IAS 34.
January 1, 2013
The amendment clarifies that the date of
initial application is the first day of the
annual period in which IFRS 10, 11 and 12
is adopted.
January 1, 2013

The
amendments
define
‘Investment
Entities’ and their characteristics. The parent
company that meets the definition of
investment entities should measure its
subsidiaries using fair value through profit
of loss instead of consolidating them.
January 1, 2014
The interpretation addresses the accounting
for levies imposed by governments in
accordance with legislation (other than
income tax). A liability to pay a levy shall be
recognised in accordance with IAS 37,
‘Provisions,
contingent
liabilities
and
contingent assets’.
January 1, 2014
The amendments remove the requirement to
disclose recoverable amount when a cash
generating unit (CGU) contains goodwill or
intangible assets with indefinite useful lives
that were not impaired.
January 1, 2014
The amendment states that the novation of a
hedging instrument would not be considered
January 1, 2014

FIRST FINANCIAL HOLDING CO., LTD.

New Standards, Interpretations
and Amendments
accounting (amendments to IAS
39)
IFRS 9 "Financial assets: hedge
accounting"
Services related contributions
from employees or third parties
(amendments to IAS 19R)
Improvements to IFRSs 2010-
2012
Improvements to IFRSs 2011-
2013

IASB
Major Amendments
Effective Date
an expiration or termination giving rise to
the discontinuation of hedge accounting
when the hedging instrument that is being
novated complies with specified criteria.
IFRS 9 relaxes the requirements for hedged
items and hedging instruments and removes
the bright line of effectiveness to better align
hedge accounting with the risk management
activities of an entity.
November 19,
2013
(Not mandatory)
The amendment allows contributions from
employees or third parties that are linked to
service, and do not vary with the length of
employee service, to be deducted from the
cost of benefits earned in the period that the
service is provided. Contributions that are
linked to service, and vary according to the
length of employee service, must be spread
over the service period using the same
attribution method that is applied to the
benefits.
July 1, 2014
Amendments to IFRS 2, IFRS 3, IFRS 8,
IFRS 13, IAS 16, IAS 24 and IAS 38.
July 1, 2014
Amendments to IFRS 1, IFRS 3, IFRS 13
and IAS40.
July 1, 2014

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

4. Summary of significant accounting policies

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

(1) Compliance statement

A.The consolidated financial statements of the First Group are prepared in conformity with the “Regulations Governing the Preparation of Financial Reports by Financial Holding Companies”, “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, “Regulations Governing the Preparation of Financial Reports by Public Banks”, “Regulations Governing the Preparation of Financial Reports by Securities Firms”, “Regulations Governing the Preparation of Financial Reports by Insurance Companies”, “Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

2013 ANNUAL REPORT

B.In the preparation of the balance sheet of January 1, 2012 (the First Group’s date of transition to IFRSs) (“the opening IFRS balance sheet”), the First Group has adjusted the amounts that were reported in the consolidated financial statements in accordance with previous R.O.C. GAAP. Please refer to Note 19 for the impact of transitioning from R.O.C. GAAP to the International Financial Reporting Standards, International Accounting Standards, and Interpretations/bulletins as endorsed by the FSC (collectively referred herein as the “IFRSs”) on the First Group’s financial position, operating results and cash flows.

(2) Basis of preparation

A. Except for the financial assets or financial liabilities (including derivative instruments) at fair value through profit or loss, insurance liabilities reserve are set aside according to letter or rule of insurance enterprises, reinsurance contract assets, reserve for foreign exchange price fluctuation, and foreclosed asset (which are stated at the lower of its carrying amount or fair value less costs to sell at the end of period) these consolidated financial reports have been prepared under the historical cost convention.
B.The analysis of expense is classified based on the nature of expenses.
C. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

A.Principles for preparation of consolidated financial statements
(A) The First Group prepares the consolidated financial statements by aggregating the First Group’s assets, liabilities, revenues and expenses, which have been eliminated versus owners’ equity during the consolidation. In addition, the financial statements of the First Group are made in the same reporting period. (Item included in the consolidated financial statements are not classified as current and non-current items.) Relevant items are arranged in order based on current and non-current nature.
(B) Subsidiaries are all entities over which the First Group has the power to govern the financial and operating policies. In general, control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. The existence and effect of potential voting rights that are currently exercisable or convertible have been considered when assessing whether the Group controls another entity.
(C) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

FIRST FINANCIAL HOLDING CO., LTD.

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

Investor FFHC FFHC FFHC FFHC FFHC FFHC FFHC FFHC FCB FCB FCB FS FS FTSL	Subsidiary Business activities FCB Note (1) FS Note (2) FSIT Note (3) FALI Note (4) FFAM Note (5) FVC Note (6) FFMC Note (7) FPCIA Note (8) First Commercial Bank (USA) Banking services FCBL Leasing(Note (9)) FIA Insurance agency(Note (10)) First Capital Management Co., Ltd. (“FCMI”) Securities investment consulting service First Taisec Securities (Asia) Limited (“FTSL”) Securities investment holding First Worldsec Securities Limited (‘FWSL”) Securities brokerage, investment consultancy	Percentage of holding shares (%)(Note (11)) 100 100 100 51 100 100 100 100 100 100 100 100 100 100	Note
			Note (1) Note (2) Note (3) Note (4) Note (5) Note (6) Note (7) Note (8) - Note (9) Note (10) - - -

Note (1) FCB was established in 1899 and had been a listed company since February 9, 1962. It was privatized on January 22, 1998. On January 2, 2003, FCB became the subsidiary of First Financial Holding Co., Ltd. through a share swap and was de-listed from the TSE to become a public company in accordance with the related regulations set forth by the SFB. As of December 31, 2011, FCB comprises various Divisions, including Operation Division, Trust Division, International Business Division, Offshore Banking Unit, domestic and overseas branches, and representative offices. FCB engages mainly in the following business activities:(1)Business activities provided by the Banking Law (2)Trust business as authorized by the authorities (3)Establishing overseas branches to engage in those business activities as approved by the respective local governments (4)Other business activities approved by the authorities.
Note (2) FS was established in August of 1988 and became a subsidiary of FFHC on July 31, 2003. FS is authorized to engage in the following business activities: 1) Brokerage and proprietary trading of marketable securities at the securities Exchange markets;
2) Underwriting of marketable securities;

2013 ANNUAL REPORT

3) Registration and transfer agency service for securities;

4) Margin and stock loans of marketable securities trading;

5) Futures introducing broker business; and

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

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

Note (3) FSIT became the wholly-owned subsidiary of the Company through a share swap on July 31, 2003. FSIT engages mainly in the management of securities investment trust funds and private funds business.
Note (4) First-Aviva Life Insurance Co., Ltd. (“FALI”) is a joint venture between the Company and Aviva International Holdings Limited with a holding ownership of 51% and 49%, respectively. FALI obtained its Insurance License issued by the FSC in December 2007. FALI commenced its business activities mainly engaged in the life insurance business effective from January 2, 2008 and officially changed its name to FALI from September 17, 2009 under the approval of competent authorities.
Note (5) First Financial Asset Management Co., Ltd., (“FFAM”) was established under approval on May 31, 2004 and its business activities mainly engaged in financial institution creditor’s right, accounts receivable purchase and real estate transaction businesses.
Note (6) First Venture Capital Co., Ltd., (“FVC”) was established under approval on June 2, 2004 and its business activities mainly engaged in providing fund for investees and consultancy services for enterprise operation management.
Note (7) First Financial Management Consulting Co., Ltd. (“FFMC”) was established under approval on June 10, 2004 and its business activities mainly engaged in venture capital business management consultancy, investment consultancy and enterprise operation management consultancy.
Note (8) First P&C Insurance Agency Co., Ltd. (“FPCIA”) was established under approval on September 16, 2004 and its business activities mainly engaged in various insurance products agency.
Note (9) FCBL was approved to establish in May 1998. The main business includes chattel secured and repo trade, lease business and receivable factoring.
Note (10) FIA was approved to establish on December 13, 2001. The main business is the agency of various life insurance products of other insurance enterprises.

FIRST FINANCIAL HOLDING CO., LTD.

Note (11) The stock ownership ratio remained consistent as of December 31, 2013, December 31, 2012 and January 1, 2012.

C.Unconsolidated entities �

Investor name	Percentage of the Company’s Subsidiary name direct/indirect holding ownership (%) Note First Financial Assets Management (BVI) Ltd. 100 Note 1 FCBL Capital International (B.V.I) Ltd. 100 Note 1
FFAM FCBL

Note 1: As the individual total assets or net revenues do not materially affect the consolidated financial statement presentation taken as a whole, the Company deems that such investee companies should not be included in the consolidated financial statements.
Note 2: The stock ownership ratio remained consistent as of December 31, 2013, December 31, 2012 and January 1, 2012.
Adjustment on different accounting periods of the subsidiaries: None.
Information with respect to the subsidiaries’ significant restriction to transfer its funds to the parent company: None.
Specific operation risks of the foreign subsidiaries: None.
Restrictions on earnings distribution of subsidiaries: None.

(4) Foreign currency translation

A.Functional and presentation currency

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

B.Transactions and balances

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

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

2013 ANNUAL REPORT

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

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

C.Entities in the consolidated statements

If the entity has a functional currency (not in an economy with high inflation) that is different from presentation currency in the consolidated statements, its operation result and financial position is translated into presentation currency using the following procedures:

(A) At the balance sheet date, all assets and liabilities are translated by the closing exchange rate of the First Group;
(B) The profit and loss is translated by the average exchange rate in the period (unless the exchange rate fluctuate rapidly, the exchange rate on the trade date shall be adopted); and
(C) All gains and losses arising from translation are recognized in other comprehensive income.

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

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

(5) Cash and cash equivalents

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

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

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

FIRST FINANCIAL HOLDING CO., LTD.

recognized at the date of sale or purchase.

(7) Financial assets and financial liabilities

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

A.Financial assets

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

(A) Regular way purchase or sale

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

(B) Loans and receivables

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

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

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

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

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

2013 ANNUAL REPORT

a. The designation can eliminate or significantly mitigate a measurement or recognition inconsistency as a result of different measuring basis of assets or liabilities; or
b. The performance of financial instruments is assessed by fair value; or
c. Hybrid instruments include embedded derivatives.

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

(D) Held-to-maturity financial assets

Held-to-maturity financial assets are the non-derivative financial assets with fixed or determinable payments and fixed maturities and the First Group have positive intention and ability to hold to maturity, excluding loans and receivables, assets designated as available-for-sale financial assets and financial assets designated as at fair value through profit and loss upon initial recognition which shall not be treated as held-to-maturity financial assets.

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

(E) Available-for-sale financial assets

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

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

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

Equity instruments with no quoted price in an active market are initially recognized at fair value plus acquisition or issuance cost. The fair value can be reasonably estimated when the following criteria are met at the balance sheet date: (a) the variance of the

FIRST FINANCIAL HOLDING CO., LTD.

reasonable estimate on instrument’s fair value is insignificant; or (b) the possibility of the estimate in the interval can be reasonably evaluated and used to estimate fair value.

(F)Other financial assets

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

a. Bond investments with no active market

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

b. Financial assets measured at cost

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

c. Investment-linked life products

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

d. Customer margin account

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

(G) Margin loans, stock loans and refinancing

Securities business conducts margin loan business to provide funds to its customers to purchase securities. The margin loans given to customers are recorded as “margin loans

2013 ANNUAL REPORT

receivable” (“Receivables-net”) and are collateralized by the securities that the customers purchase. The collateral securities are recorded through memorandum accounts and are returned to customers when the loans are repaid.

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

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

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

B.Financial liabilities

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

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

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

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

FIRST FINANCIAL HOLDING CO., LTD.

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

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

(B) Financial liabilities carried at amortized cost

Financial liabilities carried at amortized cost include liabilities not classified as financial liabilities at fair value through profit and loss, financial guarantee contracts, loan commitment with a lower-than-market interest rate and the financial liabilities incurred due to continuing engagement or that the transferring of a financial asset does not meet the requirement of derecognition.

C.Derecognition of financial instruments

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

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

(A) The contractual rights to receive the cash flows from the financial asset expire.
(B) The contractual rights to receive cash flows of the financial asset have been transferred and the First Group has transferred substantially all risks and rewards of ownership of the financial asset.
(C) The contractual rights to receive cash flows of the financial asset have been transferred; however, the First Group has not retained control of the financial asset.

(8) Financial asset reclassification

Reclassification of the non-derivative financial assets is in accordance with IAS 39 as endorsed by FSC.

(9) Offsetting financial instruments

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

(10) Impairment evaluation and provision of loans and receivables

If there is any objective evidence indicating that an individual or a group of financial assets are impaired from estimated future cash flow after initial recognition, impairment exists and is recognized as impairment losses. Objective evidence of significant impairment are shown in Note 8(4).

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

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

(11) Derivative instruments

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

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

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

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

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

(13) Investments accounted for using equity method

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

A.Associates are all entities over which the First Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds,

FIRST FINANCIAL HOLDING CO., LTD.

directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost. The First Group’s investments in associates include goodwill identified on acquisition, net of any accumulated impairment loss arising through subsequent assessments.

B.The First Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the First Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the First Group does not recognise further losses, unless it has incurred statutory/constructive obligations or made payments on behalf of the associate.
C.Unrealised gains on transactions between the First Group and its associates are eliminated to the extent of the First Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the First Group.

(14) Property and equipment

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

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

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

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

Land and improvements	3 ~ 30 years
Buildings	5 ~ 55 years
Transportation equipment	3 ~ 10 years
Machinery and equipment	3 ~ 4 years
Miscellaneous assets	3 ~ 17 years
Leasehold improvements are depreciated over the lease terms of the lease agreements or 5 years,
whichever is shorter.

On balance sheet date, the First Group assesses or appropriately adjusts the salvage value and service life of the asset. When there is an activity or change in the environment suggesting that the carrying amount may not be recovered, the First Group shall evaluate impairment on the asset. If the carrying amount of the asset is higher than the recoverable amount, the carrying amount shall be written off until it is equivalent to the recoverable amount. The recoverable amount is the higher of asset at fair value less disposal expense and value in use. Any gain or loss on disposal is

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calculated by the difference between the carrying amount and proceed on disposal, and be recognized in the “Other non-interest income, net” in the statement of comprehensive income.

(15) Investment property

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

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

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

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

(16) Foreclosed assets

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

(17) Lease

When the First Group is the lessor, please refer to Note 4(15) for the accounting treatment of the leased assets satisfying investment property set out in IAS 40, “Investment Property”.

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

A. Operating lease

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

FIRST FINANCIAL HOLDING CO., LTD.

B. Finance lease

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

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

(18) Intangible assets

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

Subsequent measurements are based on the cost model.

(19) Impairment of non-financial assets

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

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

(20) Provisions, contingent liabilities and contingent assets

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

(A)present obligation (legal or constructive) has arisen as a result of past event; and
(B) the outflow of economic benefits is highly probable upon settlement; and
(C) the amount is reliably measurable.

The outflow of economic benefit as a result of settlement is determined based on the overall obligation when there are several similar obligations. Contingent assets should be recognized

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when the outflow of economic benefits is probable in order to settle the obligation as a whole even if the outflow of economic benefits from any one of the obligation is remote.

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

B. Contingent liability is a possible obligation that arises from a past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the First Group. Or it could be a present obligation as a result of a past event but the payment is not probable or the amount cannot be measured reliably. The First Group did not recognize any contingent liabilities but made appropriate disclosure in compliance with relevant regulations.
C. Contingent asset is a possible obligation that arises from a past event, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the First Group. The First Group did not recognize any contingent assets and made appropriate disclosure in compliance with relevant regulations when the economic inflow is probable.
D. With regard to insurance contracts of FALI and financial instruments with or without participation discretion feature, the reserves are set aside according to “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises”. Even though part of the insurance contracts of FALI do have a participation discretion feature and guarantee element, FALI did not separately recognize but categorize the whole contract as a liability. The following liability reserves do not adopt discounting method other than policy reserve, premium deficiency reserve and liability adequacy reserve. Details of provision basis are summarized below:

(A)Unearned premium reserve:

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

(B) Claim reserve:

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

a. According to “Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises”, the claim reserve for contracts, of which the insured period is less than 1 year, is calculated and set aside based on past claim experience and expenses and through the formula assigned or approved by FSC.
b. To date, the subsidiary, FALI has operated for approximately 5 years, and the losses experience of life insurance and health insurance is still developing. 17% self-retained

FIRST FINANCIAL HOLDING CO., LTD.

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

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

(C) Policy reserve:

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

(D)Premium deficiency reserve:

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

(E) Liability adequacy reserve:

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

(21) Reserve for foreign exchange fluctuation

According to the “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises,” with respect to foreign exchange fluctuation held by First- Aviva Life Insurance, reserve for foreign exchange fluctuation, related accumulative reserve limits set aside by FirstAviva Life Insurance under liability accounts as well as provisions, methods of writing-off and others should be based on “Reserve for Foreign Exchange Fluctuation of Life Insurance Enterprises Required to Attend To” starting from March 1, 2012.

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According to Article 23.2, “Regulations Governing the Setting Aside of Various Reserve for Insurance Enterprises,” life insurance enterprises should transfer catastrophe risk reserve and riskvolatility reserve of various insurances under liabilities to the initial amount of reserve for foreign exchange fluctuation starting from March 1, 2012. First- Aviva Life Insurance has yet adopted the conversion, hence there is no reserve for foreign exchange fluctuation.

(22) Financial guarantee contract

A financial guarantee contract is a contract that requires the First Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when they are due in accordance with the original or modified terms of a debt instrument.

The First Group initially recognizes financial guarantee contracts at fair value on the date of issuance granted. The First Group charges a service fee when the contract is signed and therefore the service fee income charged is the fair value at the date that the financial guarantee contract is signed. Service fee received in advance is recognized in deferred accounts and amortized through straight-line method during the contract term.

Subsequently, the First Group should measure the contract at the higher of:

A. the amount determined in accordance with IAS 37; and
B. the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18, “Revenue”.

The best estimate of the liability amount requires management to exercise their judgment and historical loss data based on the similar transaction experiences.

The increase in liabilities due to financial guarantee contract is recognized in “bad debt expenses and guaranty policy reserve”.

(23) Employee benefits

A. Short-term employee benefits

The First Group recognizes undiscounted short-term employee benefits due in the future as expense during the period that the service is provided.

B. Employee preferential interest rate

FCB provides preferential interest rate for employees, including flat preferential savings rate for current employees and retired employees. The difference gap compared to market interest rate is deemed as employee benefits.

According to “Regulations Governing the Preparation of Financial Statements by Public Banks”, the preferential interest paid to current employees is calculated based on accrual basis, and the difference between the preferential interest and the market interest is recognized under “employee benefit expense”. According to Article 28 of “Regulations Governing the Preparation of Financial Statements by Public Banks”, the interest rate upon retirement agreed with the employees which exceeds general market interest rate is actualized in accordance with

FIRST FINANCIAL HOLDING CO., LTD.

IAS 19, Defined Benefit Plan, as endorsed by FSC. However, various parameters should be in compliance with competent authorities if indicated otherwise.

C. Termination benefit

Termination benefit is paid to the employee being terminated who is eligible for retirement or as a result of voluntary termination in exchange of termination benefit. The First Group has made commitments in the formal detailed employment termination plan which is irrevocable, and recognizes liabilities when providing termination benefit to employees who voluntarily resign. Termination benefit paid 12 months after the financial reporting date should be discounted.

D. Post-employment benefit

The First Group adopts both defined benefit plan and defined contribution plan. Overseas branches and subsidiaries adopt defined benefit plans based on regulations of the country in which the entities operate.

The First Group adopted the defined contribution plan from July 1, 2005, the date that Labor Pension Act takes effect. Employees may choose to apply the pension policy of the First Group or the policy of the Act and retain their work seniority before the Act. For employees who are eligible for the Act, the Company and its domestic subsidiaries should set aside 6% of their monthly salaries. The Company and its subsidiaries have no other legal or constructive obligation to set aside additional reserve. Additionally, the pension in each period is recognized as pension cost in the period as incurred. Prepaid pension assets can only be recognized when there is a cash refund or deductible future pension payable.

Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Any actuarial gains and losses on pension of the defined benefit plan are all recognized in other comprehensive income.

(24) Income and expense

Income and expense of the First Group are recognized as incurred. Expense consists of employee benefit expense, depreciation and amortization expense and other business and administration expenses. However, interest income is recognized on a cash basis upon receiving the interest when (1) reclassified as non- accrual loans; and (2) interest from restructured loans whose maturities have been extended is not recognized as interest income but recorded in the memo accounts.

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A. Other than those classified as financial assets and liabilities at fair value through profit and loss, all the interest income and interest expense generated from interest-bearing financial assets are calculated by effective interest according to relevant regulation and recognized as “interest income” and “interest expense” in the consolidated statements of comprehensive income.
B. Handling fees and expenses are recognized when cash is received, or the earning process is substantially completed; service fee earned from performing significant items shall be recognized upon the completion of the service, such as syndication loan service fee received from sponsor, handling fees and expenses of subsequent services of loans are amortized or included in the calculation of effective interest rate of loans and receivables during the service period. However, according to the “Regulation Governing the Preparation of Financial Reports by Public Banks”, the loans and receivables may be measured by the initial amounts if the effects on discount are insignificant.
C. For more details on rental income of operating lease and unrealized interest income of finance lease in relation to lease business, please refer to Note 4(17).
D. Income and expense of insurance business

The first and subsequent premium of FALI’s insurance contracts and financial instruments with discretionary participation features is recognized when completing insurance procedures and when receiving payments. Costs incurred in acquiring a policy, such as commission expenses, are recognized as expenses in the period the insurance contracts become effective.

In addition to the “Income and Expense of Insurance Business”, FALI recognizes its income according to IAS No. 18, “Revenue”. Interest is recognized based on interest rate method over time and dividends income is recognized when the stockholders’ right of receipt is confirmed.

E. Income and expenses of FS is recognized on an accrual basis. The main components are as follows:
(A)Brokerage commission, gains (losses) on sale of securities, futures commission expenses and related handling fee expenses are recognized on the transaction date.
(B) Interest income and interest expense attributable to margin loan business, stock loan business, and bills and bonds under repurchase or resale agreements are recognized on an accrual basis during the transaction periods.
(C) Underwriting commission income or expenses: Subscription handling fees are recognized when the amounts are received and underwriting commission income and related commission expenses are recognized at the completion of such underwriting contracts.
(D)Service fee income from providing registration and transfer agency service for securities are recognized monthly according to the contracts.
(E) Futures contract gains or losses: The margin of futures trading is recognized at cost and measured through mark-to-market accounting. The gains or losses from mark-to-market, reversed futures trading or settled contracts are recognized as gains or losses in the current period; dealer handling fee expenditures is recognized on the transaction date of futures trading.

FIRST FINANCIAL HOLDING CO., LTD.

(25) Reinsurance

In order to set a limit to losses and lower the risk of large claim policy to the minimum, FALI engages in reinsurance according to business demands and regulations. FALI shall not refuse to fulfill its obligation to the insured when the reinsurer does not fulfill its obligation.

Reinsurance ceded and inward standard, reinsurance expense, reinsurance premium income, reinsurance commission income and expense, claims recoverable from reinsurers and covered incidents are processed and recognized based on the reinsurance contracts signed with competitors and regular customers.

In terms of the classification of reinsurance contracts, FALI assesses if objective insurance risk shall be transferred to reinsurers. For reinsurance contracts that do not transfer significant risk, the contracts shall be recognized and measured using deposit accounting.

The subsidiary, FALI estimates unrecoverable amount according to IFRS No. 4, “Insurance Contracts” and with reference to “Regulations Governing the Procedures for Insurance Enterprises to Evaluate Assets and Deal with Non-performing/Non-accrual Loans” as revised on December 29, 2010 and recognized appropriate allowance for doubtful debt, in relation to the claims recoverable from reinsurers and reinsurance receivable in the reinsurance contracts.

(26) Insurance contract classification

In an insurance contract, FALI accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a transferred uncertain future event (insured event) adversely affects the policyholder. Generally, FALI determines the existence of significant risks from the payments with or without the insured event taking place. An insurance contract also transfers financial risks of the insured.

A contract that qualifies as an insurance contract will remain an insurance contract until all rights and obligations are extinguished or expired, even if the insurance risk is lower significantly during the policy period. However, contracts originally set as non-insurance contracts based on the degree of insurance risks (e.g. insurance contracts with the nature of financial instrument) shall be reclassified as insurance contracts when significant insurance risks are transferred to FALI.

Insurance contract with the nature of financial instruments is the contract that transfers significant financial risks. Financial risks refer to the potential risks generated from one or various specified interest rates, financial instrument prices, product prices, exchange rates, price index, rate index, credit rating, credit index or other variables. If the abovementioned variables are non-financial, such variables are not held by any of the contract parties.

Insurance contract can be further classified if the contract has discretionary participation feature. Discretionary participation feature is a contractual right to receive additional benefit rather than guaranteed benefits and this kind of right will meet all the criteria shown below:

A. additional benefits likely occupy a significant percentage of total contractual benefits;

B. the amount or timing of additional benefits is contractually at the discretion of FALI; and

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C. additional benefits are contractually based on:
(A)the performance of a specified pool of contracts or a specified type of contract;
(B) realized and/or unrealized investment returns on a specified pool of assets held by the issuer;
(C) the profit or loss of the company, fund or other entity that issues the contract.

An embedded derivative needs to be accounted separately if the embedded derivative (financial options and financial guarantee) does not have a closely related economic feature and risk; the embedded derivative shall be measured at fair value and the fair value movement shall be recognized as profit or loss of the period. An embedded derivative needs not be accounted separately if the embedded derivative meets the definition of an insurance contract, or the entire contract is measured at fair value and the fair value movement shall be recognized as profit or loss of the period.

(27) Income tax

A. Current tax

Income tax payable (refundable) is calculated on the basis of the tax laws enacted in the countries where the First Group operates and generates taxable income. Except for transactions or other matters that are directly recognized in other comprehensive income or equity, all the other transactions should be recognized as income or expense and recorded as gain and loss in the period. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

B. Deferred tax

Deferred income tax assets and liabilities are measured based on the tax rate of the anticipated period that the future assets realization or the liabilities settlement requires, which is based on the effective or existed tax rate at the consolidated balance sheet date. The carrying amount of assets and liabilities included in the consolidated balance sheet are calculated through liability method and recognized as deferred income tax. The temporary difference of the First Group mainly occurs due to the revaluation on the depreciation of property and equipment and certain financial instruments (including derivatives) and provision and transferring of the reserve for pension and other post-employment benefits. Deductible temporary difference within the scope that it is probable to offset taxable income is recognized as deferred income tax.

Temporary difference related to the investees, branches and affiliated entities are recognized as deferred tax liabilities. However, when the First Group is capable of controlling the time length required to reverse the temporary difference and the temporary difference is unlikely to reverse in the foreseeable future, the temporary difference is not recognized.

The land revaluation appraisal occurred due to the revaluation assessment in line with relevant regulations, deemed as taxable temporary difference, and is recognized as deferred tax liabilities.

FIRST FINANCIAL HOLDING CO., LTD.

If the future taxable income is probable to be utilized as unused loss carryforwards or deferred income tax credit which can be realized in the future, the proportion of realization is deemed as deferred income tax assets.

Certain transactions of the First Group are recognized in other comprehensive income. The tax effects on these kinds of transactions are also recognized in other comprehensive income.

Current tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.

(28) Operating segments

The First Group’s operation segment reports are consistent with the internal reports provided to chief operating decision-maker (“CODM”). The CODM is a team that allocates resources to operating segments and evaluates their performance.

5. Critical accounting judgments, estimates and key source of assumption uncertainty

The consolidated financial statements of the First Group may be affected by the adoption of accounting policy, accounting estimate and assumption. Therefore, adoption to the significant accounting policies in Note 6 requires the management’s judgment, estimate and assumption, which involves information of significant adjustment made on the carrying amount of asset and liability in the next financial statements due to lack of resources. Estimates and assumptions are made on a basis of past experience and other elements deemed to be relevant, it is however that the actual results may differ from the estimates. The First Group will continually monitor the estimates and assumptions and if the revision of estimate leaves an impact in the current period, the adjustment is recognized in the period. If a revision could affect both current and future periods, then the estimated revision shall be made in current and future periods.

Certain accounting policies and judgements of management could have significantly affected the recognized amounts in the consolidated financial statements. Details are as follows:

(1) Evaluation on financial instruments (including derivatives)

The First Group evaluates the financial instrument at fair value not traded in an active market or with no quoted price. The fair value may be estimated with reference to observable market price in the market if there is observable information of similar instruments. If not, fair value is calculated based on the appropriate evaluation models generally used in the market. The input used in the model should first primarily be based on the observable information in the market. However, in the event that certain information or input cannot be observed directly in the market and/or the model assumption itself is comparatively objective, then financial instrument at fair value can be retrieved from historical data or other information. Every valuation model of the First Group are assessed and tested on a regular basis to ensure the output can reflect actual information and the market price. Note 7(4) provides the main assumptions used in determining the financial

2013 ANNUAL REPORT

instruments at fair value. The competent authorities recognize that the valuation models and assumptions chosen can be appropriately used to determine the fair value of financial instruments.

(2) Loan impairment loss

In addition to the compliance with the regulations from competent authorities, the First Group evaluates risk characteristics of clients and many other factors such as secured and non-secured loans to build modules and case assessments and evaluates cash flows to calculate impairment amount by month. Recognition for impairment loss is determined by observable evidence suggesting a probable impairment. The evidence could include the payment condition of the debtor, events related to overdue payment and national or local economic situation that have given rise to a significant adverse movement, etc. When evaluating the future cash flows, overdue payment of the debtor, current position of the borrower, collateral, guarantee from external institutions and historical data should all be considered. Impairment occurrence rate and impairment recovery rate used in the portfolio assessment is estimated through different product types and historical data. The First Group regularly examines the assumptions used and the reasonableness of input to ensure the appropriateness of various assumptions and inputs.

(3) Post-employment benefit

The present value of post-employment benefit obligation is based on actuarial result of various assumptions, through which any change could affect the carrying amount of post-employment benefit obligation.

Discount rate is included when determining the net pension cost (income), and the First Group decides the appropriate discount rate at the end of each year, which is used to calculate the estimated present value of future cash outflow of post-employment benefit obligation needed. The First Group should consider interest rate of government bonds of the same currency and maturity in order to determine the appropriate discount rate.

Other significant assumptions on post-employment benefit are made based on the current market situation.

(4) Income tax

The First Group needs to pay income tax in different countries and significant estimates are required when estimating the global income tax after a series of transactions and calculations to determine the ultimate tax amount. The First Group recognizes additional income tax liabilities arising from tax issues based on the subsequent development of stringent evaluation and assessment on tax issues. The difference between the ultimate tax amount and the initial recognition, if any, will affect the recognition for income tax in the period and deferred income tax account.

(5) Insurance contract liabilities

AVIVA’s insurance contract liabilities are based on assumptions for the period or assumptions when the contract is effective to reflect the best estimate of the period. Liability adequacy tests are performed on all contracts to reflect the best estimate of future cash flows by the management.

FIRST FINANCIAL HOLDING CO., LTD.

Major assumptions include mortality rate, morbidity rate, return on investment rate, expense rate and withdrawal rate. The assumptions are in accordance with Chapter 3 Actuarial Assumption of Reserve Adequacy of “Practice Principles of Personal Insurance Actuarial Personnel” to reflect the FALI’s risk exposure, product characteristics, target market and claim experience.

Estimate of investment return of insurance contracts is based on the estimated return of a company’s asset pool and future economic and financial development forecast. Future expenses’ assumption is based on current expenses and is adjusted with inflation from estimated expenses.

The withdrawal rate is based on FALI’s experience; therefore, the assumptions provided by Aviva PLC will be referred to.

6. Summary of significant accounts

(1) Cash and cash equivalents

Cash and cash equivalents
	December 31, 2013 $ 11,888,583 8,174,408 224,711 36,395,692 $ 56,683,394	December 31, 2012 $ 11,038,276 24,619,644 269,813 18,219,231 $ 54,146,964	January 1, 2012
Cash on hand			$ 10,929,990 22,687,677 214,730 14,129,731
Checks for clearance
Short-term bills
Due from other banks
Total			$ 47,962,128

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

Due from the Central Bank	and call loans to banks
	December 31, 2013 $ 29,458,215 44,265,163 - 3,230,015 88,412 2,728,855 288,865 82,527,446 $ 162,586,971	December 31, 2012 $ 16,280,811 41,885,154 2,000,000 5,192,181 140,892 1,561,990 235,183 53,865,738 $ 121,161,949	January 1, 2012
Reserve for deposits -			$ 25,944,348 41,988,581 4,900,000 2,957,506 209,199 927,163 239,748 51,438,384
account A
Reserve for deposits -
account B
Central Bank deposits
Inter-Bank clearing fund
Deposits of national
treasury account
Deposits of overseas
branches with foreign
Central Banks
Reserve for deposits-
foreign currency
Call loans and overdrafts
to other banks
Total			$ 128,604,929

The FCB and its subsidiaries’ reserve for deposits is required by the Banking Law and is determined by applying the reserve ratios set by the Central Bank to the monthly average balance of each type of deposit. The reserve amount is deposited in the reserve deposit account at the Central Bank. According to the regulations, such reserve for deposits - account B cannot be withdrawn except for monthly adjustments of the reserve for deposits.

2013 ANNUAL REPORT

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

	December 31, 2012	December 31, 2012
Financial assets held for trading Short-term bills Stocks Bonds (government, financial and corporate bonds) Beneficiary securities Derivative financial instruments Valuation adjustment for financial assets held for trading Subtotal Financial assets designated	$ 1,095,966 1,168,926 10,507,869 522,857 4,942,276 ( 110,664 )) 18,127,230 916,971 47,102
		916,971 47,102
as at fair value through profit or loss Bonds Valuation adjustment for designated financial assets at fair value through profit or loss Subtotal Total
		964,073
	$ 19,091,303

Details of gains (losses) on financial assets and liabilities at fair value through profit or loss for the years ended December 31, 2013 and 2012 are as follows:

Net gain on financial assets and liabilities held for trading Net gain (loss) on financial assets designated as at fair value through profit or loss Total	2013 $ 906,364 ( 47,584 ) $ 858,780	2012
		$ 1,530,361 131,914
		$ 1,398,447

A.Financial instruments designated at fair value through income statement of the First Group are the hybrid instruments and products to eliminate the inconsistency of accounting recognition.

B.As of December 31, 2013, December 31, 2012 and January 1, 2012, the above financial assets for trading purposes undertaken for repurchase agreements were $1,279,699, $2,256,673 and $1,817,569, respectively.
C.As of December 31, 2013, December 31, 2012 and January 1, 2012, details of the First Group’s financial assets at fair value through profit or loss pledged to others as collateral are provided in Note 13.

FIRST FINANCIAL HOLDING CO., LTD.

(4) Securities purchased under resell agreements

	December 31, 2013	December 31, 2012 $ 3,787,060	January 1, 2012 $ 4,766,169
Government bonds	$ 3,469,271

As of December 31, 2013, December 31, 2012 and January 1, 2012, the First Group is obliged to sell the above bonds at purchase price plus a mark-up based on the resale agreement, and such resale amounts were $3,473,000, $3,792,122 and $4,771,303, respectively.

(5) Receivables, net

Spot exchange receivable Factoring receivable Interest receivable Acceptances receivable Margin loans receivable Credit card accounts receivable Other receivables Sub-total Less: Allowance for doubtful accounts Net amount	December 31, 2013 $ 19,788,919 15,651,840 3,907,274 8,665,481 5,785,567 4,881,236 11,732,461 70,412,778 ( 973,753 ) $ 69,439,025	December 31, 2012 $ 13,370,749 22,762,457 3,518,972 6,290,594 4,526,546 4,501,782 10,120,106 65,091,206 ( 955,429 ) $ 64,135,777	January 1, 2012 $ 13,301,170 25,572,124 3,947,109 7,265,859 4,586,397 4,208,541 7,853,091 66,734,291 ( 997,506 ) $ 65,736,785

As of December 31, 2013, December 31, 2012 and January 1, 2012, the First Group’s reserves for acceptances receivable and guarantees receivable are shown in Note 6(24), and such reserves were recorded under “Provisions.”

(6) Loans discounted, net

Bills discounted Overdrafts Short-term loans Medium-term loans Long-term loans Import-export negotiations Loans transferred to non-accrual loans Insurance policy loans Sub-total Less: allowance for doubtful accounts ( Net amount	December 31, 2013 $ 6,487,589 1,217,405 404,333,405 421,639,708 607,064,351 1,207,030 6,972,351 153,025 1,449,074,864 17,999,594 ( ) $ ,431,075,270	December 31, 2012 $ 6,065,614 988,349 455,899,518 407,508,712 573,051,541 2,333,349 6,743,302 116,385 1,452,706,770 16,237,946 ( ) $ 1,436,468,824	January 1, 2012 $ 5,653,583 1,308,551 436,613,981 387,723,038 530,423,803 2,662,084 6,318,534 61,967 1,370,765,541 14,181,351 ) $ 1,356,584,190

A. As of December 31, 2013, December 31, 2012 and January 1, 2012, gains from hedge evaluation were $7,973, $44,584 and $110,978, respectively. The fair values of fixed-rate loans held by overseas branches may fluctuate with changes in interest rates. Please refer to

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2013 ANNUAL REPORT

Note 6(17) for details of relevant hedge information.

B. As of December 31, 2013, December 31, 2012 and January 1, 2012, please see Note 8(4)7 for the explanation on impaired financial assets of the First Group for the loans discounted.
C.The First Group assessed the appropriate amount of allowance for doubtful accounts; the details and movements of the allowance for doubtful accounts balance for loans discounted and receivables in 2013 and 2012 were as follows:

Loans discounted (including other related receivable derived from loans) Beginning balance Provision Write-off Foreign exchange and other movements Ending balance Receivables Beginning balance Provision Write-off Transfers (Note) Foreign exchange and other movements Ending balance	2013 $ 16,417,952 6,779,170 ( 5,054,778) 56,258	2012
		$ 14,392,760 5,865,574 ( 3,615,398) ( 224,984 ) $ 16,417,952 $ 957,754 109,346 ( 438,720) 293,250 ( 10,333 ) $ 911,297
	$ 18,198,602 $ 911,301 429,622 ( 83,152) - 330 $ 1,258,101

Note: Overseas convertible bonds of Promos Technologies amounting to USD10,000 thousand had been fully provided for impairment losses in 2011. During 2012, as the bonds were at maturity, they were reclassified from available-for-sale financial assets into receivables. Accumulated impairment which had been set aside were transferred to allowance for bad debts and fully written off in September, 2012.

(7) Reinsurance contract assets – net

Claims recoverable from reinsurers Less: allowance for doubtful accounts Reinsurance Reserve Assets Ceded unearned premium reserve Ceded claims reserve Total	December 31, 2012 $ 58 ( 4 ) 54 757 551 $ 1,362	December 31, 2012 $ 58 ( 4 ) 54 757 551 $ 1,362	January 1, 2012
			$ 2 -
			2 1,106 1,746
			$ 2,854

A. Change in allowance for doubtful debts of claims	recoverable from reinsurers:
Beginning balance Transfers		2013 $ 4 ( 4 )	2012
			$ - 4

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FIRST FINANCIAL HOLDING CO., LTD.

Ending balance

$ - $ 4

B. Please see Note 6 (24) 2 for the changes in reinsurance reserve assets.

(8) Available-for-sale financial assets - net

		December 31, 2013	December 31, 2013			December 31, 2012	December 31, 2012			January 1, 2012
Stocks - listed		$	8,273,467			$	8,943,075		$	8,848,873
Stocks - unlisted			1,459,724				1,390,154			1,195,595
Short – term bills			-				-			151,377
Bonds			81,105,607				67,432,406			68,479,327
Beneficiary securities			528,935				614,242			493,637
Other marketable securities			2,084,303				2,265,297			1,483,368
Valuation adjustment for
available-for-sale financial
assets			4,456,602				4,076,955			3,243,837
			97,908,638				84,722,129			83,896,014
Less: Refundable deposits	(		347,557)		(		346,992)	(		344,869)
Accumulated impairment	(		163,794	)	(		183,704 )	(		415,285	)
Total		$	97,397,287			$	84,191,433		$	83,135,860

Please refer to Note 13 for details of the above available-for-sale financial assets pledged as collateral as of December 31, 2013, December 31, 2012 and January 1, 2012.

(9) Held-to-maturity financial assets - net

Certificates of deposits purchased Bonds Short-term bills Beneficiary securities Total	December 31, 2013 $ 249,045,000 54,150,322 915,639 - $ 304,110,961	December 31, 2012 $ 233,900,000 38,219,620 6,417,543 - $ 278,537,163	January 1, 2012
			$ 278,260,000 42,046,099 326,127 40,236
			$ 320,672,462

Please refer to Note 13 for details of the above held-to-maturity financial assets pledged as collateral as of December 31, 2013, December 31, 2012 and January 1, 2012.

(10) Investments accounted for using equity method, net

A.Investments accounted for using equity method:

	December 31, 2013	December 31, 2013	December 31, 2012	December 31, 2012
	Amount	Percentage	Amount	Percentage
		of ownership (%)		of ownership (%)
East Asia Real Estate	$ 2,926 853,699 962,817	30% 100% 100%	$ 6,196 743,006 886,402	30% 100% 100%
Management Co., Ltd.
FCBL Capital International
(B.V.I) Ltd.
First Financial Assets

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2013 ANNUAL REPORT

Management (BVI) Ltd.	$ 1,635,604	$ 1,635,604

East Asia Real Estate Management Co., Ltd. FCBL Capital International (B.V.I) Ltd. First Financial Assets Management (BVI) Ltd.
	January 1, 2012
	Amount	Percentage
		of ownership (%)
	$ 7,452 729,126 908,635	30% 100% 100%
	$ 1,645,213

Note: According to Jin-Guan-Yin-Kong-Zi Letter No. 10300002310 and the resolution adopted at the Board meeting on December 20, 2013, the Company was allowed to invest in its subsidiary, FCB Leasing, and then reinvest in its wholly-owned finance lease company located in Xiamen City, Fujian Province of Mainland China through FCB Leasing BVI. Additionally, the Company decided to inject NT$2 billion in capital to FCB International Leasing with the effective date set on February 5, 2014.
B. The affiliated enterprises invested by the First Group have no quoted price. The affiliated enterprises’ capacity to transfer capital through the distribution of cash dividends, loan repayment or advances is not significantly restricted.
C. For 2013 and 2012, investment income from equity investments accounted for under the equity method were $96,810 and $37,933, respectively.
D.The investment income or loss from the above equity investments accounted for under the equity method, other than East Asia Real Estate Management Co., Ltd., that was recognized based on the unaudited financial statements of the same period (the Company expects the effect to be immaterial assuming the financial statements had been audited), was recognized based on the investees’ audited financial statements for the years ended December 31, 2013 and 2012.

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FIRST FINANCIAL HOLDING CO., LTD.

(11) Other financial assets - net

		December 31, 2013	December 31, 2013		December 31, 2012	December 31, 2012				January 1, 2012
Bond investments with
no active market		$	25,281,782		$	2,169,378			$	2,601,645
Bills purchased			6,475			8,183				13,992
Claims receivable
purchased			290,398			363,993				1,566
Financial assets carried
at cost			5,479,248			6,246,517				6,289,400
Separate account
product assets
Securities			12,635,594			8,380,301				5,972,920
Bank deposits			676,880			448,760				614,094
Other receivables			12,535			155,401				51,040
Non-accrual loans
transferred from
other accounts
(excluding loans)			499,709			167,980				318,563
Customer margin			571,558
accounts						428,369				1
Other			-			41,202				396,389
Subtotal			45,454,179			18,410,084				16,259,610
Less: Allowance for
doubtful accounts
- overdue
receivable	(		462,435)	(		134,312)		(		170,091)
Allowance for
doubtful accounts
- claims
receivable
purchased	(		20,921)	(		1,566)		(		1,566)
Accumulated
impairment-
financial assets
carried at cost			-	(		8,922	)	(		8,922 )
		$	44,970,823		$	18,265,284			$	16,079,031

A.As the First Group’s investments in unlisted stocks lack quoted marked price and their fair values cannot be measured reliably; those financial assets are accounted for at cost.
B.For methods and assumptions used to measure fair value of debt instruments with no active market, please refer to Note 7 (3) F.
C.The Bank’s overdue notes and debts securities affected by the financial crisis of Iceland and Washington Mutual, U.S.A. are recognized as other financial assets –overdue receivables, and the balance as of December 31, 2013, December 31, 2012, and January 1, 2012 were $58,394,

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2013 ANNUAL REPORT

$74,129, and $159,617, respectively, with balances for allowance for doubtful loans of $6,696, $23,706, and $12,110, respectively. The abovementioned overdue notes and debts securities have been included in debts security and prosecution procedures.

(12) Investment property– net

Please see below table for the investment property of the First Group for the years ended December 31, 2013 and 2012:

			Lands and land
			improvements				Buildings			Total
Cost
At January 1, 2013		$	6,405,379			$	428,239		$	6,833,618
Additions			1,271,323				470,557			1,741,880
Transferred from property and
equipment			353,903				15,642			369,545
At December 31, 2013			8,030,605				914,438			8,945,043
Accumulated depreciation
At January 1, 2013			-		(		114,176)(			114,176)
Depreciation			-		(		12,198)(			12,198)
Transferred from property and
equipment			-		(		12,003	( )		12,003	)
At December 31, 2013			-		(		138,377	( )		138,377 )
Accumulated impairment
At January 1, 2013	(		14,857)(				3,423)(			18,280)
Reversal of impairment loss			1,691				473			2,164
At December 31, 2013	(		13,166	( )			2,950	( )		16,116	)
Investment property– net		$	8,017,439			$	773,111		$	8,790,550
			Lands and land
			improvements				Buildings			Total
Cost
At January 1, 2012		$	6,263,769			$	365,944		$	6,629,713
Additions			141,610				62,033			203,643
Transferred from property and
equipment			-				262			262
At December 31, 2012			6,405,379				428,239			6,833,618
Accumulated depreciation
At January 1, 2012			-		(		107,491)(			107,491)
Depreciation			-		(		6,685	( )		6,685	)
At December 31, 2012			-		(		114,176	( )		114,176 )
Accumulated impairment
At January 1, 2012	(		21,809)(				4,359)(			26,168)
Reversal of impairment loss			6,952				936			7,888
At December 31, 2012	(		14,857	( )			3,423	( )		18,280	)
Investment property-net		$	6,390,522			$	310,640		$	6,701,162

A.As of December 31, 2013, December 31, 2012, and January 1, 2012, the investment property at fair value of the First Group was $14,543,915, $10,647,449, and $10,439,991, respectively.

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FIRST FINANCIAL HOLDING CO., LTD.

All the investment properties of the First Group are assessed by the internal appraisal expert, and the comparison method (market approach) was adopted for all assessments.

B. For the years ended December 31, 2013 and 2012, the rental income from investment property were $114,791 and $107,053, respectively, and the operating expenses from investment property were $26,934 and $13,439, respectively.

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2013 ANNUAL REPORT

Construction in	progress and	Land and Machinery and Transportation Other Leasehold prepayments for	improvements Buildings equipment equipment equipment improvements equipment Total	Cost	At January 1, 2013 $ 20,246,027 $ 11,368,779 $ 2,712,437 $ 840,540 $ 2,592,907 $ 1,109,504 $ 150,780 $ 39,020,974	Additions 55,975 279,973 233,804 40,219 122,878 27,567 486,372 1,246,788	Transfers - 192,144 - 3,344 14,051 20,850 ( 230,389) -	Transfer out to investment property ( 353,903)( 15,642) - - - - ( 2,229)( 371,774)	Disposals - -( 187,931) ( 63,139)( 83,992)( 55,705) - ( 390,767)	Foreign exchange - - 370 ( 15) 1,086 2,230 - 3,671	At December 31, 2013 19,948,099 11,825,254 2,758,680 820,949 2,646,930 1,104,446 404,534 39,508,892	Accumulated depreciation	At January 1, 2013 ( 2,872)( 4,922,151)( 2,214,476) ( 707,617)( 1,933,059)( 941,567) - ( 10,721,742)	Depreciation - ( 262,479)( 198,847) ( 40,984)( 148,896)( 64,147) - ( 715,353)	Transfer out to investment property - 12,003 - - - - - 12,003	Disposals - - 187,615 62,480 83,732 49,009 - 382,836	Foreign exchange - - 46 ( 109) ( 777) ( 1,046) - ( 1,886)	At December 31, 2013 ( 2,872) ( 5,172,627) ( 2,225,662) ( 686,230) ( 1,999,000) ( 957,751) - ( 11,044,142)	Book value $ 19,945,227 $ 6,652,627 $ 533,018 $ 134,719 $ 647,930 $ 146,695 $ 404,534 $ 28,464,750

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FIRST FINANCIAL HOLDING CO., LTD.

Construction in	progress and	Land and Machinery and Transportation Other Leasehold prepayments for	improvements Buildings equipment equipment equipment improvements equipment Total	Cost	At January 1, 2012 $ 20,347,530 $ 11,005,569 $ 2,695,461 $ 851,832 $ 2,572,092 $ 1,122,538 $ 30,303 $ 38,625,325	Additions 2,170 442,234 220,125 35,534 171,717 17,534 165,483 1,054,797	Transfers - 8,270 - 746 2,039 30,580 ( 41,635) -	Transfers out (Note) - ( 262) - - ( 7,972) - ( 3,371)( 11,605)	Disposals ( 103,673)( 87,032)( 200,901) ( 46,098)( 143,797)( 50,022) - ( 631,523)	Foreign exchange - - ( 2,248) ( 1,474) ( 1,172) ( 11,126) - ( 16,020)	At December 31, 2012 20,246,027 11,368,779 2,712,437 840,540 2,592,907 1,109,504 150,780 39,020,974	Accumulated depreciation	At January 1, 2012 ( 2,872)( 4,757,384)( 2,218,867) ( 707,343)( 1,933,986)( 932,962) - ( 10,553,414)	Depreciation - ( 249,774)( 197,691) ( 46,808)( 144,878)( 67,812) - ( 706,963)	Disposals - 85,007 200,335 45,736 143,330 49,984 - 524,392	Foreign exchange - - 1,747 798 2,475 9,223 - 14,243	At December 31, 2012 ( 2,872) ( 4,922,151) ( 2,214,476) ( 707,617) ( 1,933,059) ( 941,567) - ( 10,721,742)	Book value $ 20,243,155 $ 6,446,628 $ 497,961 $ 132,923 $ 659,848 $ 167,937 $ 150,780 $ 28,299,232	Note: Property and equipment reclassified as investment property and other assets.	A. There was no interest capitalized on property and equipment acquired in 2013 and 2012.	B. Please refer to Note 13 for details of the property and equipment pledged as collateral as of December 31, 2013, December 31, 2012 and January 1, 2012.

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2013 ANNUAL REPORT

(14) Other assets - net

	(	December 31, 2013 $ 1,580,854 494,299 ( ) 1,086,555 100,019 93,740 ( ) 6,279 609,983 1,293,303 553,732 288,244 $ 3,838,096	December 31, 2012 $ 1,225,004 435,023 ( ) 789,981 129,448 94,648 ( ) 34,800 579,376 1,323,662 731,620 91,253 $ 3,550,692	January 1, 2012 $ 1,168,641 341,812 ) 826,829 144,809 97,166 ) 47,643 718,249 1,361,102 380,823 53,197 $ 3,387,843
Leased assets
Less: Accumulated depreciation
Leased assets - net
Other assets	(
Foreclosed assets
Cost
Less: Accumulated impairment
Net foreclosed assets
Refundable deposits
Operating guarantee
deposits and
settlement clearing
funds
Prepayments
Others
Total

Please refer to Note 13 for details of other assets pledged as collateral as of December 31, 2013, December 31, 2012 and January 1, 2012.

(15) Deposits from the Central Bank and banks

Call loans from other banks Transfer deposits from Chunghwa Post Co. Overdrafts from other banks Due to other banks Due to the Central Bank Total	December 31, 2013 $ 136,678,173 2,834,591 1,309,760 475,780 77,478 $ 141,375,782	December 31, 2012 $ 145,886,819 4,117,992 2,780,537 354,696 41,653 $ 153,181,697	January 1, 2012
			$ 146,094,276 5,068,664 1,347,925 449,359 38,684
			$ 152,998,908

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

Financial liabilities for trading purpose Derivative instruments Others Financial liabilities designated at fair value through profit or loss Bonds Valuation adjustment Total	December 31, 2013 $ 3,800,839 448,805 10,300,000 463,435 $ 15,013,079	December 31, 2012 $ 4,988,129 20,501 16,100,000 756,335 $ 21,864,965	January 1, 2012
			$ 7,694,582 11,743 17,300,000 999,067
			$ 26,005,392

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FIRST FINANCIAL HOLDING CO., LTD.

A. The financial instruments of the First Group at fair value through profit or loss were designated to eliminate or significantly reduce recognition inconsistency.
B. For the years ended December 31, 2013 and 2012, the changes in fair value belonging to financial debentures designated at fair value through profit and loss by the Company were $34,511 and $44,593, respectively.
C. FCB sold the financial debentures at the face value. As of December 31, 2013, December 31, 2012 and January 1, 2012, the carrying amounts exclusive of valuation adjustment and the amounts payable to the creditors are identical.
(17) Derivative financial liabilities for hedging

Derivative financial liabilities for hedging	December 31, 2013 $ 7,973	December 31, 2012 $ 44,584	January 1, 2012
			$ 110,978
Derivative financial liabilities held for hedging and related information were as follows:

Fair values of fixed-rate loans held by overseas branches of FCB may fluctuate with changes in interest rates. FCB had assessed that the risk may be significant, so FCB hedged such risk by entering into interest rate swap contracts.

		Designated hedging instruments	Designated hedging instruments	Designated hedging instruments
Hedged item	Designated			Fair value
	hedging	December 31, 2013		December 31, 2012 ($ 44,584 )(	January 1, 2012 $ 110,978 )
	instruments		($ 7,973 )
Fixed-rate loans	Interest rate swap contracts

(18) Securities sold under repurchase agreements

		December 31, 2013	December 31, 2013		December 31, 2012	December 31, 2012			January 1, 2012
Bonds payable under
repurchase agreements	$		14,165,980	$		7,421,171	$		14,017,359
Bills payable under
repurchase agreements			49,829			9,981			229,855
Total		$	14,215,809		$	7,431,152		$	14,247,214

The First Group is obliged to repurchase the above bonds at original sale price plus a mark-up pursuant to the repurchase agreement. The repurchase agreement amounts for such bonds and bills were $14,232,215, $7,437,682 and $14,273,532 as of December 31, 2013, December 31, 2012 and January 1, 2012, respectively.

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(19) Commercial papers issued - net

Details of commercial papers issued not yet due are stated as follows:

Commercial papers issued � � � � � � � � Subtotal Less: discount on commercial papers issued Net commercial papers issued	Commercial papers issued � � � � � � � � Subtotal Less: discount on commercial papers issued Net commercial papers issued	Guarantor	December 31, 2013	December 31, 2012	January 1, 2012
		Mega Bills Finance Co., Ltd. China Bills Finance Corporation Taishin Bank Taiwan Finance Corporation Dah Chung Bill Finance Corporation International Bills Finance Corporation Grand Bills Finance Corporation Taching Bills Finance Co., Ltd. Taiwan Cooperative Bills Finance Corporation	$ 1,868,000 989,000 1,200,000 180,000 300,000 200,000 445,000 322,000 290,000 5,794,000 ( 2,330 ) $ 5,791,670 0.700%~0.960%	$ 1,627,000 560,000 700,000 166,000 300,000 149,000 150,000 52,000 100,000 3,804,000 ( 1,203 ) $ 3,802,797 0.760%~1.060%	$ 1,607,000 700,000 468,000 245,000 280,000 513,000 587,000 100,000 160,000 4,660,000 ( 2,176 ) $ 4,657,824
Interest rate (%)					0.730%~1.058%

(20)	Payables

Accounts payable Spot exchange payable Bank acceptances Dividends payable	December 31, 2013	December 31, 2012	January 1, 2012
	$ 18,676,094 19,793,282 8,774,484 2,162,673 4,614,055 690,304 804,363 389,947 7,305,467	$ 31,278,545 13,369,243 6,462,847 2,134,759 4,362,212 601,366 700,988 808,343 6,129,740	$ 29,827,661 13,298,706 7,343,864 2,115,432 4,135,002 491,448 575,409 477,287 5,389,894
Interest payable
Accrued expenses
Deposits received from
securities borrowers
Guaranteed price deposits
received from securities
borrowers
Other payables

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63,654,703

Total $ 63,210,669 $ 65,848,043 $

(21) Deposits and remittances

	December 31, 2013	December 31, 2012	January 1, 2012
Checking accounts	$ 37,107,045 437,199,048 359,912,370 11,967,500 883,643,756 2,033,271 26,647	$ 40,660,026 396,573,003 313,261,908 11,178,400 857,870,970 2,425,198 29,445	$ 40,975,173 372,489,481 325,454,510 12,337,400 858,134,094 1,753,705 22,992
Demand deposits
Time deposits
Negotiable certificates of deposits
Savings deposits
Inward remittances
Others
Total	$ 1,731,889,637	$ 1,621,998,950	$ 1,611,176,355

(22) Bonds payable

A. Corporate bonds payable

In order to improve the Company’s financial structure, strengthen its capital adequacy ratio, and raise funds for mid-to-long-term operation, the Company’s Board of Directors resolved on April 29, 2010, to issue unsecured corporate bonds of $5 billion, and senior corporate bonds of $2 billion approved by the FSC. The holders of the subordinated corporate bonds shall take precedence over shareholders but would rank below other creditors in the event of liquidation. The detailed terms of issuance are as follows:

liquidation. The detailed	terms of issuance are as follows:
Issue date Issue amount Issue price Coupon rate Interest and repayment terms Maturity period	First issue, 2010(A�B)
	July 22, 2010
	NT$7 billion
	At par
	A:Fixed rate 1.6%;B: Fixed rate 2.25%
	Interest is paid annually. The principal is to be paid pursuant to face
	value at maturity.
	A:5 years;B:7 years

As of December 31, 2013, December 31, 2012, and January 1, 2012, the above mentioned corporate bonds were unsecured subordinated bonds of $5 billion, unsecured senior bonds of $2 billion, respectively.

For the years ended December 31, 2013 and 2012, interest rates of the above mentioned corporate bonds were 1.60% ~2.25%.

B. Financial bonds payable

On June 24, 2005, August 18, 2006, February 29, 2008, June 25, 2010, February 25, 2011, February 24, 2012 and February 22, 2013, the Board of Directors resolved to issue senior and subordinated financial bonds with the quota of $20, $20, $20, $8, $10, $15 and $12 billion New Taiwan dollars, respectively, to strengthen FCB's capital adequacy ratio and to raise

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2013 ANNUAL REPORT

capital for long-term operating purposes. The issuances of the financial bonds had been approved by the Ministry of Finance, R.O.C. and Financial Supervisory Commission, Executive Yuan. The subordinated creditors have a right to repayment that is higher than that of a shareholder's but would rank below other creditors in the event of liquidation. The detailed terms of each issuance are as follows:

Issue date Issue amount Issue price Coupon rate Interest and repayment terms Maturity period Issue date Issue amount Issue price Coupon rate Interest and repayment terms Maturity period Issue date Issue amount Issue price Coupon rate Interest and repayment terms Maturity period	First to Third issues, 2006
	April 24, July 27 and December 4, 2006
	NT$14 billion (NT$13 billion has been paid back)
	At par
	2.24%~2.75%
	Interest is paid annually. The principal is to be paid pursuant to face
	value at maturity.
	5 years and 6 months to 10 years

	First to Third issues, 2007
	March 9, June 25 and December 24, 2007
	NT$14 billion
	At par
	Partial interest rate is fixed (2.4%~3.16%) and partial is floating rate.
	Interest rate index is average interest rate of NTD 90-day commercial
	paper in secondary market provided by Reuters.
	Floating rate: Interest is accrued quarterly and paid annually. The
	principal is to be paid pursuant to face value at maturity.
	Fixed rate: Interest is paid annually. The principal is to be paid
	pursuant to face value at maturity.
	7~10 years

	First to Third issues, 2008
	June 23, October 21, December 24, 2008
	NT$8.7 billion
	At par
	Partial is fixed interest rate (3.0%~3.10%) and partial is floating rate.
	Interest rate index is average interest rate of NTD 90-day commercial
	paper in secondary market provided by Reuters.
	Floating rate: Interest is accrued quarterly and paid annually. The
	principal is to be paid pursuant to face value at maturity.
	Fixed rate: Interest is paid annually. The principal is to be paid
	pursuant to face value at maturity.
	7 years

Issue date Issue amount Issue price Coupon rate Interest and repayment terms	First to Second issues, 2010
	September 28, 2010
	NT$8 billion
	At par
	1.5%~1.92%
	Interest is paid annually. The principal is to be paid pursuant to face
	value at maturity.

		First to Second issues, 2010
Issue date		September 28, 2010
Issue amount		NT$8 billion
Issue price		At par
Coupon rate		1.5%~1.92%
Interest and repayment		Interest is paid annually. The principal is to be paid pursuant to face
terms		value at maturity.

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FIRST FINANCIAL HOLDING CO., LTD.

Maturity period 7 years

Issue date Issue amount Issue price Coupon rate Interest and repayment terms Maturity period Issue date Issue amount Issue price Coupon rate Interest and repayment terms Maturity period	First to Second issues, 2011
	March 30, June 24, 2011
	NT$6.3 billion
	At par
	1.65% /1.72%
	Interest is paid annually. The principal is to be paid pursuant to face
	value at maturity.
	7 /10 years

	First to Second issues, 2012
	September 25, December 27, 2012
	NT$15 billion
	At par
	1.43%/1.47%/1.59%
	Interest is paid annually. The principal is to be paid pursuant to face
	value at maturity.
	7 ~10 years

For the years ended December 31, 2013 and 2012, interest rates of the above mentioned corporate bonds were 1.11% ~3.16%.

As of December 31, 2013, December 31, 2012, and January 1, 2012, the outstanding balances of the above mentioned financial bonds amounted to $53 billion, $58.8 billion, and $45 billion New Taiwan dollars, respectively. In addition, among the above financial bonds, the subordinate financial bonds with face value of $10.3 billion, $16.1 billion, and $17.3 billion New Taiwan dollars were designated as held for trading financial liabilities and hedged by interest rate swap contracts. As such interest rate swap contracts were valued at fair value with changes in fair value recognized as profit or loss, the financial bonds stated above were designated as financial liabilities at fair value through profit or loss in order to eliminate or significantly reduce recognition inconsistency.

(23) Other borrowings

	December 31, 2013 $ 2,718,078 1.085%~2.050%	December 31, 2012 $ 1,158,070 1.03%~1.258%	January 1, 2012
Credit borrowings			$ 1,250,000
Interest rate (%)			0.957%~0.98%

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2013 ANNUAL REPORT

(24) Provisions

	December 31, 2013	December 31, 2012 January 1, 2012
Insurance liability
Employee benefit liabilities
reserve
Reserve for guarantees
Other reserves
Total	$ 19,756,790	$ 19,534,502 $ 18,456,710

A.Details of FALI’s provisions for insurance as of December 31, 2013, December 31, 2012 and January 1, 2012, were as follows:

	December 31, 2013 $ 13,932,888 19,901 9,750 9,585 $ 13,972,124	December 31, 2012 $ 13,448,446 16,588 5,028 94,386 $ 13,564,448	January 1, 2012
Policy reserve			$ 12,705,391 11,703 15,685 179,552
Unearned premium reserve
Claim reserve
Reserve for premium
insufficiency			$ 12,912,331
Total

B.Details of FALI’s liability reserves for insurance contracts and financial instruments issued with a discretionary participation feature were as follows:

(A) Policy reserve:

For the years ended December 31, 2013 and 2012, as well as of December 31, 2013 and 2012, the policy reserves were all generated by insurance contract, and the contractual liabilities measured on a discounted basis to reflect the interest expense over time were $196,390 and $152,954, respectively.

$196,390 and $152,954, respectively.
	Insurance Contracts
	2013	2012
Beginning balance		$ 12,705,391 2,508,935 ( 1,732,252) ( 29,889) ( 3,739 ) $ 13,448,446
Provision
Recovery
Income of surrender
Foreign currency exchange gains and losses
Ending balance

For the years ended December 31, 2013 and 2012, provisions for the period were exclusive of recovery from significant event.

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FIRST FINANCIAL HOLDING CO., LTD.

(B) Unearned premium reserve and deduction of unearned premium reserve fluctuation:

	Insurance Contracts	Insurance Contracts	Insurance Contracts
Unearned premium reserve	2013		2012
Beginning balance Provision Recovery Ending balance	$ 16,588 19,901 16,588 ) $ 19,901 $ 757 222 ) $ 535	( (	$ 11,703 16,588 11,703 ) $ 16,588 $ 1,106 349 ) $ 757



Deduction of unearned premium reserve
Beginning balance Change in the period Ending balance

Deduction of unearned premium reserve was listed under “reinsurance contract assets-net”.

Claim reserve fluctuation:
	Insurance Contracts
	2013	2012
Claim reserve	$ 5,028 13,313 ( 8,593) 2 $ 9,750 $ 551 2,712 $ 3,263	$ 15,685 11,681 ( 22,334) ( 4 ) $ 5,028 $ 1,746 ( 1,195 ) $ 551
Beginning balance Provision Recovery Foreign currency exchange gains and losses Ending balance



Deduction of claim reserve
Beginning balance Change in the period Ending balance

The reported but not yet paid insurance claims is processed by case by the claim segment, of which the committed insured amount is estimated based on the policy details. The reported but yet paid insurance claims, which is appropriately assessed, should be able to reflect the actual claim paid. Reserve for the claim unreported is calculated by the actuarial segment based on the methods for recognizing unreported claim reserve used by FALI.

Deduction of claim reserve was listed under “reinsurance contract assets- net”.

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2013 ANNUAL REPORT

(D) Reserves for premium insufficiency fluctuation:

	Insurance Contracts	Insurance Contracts
	2013	2012
Reserve for premium insufficiency
Beginning balance Recovery Ending balance	$ 94,386 ( 84,801 ) $ 9,585	$ 179,552 ( 85,166 ) $ 94,386

C.Reserves for foreign exchange price (shown under other reserves) fluctuation:

	2013	2012
Beginning balance Withdrawal in current period Compulsory deposits Additional deposits Subtotal Recovered cash ( Ending balance	$ - 1,125 19,687 20,812 16,372 ( ) $ 4,440	$ - 791 4,178 4,969 4,969 ) $ -

D.Liability reserve for employee benefit of actuarial value as follows:

	December 31, 2013 $ 4,452,915 704,315 $ 5,157,230	December 31, 2012 $ 4,662,160 708,976 $ 5,371,136	January 1, 2012
Consolidated balance			$ 4,232,636 730,976
sheet:
Defined benefit plans Preferential saving plan for employees
Total			$ 4,963,612

(A) Defined contribution plans

Effective from July 1, 2005, the First Group established a funded defined contribution plan pursuant to the Labor Pension Act, which covers the employees with R.O.C. nationality and those who choose to or are required to follow the Labor Pension Act. The contributions are made monthly based on not less than 6% of the employee's monthly salaries and are deposited in the employee’s individual pension fund account at the Bureau of Labor Insurance. The payment of pension benefits is based on the employee’s individual pension fund accounts and the cumulative profit in such accounts, and the employees can choose to receive such pension benefits monthly or in lump sum. For the years ended December 31, 2013 and 2012, the pension costs of the First Group under the defined contribution plan were $169,370 and $162,666, respectively. For employees working overseas, pension expenses under defined contribution plans are recognized according to the local regulations. For the years ended December 31, 2013 and 2012, pension expenses of current period were $15,270 and $14,937, respectively.

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FIRST FINANCIAL HOLDING CO., LTD.

(B) Defined benefit plans

The First Group has a defined benefit pension plan set up in accordance with the Labor Standards Law of the R.O.C., covering all regular employees for their services prior to the implementation of the Labor Pension Act on July 1, 2005 and those employees who choose continuously to be applicable to the Labor Standards Law for the services after the implementation of the Labor Pension Act. The payment of pension benefits is based on the length of the service period and average monthly compensation in the last six months prior to retirement. Under the defined benefit plan, employees are granted two points for each year of service for the first 15 years and are granted one point for each additional year of service from the 16th year, but are subject to a maximum of 45 points. Monthly contributions made by the First Group to the pension fund that are deposited in the designated pension account at the Bank of Taiwan were based on 10% of the total monthly salaries and wages. The net pension costs under defined contribution pension plans of the Company for the years ended December 31, 2013 and 2012 were $422,162, and $728,084, respectively.

a. Pension fund deposited at Bank of Taiwan �

	December 31, 2013	December 31, 2012
	Pension fund	Pension fund
	deposited at	deposited at
Company name	Bank of Taiwan	Bank of Taiwan
First Financial Holding Co., Ltd. (FFHC)	$ 25,393 5,912,616 78,394 41,782 326 2,072 $ 6,060,583	$ 25,350 5,727,711 76,316 48,204 237 1,813 $ 5,879,631
First Commercial Bank (FCB) and its
subsidiaries
First Securities Inc. (FS) and its subsidiaries
First Securities Investment Trust Co., Ltd.
(FSIT)
First Financial Management Consulting Co.,
Ltd. (“FFMC”)
First Financial AMC (“FFAMC”)

b. The amounts recognised in the balance sheet are determined as follows:

Present value of funded obligations Fair value of plan assets Deficit Unrecognised past service cost Net liability in the balance sheet	December 31, 2013 $ 10,499,220 ( 6,054,807 ) 4,444,413 $ 8,502 $ 4,452,915	December 31, 2012 $ 10,536,093 ( 5,876,227 ) 4,659,866 $ 2,294 $ 4,662,160	January 1, 2012 $ 9,791,298 ( 5,558,820 ) 4,232,478 $ 158 $ 4,232,636

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2013 ANNUAL REPORT

c. Changes in present value of funded obligations are as follows:

Present value of funded obligations At January 1	2013	2012

		$ 9,791,298 663,586 155,084 176,783 250,658 ) $ 10,536,093
Current service cost
Interest cost
Benefits paid
At December 31

Changes in fair value of plan assets are as Fair value of plan assets
	2013	2012

At January 1
Expected return on plan assets

d. Changes in fair value of plan assets are as follows:

e. Amounts of expenses recognised in comprehensive income statements are as follows:

	2013	2012
Current service cost	$ 355,517 155,591 89,655 ( ) $ 421,453	$ 663,586 155,084 91,284 ) $ 727,386
Interest cost
Expected return on plan assets (
Current pension costs

f. Amounts recognised under other comprehensive income are as follows:

	2013	2012
Recognition for current period (	$ 75,861 ) $ 136,848	$ 212,709 $ 212,709
Accumulated amount

g. The Bank of Taiwan was commissioned to manage the Fund of the Company’s and domestic subsidiaries’ defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, afeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. The constitution of fair value of plan assets as of December 31, 2013 and 2012 is given in the Annual Labor Retirement Fund

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FIRST FINANCIAL HOLDING CO., LTD.

Utilisation Report published by the government. Expected return on plan assets was a projection of overall return for the obligations period, which was estimated based on historical returns and by reference to the status of Labor Retirement Fund utilisation by the Labor Pension Fund Supervisory Committee and taking into account the effect that the Fund’s minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. The actual return on plan assets for the years ended December 31, 2013 and 2012 was $75,697and $55,358, respectively.

h. The principal actuarial assumptions used were as follows:

Discount rate Future salary increases Expected return on plan assets Future death rate	2013 1.60%~2.00% 1.50%~2.00% 1.60%~2.00% 4th~5th	2012 1.30%~1.60% 1.50%~2.00% 1.30%~1.60% 4th~5th	2011
			1.50%~1.75% 1.50%~2.00% 1.50%~1.75% 4th

Assumption on future death rate is based on the 4[th] historical life chart by the Taiwan life insurance enterprises.

i. Historical information of experience adjustments was as follows:

Present value of defined benefit obligation Fair value of plan assets Deficit in the plan Experience adjustments on plan liabilities Experience adjustments on plan assets	2013 $ 10,499,220 ( 6,054,807 ) $ 4,444,413 $ 202,182 $ 13,958	2012 $ 10,536,093 ( 5,876,227 ) $ 4,659,866 $ 64,754 $ 35,926

j. Expected contributions to the defined benefit pension plans of the Group within one year from December 31, 2013 amounts to $632,342.
(C) Employee preferential savings plan

The subsidiary, FCB, complies with the internal policy and the allotment savings after retirement for retired and current employees which is subject to a limit of NT$480,000 with 13% interest rate. Under the employee preferential savings plan, the Group recognized pension cost of $355,761, and $311,942 for the years ended December 31, 2013 and 2012, respectively. Please see Note 4(23)2 for details.

a. Changes in present value of funded obligations are as follows:

Present value of funded obligations At January 1 Interest cost Actuarial profit and loss Benefits paid ( At December 31	2013 $ 708,976 26,519 172,239 203,419 ) $ 704,315	2012 $ 730,976 27,378 155,263 ( 204,641 ) $ 708,976

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2013 ANNUAL REPORT

b. Amounts of expenses recognised in comprehensive income statements are as follows:

Interest cost Expected return on plan assets Current pension costs	2013 $ 26,519 172,239 $ 198,758	2012
		$ 27,378 155,263
		$ 182,641

c. For the years ended December 31, 2013 and 2012, there are no actuarial loss, recognized in other comprehensive income.
d. The actuarial assumptions of employee preferential savings plan are as follows:

Discount rate Return on capital deposited Annual decreasing ratio of account balance Variable ratio of preferential savings program	2013 4.00% 2.00% 1.00% 50.00%	2012 4.00% 2.00% 1.00% 50.00%	2011
			4.00% 2.00% 1.00% 50.00%

e. Historical information of experience adjustments was as follows:

Present value of defined benefit obligation Fair value of plan assets Deficit in the plan	2013 $ 704,315 - $ 704,315	2012
		$ 708,976 -
		$ 708,976

E. Movements in reserve for guarantees (shown under other reserves) were as follows:

	2013	2012
Beginning balance	$ 553,478 ( 6,118) ( 982 ) $ 558,614	$ 560,486 ( 6,648) ( 360 ) $ 553,478
Reversal of provision
Foreign exchange and other movements
Ending balance

(25) Other financial liabilities

	December 31, 2013 $ 52,680,145 13,325,009 712,710	January 1, 2012
Received principal of structured		$ 17,551,918 6,638,054 679,325
notes
Separate account product liabilities–sinking reserve for investment-linked insurance
Others
Total	$ 66,717,864	$ 24,869,297

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FIRST FINANCIAL HOLDING CO., LTD.

(26) Other liabilities

	December 31, 2013 $ 1,898,769 1,324,719 423,604 $ 3,647,092	December 31, 2012 $ 1,707,014 1,220,505 422,555 $ 3,350,074	January 1, 2012
Deposits received			$ 1,733,773 945,232 412,976
Collections in advance
Others
Total			$ 3,091,981

(27) Equity

A. Common stock

(A) The approved and issued capital stock were $100,000,000 and $86,535,092, respectively, as of December 31, 2013, and were $100,000,000 and $81,253,607, respectively, as of December 31, 2012. Total issued and outstanding shares were both 8,653,509 thousand shares as of December 31, 2013 and 8,125,361 thousand shares as of December 31, 2012 both with par value of $10 New Taiwan dollars per share.

After the consent of the Board of Directors on April 26, 2012, a resolution was adopted at the stockholders’ meeting on June 22, 2012, to convert the Company’s unappropriated earnings amounting to $4,215,988 and additional paid-in capital amounting to $383,272 to increase its capital stock, effective on August 18, 2012. The capital increase was approved by Explanatory Letter Jin-Guan-Jen-Fa No. 1010029790 of the FSC. After the capital increase, the approved and issued capital stock amounted to $100,000,000 and $81,253,607, respectively, which consists of 8,125,361 thousand outstanding shares with par value of $10 New Taiwan dollars per share.

After the consent of the Board of Directors on April 25, 2013, a resolution was adopted at the stockholders’ meeting on June 21, 2013, to convert the Company’s unappropriated earnings amounting to $5,281,485 to increase its capital stock, effective on August 10, 2013. The capital increase was approved by Explanatory Letter Jin-Guan-Jen-Fa No. 1020025864 of the FSC. After the capital increase, the approved and issued capital stock amounted to $100,000,000 and $86,535,092, respectively, which consists of 8,653,509 thousand outstanding shares with par value of $10 New Taiwan dollars per share.

(B) Capital surplus

As required by the Companies Act, additional paid-in capital resulting from the amount received in excess of par value of the issuance of capital stock and donated income may not only be used to offset the accumulated losses but also to issue new shares or distribute cash dividends in proportion to the number of shares being held by original shareholders. In addition, according to the Securities and Exchange Act, the additional paid-in capital used for capital increase shall not exceed 10% of total issued capital stock. A company should not use the capital surplus to cover its capital loss, unless the surplus reserve is insufficient.

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2013 ANNUAL REPORT

As of December 31, 2013, December 31, 2012 and January 1, 2012, the components of the Company’s capital surplus were as follows:

	December 31, 2013 $ 17,960,204 239,963 $ 18,200,167	December 31, 2012 $ 17,960,204 239,963 $ 18,200,167	January 1, 2012
Share premium			$ 18,343,476 239,963
Share-based payment
Total			$ 18,583,439

a. Legal reserve

According to the Company Law of the R.O.C., legal reserve can be used only to recover accumulated deficits or to increase capital stock and shall not be used for any other purposes. However, it is permitted that the legal reserve be used to increase capital stock if the balance of the legal reserve has reached twenty five percent of the issued capital stock, and only half of the legal reserve can be capitalized. As of December 31, 2013, December 31, 2012 and January 1, 2012, the legal reserve of the Company were $8,266,238, $7,248,854 and $6,488,624, respectively.

b. Special reserve

Upon the first-time adoption of IFRSs, Jin-Guan-Zheng-Fa Letter No. 1010012865 dated April 6, 2012 requires the Company to reverse special earnings reserve in the proportion of originally recognition when the Company subsequently uses, disposes or reclassifies related assets. If the above related assets belong to investment properties, reversal of land is made when being disposed or reclassified and others are reversed during the periods of being used. In addition, the “trading loss reserve” and “default loss reserve” have been abolished in “Regulations Governing Securities Firms”. The “trading loss reserve” and “default loss reserve” set aside before the end of December 2010 should be transferred to “special earnings reserve” according to Jin-Guan-Zeng-Chung Letter No. 0990073857 dated November 11, 2011. Moreover, the additional special reserve should be transferred to “special earnings reserve” by the net of tax after the annual closing. On the other hand, if the special reserve is insufficient to write-off or to recover the amount that could be written-off or recovered, the insufficiency may be recovered or written-off through the “special earnings reserve”. The special earnings reserve can only be used in offsetting an entity’s deficit or 50% of such reserve can be transferred to capital given that such reserve is equivalent to 50% of the paid-in capital or more. No other purpose is permitted. As of December 31, 2013, December 31, 2012 and January 1, 2012, the special earnings reserve of the Company were $4,128,990, $4,128,990 and $4,162,118, respectively.

(D) Base number of shares issued as employee compensation

With the Jin-Guan-Zheng-Fa Letter No. 1000027752, the Board of Directors of the Company has approved to retain 15% cash capital increase for the employees of the Company and the subsidiaries under the First Group on July 22, 2011. According to IFRS 2, “Share-based Payment” as endorsed by the FSC, the First Group retained capital surplus

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amounting to $239,963 for employee subscription in this cash capital reserve.

As of December 31, 2013, the First Group’ common shares transactions were as follows:

		Number of
Item	Date	shares issued	Vesting conditions
Employee cash capital reserve	August 24, 2011	120,000,000	Immediately vested

(28) Unappropriated earnings

A. As stipulated in the Company’s Articles of Incorporation, the annual net income after income taxes should be first be used to recover accumulated deficit, and the remaining amount should then be set aside as legal reserve and special reserve in accordance with provisions under the applicable laws and regulations. The remaining earnings are then distributed as follows: (1) 0.02% to 0.16% as bonuses to employees (2) not more than 1% as remuneration to directors and supervisors, and (3) the remaining earnings plus prior year’s accumulated unappropriated earnings as the distributable amount for stockholder dividends, among which 30% to 100% of the distributable amount is subject to the Board of Directors’ decision to propose a distribution plan and to be submitted to the stockholders during the regular stockholders’ meeting for approval. It may also distribute employee stock bonuses to subsidiaries’ employees if there are employee stock bonuses distributed.
B. In order to ensure that there is adequate working capital available for the expansion of the Company’s operations and so as to increase its profitability, dividends may be distributed in a combination of cash and shares. However, the cash dividend should not be less than 10% of the current year’s distributable amount for stockholder dividend, and the remainder will be the share dividend.
C. If the cash dividend is less than $0.1 New Taiwan dollar per share, it should not be distributed unless approval is obtained during the General Stockholders’ Meeting.
D. The appropriation of 2012 and 2011 earnings were resolved on June 21, 2013 and June 22, 2012, respectively, and were summarized as follows:

	Earnings distribution	Earnings distribution	Dividend per share (NT dollar)	Dividend per share (NT dollar)
	2012	2011	2012	2011
Legal reserve	$ 1,017,384 3,656,412 5,281,485 $ 9,955,281	$ 760,230 3,066,174 4,599,260	$ - 0.45 0.65 $ 1.10	$ - 0.40 0.60 $ 1.00
Cash dividends on common stock
Stock dividends on common stock
(including stock dividends from capital surplus)		$ 8,425,664

E. The First Group estimated employees’ bonus and supervisors’ and directors’ remunerations amounting to $103,973 and $96,766 were recognized as operating expense for the years ended December 31, 2013 and 2012, respectively. After taking into account the legal reserve and other factors, the amount was arrived at by multiplying the net income after tax with the percentage stipulated in the Articles of Incorporation of the First Group.
F. The 2012 and 2011 employees’ bonus and supervisors’ and directors’ remunerations approved at the 2013 and 2012 stockholders’ meeting amounted to $95,960 and $73,279, respectively. The difference of ($806) and $518 between the accrued amounts and the actual distributed

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amounts resolved by the stockholders at their annual stockholders’ meeting subsequently shall be recognized as gain or loss in the current period. Information on the appropriation of the Company’s earnings as resolved by the Board of Directors will be posted on the Market Observation Post System website of the Taiwan Stock Exchange.

(29) Other equity interest

Unrealized gain or loss on available-for-sale financial assets $ 3,864,098 507,755 - - $ 4,371,853 Unrealized gain or loss on available-for-sale financial assets $ 3,043,205 820,893 - -	Unrealized gain or loss on available-for-sale financial assets	Total
	$ 3,864,098 507,755 - -	$ 2,861,248 507,755 695,783 87,027
	$ 4,371,853	$ 4,151,813
	Unrealized gain or loss on available-for-sale financial assets	Total
		$ 3,043,205 820,893 ( 955,309) ( 47,541 ) $ 2,861,248
$ 3,864,098

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(30)	Net interest income	Net interest income
		Interest income Interest income on loans discounted Interest income on deposits and call loans Interest income on securities investment Revolving interest income on credit cards Interest income on margin trading and short selling Interest income on repo trade Other interest income Subtotal Interest expense Interest expense for deposits Interest expense for deposits of Central Banks and others Coupon payment on financial bonds Coupon payment on corporate bonds Interest expense of bonds payable under repurchase agreements Interest expense on structured notes Other interest expense Subtotal Total

(31)	Net service fee and commission income
		Service fee income Trust business Custodian business Insurance agency Foreign exchange Credit extension Credit card Brokerage Management fee and sales income Other service fee income on deposits and remittances	2013 $ 1,536,729 454,166 951,554 959,596 945,244 625,397 739,996 486,181 1,237,645 7,936,508 ( 119,644) ( 103,642) ( 206,790) ( 24,867) ( 49,886) ( 271,896) ( 57,190) ( 470,709 )	2012 $ 1,300,899 406,316 829,665 911,180 879,491 588,045 710,708 479,703 1,091,304 7,197,311 ( 86,323) ( 98,476) ( 135,852) ( 32,288) ( 48,833) ( 243,085) ( 53,416) ( 364,111 )
		Subtotal
		Service fee expense Trust business Custodian business Insurance agency Foreign exchange Credit extension Credit card Brokerage Other service fee expense on deposits and remittances

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	Subtotal Total	( 1,304,624 ) $ 6,631,884	( 1,062,384 ) $ 6,134,927
(32)	Net income and expenses from insurance operations

		Income on insurance business Direct premium Reinsurance premium expense Net change in unearned premium reserve Self-retained matured premium income Expenditure on insurance stabilization fund Subtotal Expense on insurance business Policy claims and payment Claims recovered from reinsurers Self-retained claims and payment Underwriting expenses Expense on insurance stabilization fund Invested insurance goods income	Income on insurance business Direct premium Reinsurance premium expense Net change in unearned premium reserve Self-retained matured premium income Expenditure on insurance stabilization fund Subtotal Expense on insurance business Policy claims and payment Claims recovered from reinsurers Self-retained claims and payment Underwriting expenses Expense on insurance stabilization fund Invested insurance goods income	2013 $ 2,717,017 ( 13,119) ( 3,535 ) 2,700,363 7,215,393 9,915,756 ( 2,017,626) 8,199 ( 2,009,427) ( 194) ( 2,717) ( 7,215,393 ) ( 9,227,731 ) $ 688,025	2013 $ 2,717,017 ( 13,119) ( 3,535 ) 2,700,363 7,215,393 9,915,756 ( 2,017,626) 8,199 ( 2,009,427) ( 194) ( 2,717) ( 7,215,393 ) ( 9,227,731 ) $ 688,025
		Subtotal
		Total

(33)	Gains or losses on financial assets and financial liabilities at fair value through profit or loss
		Gain and loss from disposal of financial assets at fair value through profit or loss Short-term bills Bonds Stocks Beneficiary certificates Interest rate Exchange rate Options Futures Others Other securities		2013 ($ 17,289) ( 34,725) 98,715 11,806 317,102 811,120 294,956 ( 29,285) 3,463 ( 611 ) 1,455,252 ( 2,868) 199,540 103,428 263 ( 489,548) ( 422,251) ( 13,592)	2012 ($ 816) 33,370 ( 11,744) ( 25,276) ( 90,217) 1,073,858 390,749 ( 3,572) 117 1,956 1,368,425 ( 62) 320,529 ( 16,098) 32,576 ( 123,111) 70,138 ( 2,291)
			Subtotal

		Evaluation gain and loss on financial assets at fair value through profit or loss Short-term bills Bonds Stocks Beneficiary certificates Interest rate Exchange rate Options

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Futures Others Other securities	2013 ( 4,805) ( 767) ( 15 ) ( 630,615 ) 350,963 ( 342,144) 25,324 $ 858,780	2012 ( 2,247) - ( 929 ) 278,505 132,643 ( 430,932) 49,806 $ 1,398,447
Subtotal
Interest income on financial assets at fair value through profit or loss Interest expense on financial liabilities at fair value through profit or loss Coupon payment and bonus income on financial assets at fair value through profit or loss Total

Net income on exchange rate instruments are realized and unrealized gain and loss on spot and forward exchange contracts, FX options and FX futures. Financial assets and liabilities denominated in foreign currencies that are not designed for hedging and are measured at fair value through profit and loss, the translation gains and losses are also included under the net income of exchange rate instruments.

Interest-linked instruments include interest rate swaps, money market instruments, interest-linked options and other interest related instruments.

When the First Group designates a financial instrument to be measured at fair value through profit and loss, any change in fair value of the derivative managed with the financial instrument is recognized in “gain and loss on financial assets and liabilities at fair value through profit and loss”.

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

Dividends income Gain on disposal Bonds Securities Beneficiary certificate Subtotal Loss on disposal Bonds Securities Beneficiary certificate Subtotal Total	2013 $ 282,613 37,827 194,801 33,482 266,110 ( 53,417) ( 178,683) ( 1,795 ) ( 233,895 ) $ 314,828	2012 $ 367,150
		44,492 265,851 53,776
		364,119
		( 73,977) ( 274,665) ( 2,242 ) ( 350,884 ) $ 380,385
Net other non-interest income
Net gain on financial assets carried at cost Net income and losses from rent Loss (gains) on disposal of property Loss on retired asset Net gain (loss) on sale of foreclosed collaterals	2013 $ 446,141 143,146 ( 16,890) ( 7,973) ( 147)	2012 $ 390,914 127,059 256,000 ( 3,475) ( 148)

(35) Net other non-interest income

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	Net change in provisions for foreign exchange price fluctuation Other net income and losses Total	( 4,440) ( 75,504 ) $ 484,333		- 188,267 $ 958,617
(36)	Net change in provisions for insurance liabilities
	Net change in claim reserve Net change in liabilities reserve Net change in insufficient premium reserve Total	2013 $ 2,008 479,871 ( 84,801 ) $ 397,078	2012 ($ 9,458) 746,794 ( 85,166 ) $ 652,170

(37)	Employee benefit expense
	Short-term employee benefit Post-employment benefit Termination benefit Other employee benefit Total	2013 $ 11,726,738 942,563 6,149 194,569 $ 12,870,019	2012 $ 11,555,302 1,217,629 4,243 222,369 $ 12,999,543

(38)	Depreciation and amortization
	Depreciation Amortization Total	2013 $ 715,353 165,358 $ 880,711		2012 $ 706,963 155,674 $ 862,637
(39)	Business and administrative expenses
	Taxes Rental Insurance premium Post and electricity Water, electricity and gas Stationery Maintenance Others Total	2013 $ 1,110,507 1,008,346 612,493 282,730 200,785 126,101 233,134 1,648,668 $ 5,222,764		2012 $ 1,121,191 991,540 587,313 272,483 196,286 129,706 224,031 1,537,654 $ 5,060,204
(40)	Impairment losses of assets
	Hold-to-Maturity financial assets measured at cost Foreclosed collaterals	2013 $ - 3,046 $ 3,046	2012 ($ 11,453) ( 156,275 ) ($ 167,728 )

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(41) Income tax

A. Income tax expense

(A)

. Income tax expense (A)
Current tax Current tax expense Income tax of overseas branches and adjustments for over provisions of prior years’ income tax expense Withholding tax of foreign benefit distribution Total current tax Origination and reversal of temporary differences Income tax expense (B)The tax under other comprehensive income� Changes in fair value of available-for- sale financial assets Actuarial gain of funded obligations	2013 $ 2,162,247 15,634 135 2,178,016 ( 5,836 ) $ 2,172,180	2012 $ 1,489,134 466,183 469 1,955,786 21,990 $ 1,977,776 2012 ($ 22,173) 36,160
	2013 $ 17,511 ( 12,897)


Details of reconciliation between income tax expense and accounting profit
2013 Income tax from pretax income calculated at regulated tax rate 2012 $ 2,322,342 $ 2,331,319 Adjustments of items not recognized under relevant regulations ( 43,557) ( 41,403) Income tax of overseas branches and adjustments for over provisions of prior years’ income tax expense ( 88,352) 199,892 Withholding tax of foreign benefit distribution 135 469 Adjusted effects on income tax exemption and other income tax ( 18,388 ( ) 512,501 Income tax expense ) $ 2,172,180 $ 1,977,776

B. Details of reconciliation between income tax expense and accounting profit

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C. Amounts of deferred tax assets or liabilities as a result of temporary difference, loss carryforward and investment tax credit are as follows:

Deferred tax assets: Temporary differences The excess of allowance for doubtful accounts Impairment loss of foreclosed assets Unappropriated employee benefit liabilities reserve Others Loss carryforwards Subtotal Deferred tax liabilities: Temporary differences Increment tax on land value Unrealized gain of avaviable-for-sale assets Others Subtotal Total		2013 Recognised in Recognised in other comprehensive profit or loss income December 31 $ 10,198 $ - $ 493,152 - - 21,626 ( 21,749) ( 12,318) 777,793 39,023 - 351,377 ( 4,689 ) - 21,749 ( $ 22,783 $ 12,318 ) $ 1,665,697 - - 5,713,259 - ( 17,511) 4,662 16,947 579 45,471 ( 16,947 16,932 ) 5,763,392 $ 5,836 $ 4,614 ($ 4,097,695 )	2013 Recognised in Recognised in other comprehensive profit or loss income December 31 $ 10,198 $ - $ 493,152 - - 21,626 ( 21,749) ( 12,318) 777,793 39,023 - 351,377 ( 4,689 ) - 21,749 ( $ 22,783 $ 12,318 ) $ 1,665,697 - - 5,713,259 - ( 17,511) 4,662 16,947 579 45,471 ( 16,947 16,932 ) 5,763,392 $ 5,836 $ 4,614 ($ 4,097,695 )	2013 Recognised in Recognised in other comprehensive profit or loss income December 31 $ 10,198 $ - $ 493,152 - - 21,626 ( 21,749) ( 12,318) 777,793 39,023 - 351,377 ( 4,689 ) - 21,749 ( $ 22,783 $ 12,318 ) $ 1,665,697 - - 5,713,259 - ( 17,511) 4,662 16,947 579 45,471 ( 16,947 16,932 ) 5,763,392 $ 5,836 $ 4,614 ($ 4,097,695 )
	January 1
	$ 482,954 21,626 811,860 312,354 26,438 $ 1,655,232 5,713,259 22,173 27,945 $ 5,763,377 ($ 4,108,145 )			$ 493,152 21,626 777,793 351,377 21,749 $ 1,665,697 5,713,259 4,662 45,471 5,763,392 $ 4,097,695 )

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Deferred tax assets: Temporary differences The excess of allowance for doubtful accounts Impairment loss of foreclosed assets Unappropriated employee benefit liabilities reserve Others Loss carryforwards Subtotal Deferred tax liabilities: Temporary differences Increment tax on land value Unrealized gain of avaviable-for-sale assets Others Subtotal Total	2012	2012	December 31 $ 482,954 21,626 811,860 312,354 26,438 $ 1,655,232 5,713,259 22,173 27,945 $ 5,763,377 $ 4,108,145 )
	Recognised in January 1 profit or loss $ 465,437 $ 17,517 22,041 ( 415) 742,859 31,940 244,112 68,242 ( 185,126 158,688 ) ( $ 1,659,575 $ 41,404 ) 5,742,502 ( 29,243) - - 17,215 9,829 ( $ 5,759,717 $ 19,414 ) ($ 4,100,142 )($ 21,990 )	Recognised in other comprehensive income $ - - 37,061 - - $ 37,061 - 22,173 901 $ 23,074 $ 13,987 (

D. Expiration dates of unused net operating loss carryfoward and amounts of unrecognised deferred tax assets are as follows �

	December 31, 2013	December 31, 2013
Year incurred 2004 2007 2008 2009 2010 2011 2012 2013 (Note)	Amount filed/ assessed	Unused amount	Usable until year
			2014 2017 2018 2019 2020 2021 2022 2023

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	December 31, 2012	December 31, 2012
Year incurred 2004 2007 2008 2009 2010 2011 2012(Note)	Amount filed/ assessed	Unused amount	Usable until year
			2014 2017 2018 2019 2020 2021 2022

January 1, 2012

				Unrecognised
	Amount filed/			deferred tax
Year incurred		assessed	Unused amount	assets	Usable until year
2003	$	1,060,590	$ 1,060,590	$	2013
				-
2004		4,513	4,513	4,513	2014
2007		122,530	122,530	122,530	2017
2008		629,211	629,211	629,211	2018
2009		258,853	258,853	258,853	2019
2010		167,677	167,677	139,289	2020
2011(Note)		204,350	204,350	204,350	2021

Note: The amount is an estimation on financial statements.

E. The amounts of deductible temporary difference that are not recognised as deferred tax assets are as follows:

Deductible temporary differences	December 31, 2013 $ 3,164	December 31, 2012 $ 12,592	January 1, 2012
			$ 5,731

F. As of December 31, 2013, information on the First Group’s income tax returns assessed by the Tax Authority were as follows �
(A) The Company’s income tax return through 2007 has been assessed by the Tax Authority. With respect to the income tax returns of the Company from 2004 to 2007, the Company disagreed with the assessments related to the interest expense and operating expenses and had filed for administrative litigation. The Company had recognized the income tax expense relating to the increase in income tax payable; the Company plans to file for tax re-examination for the years 2004 to 2007.
(B) FCB's income tax return through 2007 has been assessed by the Tax Authority. FCB disagreed with the assessments related to “interest income increase from bond premium amortization” and had filed for a re-examination for the years 2004 to 2007; the case is in administrative remedy process. FCB plans to file for tax re-examination for the years 2004 to 2007.

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(C) FS’s income tax returns through 2007 have been assessed by the Tax Authority. FS disagrees with the NTA’s assessment on the amount of related income of matured call warrants for 2004, 2005 and 2007 and the excess amount of taxable entertaining expenses and had filed for tax re-examination; the case is in administrative remedy procedure. FS has recognized the adjustment of additional tax.
(D) The Tax Authority has assessed income tax returns of FALI and FCMI through 2011.
(E) The Tax Authority has assessed income tax returns of FSIT, FFAM, FVC, FFMC, and FPCIA through 2007.
(F) Income tax returns of FCBL and FIA through 2010 and 2011 have been respectively assessed and approved by the Tax Authority.
G. The balance of unappropriated earnings were as follows:

As of December 31, 2013, December 31, 2012, and January 1, 2012, the balance of unappropriated earnings are generated on and after January 1, 1998.

H. As of December 31, 2013, December 31, 2012, and January 1, 2012, the balance of the imputation tax credit account were $708,509, $362,100, and $422,434, respectively. The creditable tax rate was 7.24% for 2012 and is estimated to be 3.64% for 2013.

(42) Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares in issue during the period.

Gain and loss attributable to the common stock of the First Group (in thousand dollars) Outstanding weighted average common stock (in thousand of shares) Earnings per share (in dollars)	2013 2012 $ 10,888,641 $ 10,226,400 8,653,509 8,653,509 1.26 1.18	2013 2012 $ 10,888,641 $ 10,226,400 8,653,509 8,653,509 1.26 1.18
Note: Effects on earnings transferred to capital increase in 2012 has been retrospectively adjusted.
Also, basic earnings per share and diluted earnings per share for the years ended December
31, 2013 and 2012, are the same.

Non-cash transactions

Investing activities with partial cash payments
Property received in exchange for land and cash Property transferred Land cost of transfer Gain on exchange of properties Cash paid	2013 $ - - - $ -	2012 ($ 370,422) 11,849 317,385 ($ 41,188 )

Note: Effects on earnings transferred to capital increase in 2012 has been retrospectively adjusted. Also, basic earnings per share and diluted earnings per share for the years ended December 31, 2013 and 2012, are the same.

(43) Non-cash transactions

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7. Fair value and hierarchy information on financial instruments

(1) Scope

Financial risk management objectives of the Company and subsidiaries are to consider the risk tolerance, laws and regulations, and external factors according to the overall operating strategies and financial objectives and to take proper coping strategy and control various business risks and potential financial losses within bearable level through effective risk management mechanism including identification, measurement, monitoring, and reporting for risk for the purpose of ensuring sound business development and achieving reasonable objectives of risks and rewards and thereby enhancing shareholder value.

Major risks faced by the Company and subsidiaries while operating business include various credit risk, market risk, operational risk, and liquidity risk from businesses in and off the balance sheet. To practice risk management culture and strategy, the Company has already proposed policies, system, procedures, and methods for risk management and followed relevant laws and regulations with timely evaluation and correction. Through establishment and management of various risk limits, regular monitoring and reporting, internal control and internal audit system and supervision of high-level committee organization, the Company can effectively identify, measure, supervise and control various key risks to facilitate legal compliance and achievement of strategic objectives and provide reliable financial reporting information.

(2) Fair value information of financial instruments

Except for those listed in the table below, the carrying amount of some of the Company’s financial instruments (e.g. cash and cash equivalents, due from Central Bank and call loans to other banks, receivables, loans discounted, refundable deposits, deposits from the Central Bank and banks, due to Central Bank and other banks, bills and bonds under repurchase agreements, payables, deposits and remittances, bonds payable, other financial liabilities and guarantee deposits) is approximate to their fair value. (Please refer to Note 7 (3)). The fair value information of financial instruments measured at fair value is provided in Note 7(4).

measured at fair value is provided in Note 7(4).
	December 31,2013
Financial assets	Book value	Fair value
Held-to-maturity financial assets Other financial assets- bond instruments without active market	$ 304,110,961 25,281,782	$304,298,661 25,332,847

	December 31,2012
Financial assets	Book value	Fair value
Held-to-maturity financial assets Other financial assets- bond instruments without active market	$ 278,537,163 2,169,378	$278,747,075 2,174,604

	January	1,2012
Financial assets	Book value	Fair value
Held-to-maturity financial assets Other financial assets- bond instruments without active market	$ 320,672,462 2,601,645	$320,710,310 2,599,877

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(3) Financial instruments measured at fair value

A. Determination of the fair value

Fair value is the amount for which an asset could be exchanged or liability could be settled between knowledgeable, willing parties in an arm’s length transaction.

The quoted market price is used as the fair value when the financial instruments have an active market, such as market prices provided by the Stock Exchange Corporation, Bloomberg and Reuters are all foundation of fair value for listed equity securities and debt instruments with a quoted market price in an active market.

If the market quotation from Stock Exchange Corporation, commission merchants, underwriters or pricing service institutions can be frequently obtained on time, and the price represents the actual and frequent transactions at arm’s length, then a financial instrument is deemed to have an active market. If the above condition is not met, the market is deemed inactive. In general, significant price variance between the purchase price and selling price or significantly increasing price variance are both indicators of an inactive market.

In addition to above financial instrument with an active market, other financial instruments at fair value are assessed by evaluation technique with reference to other financial instruments at fair value with similar conditions and characteristics in actual practice, cash flow discounting method and other evaluation technique, including market information obtained by exercising the model at balance sheet date (such as yield curve used in OTC and average interest rate of commercial bill from Reuters).

When a financial instrument has no standardized evaluation and with less complexity involved, such as interest rate swap, currency swap and options. The First Group usually adopts the valuation generally accepted by market users. The inputs used in these financial instruments valuation usually are observable information in the market.

For financial instruments with higher complexity, the fair value is assessed through the valuation model developed by general valuation methods and techniques generally accepted by competitors. These kinds of valuation models are usually applicable for derivative instruments, debt instruments with no quoted market price (including debt instrument of embedded derivatives) or other debt instruments with low market liquidity. Certain inputs used in these valuation models are not observable in the market, and the First Group needs to make appropriate estimates based on the assumptions.

The output of the evaluation model is always an estimate, and the valuation technique may not reflect all the relevant factors of the financial instruments held by the First Group. As a result, the estimate generated by valuation model will be slightly adjusted based on additional inputs, such as model risk, liquidity risk or credit risk of counterparties. According to the First Group’s valuation model management and other related controlling procedures, the adjustment made is adequate and necessary and the balance sheet is believed to present fairly, in all material aspects, the fair value of financial instruments. The pricing information and input are prudently evaluated in the valuation process, and shall be timely adjusted by market condition.

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Valuation on derivative instrument is based on the valuation model generally accepted by market users, such as discounting method and option pricing model. FX contract usually is valuated based on current FX rate. Structured-interest derivative contract is valuated based on option pricing model.

B. Valuation methods by financial instruments of the First Group are shown by types and nature as follows:
A. NTD Central Government Bond: the latest transaction price announced by Electronic Bond Trading System of GTSM or SEC or the yield rates across different contract lengths bulletined by OTC are used.
B. NTD corporate bonds & financial bonds: fair value of different maturities announced by GTSM is adopted. If the fair value is not available, yield rate curve of the corresponding credit rating provided by GTSM is used to compute the theory price. Securitization instruments: future cash flows discounted by market interest rate or the quotations provided by the counterparties are adopted for valuation.
C. Securitization instruments: future cash flows discounted by market interest rate or the quotations provided by the counterparties are adopted for valuation.
D. Convertible corporate bond: closing prices bulletined by the GTSM or the latest closing prices is adopted as valuation standard.
E. NTD short-term bills: future cash flows discounted by the mid price of TWD-T6165 provided by Reuters is used to estimate present valuation.
F. Foreign securities: prices quoted from Bloomberg or counterparties are adopted.
G. Listed stocks: the closing price listed in TSE or OTC is adopted.
H. Beneficiary certificate: closed-end funds use the closing price in an active market as the fair value and open-ended funds use the net asset value of the a fund as the fair value.
I. Financial bonds designated at fair value issued by the First Group: future cash flow discounted by the mid price of TWD-T6165 provided by Reuters is used to estimate present valuation.
J. Derivatives:
- a. Call (put) warrant, stock index futures, and stock index futures options: prices quoted from an active market are deemed the fair value.
- b. Forward FX, currency swap, interest swap and cross currency swap: discounted future cash flows is adopted.
- c. Options: Black-Scholes model is mainly adopted for valuation.
- d. Certain derivatives use the quoted price from counterparties.

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(4) Fair value of financial instruments not measured at fair value through income statement

The methods and assumption used by financial instruments not measured at fair value through income statement of the First Group are as follows:

A.The book value of cash and cash equivalents, due from Central Bank and call loans to banks, securities purchased under resell agreements, receivables, refundable deposits, due to Central Bank and banks, fund borrowed from Central Bank and banks, securities sold under repurchase agreements, commercial papers issued, payables, other borrowings, deposits, and other financial liabilities which have a short maturity period will be considered as their fair value.
B.Loans discounted (including overdue receivables and assumed receivables from leasing subsidiary): Considering the nature of the financial industry, the fair value is determined by the market rate (market price). The effective interest rates of loans are generally based on the benchmark interest rate plus or minus certain adjustment (equivalent to floating rate) to reflect the market interest rate. As a result, it is reasonable to assume that the carrying amount, after adjustments of estimated recoverability, approximates the fair value. Fair values for medium-term or long-term loans with fixed interest rates shall be estimated using their discounted values of expected future cash flows. However, as such loans account for only a small portion of all loans, book value was used to estimate the fair value.
C.Held-to-maturity financial assets: When there is a quoted market price available in an active market, the fair value is determined using the market price. If there is no quoted market price for reference, a valuation technique or quoted price offered by the counterparties will be adopted to measure the fair value.
(A) NTD Central Government Bond: fair value of bonds of different maturities bulletined by Over-The-Counter (hereinafter OTC).
(B) NTD corporate bonds, financial bonds, government bonds and beneficiary bond certificates: future cash flow discounted by the yield curve of OTC is used to measure present valuation.
(C) NTD and US short-term bills and NTD beneficiary securities: the average NTD and US commercial paper’s interest rate of Reuters (Fixing Rate) and mid-price of TWD-T6165 are used to discount the future cash flow for the present valuation.
D.Deposits: Considering the nature of the financial industry, the fair value is determined by the market rate (market price) while the deposit transactions usually mature within one year. As a result, the carrying amount is a reasonable basis to estimate the fair value. Fair values of the long-term fixed rate deposits shall be estimated using discounted expected future cash flows. Additionally, as the maturities are less than three years, it is reasonable to use the carrying amount to estimate the fair value.
E. Bonds payable: Since the coupon rates of the financial bonds issued by the Company approximate the market rates, the fair value based on the discounted value of expected future cash flow approximates the book value.

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F. Other financial assets- financial assets carried at cost: If a quoted price is available from a transaction or a market maker, the latest transaction price and quoted price is used as foundation for fair value measurement. If no quoted market price is available for reference, the valuation method is adopted. The estimate and assumption adopted are the discounted value of expected future cash flow used to estimate the fair value.

(5) Hierarchy of fair value estimation of financial instruments

A. Definition for the hierarchy classification of financial instruments measured at fair value

(A) Level 1

This refers to the quoted prices in active markets for any identical instruments. An active market by definition has to satisfy all the following conditions: 1) the products traded in the market share a common nature; and 2) the willing buying and selling parties can be readily found in the market and the prices are observable for the public. The fair value of the investments of the Company, such as listed stocks investment, beneficiary certificates, popular Taiwan Government Bonds and the derivatives with a quoted price in an active market, are deemed as Level 1.

(B) Level 2

Observable prices other than the quoted prices in an active market comprise direct (e.g. prices) or indirect (e.g. derived by prices) observable inputs obtained from an active market. For instance, investments of the First Group in non-popular corporate bonds, financial bonds, convertible bonds and most derivatives and financial bonds issued by the First Group.

(C) Level 3

The inputs adopted for measuring fair value at this level are not based on available data from the markets. For instance, the derivatives and certain overseas securities invested by the First Group.

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B. Hierarchy of fair value estimation of financial instrument

Financial instruments measured at fair value	December 31,2013	December 31,2013	December 31,2013	December 31,2013
	Total	Level 1	Level 2	Level 3
Non-derivative financial instruments Assets Financial assets at fair value through profit or loss Financial assets held for trading Stock investments Bond investments Others Financial assets designated as at fair value through profit or loss on initial recognition Available-for-sale financial assets Stock investments Bond investments Others Liabilities Financial liabilities at fair value through profit or loss Financial liabilities held for trading Financial liabilities designated as at fair value through profit or loss on initial recognition Derivative financial instruments Assets Financial assets at fair value through profit or loss Liabilities Financial liabilities at fair value through profit or loss Derivative liabilities of hedging Total	$ 910,748 16,184,924 17,292,234 7,384,154 4,460,289 80,309,603 2,627,395 448,805 10,763,435 4,656,336 3,800,839 7,973	$ 643,223 926,096 1,523,485 - 12,960,574 5,976,950 533,216 - - 200,932 15,284 -	$ - 15,258,828 15,768,749 7,384,154 459,411 74,332,653 2,094,179 448,805 10,763,435 3,799,758 3,129,909 7,973	$ 267,525 - - - 1,040,304 - - - - 655,646 655,646 -
	$158,846,735	$ 22,779,760	$133,447,854	$ 2,619,121

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Financial instruments measured at fair value	December 31,2012	December 31,2012	December 31,2012	December 31,2012
	Total	Level 1	Level 2	Level 3
Non-derivative financial instruments Assets Financial assets at fair value through profit or loss Financial assets held for trading Stock investments Bond investments Others Financial assets designated as at fair value through profit or loss on initial recognition Available-for-sale financial assets Stock investments Bond investments Others Liabilities Financial liabilities at fair value through profit or loss Financial liabilities held for trading Financial liabilities designated as at fair value through profit or loss on initial recognition Derivative financial instruments Assets Financial assets at fair value through profit or loss Liabilities Financial liabilities at fair value through profit or loss Derivative liabilities of hedging Total	$ 1,041,051 10,513,912 1,629,991 964,073 13,394,308 67,896,224 2,900,901 - 16,876,836 4,942,276 4,988,129 44,584	$ 629,561 863,507 534,072 - 12,143,744 3,873,226 619,526 - 20,501 239,780 10,229 -	$ - 9,650,405 1,095,919 964,073 385,516 64,022,998 2,281,375 - 16,856,335 3,663,973 4,221,889 44,584	$ 411,490 - - - 865,048 - - - - 1,038,523 756,011 -
	$125,192,285	$ 18,934,146	$103,187,067	$ 3,071,072

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Financial instruments measured at fair value	January1,2012	January1,2012	January1,2012	January1,2012
	Total	Level 1	Level 2	Level 3
Non-derivative financial instruments Assets Financial assets at fair value through profit or loss Financial assets held for trading Stock investments Bond investments Others Financial assets designated as at fair value through profit or loss on initial recognition Available-for-sale financial assets Stock investments Bond investments Others Liabilities Financial liabilities at fair value through profit or loss Financial liabilities held for trading Financial liabilities designated as at fair value through profit or loss on initial recognition Derivative financial instruments Assets Financial assets at fair value through profit or loss Liabilities Financial liabilities at fair value through profit or loss Derivative liabilities of hedging Total	$ 1,317,366 3,421,887 1,898,151 3,051,762 12,681,150 69,050,644 1,404,066 11,743 18,299,067 11,136,970 7,694,582 110,978	$ 553,296 638,829 1,249,027 - 11,661,935 1,379,429 495,728 - - 446,332 14,040 -	$ - 2,783,058 649,124 3,051,762 274,347 67,671,215 908,338 - 18,299,067 7,569,074 4,920,076 110,978	$ 764,070 - - - 744,868 - - 11,743 - 3,121,564 2,760,466 -
	$130,078,366	$ 16,438,616	$106,237,039	$ 7,402,711

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	Ending balance	$ 267,525 1,040,304 655,646	$ 1,963,475			Ending balance	$ 411,490 865,048 1,038,523	$ 2,315,061
									In relation to the above amounts recognized in gain and loss in the period, as of December 31, 2013 and 2012, the carrying amounts of gains (losses) on assets were $7,739 and $(2,326,877), respectively. In relation to the above amounts recognized in other comprehensive income and loss in the period, as of December 31, 2013 and 2012, the carrying amounts of gains on assets were $174,915 and $51,772, respectively. Note: Financial assets above were transferred from Level 3 as their quoted market prices are available and used as basis for fair value measurement.
ction	Transferred from Level 3 (Note)	($ 33,009) ( 177,907) ( 27,794)	($ 238,710)		Reduction	Transferred from Level 3 (Note)	($ 299,982) ( 110,165) -	($ 410,147)
Redu	Sold, disposed or settled	($ 3,556,726) ( 11,998) ( 857,000)	($ 4,425,724)			Sold, disposed or settled	($ 2,173,822) - ( 393,503)	($ 2,567,325)
ition	Transferred to Level 3	$ - 46,962 -	$ 46,962		Addition	Transferred to Level 3	$ - - -	$ -
Add	Purchased or issued	$ 3,445,770 143,284 494,178	$ 4,083,232			Purchased or issued	$ 2,116,120 245,100 575,916	$ 2,937,136
loss on valuation	Amount recognized in other comprehensive income	$ - 174,915 -	$ 174,915		Gain and loss on valuation	Amount recognized in other comprehensive income	$ - 51,772 -	$ 51,772
Gain and	Amount recognized in gain and loss	$ - - 7,739	$ 7,739			Amount recognized in gain and loss	$ 5,104 ( 66,527) ( 2,265,454)	($ 2,326,877)
	Beginning balance	$ 411,490 865,048 1,038,523	$ 2,315,061			Beginning balance	$ 764,070 744,868 3,121,564	$ 4,630,502
	Items	Non-derivative financial instruments Financial assets at fair value through profit or loss Available-for-sale financial assets Derivative financial instruments Financial assets at fair value through profit or loss	Total	2012		Items	Non-derivative financial instruments Financial assets at fair value through profit or loss Available-for-sale financial assets Derivative financial instruments Financial assets at fair value through profit or loss	Total

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	Ending balance	$ 655,646			Ending balance	$ - 756,011	$ 756,011
								In relation to the above amounts recognized in gain and loss in the period, as of December 31, 2013 and 2012, the carrying amounts of gains (losses) on liabilities were ($32,261) and $2,254,024, respectively.
ction	Transferred from Level 3	($ 27,910)		Reduction	Transferred from Level 3	$ - -	$ -
Redu	Sold, disposed or settled	($ 617,368)			Sold, disposed or settled	($ 11,743) ( 545,647)	($ 557,390)
ition	Transferred to Level 3	$ -		Addition	Transferred to Level 3	$ - -	$ -
Add	Purchased or issued	$ 512,652			Purchased or issued	$ - 795,216	$ 795,216
ss on valuation	Amount recognized in other comprehensive income	$ -		Gain and loss on valuation	Amount recognized in other comprehensive income	$ - -	$ -
Gain and lo	Amount recognized in gain and loss	$ 32,261			Amount recognized in gain and loss	$ - ( 2,,254,024)	($ 2,,254,024)
	Beginning balance	$ 756,011			Beginning balance	$ 11,743 2,760,466	$ 2,772,209
	Items	Derivative financial instruments Financial liabilities at fair value through profit or loss	2012		Items	Non-derivative financial instruments Financial liabilities at fair value through profit or loss Derivative financial instruments Financial liabilities at fair value through profit or loss	Total

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D. Transfers between Level 1 and Level 2

With regard to the financial instruments held by the First Group, no transfers between Level 1 and Level 2 occurred during this year.

E. Fair value measurement to Level 3, and the sensitivity analysis of the substitutable appropriate assumption made on fair value

The fair value measurement that the First Group made for the financial instruments is deemed reasonable; however, different valuation models or inputs could result in different valuation results. Specifically, if the valuation input of financial instruments classified in Level 3 moves 0.2% (for example, the interest rate, etc.) and the valuation moves to 10%, the effects on gain and loss in the period or the effects on other comprehensive income are as follows �

December 31, 2013	Change in fair value recognized in profit and loss in theperiod	Change in fair value recognized in profit and loss in theperiod	Change in fair value recognized in other comprehensive income	Change in fair value recognized in other comprehensive income
	favorable	unfavorable	favorable	unfavorable
Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Liabilities Derivative financial liabilities	$ 34,692 - 7,940	($ 34,692) - ( 7,940)	$ - 104,030 -	$ - ( 104,030) -

December 31, 2012	Change in fair value recognized in profit and loss in theperiod		Change in fair value recognized in other comprehensive income
	favorable	unfavorable	favorable	unfavorable
Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Liabilities Derivative financial liabilities	$ 49,187 - 7,475	($ 49,187) - ( 7,475)	$ - 86,504 -	$ - ( 86,504) -

January 1, 2012	Change in fair value recognized in profit and loss in theperiod		Change in fair value recognized in other comprehensive income
	favorable	unfavorable	favorable	unfavorable
Assets Financial assets at fair value through profit or loss Available-for-sale financial assets Liabilities Derivative financial liabilities	$ 87,619 - 11,667	($ 87,619) - ( 11,667)	$ - 37,243 -	$ - ( 37,243) -

Favorable and unfavorable movements of the First Group refer to the fluctuation of fair value, and the fair value is calculated through the valuation technique according to the non-observable inputs to different extent.

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If the fair value of a financial instrument is affected by more than one input, the above table only illustrates the effect as a result of one single input, and the correlation and variance among multiple inputs are not listed here.

8. Management objective and policy for financial risk

(1) Scope

The First Group engages in risk management under the principles of not only serving customers but also conforming to the First Group operational goal, overall risk tolerance limits, and legal compliance to achieve risk diversification, risk transfer, and risk avoidance, and to create a trilateral win for all customers, shareholders, and employees. The First Group is mainly exposed to credit risk, market risk (including the interest rate, foreign exchange rate, equity securities, and instrument risks), operation risk, and liquidity risk in or off balance sheets.

The First Group established written risk management policies and guidelines which have been approved by the Board of Directors in order to identify, measure, monitor and control credit risk, market risk, liquidity risk and operational risk.

(2) Organization structure for risk management

The Board of Directors is the ultimate responsible unit for the Group’s overall risk management.

Under the command of the Board of Directors, there is a Risk Management Committee, headed by the Chairman as the chief commissioner. Additionally, the CEO (President), EVP, Head of audit department and the Chairman and Presidents of subsidiaries are assigned as the committee members. In line with the risk management policies and guiding principles as approved by the Board of Directors, the Risk Management Committee establishes risk managing system to coordinate and supervise risk relating matters. The main risk assumption limits and monitoring indicators must be approved by the Company’s Risk Management Committee.

In order to practice risk management, the Company and each and every significant subsidiary (FCB, FS, FSIT and FALI) set up “Risk Management Committee” to schedule risk management policies and risk management programs (including limit authorization, risk assumption limit, and risk controlling procedures such as various monitoring indicators and limit exceeding warnings). The Board of Directors and senior management of each subsidiary regularly monitors various risk exposure extent and reports the implementation of risk management policies to the Company.

The Company regularly evaluates and reviews the execution of risk management of each subsidiary and reports to the Board of Directors of the Company accordingly, including risk management program and risk controlling procedures, evaluation on the assumption and trend of major risk, and monitoring and management of capital adequacy ratio.

The auditing department and Board of Directors of the Company and every significant subsidiary within the First Group will regularly check on the risk management procedures and internal control to ensure that the risk management mechanism and the controlling procedures are operating effectively.

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The Subsidiary, FCB

The Bank’s Board of Directors has the ultimate approval right in risk management. Major management risk items include overall risk management policy, risk tolerance limit, and authority witch must be approved by the Board of Directors.

Under the Board of Directors, there is a Risk Management Committee, headed by the Bank’s President. Also, the Executive Vice President and director of the compliance department take up the post of members. Risk Management Committee is responsible for incorporating units such as Risk Management Division, Credit Approval Division, Credit Analysis Division and Investigation Division to review, supervise, report, and coordinate company-wide risk management. In addition to that, RMC needs to resolve risk management policy and guidelines, risk authorized limits, risk tolerance limits, monitoring indicators, risk assessment procedure, risk monitor program, risk management execution report and other matters, and regularly report to the Board of Directors and supervisors regarding to the risk evaluation of the Bank. Besides, Risk Management Center, which is independent from business units, is comprised of Regional Center, Risk Management Division, Credit Approval Division, Credit Analysis Division and Investigation Division, and is responsible for implementing the risk management strategy resolved by risk management committee. Among other things, Risk Management Division is a business line under Risk Management Committee to execute and coordinate implementation.

The Auditing department regularly reviews the execution of risk management based on relevant internal control system to ensure the effective operation for risk management and assessment control, which should be reported to the Board of Directors regularly.

The subsidiary, FS

The Board of Directors of FS is responsible for the various risk management of various operations. In order to strengthen monitoring on various risks and effectively respond to the movement in financial market, FS has set up “Risk Management Committee” under the Board of Directors to assist and enhance the supervisory, prevention and control over the risk management. In addition, for risks that cannot be quantified, the Executive Secretary of Risk Management Committee shall assist the Board to assign risks to appropriate responsive segments and co-manage accordingly, inclusive of the establishment of emergency action, etc.

In addition to the Risk Management Committee, FS also establishes risk management system consisting of Risk Management Office, Audit Office, Compliance department, Finance department, Exception Position Valuation Team and RM Persons from various lines of businesses to ensure the effectiveness of risk management.

The subsidiary, FSIT

In order to effectively identify, evaluate, monitor and control various risks, as well as control risks incurred with the engagement of various business within durable extent and achieve reasonable goal of return and risk, the subsidiary, FIST sets up Risk Management Committee, which is in compliance with the risk managing policies and guiding principles as assessed by the Board of Directors of FSIT, to establish and supervise risk managing procedures, evaluate method and management indicators, coordinate risk-relating matters and hold regular meetings, review the implementation and exposure, and report it to the Board of FSIT.

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Audit team of the subsidiary, FSIT regularly reviews and checks the execution of risk management according to the related internal control to ensure the effective operation of evaluations and controlling procedures of risk management and to report to the Board of FSIT on a regular basis.

The subsidiary, FALI

The Board of Directors of the subsidiary, FALI is the final approving authority for risk management. The Board assesses the risk managing policies to ensure that the risks incurred from various businesses are within durable capacity and the reasonable goal of risk and return can be achieved given that the capital is exercised in an efficient manner, and takes the ultimate responsibility for the overall risk management. FALI sets up Risk Management Committee under the Board to supervise, report and coordinate risk management execution, to practice the promotion of risk managing policies and to assist with finance, insurance, operation and monitoring of strategic risks of each business unit to ensure that various risks are controlled within its capacity, the actual execution of which is regularly reported the Board of Directors.

FALI, on the other hand, sets up audit unit to investigate the soundness of risk managing structure and effectiveness of internal control in an independent and natural ground, and to review risk management of other segments.

(3) Risk controlling procedures that the Company implemented for various risks of subsidiaries within the First Group

In order to effectively evaluate the risks involved in various business of the subsidiaries within the First Group, (including credit risk, market risk, liquidity risk, interest risk, insurance risk and operating risk, etc.) the Company has set up “Risk Managing Rules of First Financial Holdings Company and its subsidiaries” as the principle of risk managing policies and controlling procedures of every subsidiary.

The fundamental managing principle of the Company lies in the goal that various risks incurred due to the assets or liabilities held for a purpose of profit and business demand can be effectively controlled in consistency of relevant regulations of every competent authority.

Risk controlling procedures that the Company implemented for various risks of subsidiaries within the First Group are as follows:

A. Authorization standards, monitoring indicators and methods of each subsidiary should be specifically defined and risk exposure is regularly escalated to the Board of Directors.
B. When the monitoring indicator is breached, the risk management unit should assemble related business units, take necessary action and escalate the situation to the Company.
C. Each subsidiary regularly submits the meeting minutes of the Committee with the risk monitored results to the Company.
D. The Company retains the right to assign members to Risk Management Committee of each subsidiary.

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(4) Credit risk
A. Source and definition of credit risk

Financial instruments held by the First Group may incur losses if counterparties are not able to fulfill their obligations at the maturity date. Credit risk may happen due to items in or off the balance sheet. For items in the balance sheet, credit risk exposure of the First Group mainly comprises of bill discounted and loans and credit card business, securities financing, leases, deposits and call loans from banks, debt instrument and derivatives, etc. Off balance sheet items include finance guarantee, bank acceptance, letter of credit, and loan commitment.

B. Policy for credit risk management

Please refer to Note 8(3) for risk management regulations and procedures of the subsidiaries within the First Group. In addition, each significant subsidiary of the First Group establishes credit risk controlling procedures and authorization standards, evaluation methods, controlling measures, and credit management in accordance with relevant regulations to control the credit risk in and off the balance sheet within the First Group.

Risk management program and procedures are as follows:

(A) Establishing the qualification condition and credit limit of the counterparty and granting different credit limits by referring to information from domestic and foreign credit rating institutions or by establishing its own rating system before each transaction;
(B) Avoiding the concentration risk, that is, through limiting the amount of financing to or investing in a single customer, single industry, single conglomerate, single stock, or related parties;
(C) Monitoring credit risk by industry, counterparty (individual and group) and country through the limits;
(D) Setting up loan approval and review procedure for credit extension business as well as specific review policy for complicated credit extension cases;
(E) Establishing policy of loan percentage on collateral, collateral appraisal, management and disposal in relation to credit extension;
(F) Reporting to the senior management with regard to the summary of credit risk information.

In addition, each foreign operating entity of the First Group sets aside the loss reserve and appraises the assets quality, unless otherwise indicated by competent authorities of the domestic countries in which the subsidiaries reside, in conformity with risk management policy of each operating entity.

The significant subsidiaries of the First Group classify debt instruments and credit assets into 5 categories by referring to internal ratings and external rating institutions. Comparisons between the internal rating and external long-term rating scales are as follows:

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No direct correlation between the internal rating of credit assets and external rating of debt investments has been shown in the following table, but merely shows two different rating scales of the same category.

Credit quality category	Internal rating of credit assets	The Debt investments
		External rating (Note)	Taiwan rating
Low risk	Level 1 to level 7	Above level BBB-	Above level twA
Medium risk	Level 8 to level 9	Level BB- to level BB+ (including the debt investments of non rating)	twBBB- �twA-
Medium-high risk	Level 10	Level B- to level B+	twB- �twBB+
High risk	Level 11 tolevel 12	LevelCCC/C	twCCC
Default	Level 13	Level D
(Note) These are ratings of Moody’s, Fitch and S&P.

Procedures and methods used in credit risk management for the core businesses of the First Group are as follows:

(A) Credit business (including accounts receivable of lease business, loan commitments and guarantees of the lease subsidiaries):

Classification for credit assets and internal risk ratings are as follows:

a. Credit asset classification

Credit assets are classified into five types. Other than normal credit assets shall be classified as Category One, the remaining unsound assets are assessed based on the collateral provided and the time period of overdue payment as follows: Category Two for assets requiring special mention. Category three for assets deemed recoverable. Category Four for assets that are doubtful. Category Five for assets that are not recoverable. In order to manage credit extension, the Bank and its subsidiaries established Operation Guidelines for Credit Extension Assets Risks, Regulations Governing the Setting Aside of Asset Losses Valuation and Non-Performing Loans, Guidelines for Claims Receivables, Standard Procedures for Collection of Overdue receivables as the principles for managing non-performing and overdue payments.

b. Internal risk rating

In response to the characteristics and scale of business, the Bank and its subsidiaries implement a credit risk internal evaluation module or set up a credit rating table in order to management risk.

The Bank and its subsidiaries, mainly by the statistic and professional judgement of expertise and consideration of client information, developed an objective indicator for evaluating client’s credit risk. That is the “Borrower’s risk rating” of the Bank and its subsidiaries, among which 13 thresholds are set up based on the default possibility, and then divided into 5 sub-categories as follows:

(a)Low risk: Level 1 to level 7 have a default rate lower than 2%. Clients in this threshold usually have ability to sustain the payment of interest and principal even under the adverse impact of economic environment, and the default rate is low.

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(b)Medium risk: Level 8 to level 9 have a default rate ranging around 2-5%. Clients in this threshold usually have potential issues and adverse economic environment that could damage the borrower’s willingness and capacity to make the payment of interest and principal.
(c)Medium-high risk: Level 10 has a default rate ranging around 5-10 � . Clients’ ability to make the payment of interest and principal are relatively lower and easily affected by the economic fluctuation.
(d)High risk: Level 11 to level 12 have a default rate ranging from 10% and above to less than 100%. Clients’ ability the make the payment of interest and principal are extremely weak with a high possibility of default.
(e)Default: Level 13 has a default rate of 100%. Definition of default includes interest or principal payments that have been overdue for more than 60 days, overdue or non-performing loans transferred, suspended interest, C Chart, debt negotiation records and others.

The Bank should perform credit rating to the corporations at least once a year and to those who sign a mid-long-term credit contract at least once a year during the contract term. Same applies to the collective credit extension. Credit rating mainly processed by investigation division and regional center that are independent from operating units and only cases with certain amount and below may be processed by operating units.

Petty loans and mortgage loans are assessed through internal credit rating module, and the rest of retail banking are assessed by experts. Methods used in rating credit for petty loans and mortgage loans are as follows:

(a)Credit rating for petty loans:

The credit rating results, Possibility of Default (PD), Loss Given Default (LGD) and Expected Loss (EL) are assessed by credit evaluation module of the borrowers, from which 3 categories were divided as follows: “Passed the credit standard”, “Highly risky” and “Failed the credit rating standard”

(b)Credit rating for mortgage loans:

Possibility of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD) assessed by credit evaluation module of the borrowers are used in calculating the Expected Loss (EL), and to organize more sound cost information supported with cost of fund, operating cost and service fee. In addition, interest income, service income based on the credit line and interest rate upon loan application, through which Expected profit (revenue minus cost) and Expected Loss can be retrieved.

(B) Deposits and call loans

The Bank regularly reviews the limit (including limit of call loan) set up for every counterparty in the financial industry. The credit approval unit, with reference to credit risk limit granted based on long-term credit rating of external rating institutions, is responsible for individual assessment and implementation.

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(C) Debt investment and derivatives

The risk management of the Company’s and its subsidiaries’ debt instruments is based on credit rating of external institutions, credit quality of bonds, condition by geographical location and counterparty risk to identify the credit risk.

The counterparties of the derivative instruments are mostly financial institutions being rated at BB or above, and the credit extension (including the extension of call loan) granted to each financial institution counterparty is regularly reviewed and controlled by the credit granting segment. Those counterparties without credit rating or being rated below BB should apply risk limit to the credit granting segment by case which is then managed and controlled individually. If the counterparties are general clients, controlling is implemented through risk limits and conditions of derivatives as approved by general credit extension procedures to manage credit exposure of counterparties.

(D) Margin trading and short selling

Credit risks of the subsidiary, FS are on margin trading and short selling, which are divided into clients’ credit extension and credit trade on highly risky securities. The credit facility on every client is assessed based on “Guidelines for Accounts Opening for Credit Trading and Investigation on Credit Management”. In addition, the corresponding facility in accordance with the client’s asset proof is granted through segregation, the trading limit on single client and single security are stringently defined.

The controlling mechanism in relation to the credit trading on high risk securities is processed in accordance with “Controlling Practice for Credit Trading Risks”, in which the definition of high risk securities as well as the controlling and authorization are detailed.

(E) Repo trade

The credit risk involved in repo trade is controlled in accordance with “Regulations Governing the Authorization of Debt Instruments Business”. In addition to the transactions processed through Electronic Bond Trading System of GTSM, the Group sets up limits on repo trade to one single client. Bonds sold under a resale agreement are only limited to government bonds as the underlying investment on a condition that the client must be professional institutions with credit rated above certain level. If any quota exceeds the limit set up for a client, the exceeding amount should be reported to the Risk Management Office or to the General Manager.

According to FFHC Group’s policy, the impairment losses’ objective evidence as follows:

a. There is no principal or interest payment after the lapse of 3 full months, or with regard to which the Credit Cooperative has sought payment from primary/subordinate debtors or has disposed of collateral �
b. If a restructured loan meets payment terms agreement (the loan may be exempted from reporting as a non-performing loan) �
c. If a loan’s negotiated terms meet regulations by the BAROC (the loan may be exempted from reporting as a non-performing loan) �

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d. Cases approved and signed in the negotiations in accordance with the Statute for Consumer Debt Clearance �
e. Cases that are in clearance or settlement proceedings by the court’s ruling �
f. Cases that have begun being reorganized by the court’s ruling �
g. Cases that have been declared for bankruptcy by the court �
h. Cases that meet the self-made evaluation items of FCB.
C. Credit risk hedging and mitigation policy

(A) Collateral

The banking subsidiary adopts a series of policies and measures to mitigate credit risks in relation to credit business, and one of the most common methods is requesting the borrower for the collateral. The Company sets up the scope of collateral that can be recovered and the appraisal, as well as the management and disposing procedures to ensure the credit right. On the other hand, the loan security, terms of collateral, conditions to writing-off are addressed in the credit extending contract. The reduced facility, shortened repayment period or whether or not a loan is deemed matured, writing-off the deposits of the borrower for his/her liabilities are all well defined to mitigate credit risk in case that the credit event does incur.

(B) Credit risk limit and risk concentration control

The Bank complies with the Banking Act in relation to the provision of business credit to the same individual, the same related parties, or the same affiliated companies as well as residential architecture, corporate architecture. In order to effectively control credit risk concentration, the Bank sets up risk assumption limit by rating, industry types, groups, countries and listed securities based on risk management strategy, change in market environment, business complexity, and report to senior management regularly. Assessment and modification shall be performed to various credit risk assumption limit based on overall economic cycle, finance environment and business development strategy regularly (at least once a year) or irregularly.

The transactions of the Bank and its subsidiaries are usually carried out by gross settlement. Despite that, net settlement is signed in a form of agreement with some trading counterparties, and is executed when a default occurs and all transactions were to terminate in order to further mitigate credit risk.

D. Maximum credit risk exposure and concentration of the First Group

Maximum credit risk exposure

The maximum risk exposure of assets in the consolidated balance sheet, without consideration of the collateral or other credit strengthening instruments, is equivalent to the carrying amount.

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The maximum credit risk exposure relating to accounts off the balance sheet (without consideration of collaterals or the maximum exposure of other credit enhancements) are the unused loan commitments, unused credit commitments for credit cards, unused letters of credit and other guaranteed commitments. As of December 31, 2013, December 31, 2012, and January 1, 2012, please see Note 14 for details.

The management of the First Group believes that through a series of stringent evaluation procedures and follow-up reviews afterwards, credit risk exposure off the balance sheet of the First Group can be minimized and continuously controlled.

Credit risk concentration of the credit assets in the balance sheet

The credit risks are deemed significantly concentrated when the financial instrument transactions significantly concentrate on a single person, or when there are multiple trading counterparties engaging in similar business activities with similar economic characteristics making the effects on their abilities of fulfilling the contractual obligation due to economy or other forces similar.

The credit risks of the Group concentrate on accounts in and off balance sheet that occurs through obligation fulfilling or implementation of transactions (either product or service), or through trans-type exposure portfolio, including loans, placements and call loan from the banks, securities investment, receivables and derivatives. The nature that the debtor engages in could be a sign of credit risk concentration. The credit business of FCB and its subsidiaries is one of the core businesses; however, FCB does not significantly carry out transactions with single client or single counterparty, nor does the any of total trading volume to a single client or a single counterparty account for more than 5% the balance of loans discounted and overdue receivable. The credit risk concentration of the bills discounted, overdue receivables and lease business of FCB and its subsidiaries by industry, location and collateral are shown as follows:

Loans discounted, overdue receivable and receivable from lease business (short-term loans) of FCB and its subsidiaries by industry are shown as follows:

Industry Private enterprises Private individual Overseas and others Government institutions Financial institutions Non-profit organizations State-owned organizations Total	December 31, 2013	December 31, 2013
	Amount	%
	$ 774,338,717 53.43 468,764,649 32.35 132,652,670 9.15 64,934,855 4.48 1,623,010 0.11 1,858,070 0.13 5,087,868 0.35
	$ 1,449,259,839	100.00

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Industry Private enterprises Private individual Overseas and others Government institutions Financial institutions Non-profit organizations State-owned organizations Total	December 31, 2012 Amount % $ 779,024,055 53.62 440,815,589 30.34 135,881,530 9.35 77,906,384 5.36 15,435,569 1.06 2,308,283 0.16 1,548,975 0.11 $ 1,452,920,385 100.00	December 31, 2012 Amount % $ 779,024,055 53.62 440,815,589 30.34 135,881,530 9.35 77,906,384 5.36 15,435,569 1.06 2,308,283 0.16 1,548,975 0.11 $ 1,452,920,385 100.00
	$ 1,452,920,385

Industry Private enterprises Private individual Overseas and others Government institutions Financial institutions Non-profit organizations State-owned organizations Total	January 1, 2012 Amount % $ 736,195,247 53.71 407,376,169 29.72 122,629,779 8.95 64,455,241 4.70 35,269,637 2.57 2,679,338 0.20 2,098,163 0.15 $ 1,370,703,574 100.00
	$ 1,370,703,574

Loans discounted, overdue receivable and receivable from lease business (short-term loans) of FCB and its subsidiaries by location (Note) are shown as follows:

	Geographical location Asia North America Oceania Europe Total Geographical location Asia North America Oceania Europe Total	December 31, 2013 Amount % $ 1,370,184,404 94.55 56,438,321 3.89 11,776,843 0.81 10,860,271 0.75 $ 1,449,259,839 100.00 December 31, 2012 Amount % $ 1,382,135,518 95.13 50,414,475 3.47 11,328,785 0.78 9,041,607 0.62 $ 1,452,920,385 100.00	December 31, 2013 Amount % $ 1,370,184,404 94.55 56,438,321 3.89 11,776,843 0.81 10,860,271 0.75 $ 1,449,259,839 100.00 December 31, 2012 Amount % $ 1,382,135,518 95.13 50,414,475 3.47 11,328,785 0.78 9,041,607 0.62 $ 1,452,920,385 100.00
		$ 1,452,920,385

	Geographical location Asia North America Oceania Europe Total	January 1, 2012 Amount % $ 1,310,551,640 95.61 46,318,641 3.38 7,267,264 0.53 6,566,029 0.48 $ 1,370,703,574 100.00
		$ 1,370,703,574

Note: the above geographical location is made on the basis of the branch of debtor.

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2013 ANNUAL REPORT

Loans discounted, overdue receivable and receivable from lease business of FCB and its subsidiaries by collateral are shown as follows:

Collateral type Unsecured loans Secured loans -Financial collateral -Receivables -Real estate -Guarantee -Other collateral Overseas and others Total Collateral type Unsecured loans Secured loans -Financial collateral -Receivables -Real estate -Guarantee -Other collateral Overseas and others Total	December 31, 2013	December 31, 2013
	Amount	%
	$ 413,044,505 28.50 22,049,252 1.52 15,517 0.00 720,644,133 49.73 85,029,337 5.87 60,489,163 4.17 147,987,932 10.21 $ 1,449,259,839 100.00
	December 31, 2012
	Amount	%
	$ 498,884,453 34.34 24,198,261 1.67 31,586 0.00 673,489,883 46.35 78,299,620 5.39 66,226,532 4.56 111,790,050 7.69 $ 1,452,920,385 100.00
	$ 1,452,920,385

Collateral type Unsecured loans Secured loans -Financial collateral -Receivables -Real estate -Guarantee -Other collateral Overseas and others Total	January 1, 2012
	Amount	%
	$ 503,542,290 36.74 25,031,845 1.83 36,691 0.00 613,755,733 44.78 73,645,857 5.37 54,133,846 3.95 100,557,312 7.33 $ 1,370,703,574 100.00
	$ 1,370,703,574

157

FIRST FINANCIAL HOLDING CO., LTD.

E. Analysis on quality and overdue impairment of financial assets of the First Group:	Certain financial assets held by the First Group such as cash and cash equivalents, financial assets at fair value through profit and	loss, bills and bonds under resale agreement, refundable deposits, operating deposits, and settlement fund and so on, while the	counterparties have good credit rating, the credit risks are deemed extremely low. As a result, these financial assets are not included	in the analysis on credit risk quality.	Other than the abovementioned items, credit quality analysis for the rest of financial assets is as follows:	(A) The credit risk quality of loans discounted (including loans and derivative receivables), receivables (including claims	recoverable from reinsurers) and securities investment:	December 31, 2013 Positions that are neitherpast due nor impaired Positions that are past due but not impaired(B) Impaired amount (C) Total Recognized losses(D) Net Low risk Medium risk Medium-high risk High risk Subtotal (A) (A)+(B)+(C) With individual impaired evidence With no individual impaired evidence (A)+(B)+(C)-(D)	Receivables $ 178,478,965 $ -$ - $ - $ 178,478,965 $ - $ 1,744,985$ 180,223,950$ 969,119$ 288,982$ 178,965,849	Loans discounted 1,013,901,952 378,357,309 31,740,134 14,860,329 1,438,859,724 4,626,658 36,773,629 1,480,260,011 7,250,103 10,948,499 1,462,061,409	Total $ 1,192,380,917 $ 378,357,309$ 31,740,134 $ 14,860,329 $ 1,617,338,689 $ 4,656,658 $ 38,518,614$ 1,660,483,961 $ 8,219,222 $ 11,237,481 $ 1,641,027,258		Positions that are neitherpast due nor impaired Positions Total Net	December 31, 2013 that are past due but not impaired(B) Impaired amount (C) Recognized losses(D) Low risk Medium risk Medium-high risk High risk Subtotal (A) (A)+(B)+(C) (A)+(B)+(C)-(D)	Available-for-sale	financial assets	-Bonds investment $ 79,113,764$ 1,195,839$ -$ -$ 80,309,603 $ -$ - $ 80,309,603 $ - $ 80,309,603	-Others 2,347,500 - - - 2,347,500 - - 2,347,500 - 2,347,500	Held-to-maturity	financial assets	-Certificates of time	deposit purchased 249,045,000 - - - 249,045,000 - - 249,045,000 - 249,045,000	- Bonds investment 49,512,636 4,637,686 - - 54,150,322 - - 54,150,322 - 54,150,322	-Others 915,639 - - - 915,639 - - 915,639 - 915,639	Other financial assets	-Bonds investment 2,109,235 - - - 2,109,235 - - 2,109,235 - 2,109,235	Total $ 383,043,774 $ 5,833,525$ -$ -$ 388,877,299 $ -$ -$ 388,877,299$ - $ 388,877,299

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2013 ANNUAL REPORT

Net	(A)+(B)+(C)-(D)	$ 130,895,537	1,473,248,515	$ 1,604,144,052	Net	(A)+(B)+(C)-(D)		$ 67,896,224	2,900,901		233,900,000	38,219,620	6,417,543		2,169,378	$ 351,503,666
Recognized losses(D)	With no individual impaired evidence	$ 115,566	7,482,821	$ 7,598,387		Recognized losses(D)		$ -	-		-	-	-		-	$ -
	With individual impaired evidence	$ 795,739	8,935,131	$ 9,730,870
Total	(A)+(B)+(C)	$ 131,806,842	1,489,666,467	$ 1,621,473,309	Total	(A)+(B)+(C)		$ 67,896,224	2,900,901		233,900,000	38,219,620	6,417,543		2,169,378	$ 351,503,666
	Impaired amount (C)	$ 1,104,288	40,788,420	$ 41,892,708		Impaired amount (C)		$ -	-		-	-	-		-	$ -
	Positions that are past due but not impaired(B)	$ -	5,818,251	$ 5,818,251	Positions	that are past due but not impaired(B)		$ -	-		-	-	-		-	$ -
	Subtotal (A)	$ 130,702,554	1,443,059,796	$ 1,573,762,350		Subtotal (A)		$ 67,896,224	2,900,901		233,900,000	38,219,620	6,417,543		2,169,378	$ 351,503,666
Positions that are neitherpast due nor impaired	High risk	$ -	16,445,627	$ 16,445,627	Positions that are neitherpast due nor impaired	High risk		$ -	-		-	-	-		-	$ -
	Medium-high risk	$ -	24,812,343	$ 24,812,343		Medium-high risk		$ -	-		-	-	-		-	$ -
	Medium risk	$ -	402,121,140	$ 402,121,140		Medium risk		$ 134,940	9,687		-	4,255,211	5,583,683		-	$ 9,983,521
	Low risk	$ 130,702,554	999,680,686	$ 1,130,383,240		Low risk		$ 67,761,284	2,891,214		233,900,000	33,964,409	833,860		2,169,378	$ 341,520,145
	December 31, 2012	Receivables	Loans discounted	Total		December 31, 2012	Available-for-sale financial assets	-Bonds investment	-Others	Held-to-maturity financial assets	-Certificates of time deposit purchased	- Bonds investment	-Others	Other financial assets	-Bonds investment	Total

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FIRST FINANCIAL HOLDING CO., LTD.

Net	(A)+(B)+(C)-(D)	$ 139,096,433	1,396,343,384	$ 1,535,439,817	Net	(A)+(B)+(C)-(D)		$ 69,050,644	1,404,066		278,260,000	42,046,099	366,363		2,601,645	$ 393,728,817

Recognized losses(D)	With no individual impaired evidence	$ 61,280	7,559,596	$ 7,620,876		Recognized losses(D)		$ 302,750	-		-	-	-		-	$ 302,750
	With individual impaired evidence	$ 896,474	6,833,164	$ 7,729,638
Total	(A)+(B)+(C)	$ 140,054,187	1,410,736,144	$ 1,550,790,331	Total	(A)+(B)+(C)		$ 69,353,394	1,404,066		278,260,000	42,046,099	366,363		2,601,645	$ 394,031,567
	Impaired amount (C)	$ 854,649	21,414,391	$ 22,269,040		Impaired amount (C)		$ 302,750	-		-	-	-		-	$ 302,750
Positions that are past due but not impaired(B)		$ -	4,735,832	$ 4,735,832	Positions	that are past due but not impaired(B)		$ -	-		-	-	-		-	$ -
	Subtotal (A)	$ 139,199,538	1,384,585,921	$ 1,523,785,459		Subtotal (A)		$ 69,050,644	1,404,066		278,260,000	42,046,099	366,363		2,601,645	$ 393,728,817
Positions that are neitherpast due nor impaired	High risk	$ -	13,292,919	$ 13,292,919	Positions that are neitherpast due nor impaired	High risk		$ -	-		-	-	-		-	$ -
	Medium-high risk	$ -	14,322,906	$ 14,322,906		Medium-high risk		$ -	-		-	-	-		-	$ -
	Medium risk	$ -	348,533,338	$ 348,533,338		Medium risk		$ 244,313	13,682		-	3,918,400	40,236		234,334	$ 4,450,965
	Low risk	$ 139,199,538	1,008,436,758	$ 1,147,636,296		Low risk		$ 68,806,331	1,390,384		278,260,000	38,127,699	326,127		2,367,311	$ 389,277,852
	January 1, 2012	Receivables	Loans discounted	Total		January 1, 2012	Available-for-sale financial assets	-Bonds investment	-Others	Held-to-maturity financial assets	-Certificates of time deposit purchased	- Bonds investment	-Others	Other financial assets	-Bonds investment	Total

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2013 ANNUAL REPORT

(B) In relation to loans discounted of the First Group that were neither past due nor impaired, the credit quality analysis is based on the credit quality rating by client:

December 31, 2013	Positions that are neitherpast due nor impaired	Positions that are neitherpast due nor impaired	Positions that are neitherpast due nor impaired	Positions that are neitherpast due nor impaired	Positions that are neitherpast due nor impaired
	Low risk	Medium risk	Medium-high risk	High risk	Total
Receivables	$ 178,478,965	$ -	$ -	$ -	$ 178,478,965
Credit card business	3,474,124	515,546	417,454	234,274	4,641,398
Consumer banking	400,111,514	3,877,414	793,537	183,438	404,965,903
Corporate banking	594,792,060	256,131,951	30,529,143	14,442,617	895,895,771
Overseas and others	15,524,254	117,832,398	-	-	133,356,652
Total	$ 1,192,380,917	$378,357,309	$31,740,134	$14,860,329	$ 1,617,338,689

December 31, 2012		Positions that	are neitherpast due nor impaired
	Low risk	Medium risk	Medium-high risk	High risk	Total
Receivables	$ 130,702,554	$ -	$ -	$ -	$ 130,702,554
Credit card business	3,189,542	333,427	475,194	252,855	4,251,018
Consumer banking	380,312,740	3,478,222	704,271	192,930	384,688,163
Corporate banking	616,062,019	292,682,170	23,632,878	15,999,842	948,376,909
Overseas and others	116,385	105,627,321	-	-	105,743,706
Total	$ 1,130,383,240	$ 402,121,140	$ 24,812,343	$ 16,445,627	$ 1,573,762,350

January 1, 2012		Positions that	are neitherpast due nor impaired
	Low risk	Medium risk	Medium-high risk	High risk	Total
Receivables	$ 139,199,538	$ -	$ -	$ -	$ 139,199,538
Credit card business	2,766,589	344,695	464,649	261,067	3,837,000
Consumer banking	352,074,380	3,543,380	717,236	220,956	356,555,952
Corporate banking	653,533,822	249,876,547	13,141,021	12,810,896	929,362,286
Overseas and others	61,967	94,768,716	-	-	94,830,683
Total	$ 1,147,636,296	$ 348,533,338	$ 14,322,906	$ 13,292,919	$ 1,523,785,459

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FIRST FINANCIAL HOLDING CO., LTD.

F. Aging analysis of overdue financial assets with no impairment of the First Group:

The delayed processing of the borrower and other administrative reasons may give rise to an overdue financial asset with no impairment. According to the internal risk management policy of the First Group, financial assets overdue for less than 90 days are usually not deemed impaired unless other evidence indicates otherwise.

Aging analysis of the overdue financial assets with no impairment of the First Group:

Items	December 31,2013	December 31,2013	December 31,2013
	Overdue for less than 1 month	Overdue for 1~3 months	Total
Loans discounted Credit card business Consumer banking Corporate banking	$ 5,053 2,612,908 1,068,318	$ 30,227 580,279 329,873	$ 35,280 3,193,187 1,398,191
Total	$ 3,686,279	$ 940,379	$ 4,626,658

Items	December 31,2012
	Overdue for less than 1 month	Overdue for 1~3 months	Total
Loans discounted Credit card business Consumer banking Corporate banking	$ 7,627 3,736,460 1,231,440	$ 28,755 476,550 337,419	$ 36,382 4,213,010 1,568,859
Total	$ 4,975,527	$ 842,724	$ 5,818,251

Items		January1,2012
	Overdue for less than 1 month	Overdue for 1~3 months	Total
Loans discounted Credit card business Consumer banking Corporate banking	$ 8,913 2,535,109 1,121,632	$ 21,870 640,357 407,950	$ 30,783 3,175,466 1,529,582
Total	$ 3,665,654	$ 1,070,177	$ 4,735,831

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2013 ANNUAL REPORT

Impaired amount	December 31, 2013	$ 4,654,820 523 1,015,856	1,135,134 321,377 122,393	7,562,702 1,990,481 1,395,316	18,198,602
Loans discounted	December 31, 2013	$ 27,113,817 106,398 5,230,508	2,547,560 1,452,805 316,300	887,445,232 391,986,347 164,061,044	1,480,260,011
Items		Corporate loans-secured Residential mortgage loans Overseas and others	Corporate loans-secured Residential mortgage loans Overseas and others	Corporate loans-secured Residential mortgage loans Overseas and others
		Individual assessment	Collective assessment	Collective assessment
		With individual objective evidence of impairment		Without individual objective evidence of impairment	Total

163

FIRST FINANCIAL HOLDING CO., LTD.

HOLDING CO., LTD.	HOLDING CO., LTD.	HOLDING CO., LTD.	HOLDING CO., LTD.	HOLDING CO., LTD.	HOLDING CO., LTD.
Loans discounted Impaired amount December 31, 2012 December 31, 2012 $ 27,519,092$ 4,892,615 295,689 8,025 6,672,352 1,138,784 4,467,876 2,361,804 1,543,332 390,261 308,211 143,642 941,533,410 5,788,883 375,549,655 677,766 131,776,850 1,016,172 1,489,666,467 16,417,952
Impaired amount	December 31, 2012	$ 4,892,615 8,025 1,138,784	2,361,804 390,261 143,642	5,788,883 677,766 1,016,172	16,417,952	Impaired amount	January 1, 2012	$ 4,623,024 37,957 969,789	544,637 501,904 155,853	5,694,790 650,087 1,214,719	14,392,760
Loans discounted	December 31, 2012	$ 27,519,092 295,689 6,672,352	4,467,876 1,543,332 308,211	941,533,410 375,549,655 131,776,850	1,489,666,467	Loans discounted	January 1, 2012	$ 11,416,066 225,430 6,668,100	971,129 2,042,463 341,446	919,961,481 348,605,624 120,504,405	1,410,736,144
Items		Corporate loans-secured Residential mortgage loans Overseas and others	Corporate loans-secured Residential mortgage loans Overseas and others	Corporate loans-secured Residential mortgage loans Overseas and others		Items		Corporate loans-secured Residential mortgage loans Overseas and others	Corporate loans-secured Residential mortgage loans Overseas and others	Corporate loans-secured Residential mortgage loans Overseas and others	Total
		Individual assessment	Collective assessment	Collective assessment				Individual assessment	Collective assessment	Collective assessment
		With individual objective evidence of impairment		Without individual objective evidence of impairment	Total			With individual objective evidence of impairment		Without individual objective evidence of impairment

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2013 ANNUAL REPORT

							Items Total receivables Impaired amount December 31, 2012 December 31, 2012 With individual objective evidence of impairment Individual assessment Receivables $ 1,151,638 $ 784,549 Overseas and others 73,911 11,190 Without individual objective evidence of impairment Collective assessment Receivables 81,647,939 - Overseas and others 48,933,354 115,566 Total $ 131,806,842 $ 911,305	Items Total receivables Impaired amount December 31, 2012 December 31, 2012 With individual objective evidence of impairment Individual assessment Receivables $ 1,151,638 $ 784,549 Overseas and others 73,911 11,190 Without individual objective evidence of impairment Collective assessment Receivables 81,647,939 - Overseas and others 48,933,354 115,566 Total $ 131,806,842 $ 911,305	Items Total receivables Impaired amount December 31, 2012 December 31, 2012 With individual objective evidence of impairment Individual assessment Receivables $ 1,151,638 $ 784,549 Overseas and others 73,911 11,190 Without individual objective evidence of impairment Collective assessment Receivables 81,647,939 - Overseas and others 48,933,354 115,566 Total $ 131,806,842 $ 911,305	Items Total receivables Impaired amount December 31, 2012 December 31, 2012 With individual objective evidence of impairment Individual assessment Receivables $ 1,151,638 $ 784,549 Overseas and others 73,911 11,190 Without individual objective evidence of impairment Collective assessment Receivables 81,647,939 - Overseas and others 48,933,354 115,566 Total $ 131,806,842 $ 911,305	Items Total receivables Impaired amount December 31, 2012 December 31, 2012 With individual objective evidence of impairment Individual assessment Receivables $ 1,151,638 $ 784,549 Overseas and others 73,911 11,190 Without individual objective evidence of impairment Collective assessment Receivables 81,647,939 - Overseas and others 48,933,354 115,566 Total $ 131,806,842 $ 911,305	Items Total receivables Impaired amount December 31, 2012 December 31, 2012 With individual objective evidence of impairment Individual assessment Receivables $ 1,151,638 $ 784,549 Overseas and others 73,911 11,190 Without individual objective evidence of impairment Collective assessment Receivables 81,647,939 - Overseas and others 48,933,354 115,566 Total $ 131,806,842 $ 911,305	Items Total receivables Impaired amount December 31, 2012 December 31, 2012 With individual objective evidence of impairment Individual assessment Receivables $ 1,151,638 $ 784,549 Overseas and others 73,911 11,190 Without individual objective evidence of impairment Collective assessment Receivables 81,647,939 - Overseas and others 48,933,354 115,566 Total $ 131,806,842 $ 911,305
Impaired amount	December 31, 2013	$ 966,476	2,643	82,928	206,054	$ 1,258,101	Impaired amount	December 31, 2012	$ 784,549	11,190	-	115,566	$ 911,305	Impaired amount	January 1, 2012	$ 857,842	38,632	-	61,280	$ 957,754
Total receivables	December 31, 2013	$ 1,394,783	61,370	126,845,530	51,922,267	$ 180,223,950	Total receivables	December 31, 2012	$ 1,151,638	73,911	81,647,939	48,933,354	$ 131,806,842	Total receivables	January 1, 2012	$ 898,199	156,545	92,373,250	46,626,193	$ 140,054,187
Items		Receivables	Overseas and others	Receivables	Overseas and others		Items		Receivables	Overseas and others	Receivables	Overseas and others		Items		Receivables	Overseas and others	Receivables	Overseas and others
		Individual assessment		Collective assessment					Individual assessment		Collective assessment					Individual assessment		Collective assessment
		With individual objective evidence of impairment		Without individual objective evidence of impairment		Total			With individual objective evidence of impairment		Without individual objective evidence of impairment		Total			With individual objective evidence of impairment		Without individual objective evidence of impairment		Total

165

FIRST FINANCIAL HOLDING CO., LTD.

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2013 ANNUAL REPORT


December 31, 2013	Coverage ratio (Note 3)	152.36%	356.64%	607.91%	902.78%	536.62%	2207.19%	43.24%	261.73%	Coverage ratio	1751.19%	-	December 31, 2012	Coverage ratio (Note 3)	179.93%	268.07%	436.89%	928.89%	453.35%	0.00%	995.17%	248.97%	Coverage ratio	1995.02%	-
	Allowance for doubtful accounts	$ 6,076,449	7,555,412	3,894,949	325	89,997	111,132	2,176	17,730,440	Allowance for doubtful accounts	136,488	78,259		Allowance for doubtful accounts	$ 5,413,612	7,010,792	3,402,952	418	90,719	70,264	3,503	15,992,260	Allowance for doubtful accounts	117,487	113,812
	Non-performing loan ratio (%) (Note 2)	0.72%	0.45%	0.16%	0.43%	0.30%	0.04%	9.49%	0.47%	Non-performing loan ratio (%)	0.16%	-		Non-performing loan ratio (%) (Note 2)	0.59%	0.48%	0.21%	0.34%	0.35%	0.00%	0.29%	0.44%	Non-performing loan ratio (%)	0.13%	-
	Gross loans	$ 555,511,630	473,357,965	393,822,028	8,423	5,616,870	11,511,479	53,045	1,436,881,440	Balance of receivables	4,881,144	13,618,616		Gross loans	$ 507,596,902	544,954,468	378,581,540	13,263	5,768,072	8,155,713	119,519	1,445,189,477	Balance of receivables	4,501,782	19,504,599
	Non-performing loans (Note 1)	$ 3,988,317	2,118,519	640,707	36	16,771	5,035	5,032	6,774,417	Non-performing loans	7,794	-		Non-performing loans (Note 1)	$ 3,008,798	2,615,241	778,902	45	20,011	-	352	6,423,349	Non-performing loans	5,889	-
Date & year	Business / Items	Secured loans	Unsecured loans	Residential mortgage loans (Note 4)	Cash cards	Micro credit loans (Note 5)	Secured	Unsecured				Note 7)	Date & year	Business / Items	Secured loans	Unsecured loans	Residential mortgage loans (Note 4)	Cash cards	Micro credit loans (Note 5)	Secured	Unsecured	Gross loans business		Credit card services	Without recourse factoring (Note 7)
							Others (Note 6)		Gross loans business		Credit card services	Without recourse factoring (								Others (Note 6)
		Corporate Banking		Consumer Banking											Corporate Banking		Consumer Banking

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FIRST FINANCIAL HOLDING CO., LTD.

Explanation:	a. The amount recognized as non-performing loans is in compliance with the “Regulations Governing the Procedures for Banking Institutions	to Evaluate Assets and Deal with Non-performing/Non-accrual Loans”. The amount included in overdue accounts for credit cards is in	compliance with the Banking Bureau (4) Letter No. 0944000378 dated July 6, 2005.	b. Non-performing loan ratio=non-performing loans/gross loans. Non-performing loan ratio of credit cards�Non-performing loan ratio of	credit cards /balance of accounts receivable.	c. Coverage ratio for loans=allowance for doubtful accounts of loans/non-performing loans. Coverage ratio for accounts receivable of credit	cards�allowance for doubtful accounts for accounts receivable of credit cards/ Non-performing loan ratio of credit cards.	d. For residential mortgage loans, the borrower provides his/her (or spouse’s or minor child’s) house as collateral in full and mortgages it to the	financial institution for the purpose of obtaining funds to purchase or add improvements to own house.	e. Small amount of credit loans apply to the norms of the Banking Bureau (4) Letter No. 09440010950 dated December 19, 2005, excluding	credit card and cash card services.	f. Other consumer banking is specified as secured or unsecured consumer loans other than residential mortgage loans, cash card services and	small amount of credit loans, and excluding credit card services.	g. Pursuant to the Jin-Guan-Yi (5) Letter No. 09850003180 dated August 24, 2009 amount of without recourse factoring will be recognized as	overdue accounts within three months after the factor or insurance company resolves not to compensate the loss.

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						Total amount of non-performing loans exempted from reporting to the competent authority Total amount of overdue receivables exempted from reporting to the competent authority Amounts exempted from reporting to the competent authority under debt negotiation and the contract (Note 1) $ 7,765 $ 89,738 Perform in accordance with debt liquidation program and restructuring program (Note 2) 42,561 106,597 Total $ 50,326 $ 196,335 Explanation: a. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt negotiation in accordance with the Jin-Guan-Yi Letter (1) No. 09510001270 of the FSC dated April 25, 2006. b. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt liquidation program and restructuring program in accordance with the Jin-Guan-Yi Letter Jin-Guan-Yin (1) No. 09700318940 of the FSC dated September 15, 2008.	Total amount of non-performing loans exempted from reporting to the competent authority Total amount of overdue receivables exempted from reporting to the competent authority Amounts exempted from reporting to the competent authority under debt negotiation and the contract (Note 1) $ 7,765 $ 89,738 Perform in accordance with debt liquidation program and restructuring program (Note 2) 42,561 106,597 Total $ 50,326 $ 196,335 Explanation: a. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt negotiation in accordance with the Jin-Guan-Yi Letter (1) No. 09510001270 of the FSC dated April 25, 2006. b. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt liquidation program and restructuring program in accordance with the Jin-Guan-Yi Letter Jin-Guan-Yin (1) No. 09700318940 of the FSC dated September 15, 2008.	Total amount of non-performing loans exempted from reporting to the competent authority Total amount of overdue receivables exempted from reporting to the competent authority Amounts exempted from reporting to the competent authority under debt negotiation and the contract (Note 1) $ 7,765 $ 89,738 Perform in accordance with debt liquidation program and restructuring program (Note 2) 42,561 106,597 Total $ 50,326 $ 196,335 Explanation: a. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt negotiation in accordance with the Jin-Guan-Yi Letter (1) No. 09510001270 of the FSC dated April 25, 2006. b. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt liquidation program and restructuring program in accordance with the Jin-Guan-Yi Letter Jin-Guan-Yin (1) No. 09700318940 of the FSC dated September 15, 2008.	Total amount of non-performing loans exempted from reporting to the competent authority Total amount of overdue receivables exempted from reporting to the competent authority Amounts exempted from reporting to the competent authority under debt negotiation and the contract (Note 1) $ 7,765 $ 89,738 Perform in accordance with debt liquidation program and restructuring program (Note 2) 42,561 106,597 Total $ 50,326 $ 196,335 Explanation: a. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt negotiation in accordance with the Jin-Guan-Yi Letter (1) No. 09510001270 of the FSC dated April 25, 2006. b. The Bank disclosed the total amount of non-performing loans and overdue receivables exempted from reporting to the competent authority as debt liquidation program and restructuring program in accordance with the Jin-Guan-Yi Letter Jin-Guan-Yin (1) No. 09700318940 of the FSC dated September 15, 2008.
December 31, 2013	Total amount of overdue receivables exempted from reporting to the competent authority	$ 66,080	118,322	$ 184,402	December 31, 2012	Total amount of overdue receivables exempted from reporting to the competent authority	$ 89,738	106,597	$ 196,335
	Total amount of non-performing loans exempted from reporting to the competent authority	$ 5,017	48,793	$ 53,810		Total amount of non-performing loans exempted from reporting to the competent authority	$ 7,765	42,561	$ 50,326
		Amounts exempted from reporting to the competent authority under debt negotiation and the contract (Note 1)	Perform in accordance with debt liquidation program and restructuring program (Note 2)	Total			Amounts exempted from reporting to the competent authority under debt negotiation and the contract (Note 1)	Perform in accordance with debt liquidation program and restructuring program (Note 2)	Total

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	December 31,2013	December 31,2013	December 31,2013
Ranking (Note 1)	Type of industry (Note 2)	Total outstanding loan amount (Note 3)	Total outstanding loan amount/FCB net worth of the currentyear(%)
1 2 3 4 5 6 7 8 9 10	A. Group Plastic Sheets, Pipes and Tubes Manufacturing B. Group Private Air Transportation C. Group Liquid Crystal Panel and Components Manufacturing D. Group Visual Display and Terminal Service Manufacturing E. Group Unclassified Other Financial Intermediation F. Group Iron and Steel Smelting G. Group Unclassified Other Financial Intermediation H. Group Power Cable and Wiring Accessories Manufacturing I. Group Yarn Spinning Mills and Cotton J. Group Iron and Steel Rolls over Extendsand Crowding	$ 21,580,350 20,365,619 18,731,865 15,394,132 10,085,534 9,633,108 8,892,125 8,827,381 8,239,603 7,776,769	16.40% 15.48% 14.24% 11.70% 7.66% 7.32% 6.76% 6.71% 6.26% 5.91%

	December31,2012
Ranking (Note 1)	Type of industry (Note 2)	Total outstanding loan amount (Note 3)	Total outstanding loan amount/FCB net worth of the currentyear(%)
1 2 3 4 5 6 7 8 9 10	A. Group Plastic Sheets, Pipes and Tubes Manufacturing B. Group Liquid Crystal Panel and Components Manufacturing C. Group Visual Display and Terminal Service Manufacturing D. Group Air Transportation E. Group Yarn Spinning Mills and Cotton F. Group Iron and Steel Smelting G. Group Private Financing H. Group Power Cable and Wiring Accessories Manufacturing I. Group Unclassified Other Financial Intermediation J. Group Unclassified Other Electronic Partsand ComponentsManufacturing	$ 35,307,471 21,324,316 19,906,942 14,809,316 11,949,502 10,141,951 9,849,195 9,077,580 8,296,106 8,243,460	28.61% 17.28% 16.13% 12.00% 9.68% 8.22% 7.98% 7.36% 6.72% 6.68%
Note:

a. Ranking the top ten enterprise groups other than government and government enterprise according to their total outstanding loan amount.

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  - b. Definition of enterprise group is based on the Article 6 of Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings.

  - c. Total outstanding loan amount is the sum of balances of all types of loans (including import negotiation, export negotiation, bills discounted, overdraft, short-term unsecured loan, short-term secured loan, margin loans receivable, medium-term unsecured loan, medium-term secured loan, long-term unsecured loan, long-term secured loan and overdue loan), purchases in remittances, without recourse factoring, acceptance receivable and guarantees.

(5) Liquidity risk
A. Definition and resource of liquidity risk

The liquidity risk of the First Group refer to a financial loss when assets are not convertible or not enough financing aid can be obtained to inject fund for the financial liabilities soon to be matured. For instance, the client terminates the deposit contract in advance, or financing channel of call loan becomes difficult due to market influence, or deterioration on the credit default rate giving rise to unusual fund collection, difficulty in converting the financial instrument and interest sensitive insurer exercise the right to terminate contract in advance. Above events may mitigate the cash inflows from loan origination, transactions and investing activities from the lease subsidiaries.

Liquidity risk exists in the Bank’s operation, which may be given rise by specific event of various industries or overall market movement, such as liquidation protocol of deposit or call loan payment, source of loan or time required for asset liquidation are affected by various industries or certain overall market events, including but not limited to insufficient depth of market, market disorder, low liquidity on funds, credit event, merging or acquisition activities, systematic impact and natural disasters.

B. Procedures and evaluation method used for liquidity risk management

Please see Note 8(3) for the risk controlling regulations and procedures

In order to prevent liquid risk that gives rise to operating risk, crisis reaction procedures have been set up in relation to liquidity risk and fund liquidity gap shall be monitored on a regular basis.

Management procedure and evaluation method for the liquidity risk of the First Group are as follows:

(A) The subsidiary, FCB

Procedure

In consideration of the operating demand, the sources of fund need to be diverse and stable. The use of fund should avoid high concentration, and the liquid assets held should take precedence of highly liquid earning assets of high quality.

In accordance with the “Management policy of assets and liabilities” and “Management principle of liquidity and interest risk”, risk management division is the investigation unit

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for liquidity risk indicator. Finance division is the execution unit for fund transferring. Also, attention needs to be paid on the movement of market condition and day-to-day capital liquidity to ensure appropriate liquidity and long-term profitability. Unless otherwise indicated by offshore branches, sufficient liquidity shall be maintained in accordance with the local competent authorities.

Risk management division sets up liquid position or indicator limit by the duration and implements after obtaining the approval from assets and liabilities management committee and Board of Directors. Each liquidity risk monitoring indicator are assessed and appraised regularly in the meeting of assets and liabilities management committee.

Risk management division is responsible for reporting the assets and liabilities management committee, risk management committee and Board of Directors to represent the liquidity risk and other monitoring result.

Evaluation method

The content of the liquidity risk report mainly used to estimate cash flow from various business line and the effects on fund transferring so that early warning area and target goal can be set up for cash gap and relevant indicator in order to control both under the tolerable risk limit.

Risk Management Division regularly makes “Analysis table for cash flow gap” and “Adjustment table for cash flow gap” to ensure that the cash flow gap is within the granted limit and reports to the management in relation to fund liquidity matters. Given that the limit has been reached or an obvious deteriorated indicator shown internally or externally, immediate escalation should be made to the assets and liabilities management committee for further response action and report to the Board of Directors. Given the liquidity risk, action shall be taken in accordance with “Contingent plan for liquidity risk”.

(B) The subsidiary, FS

Procedure

In order to maintain proper liquidity and security, enhance liquidity risk management, increase return on capital utilization and integrate business operation, the management, planning and risk controlling execution of liquidity risk is carried out in accordance with “Regulations Governing the Capital Liquidity Risks”.

In addition to operating funds and long-term investment of various businesses, proper revolving fund is required for the daily operation. Additionally the remaining capital, in principle, should hold liquid and superior earning assets in avoidance of high concentration according to the “Regulations Governing the Acquisition of Funds and Utilization” of FS. The responsible unit for capital transferring adjusts liquidity gap based on the daily capital liquidity volume and market movement to ensure appropriate liquidity.

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In the event of credit rating being downgraded, financial crisis, natural disaster or other irresistible event which gives rise to insufficient liquidity, strategic actions should be taken based on the guidelines for crisis management of FS.

Evaluation method

To manage liquidity risks, FS is required to maintain the lowest liquidity ratio by the competent authorities and make “Structural Analysis on Maturities of Assets and Liabilities” by month. The liquidity gap is computed based on the remaining time before maturities of assets and liabilities. In general, accumulative gap of each period should be more than 0 and is submitted to the management for approval. If the gap for accounts located in 1-10 days is less than 0 in “Structural Analysis on Maturities of Assets and Liabilities”, specific adjustment on the balance structure is needed in an effort to make the gap become greater than 0.

Managing mechanism of capital liquidity risk

Capital transferring unit should be independent from the trading unit, through which cash flow can be managed continually on a daily basis. In addition, business of each responsible unit involving credit risk needs a liquidity managing program to maintain the safety of capital utilization. The subsidiary, FALI engages in life insurance business, whose main liabilities are the life policy reserve as a result of the issuance of long-term policies, and the related liquid liability ratio is extremely low. As such, the total fair value of various financial instruments in an active market and its cash should be sufficient to pay off various short-term liabilities maturing within 1 year.

Managing mechanism of market liquidity risk

In relation to the nature and purposes of holding, the investment segment evaluates market liquidity of the underlying investment with consideration of the commensuration between market trading volume and the position held.

(D) The subsidiary, FSIT

Procedure

In addition to the long-term and short-term investment, the subsidiary, FSIT needs to maintain proper operating capital for daily operations. Additionally the remaining capital, in principle, should hold liquid and superior earning assets in avoidance of high concentration and is processed according to the authorization rules of FSIT.

The Finance department should adjust the liquidity gap to maintain proper liquidity according to the daily fund liquidity and market movement and make relating structural analysis by month, which is reported to the General Manager and acknowledged to responsible risk managing segments. In the event of credit rating being downgraded, financial crisis, natural disaster or other unavoidable event which gives rise to severe insufficient liquidity, strategic actions should be taken based on the guidelines for crisis management of FSIT.

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Evaluation method

According to “Structural Analysis on Maturities of Assets and Liabilities” made every month, the capital gap is calculated based on the remaining period of time by asset or liability, which shall be acknowledged to the responsible risk managing segment after reporting to the General Manager. In general, the gap should be greater than 0. If the capital gap is less than 0 for the accounts under 0-30 days, specific adjustment on the balance structure is needed in an effort to make the gap become greater than 0.

C. Duration analysis for the financial assets and liabilities held for liquidity risk management are as follows:
(A) Financial assets held for liquidity risk management

In order to fulfill the payment obligation and potential emergent fund demand in the market, as well as manage the liquidity risk at the same time, sound earning assets held by the First Group with high liquidity include cash and cash equivalents, deposits and call loans, financial assets at fair value through profit and loss, bills discounted and call loan, term receivables, available-for-sale financial assets, and bonds investment without an active market, etc.

(B) Duration analysis for the financial assets and liabilities held for liquidity risk management

The following table illustrates the cash inflow and outflow of financial assets and liabilities of the First Group held for liquidity risk management based on the remaining maturity from the balance sheet date to the contract expiration date. While the amounts disclosed in the table are not discounted by contract cash flow, certain accounts may differ from the responding accounts in the balance sheet.

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Total			118,832,628	94,454,908	3,469,271	470,694,211	1,449,065,088	4,318,302	71,317,181			1,081,401	178,192	3,479	866,174	60,462	350,049	1,848,013	200,674	257	67,635	2,216,807,925			141,239,204	1,033,410,089	696,873,883	2,259,185	5,794,000	14,215,809	10,763,434	49,700,000	121,171,466			735,033	1,787	26,034	981,118	4,494	60,461	128,460	1,780,533	15,180	104	67,635		7,973	2,079,235,882	137,572,043	Total
1 year or above			25,143,522 $	-	-	128,582,994	854,749,280	-	4,346,906			-	-	-	129,097	-	61,752	1,762,340	94,090	-	67,635	1,014,937,616			-	839,079,221	12,590,979	30,479	-	-	9,027,817	40,900,000	52,407,765			-	-	-	129,097	4,494	-	27,274	1,695,154	-	-	67,635		-	955,959,915	58,977,701 $	1 year or above
181 days – 1 year			3,918,489) $	1,092,844	-	22,760,092	144,981,037	581,048	1,401,139			74,526	-	-	240,995	-	234,881	45,607	-	-	-	167,493,680			721,498	52,144,810	231,321,058	372,301	-	199,879	-	2,000,000	3,114,034			24,645	-	-	263,778	-	-	71,019	42,373	-	-	-		-	290,275,395	122,781,715) $	181 days – 1 year
91 - 180 days			9,086 ($	2,877,107	-	9,670,416	161,429,902	155,155	8,008,012			145,305	2,962	-	176,236	15,796	51,701	28,909	-	-	-	182,570,587			4,185,866	42,610,430	136,749,890	308,817	-	627,895	1,735,617	3,300,000	4,615,136			65,816	82	-	181,260	-	15,796	15,512	19,268	-	-	-		-	194,431,385	11,860,798) ($	91 - 180 days
31 - 90 days			1,660,747 $	17,188,211	1,165,960	18,835,886	160,222,528	488,543	16,342,938			381,293	9,411	715	151,345	10,566	1,715	9,700	23,484	-	-	216,493,042			31,735,007	46,795,562	171,452,848	365,162	100,000	2,424,484	-	3,500,000	6,757,940			191,771	124	-	161,497	-	10,566	6,436	7,519	-	-	-		7,973	263,516,889	47,023,847) ($	31 - 90 days
0 - 30 days			95,937,762 $	73,296,746	2,303,311	290,844,823	127,682,341	3,093,556	41,218,186			480,277	165,819	2,764	168,501	34,100	-	1,457	83,100	257	-	635,313,000			104,596,833	52,780,066	144,759,108	1,182,426	5,694,000	10,963,551	-	-	54,276,591			452,801	1,581	26,034	245,486	-	34,099	8,219	16,219	15,180	104	-		-	375,052,298	260,260,702 ($	0 - 30 days
			$																																															$
December 31, 2013	1.Primary capital inflow upon maturity	Non-derivative financial instruments	Cash and due from other banks	Call loans and overdrafts	Bonds (bills) sold under a resale agreement	Securities investment	Loans discounted	Interest receivables and income	Other capital inflow upon maturity	Derivative financial instruments	Non-hedge	FX contracts (swaps and forwards)	FX margin trading	Non-delivery forwards	FX options held	Commodity options held	Commodity swaps held	Cross currency swap contracts (exclusive of notional principal)	Interest rate related contracts (interest rate swaps and asset swap excluding the principal of bonds)	Futures trading	Others	Total	2.Primary capital outflow upon maturity	Non-derivative financial instruments	Call loans, overdrafts and due to other banks	Demand deposits	Time deposits	Interest payables	Commercial papers payables	Bonds (bills) purchased under a repurchase agreement	Financial liabilities at fair value through profit and loss – non-derivatives	Bonds payable	Other capital outflow upon maturity	Derivative financial instruments	Non-hedge	FX contracts (swaps and forwards)	FX margin trading	Non-delivery forwards	FX options written	Commodity options written	Commodity swap written	Cross currency swaps (excluding the notional principal)	Interest rate related contracts (interest rate swaps and asset swaps excluding the principal of bonds)	Liabilities for issuance of call (put) warrants	Options sold – futures	Asset swap options sold-convertible corporate bonds	Hedge	Interest rate related contracts (interest rate swaps and asset swaps excluding the principal of bonds)	Total	3.Gap upon maturity		December 31, 2012	1.Primary capital inflow upon maturity

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	115,445,882	56,188,537	3,787,060	378,179,152	1,453,989,110	4,095,885	68,312,116			976,941	200,777	1,314	705,902	234,459	2,074	35,182	2,545,847	156,338	83,442	2,084,940,018			153,281,593	961,678,026	654,239,428	2,357,799	3,804,000	7,431,152	16,647,798	49,700,000	98,048,799			1,273,976	5,391	4,018	708,562	93,679	234,475	2,074	669,958	1,985,767	9,548	681		44,584	1,952,221,308	132,718,710
	23,873,771 $	61,406	-	105,974,624	814,380,379	297,817	12,534,447			2,849	-	-	919	60,834	-	25,190	2,180,920	-	-	959,393,156			1,069,214	783,562,272	14,776,350	39,475	-	-	10,804,959	49,700,000	27,494,620			5,655	-	-	930	-	60,850	-	285,189	1,627,691	-	-		44,584	889,471,789	69,921,367 $
	7,458,126 $	241,756	-	8,452,441	185,456,906	205,719	1,822,786			28,626	263	-	228,081	-	2,074	9,992	227,157	-	-	204,133,927			696,628	48,315,787	214,949,773	414,877	-	1,175	805,822	-	3,152,100			118,004	-	-	228,680	-	-	2,074	57,511	212,275	-	-		-	268,954,706	64,820,779 ) $
	4,766,224 $	3,810,053	-	3,042,416	111,392,952	89,039	3,960,163			87,212	4,322	-	144,519	36,625	-	-	81,749	-	-	127,415,274			4,540,531	39,510,644	129,256,871	572,307	-	165,979	5,016,516	-	4,587,849			364,141	12	-	144,363	-	36,625	-	150,364	89,260	-	-		-	184,435,462	57,020,188 )($
	8,367,577 $	18,095,522	1,210,761	34,243,958	168,689,662	472,864	7,935,510			370,407	9,537	1,314	169,670	137,000	-	-	18,575	155,949	-	239,878,306			32,466,018	43,423,157	154,331,669	414,691	-	2,192,296	-	-	4,345,100			427,703	77	-	171,526	42,438	137,000	-	117,245	28,347	-	-		-	238,097,267	1,781,039 ($
	70,980,184 $	33,979,800	2,576,299	226,465,713	174,069,211	3,030,446	42,059,210			487,847	186,655	-	162,713	-	-	-	37,446	389	83,442	554,119,355			114,509,202	46,866,166	140,924,765	916,449	3,804,000	5,071,702	20,501	-	58,469,130			358,473	5,302	4,018	163,063	51,241	-	-	59,649	28,194	9,548	681		-	371,262,084	182,857,271 $
	$																																															$
Non-derivative financial instruments	Cash and due from other banks	Call loans and overdrafts	Bonds (bills) sold under a resale agreement	Securities investment	Loans discounted	Interest receivables and income	Other capital inflow upon maturity	Derivative financial instruments	Non-hedge	FX contracts (swaps and forwards)	FX margin trading	Non-delivery forwards	FX options held	Commodity options held	Commodity swaps held	Cross currency swap contracts (exclusive of notional principal)	Interest rate related contracts (interest rate swaps and asset swap excluding the principal of bonds)	Futures trading	Others	Total	2.Primary capital outflow upon maturity	Non-derivative financial instruments	Call loans, overdrafts and due to other banks	Demand deposits	Time deposits	Interest payables	Commercial papers payables	Bonds (bills) purchased under a repurchase agreement	Financial liabilities at fair value through profit and loss – non-derivatives	Bonds payable	Other capital outflow upon maturity	Derivative financial instruments	Non-hedge	FX contracts (swaps and forwards)	FX margin trading	Non-delivery forwards	FX options written	Bond options written	Commodity options written	Commodity swap written	Cross currency swaps (excluding the notional principal)	Interest rate related contracts (interest rate swaps and asset swaps excluding the principal of bonds)	Liabilities for issuance of call (put) warrants	Options sold – futures	Hedge	Interest rate related contracts (interest rate swaps and asset swaps excluding the principal of bonds)	Total	3.Gap upon maturity

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2013 ANNUAL REPORT

Total			122,451,109	51,438,384	4,766,169	421,189,415	1,371,460,412	4,498,227	66,704,425			1,911,083	275,870	1,719	3,135,163	275,890	134,469	1,234,731	3,671,009	175,736	50,705	270,595	2,053,645,111			153,078,398	925,649,136	679,715,289	2,320,248	4,660,000	14,247,214	18,069,703	34,700,000	85,806,211			567,539	246	993	2,899,600	511,732	325,649	338,813	2,985,238	13,639	401	50,732		110,978	1,926,051,759	127,593,352
1 year or above			22,969,420 $	59,899	-	94,378,529	761,586,379	303,304	8,701,528			-	-	-	-	-	-	-	1,732,691	-	50,705	-	889,782,455			351,889	764,204,064	12,494,918	35,632	-	-	16,857,960	34,700,000	19,787,464			-	-	-	-	-	-	7,385	932,008	-	-	50,732		110,978	849,533,030	40,249,425 $
181 days – 1 year			7,623,023 $	156,211	-	16,125,506	131,911,745	216,947	1,637,452			4,429	-	-	-	-	-	-	1,304,387	-	-	-	158,979,700			786,469	43,165,835	229,314,197	352,866	-	73,936	-	-	2,871,878			2,559	-	-	-	91,116	-	41,167	1,262,383	-	-	-		-	277,962,406	118,982,706 ) $
91 - 180 days			6,468,486 $	1,614,023	-	29,615,597	147,057,242	137,263	7,845,676			346,624	-	-	1,205,134	236,632	93,280	810,022	606,363	-	-	-	196,036,342			5,254,404	35,671,199	126,319,033	647,377	-	540,328	-	-	4,086,684			25,441	-	-	1,189,313	321,377	225,900	290,261	770,778	-	-	-		-	175,342,095	20,694,247 ($
31 - 90 days			8,421,790 $	15,229,066	1,299,138	92,943,487	167,113,292	794,532	15,001,055			882,750	-	519	960,415	39,258	39,820	347,232	17,154	175,687	-	-	303,265,195			46,578,617	39,465,847	166,531,649	400,080	180,000	2,867,578	-	-	5,836,145			211,508	-	523	858,457	99,239	96,433	-	13,108	-	-	-		-	263,139,184	40,126,011 $
January 1, 2012 0- 30 days	1.Primary capital inflow upon maturity	Non-derivative financial instruments	Cash and due from other banks $ 76,968,390 $	Call loans and overdrafts 34,379,185	Bonds (bills) sold under a resale agreement 3,467,031	Securities investment 188,126,296	Loans discounted 163,791,754	Interest receivables and income 3,046,181	Other capital inflow upon maturity 33,518,714	Derivative financial instruments	Non-hedge	FX contracts (swaps and forwards) 677,280	FX margin trading 275,870	Non-delivery forwards 1,200	FX options held 969,614	Commodity options held -	Commodity swaps held 1,369	Cross currency swap contracts (exclusive of notional principal) 77,477	Interest rate related contracts (interest rate swaps and asset swap excluding the principal of bonds) 10,414	Futures trading 49	Asset swap options sold-convertible corporate bonds -	Others (Futures margin) 270,595	Total 505,581,419	2.Primary capital outflow upon maturity	Non-derivative financial instruments	Call loans, overdrafts and due to other banks 100,107,019	Demand deposits 43,142,191	Time deposits 145,055,492	Interest payables 884,293	Commercial papers payables 4,480,000	Bonds (bills) purchased under a repurchase agreement 10,765,372	Financial liabilities at fair value through profit and loss – non-derivatives 1,211,743	Bonds payable -	Other capital outflow upon maturity 53,224,040	Derivative financial instruments	Non-hedge	FX contracts (swaps and forwards) 328,031	FX margin trading 246	Non-delivery forwards 470	FX options written 851,830	Interest swap option written -	Commodity options written 3,316	Cross currency swaps (excluding the notional principal) -	Interest rate related contracts (interest rate swaps and asset swaps excluding the principal of bonds) 6,961	Liabilities for issuance of call (put) warrants 13,639	Options sold – futures 401	Asset swap options sold-convertible corporate bonds -	Hedge	Interest rate related contracts (interest rate swaps and asset swaps excluding the principal of bonds) -	Total 360,075,044	3.Gap upon maturity $ 145,506,375 $	Note: Financial assets and financial liabilities of derivative instruments are disclosed on a discounted basis.

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Maturity analysis for above demand deposits are amortized to each period based on historical experience of banking subsidiary. Given that all the demand deposits have to be paid in the shortest period, as of December 31, 2013, December 31, 2012, and January 1, 2012, the payment on period of 0-30 days will be increased by $980,630,023, $914,811,860, and $882,506,945, respectively.

D. Maturity analysis for items off the balance sheet

The loans, loan commitment and letters of credit include unused loan commitments and unused letters of credit issued. Financial guarantee contract refers that the First Group represent a guarantor and the issuer of the guaranteed letter of credit.

Terms of financial instruments contracts off the balance sheet which may require fulfillment at the earliest are all less than a year:

	Financial instruments contracts Unused loan commitments (Note) Unused letters of credit issued Various guarantees Total	December 31, 2013 $ 32,835,001 31,159,643 79,507,359 $ 143,502,003	December 31, 2012 $ 34,836,722 35,240,365 75,469,498 $ 145,546,585	January 1, 2012 $ 41,507,871 35,250,998 69,826,490 $ 146,585,359

Note: Above unused loan commitments include irrevocable loan commitment except for the significant adverse movement.

E. Maturity analysis on lease contract and capital expense commitment

Lease commitment of the First Group includes operating lease and finance lease.

Operating lease commitment is the minimum rental that the First Group should make as a lessee or lessor under the lease term not revocable.

Capital expenditure commitment of the First Group refers to the capital expenses spent on the contract commitment in order to acquire the building and equipment.

Please refer to the below table for maturity analysis of lease contract commitment and capital expenditure commitment of the First Group:

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December 31,2013	Less than 1year	1 to 5years	More than 5years	Total
Lease commitment Operating lease expense (Lessee) Operatingleaseincome (Lessor)	$ 221,652 84,917	$ 1,628,675 856,969	$ 299,745 57,047	$ 2,150,072 998,933
Total	$ 306,569	$ 2,485,644	$ 356,792	$ 3,149,005

December 31,2012	Less than 1year	1 to 5years	More than 5years	Total
Lease commitment Operating lease expense (Lessee) Operatingleaseincome (Lessor)	$ 472,146 103,783	$ 1,024,253 573,567	$ 251,115 9,359	$ 1,747,514 686,709
Total	$ 575,929	$ 1,597,820	$ 260,474	$ 2,434,223

January1,2012	Less than 1year	1 to 5years	More than 5years	Total
Lease commitment Operating lease expense (Lessee) Operatingleaseincome (Lessor)	$ 157,700 51,124	$ 994,064 690,933	$ 309,547 5,416	$ 1,461,311 747,473
Total	$ 208,824	$ 1,684,997	$ 314,963	$ 2,208,784
The present value of finance lease has been recognized under			finance lease liabilities. As the
amount is immaterial and the liquidity risk is low, no analysis on its maturity value will be
taken.

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F. Disclosure required by Regulations Governing the Preparation of Financial Statements by Financial Holdings Companies

(A) Structure analysis of NTD time to maturity (FCB)

	Expressed In Thousands of New Taiwan Dollars	Expressed In Thousands of New Taiwan Dollars	Expressed In Thousands of New Taiwan Dollars	Expressed In Thousands of New Taiwan Dollars	Expressed In Thousands of New Taiwan Dollars	Expressed In Thousands of New Taiwan Dollars
	December 31,2013
	Total	1~30 days	31~90 days	91~180 days	181 days ~ 1year	Over 1year
Primary capital inflow upon maturity	$ 1,767,028,179	$ 501,661,150	$ 136,149,237	$ 131,006,454	$ 133,451,494	$ 864,759,844
Primary capital outflow upon maturity	2,164,064,620	198,097,336	215,869,112	182,711,211	283,789,477	1,283,597,484
Gap	($ 397,036,441)	$ 303,563,814	($ 79,719,875)	($ 51,704,757)	($ 150,337,983)	($ 418,837,640)

	December 31,2012
	Total	1~30 days	31~90 days	91~180 days	181 days ~ 1year	Over 1year
Primary capital inflow upon maturity	$ 1,724,381,501	$ 459,358,689	$ 174,486,379	$ 91,095,571	$ 178,857,569	$ 820,583,293
Primary capital outflow upon maturity	$ 2,055,738,901	216,303,675	220,691,459	184,490,283	252,329,566	1,181,923,918
Gap	($ 331,357,400)	$ 243,055,014	($ 46,205,080)	($ 93,394,712)	($ 73,471,997)	($ 361,340,625)

Note: The amounts listed above represent the funds denominated in New Taiwan dollars only (i.e., excluding foreign currency).

(B) Structure analysis of USD time to maturity of the Bank (FCB)

	Expressed In Thousands of US Dollars	Expressed In Thousands of US Dollars	Expressed In Thousands of US Dollars	Expressed In Thousands of US Dollars	Expressed In Thousands of US Dollars	Expressed In Thousands of US Dollars
	December 31,2013
	Total	1~30 days	31~90 days	91~180 days	181 days ~ 1year	Over 1year
Primary capital inflow upon maturity	$ 19,144,554	$ 6,031,652	$ 4,771,058	$ 2,368,371	$ 1,871,045	$ 4,102,428
Primary capital outflow upon maturity	19,501,898	8,174,137	3,931,474	1,922,313	2,016,429	3,457,545
Gap	($ 357,344)	($ 2,142,485)	$ 839,584	$ 446,058	($ 145,384)	$ 644,883

	December 31,2012
	Total	1~30 days	31~90 days	91~180 days	181 days ~ 1year	Over 1year
Primary capital inflow upon maturity	$ 13,846,198	$ 4,067,702	$ 4,089,385	$ 1,983,494	$ 923,753	$ 2,781,864
Primary capital outflow upon maturity	14,174,675	5,957,278	3,066,687	1,610,922	1,620,342	1,919,446
Gap	($ 328,477)	($ 1,889,576)	$ 1,022,698	$ 372,572	($ 696,589)	$ 862,418
Note: The Company’s	amounts listed above represent the items denominated in U.S.					dollars for
	head office, domestic and Offshore Banking Units.

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(6) Market risk

A. Market risk definition

Market risk occurs when the market price fluctuates leading to movement in fair value of financial instrument held by the First Group in or off the balance sheet or the future cash flow. The risk factors that could give rise to market price movement usually include interest rate, exchange rate, equity securities and instrument price. Any movement in above risk factors could result in risk of fluctuation on net profit or value of investment portfolio held by the First Group.

The market risks that the First Group faces mainly are equity securities, interest rate and exchange rate risk. Market risk position of equity securities mainly include domestic listed stocks, domestic stock index options and stock index futures and call and put warrants, etc. Positions with interest rate risk mainly include: bonds and interest-derivative instruments, such as fixed and floating interest swap and bond option, etc. Positions with exchange rate risk mainly include: the consolidated positions invested by the subsidiaries, indirect subsidiaries of the First Group, such as various derivatives denominated in foreign currency, credit-linked bonds, US government bonds, and other foreign bonds, etc.

B. Goal of market risk management

In order to effectively identify, evaluate, control and monitor the market risks of the First Group, as well as to enhance the managing mechanism of market risk, please see Note 8 for the risk management policies and controlling procedures that the Company places for subsidiaries within the First Group.

Major subsidiaries of the First Group have various market risk management policies, standards, key points and the regulations from competent authorities and the Company to comply.

(a) The Bank sets up “Management policy for market risk”, “Management standards for market risk”, “Management standards for liquidity and interest rate risk” and “Management guidelines for market risk” and others in an attempt to effectively regulate market risk and ensure that the market risk is under the Bank’s bearable capacity.
(b) FS breaks down market risks by segment and sets up “Risk Management Procedure and Implementation Standards” and guidelines for other business management, through which risk control procedures are planned and implemented.
(c) The subsidiary, FALI sets up “Investment Management Policy” to regulate relating controlling process and procedures for the investments on financial instruments, and regularly manages the risk exposure through the “Investment Execution Committee”.
C. Policy and procedure for market risk management

In order to identify, evaluate, control and monitor market risks that the First Group faces and strengthen managing mechanism for market risks, management policies and procedures have been set up to effectively manage market risk and ensure that market risk is controlled under a bearable capacity.

Policy

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The Board of FCB is the highest command and supervisory unit in charge of the granting of risk management policy, major risk assumption limit and relevant authorization. The Risk Management Committee under the Board of Directors executes various risk management implementations as resolved and granted by the Board and performs risk supervision. In addition, risk management division set up independent from the business unit is responsible for establishing market risk management structure for the market risk management.

Procedure

Please see Note 8(3) for the risk managing regulations and controlling procedures that the Company places for each subsidiary within the Group.

Each key subsidiary sets up stop-loss point, pre-warning program, market risk limit and trading authorization, annual risk limit of investment portfolio respectively as resolved and approved by the Board of Directors. Followed by the annual reviews, revision and adjustment may be made depending on the actual situation.

(a) The risk management division of the Bank assesses various risk indicators regularly as required by the policies and monitors various risk indicators to be within the limits authorized by the Board of Directors. Any excess over the limits and the usage level of risk limits are summarized and reported to the Board of Directors, risk management committee, general manager, vice-general manager and other related segments.

Business unit, before the engagement in new transaction or developing new market, should identify and evaluate risk in compliance with related procedures. The evaluation module before adoption should be verified through module testing technicians in order to effectively identify various market risks. For financial instruments that cannot be assessed by market price or module evaluation, the risks should be transferred by back-to-back method to avoid that the Bank may assume uncertain market risk.

(b) The subsidiary, FS controls the trading limits to the traders directly through the on-line trading system. When developing a new product or business plan, or when the method, model and assumption are significantly altered in relation to the authorization standards, approval procedures, risk management and controlling procedures, all should be discussed and reviewed by the risk managing unit and audit segment, and initialed by the General Manager.
D. Management procedure for market risk

The First Group’s management procedure for market risk of interest rate risk, exchange risk and equity securities are as follows:

(a) Identification and evaluation

Risk identification: When there is any new product, market or currency of a financial instrument, market risk factors and market risk source should first be identified before the underwriting is permitted.

Risk evaluation: Appropriate risk indicator and risk limits for management are set up. Each every significant risk indicator of the subsidiaries includes position, gain and loss, stress testing loss, sensitivity (PVO1, Delta, Vega, Gamma) and Value-at-Risk (VaR).

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(b) Monitoring and report

For financial instrument evaluated by the market price, the information of independent source should be assessed at least once a day. For those evaluated by modules, the assumption and input used in the evaluation module as provided by the market data of Reuters and Bloomberg, after the module experience is tested and granted, the calculation on evaluation and sensitivity may be carried on, which is used to control the risk incurred through investment portfolio.

The key subsidiaries of the First Group establish risk reporting programs and procedures. The risk management division should regularly present the daily report, monthly report and other risk management report to the Board of Directors and senior management based on the needs of segment heads, general manager, general president or the Board of Directors to report interest risk, exchange risk and equity securities exposure, including gain and loss, trading position, various risk indicators, risk limit usage, all limit excess or fault and so on, and regularly follow-up and send out warning reminder to ensure corrective action has been taken in a timely manner and in compliance with regulations.

E. Risk evaluation method (market risk evaluation technique)

In order to effectively evaluate market risks, each key subsidiary in the First Group sets up methods and limits to measure evaluate risks and performs market price evaluations for the financial instrument position held on a daily/weekly basis, which are then reported to the Board or each responsive unit regarding the positions held, gains and losses on transactions and market risks on a weekly/monthly basis.

(a) The subsidiary, FCB

In order to effectively evaluate the market risks, the Bank establishes appropriate risk indicators and measurement instruments based on each investment portfolio and business characteristics of trading book and banking book. Meanwhile, by setting up risk limits and controlling mechanism, risk limit control is regularly reported to each responsible segment and reported to the Board of Directors. Above risk indicators include: positions, gains and losses, sensitivity indexes (Delta, Gamma, Vega), Value-at-Risk of equity securities (VaR), stress losses and others.

Definitions of various indicators:

PV01: It is the change in related amount of interest rate instrument when the interest rate moves by 1 unit (1bp = 0.01%).

Delta: When the price of underlying asset moves by 1 unit that leads to related movement in Delta ratio of the derivative, by which is multiplied the nominal amount to measure to Delta position.

Vega: It is the change in related amount of derivative instrument when the value of underlying asset moves by 1 unit. It is the change in related amount of the interest rate instrument when the interest rate moves by 100 basic units.

Gamma: It is the change in related amount of Delta when the underlying asset value moves by 1 unit.

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Interest rate-sensitive instruments are the change in related amount of PV01 that incurred to the interest rate instrument when interest rate moves by unit.

Exchange rate-sensitive instruments are the change in related amount of Delta that incurred to the exchange rate instrument when exchange rate moves by 1% of the unit.

Stress loss: Provided that all other conditions remain constant, it is the effects from ±100bp interest rate movement, ±15% overall market movement of equity securities, ±3% exchange rate fluctuation on New Taiwan Dollars versus major currencies or ±5% exchange rate fluctuation on New Taiwan Dollars versus other currencies.

(b) The subsidiaries, FS, FALI and FSIT

Basically, financial instruments are valued through Mark-to-Market. However, if there is no quoted market price available for the public, valuation models may be adopted accompanied with related model controlling rules after verification.

F. Policy and procedure of risk management on trading book

The so-called trading book includes the financial instrument and physical instrument position held for trading or held for hedging purpose in relation to the trading position. The positions held for trading are instruments held with an attempt to sell in short-term or gain profit or arbitrage from the actual or estimated short-term price fluctuations. For example, self-operating position, discretionary account (such as agent facilitating transaction), position generated through market transaction or the position held to offset another position in the trading book, total or major investment portfolio. For positions not included in above trading book are banking book position.

The Bank establishes specific policy and procedure for the trading strategy of trading book position in order to manage potential market risk of trading position and well control the risk within the limits.

(a) Strategy

In order to effectively control market risk and ensure the mobility and adaptability of the trading strategy implemented by sale units, market risk limit of the trading book is set at the level of “investment portfolio” to carry out various assessments and controls. In addition, risk limits of each portfolio are set up according to the trading strategy, types of trading instruments and annual profit objective for better management.

(b) Policy and procedure of risk management

In principle, management policy is carried out based on annually revised risk limits of each investment portfolio.

Generally, financial instruments are assessed through Mark-to-Market, however, Mark-to-Model may be adopted if there is no fair value in the market. Nonetheless, the model should be independently verified before adoption and relevant guideline model management needs to be set up and implemented accordingly.

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Evaluation procedure: The risk management unit confirms that the risk evaluation is consistent with the position information posted on the evaluation system at day-end and the market data adopted. In addition, the risk management unit monitors daily evaluation and risk limit and regularly report risk quota usage and limit exceeding event.

(d) Evaluation method

The Bank executes stress testing on ±100bp interest rate movement, ±15% equity securities movement, ±3% exchange rate fluctuation and ±5% circumstance movement on a monthly basis and reports to the risk management committee regularly.

G. Interest risk management for trading book

Risk management on the interest rate of trading book for FCB is as follows:

(a) Interest risk definition

Interest risk occurs when there is an adverse movement of interest rate resulting in change in fair value of trading book position held.

(b) Management objective

The management objective of interest risk lies in effective identification, evaluation, controlling and monitoring of interest rate to enhance managing mechanism of market risk.

In principle, annual risk limits are controlled based on investment portfolio of trading book with interest rate revised annually.

(d) Evaluation method

Evaluation is calculated based on the risk-sensitive index verified by system calculation. In addition, stress testing is performed based on ±100bp annual interest rate movement and reported to the risk management committee regularly.

H. Risk management for banking book interest

Interest risk is the risk that a bank suffers from an adverse movement of interest rate or financial condition of the bank. Interest movement might change the bank’s net interest income and other interest-sensitive incomes which further affects the bank’s earnings. Meanwhile, interest movement could also affect positions in and off the bank’s balance sheet.

==> picture [420 x 84] intentionally omitted <==

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FIRST FINANCIAL HOLDING CO., LTD.

The banking book risk management of the Bank is as follows:

(a) Strategy

The objective of interest rate management is to improve banks’ adaptability so that the earnings and economic value in the balance sheet can be assessed and managed through avoiding the impact from interest rate movement.

(b) Policy and procedure of risk management

According to “Management policy of asset and liability” and “Management guideline for liquidity and interest risk” of the Bank, risk management division is the monitoring unit that is responsible for interest risk index, analysis and monitoring interest-sensitive position, and regular reporting the monitoring result of interest risk to the asset and liability management committee, risk management committee and Board of Directors.

If various interest risk indexes and stress testing results fall in the warning threshold, risk management division should issue warning notice to the asset and liability management committee. However, if interest risk index exceed the planned threshold, it should be reported to the asset and liability management committee for discussing the responding measures, which is followed by relevant business unit and reported to the Board of Directors.

(c) Evaluation method

The interest rate risk of the Bank is mainly the repricing gap risk resulting from the difference between maturities and repricing date of banking book assets and liabilities and off balance sheet accounts. In order to stabilize long-term profit and business development at the same time, Risk Management Division sets up various monitoring indicators for interest rate of most common periods and executes stress testing, and tests the effects on net interest income and net fair economic value within one year when the market interest rate moves by +/-200 bps, that is Interest Rate Shock from the perspective of earnings and economic value. Every interest rate risk indicator and stress testing result should be reported to management for review.

I. Risk management for foreign exchange
(a) Definition of foreign exchange

Foreign exchange risk occurs when the net foreign position held fluctuates with the currency exchange rate giving rise to an exchange gain or loss. The foreigner exchange risks of financial instruments held by the Group mainly include foreign investment position, spot exchange and forward contract, FX option and other derivative or non-derivative instruments.

(b) Objective

The objective of foreign exchange lies in effective identification, evaluation, controlling and monitoring foreign exchange risk of the Company and enhancement of management mechanism for market risk.

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Management policy for market risk is adjusted based on the annual risk limit revised by foreign exchange trading investment portfolio annually.

(d) Evaluation method

Through risk sensitive indicators calculated by the validated system as a benchmark, the Bank regularly carries out testing and reports the results to the risk management committee given that the currency movement is provided at ±3% and other currency movement at ±5%.

J. Risk management for equity securities
(a) Definition of equity securities risk

The market risk of the equity securities held by the Company includes the individual risk resulting from market price movement of each equity securities and general market risk resulting from overall market price movement.

(b) Risk management objective

The objective for equity risk management lies in effective identification, evaluation, risk controlling and monitoring for the equity securities of the Group and enhancement of managing mechanism for market risk.

Management policy for market risk is adjusted based on the annual risk limit revised by stock trading investment portfolio annually.

==> picture [443 x 246] intentionally omitted <==

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K. Foreign exchange risk gap

As of December 31, 2013, December 31, 2012 and January 1, 2012, the following table summarizes financial instruments of foreign denominated assets and liabilities by currency of which the foreign exchange exposure is presented by the carrying amount:

	Expressed In Thousands of New Taiwan Dollars	Expressed In Thousands of New Taiwan Dollars	Expressed In Thousands of New Taiwan Dollars
Financial assets Cash and cash equivalents Due from the Central Bank and call loans to other banks Financial assets at fair value through profit or loss Available-for-sale financial assets Loans discounted Receivables Held-to-maturity financial assets Other financial assets Subtotal-financial assets Financial liabilities Due to Central Bank and others Deposits and remittances Financial liabilities at fair value through profit or loss Other financial liabilities Payables Subtotal-financial liabilities Financial assets Cash and cash equivalents Due from the Central Bank and call loans to other banks Financial assets at fair value through profit or loss Available-for-sale financial assets Loans discounted Receivables Held-to-maturity financial assets Other financial assets Subtotal-financial assets Financial liabilities Due to Central Bank and others Deposits and remittances Financial liabilities at fair value through profit or loss Other financial liabilities Payables Subtotal-financial liabilities	December 31, 2013
	USD	RMB	USD
	$ 433,007,254 $ 54,449,819		$ 415,796,447

			$ 397,385,656

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Note: As of December 31, 2013, December 31, 2012, and January 1, 2012, the exchange rate of USD to NTD was 29.78, 29.035, and 30.275, respectively. In addition, as of December 31, 2012, and January 1, 2012, the exchange rate of JPY to NTD were 0.336, and 0.389, respectively.

L. Sensitivity analysis
(A) Interest rate risk

If the market yield curve shifts upwards or downwards by 20 bps, it could affect the assessed fair value and interest income. Items being assessed include all assets of the trading book position and banking book position, of which the interest income of banking book assets that could be affected is one year.

The First Group assumes that yield curve is the only variable when all the other interest curves remain constant and sums up the gain and loss resulting from changes in each yield curve. According to the above estimated net interest income and assessed gain and loss on fair value, sensitivity analysis is as follows:

(B) Foreign exchange risk

Given that all the other variables remain constant, every NTD to USD, JPY, RMB and EUR appreciate by 2% or NTD to other currencies appreciate by 4%, the sensitivity of the gain and loss on the net foreign exchange position held by the First Group is shown in the below table.

(C) Equity securities risk

Given that all the other variables remain constant, if the equity price rises/falls by 4% or 6% (based on the average interest rate of Taiwan Stock Exchange Market Index in the latest three years), the fair value of listed stocks, emerging stocks in the trading book and other equity interest relating position held by the First Group are shown in the below table:

(D) Sensitivity analysis is summarized as follows:

December 31,2013	December 31,2013	December 31,2013	December 31,2013
Main risk	Movements	Effects on gain and loss	Effects on equity
Foreign exchange risk	NTD to USD, JPY and RMB appreciate by 2%, or NTD to other currencies appreciate by 4%.	37,809	( 1,444)
Foreign exchange risk	NTD to USD, JPY and RMB depreciate by 2%, or NTD to other currencies depreciate by 4%.	( 37,809)	1,444
Interest raterisk	Main interest rate curveincreases by20BPS	( 88,250)	( 624,781)
Interest rate risk	Main interest rate curve decreases by20 BPS	90,408	710,718
Equity securities risk	Weighted average index of Taiwan Stock Exchange Market rises by4%.	222,211	( 86,066)
Equity securities risk	Weighted average index of Taiwan Stock Exchange Market falls by4%.	( 222,211)	86,066

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December 31, 2012

Main risk	Movements	Effects on gain andloss	Effects on equity
Foreign exchangerisk	NTD to USD, JPY and EUR appreciate by 2%, or NTD to othercurrenciesappreciate by4%.	53,716	( 4,372)
Foreign exchangerisk	NTD to USD, JPY and EUR depreciate by 2%, or NTD to othercurrencies depreciate by4%.	( 53,716)	4,372
Interest raterisk	Main interest rate curveincreases by20BPS	( 65,645)	( 454,122)
Interest rate risk	Main interest rate curve decreases by20 BPS	53,898	475,170
Equity securities risk	Weighted average index of Taiwan Stock Exchange Market rises by6%.	47,765	247,788
Equity securities risk	Weighted average index of Taiwan Stock Exchange Market falls by6%.	( 47,765)	( 247,788)

January 1, 2012

January1,2012
Main risk	Movements	Effects on gain and loss	Effects on equity
Foreign exchangerisk	NTD to USD, JPY and EUR appreciate by 2%, or NTD to othercurrenciesappreciate by4%.	599	( 1,447)
Foreign exchangerisk	NTD to USD, JPY and EUR depreciate by 2%, or NTD to othercurrencies depreciate by4%.	( 599)	1,447
Interest raterisk	Main interest rate curveincreases by20BPS	( 107,229)	( 355,031)
Interest rate risk	Main interest rate curve decreases by20 BPS	105,871	356,657
Equity securities risk	Weighted average index of Taiwan Stock Exchange Market rises by6%.	75,137	254,441
Equity securities risk	Weighted average index of Taiwan Stock Exchange Market falls by6%.	( 75,137)	( 254,441)

M.Disclosure made in accordance with Regulations Governing the Preparation of Financial Reports by Financial Holdings Companies

Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013

Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2013
(Expressed In Thousands of New Taiwan Dollars, %)
Item	1~90 days	91~180 days	181 days~1year	Over 1year	Total
Interest-rate-sensitive assets	1,407,540,638	42,227,726	21,746,422	119,558,122	1,591,072,908
Interest-rate-sensitive liabilities	439,061,162	851,478,326	95,673,038	39,947,664	1,426,160,190
Interest-rate-sensitivegap	968,479,476	(809,250,600)	(73,926,616)	79,610,458	164,912,718
Net					131,587,627
Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities(%)					111.56%
Ratio of interest-rate-sensitivegapto stockholders’ equity (%)					125.33%

Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2012

Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (NTD) December 31, 2012
(Expressed In Thousands of New Taiwan Dollars, %)
Item	1~90 days	91~180 days	181 days~1year	Over 1year	Total
Interest-rate-sensitive assets	1,405,692,203	12,923,712	33,650,532	91,290,958	1,543,557,405
Interest-rate-sensitive liabilities	439,202,099	787,900,329	91,701,384	40,962,424	1,359,766,236
Interest-rate-sensitivegap	966,490,104	(774,976,617)	(58,050,852)	50,328,534	183,791,169
Net					123,409,281
Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities(%)					113.52%
Ratio of interest-rate-sensitivegapto stockholders’ equity (%)					148.93%

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Note: The amounts listed above represent the items denominated in NTD for the Bank (exclusive of foreign currency), excluding contingent assets and contingent liabilities.

Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2013

Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2013	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2013
(Expressed In Thousands of USD, %)
Item	1~90 days	91~180 days	181 days~1year	Over 1year	Total
Interest-rate-sensitive assets	13,469,448	2,202,331	1,394,510	627,870	17,694,159
Interest-rate-sensitive liabilities	10,547,067	5,903,286	828,344	22,818	17,301,515
Interest-rate-sensitivegap	2,922,381	(3,700,955)	566,166	605,052	392,644
Net					4,418,658
Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities(%)					102.27%
Ratio of interest-rate-sensitivegapto stockholders’ equity (%)					8.89%

Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2012

Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2012	Sensitivity analysis of interest rate for assets and liabilities (USD) December 31, 2012
(Expressed In Thousands of USD, %)
Item	1~90 days	91~180 days	181 days~1year	Over 1year	Total
Interest-rate-sensitive assets	11,834,363	3,445,018	1,061,956	1,089,346	17,430,683
Interest-rate-sensitive liabilities	9,624,328	6,158,091	1,258,662	40,289	17,081,370
Interest-rate-sensitivegap	2,210,035	(2,713,073)	(196,706)	1,049,057	349,313
Net					4,312,256
Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities(%)					102.04%
Ratio of interest-rate-sensitivegapto stockholders’ equity (%)					8.10%

  - Note:The amounts listed above represent the items denominated in U.S. dollars for FCB’s head office, domestic branches and Offshore Banking Units, excluding contingent assets and contingent liabilities.

  - (A) Interest-rate-sensitive assets and liabilities are those interest earned assets and interest bearing liabilities, revenues and costs which are sensitive to changes in interest rates.

  - (B) Ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities =Interest-rate-sensitive assets / interest-rate-sensitive liabilities (refer to NTD denominated interest-rate-sensitive assets and interest-rate-sensitive liabilities).

  -

  - (C) Interest-rate-sensitive gap = Interest-rate-sensitive assets interest-rate-sensitive liabilities.

(7) Insurance risks
A. Policy, procedure and method of risk management relating to insurance liabilities:

Risks relating to insurance liabilities happen when the policy sales underestimate the liability leading to a failure of fulfilling the future obligation. The subsidiary, FALI establishes appropriate risk managing mechanism in relation to various reserves for insurance business which is actually implemented accordingly. The contents include:

(A) Review on the legitimacy of the setting aside of Provisions for insurance
(B) Setting up proper procedures for the setting aside of Provisions for insurance

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(C) Evaluation on the risk of Provisions for insurance
(D) Controlling methods for risks relating to Provisions for insurance
B. Commensurate policy, procedure and method between risk management and assets and liabilities

Risk of assets and liabilities commensuration refer to risks occuring due to inconsistent movement in the value of asset and liability. According to the nature and complexity of the insurance liabilities sold, proper assets and liabilities managing mechanism are set up making FALI form, execute, monitor and adjust strategies relating to the assets and liabilities under durable capacity in order to achieve its pre-set financial goals. The content includes:

(A) Commensurate risk identification of assets and liabilities
(B) Commensurate risk evaluation of assets and liabilities
(C) Responding commensurate risk of assets and liabilities
C. Insurance risk concentration

All businesses of FALI occur within the territory of Taiwan, and the insurance risks from every location as assumed by FALI have no significant difference between them. Moreover, FALI sets up durable accumulative limits based on each risk unit and each risk event and transfers the risks exceeding risk limit through reinsurance. For more information on the risk concentration before and after the reinsurance, please see the tables and statements in the accompanying notes.

D. Sensitivity analysis on insurance risk

According to insurance regulations, the assumption variables used for computing policy reserve are locked-in upon pricing. However, such assumption may differ from the actual experience as time passes. In addition, according to IFRS No. 4, FALI should perform liability adequacy test to evaluate if the provisions for insurance recognized is sufficient or not. In particular, for changes in various assumptions on death rate, insurance rate, lapse rate, discount rate and rate of return on investment, the results of sensitivity testing have shown that inadequacy of FALI’s liabilities did not exist for 2013 and 2012 given that the death rate moves by 10%, insurance rate rises by 10%, assumed lapse rate moves by 10% or 30%, discount rate decreases by 10% or fluctuates by 0.5%.

E. Credit risk

With regard to the insurance contracts taken over by FALI, credit risks happen mainly when the reinsurer fails to carry out the obligation of reinsurance contract leading to a financial loss of FALI. Any dispute between FALI and reinsurer could give rise to further impairment on the reinsured assets. In addition, receivables from insurance agents or representatives could also involve credit risks.

In avoidance of above risks, the subsidiary, FALI chooses to trade with reinsurance companies assessed by AVIVA Group with good credit rating. The maximum exposure on reinsurance contract of FALI is the carrying amount of reinsured asset.

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F. Liquidity risk

The liquidity risk of insurance contract mainly happens when a company fails to liquidate assets or obtain sufficient fund leading to a failure in fulfilling obligation from various insurance liabilities. In order to manage the liquidity risk of insurance contracts, FALI carries out maturity analysis on insurance contract regularly and reviews the assets and liabilities.

The following table analyses net cash flow of insurance liabilities of FALI by estimated maturity. The figures in the table represent estimates that the total insurance payment and expense at certain time in the future less undiscounted cash inflow, premiums for example. However, the actual payments in the future may differ from the estimated experience.

Net cash outflow (inflow) of insurance contract:

Less than 1 year 1~5 years 5~15 years More than 15 years Total contractual cash flow	December 31, 2013 December 31, 2012 $ 7,952,085 ($ 236,786) 2,478,593 11,209,766 169,967 740,758 4,290,634 ( 2,932,500 $ 14,891,279 $ 14,646,238	January 1, 2012 $ 462,729 10,903,446 439,004 118,001 ) $ 11,687,178

G. Market risk:

Main risks of insurance contracts assumed by the subsidiary, FALI include: death rate, mortality rate, insurance rate and return rate, etc. Insurance contracts under general accounts offered by FALI are mainly denominated in NTD. Therefore, market risks relating to exchange rates are insignificant. On the other hand, according to current Regulations Governing the Setting Aside of Various Reserves by Insurance Enterprises, the interest rate of insurance contract is locked-in for liabilities reserve set aside based on the assumption when the policy is issued. In addition, the best estimated investment return is the discount rate used for liability adequacy test.

H. Regarding derivatives embedded in the main insurance contract not measured by fair value, information on market risk exposure is as follows:

The following embedded derivatives issued by FALI, of which the contracts are not measured by fair value. Surrender value of such instruments varies with the announced interest rates, and the announced interest rates are the interest rates used to compute the value of insurance contract reserve in the year in which the policy effective date or the month of policy anniversary date announced by the life insurance company. FALI assumes risks when the overall return on investment or separated return rate on investment is lower than the lowest guaranteed interest rate. However, FALI regularly reviews the return on investment and investment portfolios to mitigate risk of interest-spread.

9. Capital management

For the effective control on capital adequacy of the First Group and each of its subsidiary, as well as for ensuring the business development and risk controlling, the Company has established “Management Policies for Capital Adequacy of The First Financial Holdings Company” as approved by the Board of Directors to improve capital utilization efficiency of the First Group, through which the Risk Management Committee then sets up “Warning Indicators for Capital Adequacy ” for each

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subsidiary accordingly as authorized by the Board so that the capital strategies from senior management can be practiced and implemented. Related information should be reported to the Board of Directors accordingly on a regular basis.

In addition, in order to establish evaluation process for capital adequacy and maintain proper self-owned capital structure of each significant subsidiary within the First Group, also to develop business and control risk on both sides for better improvement of capital utilization, subsidiaries have established capital management policies to implement the strategies of senior management and the related information shall be disclosed or reported accordingly.

The management objectives and procedures for capital management of the significant subsidiaries within the First Group are as follows:

(1) Objective of capital management
A. To ensure that the First Group and its subsidiaries comply with regulations governing capital adequacy and minimum requirements set up by competent authorities of each industry, the consolidated capital adequacy ratio for the First Group shall not be lower than 110%, capital adequacy ratio for FCB should be not be lower than 8% as set out in “Regulations Governing Capital Adequacy of Banks”, capital adequacy ratio for FS should not be lower than 200% as set out in “Regulations Governing Securities Firms”, and capital adequacy ratio for FALI should be not be lower than 200%.
B. In response to the capital required from each subsidiary’s operation plan, and to make them have sufficient capital for various risks derived from capital demand, capital allocation is distributed under a goal of utilization of capital arrangement.
C. Significant subsidiaries such as FSC, FS, and FALI should evaluate its capital adequacy on a regular basis and appropriately plan on its capital structure, tool to exercise and portfolio adjustment through duty segregation to carry out capital management.

(2) Capital management procedures

The Board of Directors of the Company is the highest authority of the First Group. To maintain the capital adequacy, the Board authorizes Risk Management Committee of the Company to set up “Warning indicators of Capital Adequacy” and review the budgeted business goals for each subsidiary every year. When the capital adequacy ratio of each subsidiary is lower than the warning indicator, the Company has to take action depending on the significance.

When the capital adequacy is lower than the legal standard as required, the First Group may start to plan on resolutions, such as increasing qualifying net capital or decreasing the legal standards, including:

A. Reduce total risk assets of subsidiaries.

B. Adjust asset portfolios of subsidiaries.

C. Dispose the stock investments of subsidiaries; or
D. Increase capital of the Company or issue preferred stocks or subordinated bonds that can be included in qualifying capital.

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The Company performs evaluation for the First Group’s capital adequacy and reports to the senior management in order to effectively monitor the capital adequacy of the First Group on time.

The responsible segments of significant banking, securities and life insurance subsidiaries and others should effectively identify, evaluate, monitor and control market risk, credit risk, operating risk, banking book interest risk, liquidity risk as set up by competent authorities and comply with legal and compliance risk regulations with an attempt to reflect evaluation on the minimum capital required. The subsidiary, FCB also sets up separately a team for capital planning and holds a meeting to ensure the implementation of the Board’s capital strategies on a regular basis in respect of capital managing objectives, fund gap, responding measures that could impose an effect on risk assets or qualifying self-owned capital and so on.

(A) Capital adequacy

December 31, 2013	December 31, 2013	December 31, 2013	December 31, 2013

Company	Ownership of financial holdings company	Qualifying capital	Legal capital demand
FFH	100%	$ 143,728,222	$ 145,486,113
FCB	100%	150,762,418	110,648,840
FS	100%	4,623,247	1,617,130
FALI	51%	399,331	195,702
FSIT	100%	994,341	560,306
FVC	100%	1,644,458	865,537
Other subsidiaries	100%	1,729,218	2,087,446
Deductible item		( 157,264,026)	( 142,300,879)
Subtotal		146,617,209	119,160,195
Capital adequacy			123.04%

December 31, 2012

Company	Ownership of financial holdings company	Qualifying capital	Legal capital demand
FFH	100.00	$ 137,905,478	$ 139,418,758
FCB	100.00	149,361,919	103,772,767
FS	100.00	4,429,894	1,766,729
FALI	51.00	399,943	149,907
FSIT	100.00	976,003	571,350
FVC	100.00	1,326,937	710,787
Other subsidiaries	100.00	1,644,160	1,238,483
Deductible item		( 155,256,827)	( 135,490,347)
Subtotal		140,787,507	112,138,434
Capital adequacy			125.55%

Note 1: Capital adequacy � Qualifying net capital÷Legal capital demand

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(B) Qualifying capital of financial holdings company

December 31, 2013

December 31, 2013
Item	Amount
Common stock	$ 86,535,092
Capital instrument met regulation of other Tier I capital for bank	-
Otherpreferred stock and subordinated bonds	3,000,000
Share received in advance(stock dividends to be distributed)	-
Additionalpaid-in capital	18,200,167
Legal reserve	8,266,238
Special reserve	4,128,990
Retained earnings	19,446,949
Adjustment of equity	4,151,813
Less�capital deductible item	( 1,027)
Totalqualifyingcapital	$ 143,728,222

December 31, 2012

	Item	Amount
	Common stock	$ 81,253,607
	Perpetual non-cumulative preferred shares and non-cumulative subordinated bonds without due date that met regulation and limit of other Tier I capital for bank	-
	Otherpreferred stock and subordinated bonds	4,000,000
	Share received in advance(stock dividends to be distributed)	-
	Additionalpaid-in capital	18,200,167
	Legal reserve	7,248,854
	Special reserve	358,016
	Retained earnings	18,541,369
	Adjustment of equity	8,306,697
	Less�goodwill	-
	Less�deferred assets	( 3,232)
	Less�treasurystock	-
	Totalqualifyingcapital	$ 137,905,478

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(C) In accordance with Article 46 of the Financial Holding Company Act, the following table represents the Company and its subsidiaries’ provision of business credit or endorsements to, or other transactions with, the same individual or the same affiliated company.

December 31, 2013 Total balance of transaction listed in article 46, paragraph 2 of the Financial Holding Company Act Name	December 31, 2013 Total balance of transaction listed in article 46, paragraph 2 of the Financial Holding Company Act Name	December 31, 2013 Total balance of transaction listed in article 46, paragraph 2 of the Financial Holding Company Act Name
	Total balance of transaction listed in article 46, paragraph 2 of the Financial Holding Company Act		Percentage (%) of net value on effective date of financial holdings company
Same natural persons or same legal person National Treasury Administration, Ministry of Finance Taiwan High Speed Rail Corporation Taiwan Power Company INNOLUX CORPORATION AU Optronics Corp. NAN YA PLASTICS CORPORATION China Airlines Ltd. DRAGON STEEL CORPORATION EVA AIRWAYS CORPORATION Wan Bao Development Consulting Co.,Ltd Far Eastern New Century Corporation Yang Ming Marine Transport Corp. KINDOM CONSTRUCTION CORP. Formosa Petrochemical Corp CHENG SHIN RUBBER IND. CO., LTD. KTC-Tu & KTC-Sun EVERGREEN MARINE CORP. (TAIWAN) LTD. Subtotal		$ 115,838,396 38,059,568 24,736,518 11,207,011 9,537,555 6,802,325 6,776,284 6,085,640 5,413,961 5,303,200 4,575,624 4,275,235 4,252,717 4,125,633 3,951,395 3,573,600 3,116,965 $ 257,631,627	82.37 27.06 17.59 7.97 6.78 4.84 4.82 4.33 3.85 3.77 3.25 3.04 3.02 2.93 2.81 2.54 2.22 183.19

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December 31, 2013 Total balance of transaction listed in article 46, paragraph 2 of the Financial Holding Company Act Name	December 31, 2013 Total balance of transaction listed in article 46, paragraph 2 of the Financial Holding Company Act Name
	Total balance of transaction listed in article 46, paragraph 2 of the Financial Holding Company Act	Percentage (%) of net value on effective date of financial holdings company 18.31 15.02 13.33 11.14 7.76 7.61 7.33 6.64 6.34 5.88 5.72 5.59 5.37 5.30 4.93 4.31 4.10 4.07 3.99 3.79 3.59 3.48 3.46 3.44 3.39 3.35 3.28 3.19 3.18 3.10 2.96 2.86 2.80 2.59 2.40 2.22 195.82
Same natural persons or same legal person Formosa Plastics Group EVERGREEN GROUP AU Optronics Group HON HAI GROUP CSC GROUP CATHAY GROUP FAR EASTERN GROUP RUENTEX GROUP Walsin Group E United GROUP China Airlines Group YFY GROUP Taiwan Cement Group Kingston Group LIH PAO CONSTRUCTION GROUP TAIYA INTERNATIONAL GROUP Cheng Shin Group Shihlin Paper Group Wisdom Marine Group Uni President Group Chicony Group Continental Engineering Group Yang Ming Marine Group TEST RITE GROUP United Microelectronics Group Chang Chun Group HPW GROUP KANTONS GROUP Fubon Group YULON GROUP Ting Hsin Group Pou Chen Group Lian Hwa Group TATUNG GROUP LONG CHEN PAPER GROUP Wei Jing Group Subtotal	$ 25,757,211 21,130,560 18,742,973 15,673,423 10,916,231 10,698,885 10,315,005 9,340,022 8,910,731 8,275,901 8,041,771 7,858,315 7,548,561 7,454,261 6,936,706 6,063,212 5,763,545 5,725,543 5,616,211 5,323,998 5,045,619 4,896,541 4,869,878 4,841,921 4,774,218 4,704,936 4,613,400 4,483,771 4,471,941 4,358,045 4,157,059 4,022,934 3,942,824 3,647,513 3,370,698 3,120,076 $ 275,414,439
(Note) Net value in the above table is the amount that had not been audited as of December 31,
2013.

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10. Content and amount of investment trust business in accordance with Trust Enterprise Act

		Balance Sheet of Trust Accounts	Balance Sheet of Trust Accounts
Trust assets			December 31, 2013			December 31, 2012
Bank deposits		$	9,995,624		$	9,196,489
Bonds			81,493,188			65,087,646
Stocks			94,374,375			97,745,741
Mutual funds			200,142,057			210,373,388
Real estate			11,431,026			9,018,277
Net assets under collective
management accounts			546,485			623,069
Net assets under
individual management accounts			14,161			13,377
Customers’ securities under	custody		337,787,214			301,419,191
Total		$	735,784,130		$	693,477,178
Trust liabilities
Payables-customers securities		under
custody		$	337,787,214		$	301,419,191
Trust capital			397,864,708			391,906,852
Accumulated profit or loss			132,208			151,135
Total		$	735,784,130		$	693,477,178
	Income Statement of Trust Accounts
Trust revenues			2013			2012
Interest income		$	9,131		$	2,164
Dividend income			899			792
Realized gain on bonds			608,981			186,007
Realized gain on stocks			1,168			5,604
Realized gain on mutual funds			3,931,526			1,698,906
Gain on translation			647			851
Total trust revenues			4,552,352			1,894,324
Trust expenses
Management fee		(	1,804)(			2,137)
Service fee		(	759)(			475)
Realized loss on bonds		(	323,437)(			347,565)
Realized loss on stocks		(	5,172)(			32,838)
Realized loss on mutual funds		(	3,269,092)(			3,986,332)
Gain on translation		(	1,477 )	(		6 )
Total trust expenses		(	3,601,741 )	(		4,369,353 )
Net loss before tax (net investment
income)			950,611	(		2,475,029)
Income tax expense			-			-
Net loss after tax		$	950,611	($		2,475,029 )

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Property Investment items Bank deposits Bonds Stocks Mutual funds Real estate Net assets under collective management accounts Net assets under individual management accounts Customers’ securities under custody Total	Property	List of Trust Accounts December 31, 2013 $ 9,995,624 81,493,188 94,374,375 200,142,057 11,431,026 546,485 14,161 337,787,214 $ 735,784,130	December 31, 2012
			$ 9,196,489 65,087,646 97,745,741 210,373,388 9,018,277 623,069 13,377 301,419,191
			$ 693,477,178

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11. Disclosure of financial information by segments

(1) General information

Inter-segmental transactions are arm’s length transactions, and gain and loss arising from such transactions are eliminated by the parent company upon the preparation of the consolidated financial statements. Profit and loss directly attributable to various segments have been considered when segment performance is being evaluated.

The operating segments of the First Group comprise banking, securities, insurance and other businesses. The operating results are reviewed by the CODM regularly and are referenced when allocating resources and evaluating operating performance.

The First Group has a global market, comprising three major business segments; there was no change in the reporting segments during the period.

The operating results have different income items due to different nature of the operating segments, and the First Group evaluates segment performance based on the net profit before tax of various segments. Therefore, performance of all reporting segments is presented by the net value of operating net profit less various operating expenses. Income from external clients provided for the CODM to review is measured on the same basis of the statement of comprehensive income.

Adjustments of internal pricing and transfer pricing are reflected in segment performance evaluation. Income from external clients has been allocated based on the regulated allocation standard between segments.

The internal management’s operating reports are prepared based on net operating profit, including net interest income, net service fee income, recovered bad debts (provision), and loan impairment loss, net gain (loss) on financial instruments and other operating gain (loss). Measurement basis does not include non-recurring items, e.g. litigation expenses.

Segment information is mainly based on the internal management reports provided by various operating segments to the CODM, including segmental gain (loss), segmental assets, segmental liabilities and other related information.

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		Unit: NTD thousands	Other Reconciliation and	businesses elimination Consolidated	152,607) $ - $ 25,932,432	( 12,260,803 11,367,916 ) 10,533,800	( 12,260,803 11,367,916 ) 10,533,800	12,108,196 ( 11,367,916) 36,466,232	19,355) - ( 4,046,506)	- - ( 397,078)	766,131 ) ( 267,855 18,973,494 )	766,131 ) ( 267,855 18,973,494 )			11,322,710 ( 11,100,061) 13,049,154	106,463 ) ( - 2,172,180 )	106,463 ) ( - 2,172,180 )			11,216,247 ($ 11,100,061 ) $ 10,876,974	11,216,247 ($ 11,100,061 ) $ 10,876,974	Unit: NTD thousands	Other Reconciliation and	businesses elimination Consolidated	136,693) ( $ 64,284) $ 25,067,300	( 11,315,201 10,661,382 ) 10,205,869	( 11,315,201 10,661,382 ) 10,205,869	11,178,508 ( 10,725,666) 35,273,169	- - ( 3,551,393)	- - ( 652,170)	758,242 ) ( 375,422 18,922,384 )	758,242 ) ( 375,422 18,922,384 )			10,420,266 ( 10,350,244) 12,147,222	46,388 ) ( - 1,977,776 )	46,388 ) ( - 1,977,776 )			10,373,878 $ 10,350,244 $ 10,169,446	10,373,878 $ 10,350,244 $ 10,169,446
Information about segment gain (loss), assets and liabilities:	Financial information of the First Group by business for 2013 and 2012 were as follows:		Banking Securities Insurance	2013 businesses businesses businesses	Net interest income $ 25,470,120 $ 315,527 $ 299,392 ( $	Net non-interest income 7,926,668 1,255,441 458,804		Net revenue 33,396,788 1,570,968 758,196	Provision for credit losses ( 4,027,156) - 5 (	Recovered insurance reserves - - ( 397,078)	Operating expenses ( 16,681,386 ( ) 1,410,033 ( ) 384,799 ( )		Net profit (loss) from continuing		operations before tax 12,689,246 160,935 ( 23,676)	Income tax expense ( 2,044,519 ( ) 21,063 ( ) 135 ( )		Net profit (loss) from continuing		operations after tax $ 10,644,727 $ 139,872 ($ 23,811 ) $			Banking Securities Insurance	2012 businesses businesses businesses	Net interest income $ 24,686,036 $ 286,936 $ 295,305 ( $	Net non-interest income 8,001,595 944,954 605,501		Net revenue 32,687,631 1,231,890 900,806	Provision for credit losses ( 3,551,425) - 32	Recovered insurance reserves - - ( 652,170)	Operating expenses ( 16,805,389 ( ) 1,369,743 ( ) 364,432 ( )		Net profit (loss) from continuing		operations before tax 12,330,817 ( 137,853) ( 115,764)	Income tax expense ( 1,947,395 ) ( 16,476 469 ( )		Net profit (loss) from continuing		operations after tax $ 10,383,422 ( $ 121,377 ) ($ 116,233 ) $
(2)

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		Reconciliation and	elimination Consolidated	149,818,495) $ 2,263,385,352	6,905,618) 2,122,179,199			Reconciliation and	elimination Consolidated	137,825,133) $ 2,124,278,888	3,497,760) 1,991,554,889
December 31, 2013		Banking Securities Insurance Other	businesses businesses businesses businesses	Segment assets $ 2,206,683,600 $ 19,316,445 $ 28,617,976 $ 158,585,826 ($	Segment liabilities 2,075,095,973 12,855,582 27,644,702 13,488,560 (	December 31, 2012		Banking Securities Insurance Other	businesses businesses businesses businesses	Segment assets $ 2,072,880,557 $ 18,636,248 $ 24,197,725 $ 146,389,491 ($	Segment liabilities 1,949,471,276 12,321,711 23,013,014 10,246,648 (	(3) Geographical information	2013 2012	Taiwan $ 32,184,508 30,936,612	Asia 2,474,946 1,936,109	North America 1,429,353 1,821,057	Others 377,425 579,391		Total $ 36,466,232 $ 35,273,169		(4) Information product	The First Group’s information on products is consistent with their segment, please refer to Note 11(2).	(5) Major customer information	None.

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12. Related party transactions

(1) Details of the related parties

Names of related parties The Ministry of Finance, R.O.C. Bank of Taiwan Golden Garden Investment Company Global Investments Co., Ltd. First Commercial Bank (“FCB”) First Securities Inc.(“FS”) First Securities Investment Trust Co., Ltd. (“FSIT”) First-Aviva Life Insurance Co., Ltd.(“FALI”) First Financial Asset Management Co., Ltd. (“FFAM”) First Financial Management Consulting Co., Ltd. (“FFMC”) First Venture Capital Co., Ltd. (“FVC”) First P&C Insurance Agency Co., Ltd. (“FPCIA) First Commercial Bank (USA) FCB Leasing Co., Ltd. (“FCBL”) First Insurance Agency Co., Ltd. (“FIA”) First Capital Management Inc. (“FCMI”) First Taisec Securities (Asia), Ltd. (“FTSL”) FCBL Capital International (B.V.I.) Co., Ltd FCB International Leasing Co., Ltd

First Financial AMC Capital International (B.V.I) Ltd. First Financial of Leasing(Chengda)Ltd.

First Financial of Leasing(Chengda)Ltd.

East-Asia Real Estate Management Co., Ltd. (“EAREM”) Mutual Funds managed by First Securities Investment Trust Co., Ltd. (“MF”) First Commercial Bank Education Foundation (“ FCBEF”) Waterland Financial Holdings Co., Ltd. Taiwan Asset Management Corporation (TAMCO) Others

Relationship with the Company Director of the Company Director of the Company (Note) Director of the Company Director of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company

Subsidiary of the Company Subsidiary of the Company

Subsidiary of the Company

Subsidiary of the Company Subsidiary of the Company

Subsidiary of FCB Subsidiary of FCB Subsidiary of FCB Subsidiary of FS Subsidiary of FS Subsidiary of FCBL Subsidiary of FCBL Capital International (B.V.I.) Co., Ltd Subsidiary of First Financial AMC (“FFAMC”)

Subsidiary of FFAM Capital International (B.V.I.) Co., Ltd Subsidiary of First Taisec Securities (Asia), Ltd. (“FTSL”) FCB’s investee accounted for under the equity method Mutual funds managed by FSIT - subsidiary of the Company. More than one-third of total fund was donated by FCB FCB is one of its Directors The Company is one of its Directors

Spouses of the First Group’s directors, supervisors, managers, chairman and president, and relatives within second degree of kinship of the Group’s chairman and president.

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(Note) Bank of Taiwan was a supervisor of the Company and was elected as a director through the stockholders’ meeting dated June 22, 2012.

(2) Major balances and transactions with related parties:

A. Call loans to banks

	December 31, 2013
Highest balance $ 15,000,000	Ending balance Annual interest rate (%) $ - 0.388~0.390 December 31, 2012	Annual interest rate (%)
Highest balance $ 1,000,000	Ending balance $ - January 1, 2012	Annual interest rate (%)
		0.388~0.880
Highest balance $ 10,000	Ending balance $ 10,000	Annual interest rate (%)
		0.880

Interest income on above related parties for the years ended December 31, 2013 and 2012 were $351 and $21, respectively.

Terms and conditions of the related party transactions are not significantly different from those of transactions with third parties.

B. Call loans from banks

	December 31, 2013
Highest balance $ 5,000,000	Ending balance Annual interest rate (%) $ - 0.388~0.410 December 31, 2012	Annual interest rate (%)
Highest balance $ 3,000,000	Ending balance $ - January 1, 2012	Annual interest rate (%)
		0.388
Highest balance $ 7,005,000	Ending balance $ 5,000	Annual interest rate (%)
		0.373~0.880

Interest income on above related parties for the years ended December 31, 2013 and 2012 were $133 and $33, respectively.

Terms and conditions of the related party transactions are not significantly different from those of transactions with third parties.

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FIRST FINANCIAL HOLDING CO., LTD.

C. Due from other banks

December	December 31, 2012	December 31, 2012
Ending balance $ 290,986	Ending balance $ 247,360 January	Percentage(%)
		1.36
		1, 2012
	Ending balance $ 127,588	Percentage(%)
		0.90

Terms and conditions of the related party transactions are not significantly different from those of transactions with third parties.

D. Deposits

December	December 31, 2012	December 31, 2012
Ending balance $ 1,180,466	Ending balance $ 906,763 January	Percentage(%)
		0.06
		1, 2012
	Ending balance $ 1,104,068	Percentage(%)
		0.07

Interest income on above related parties for the years ended December 31, 2013 and 2012 were $6,154 and $2,258, respectively.

Note: Staff savings accounts of FCB are provided to the above related parties with interest rate of 13% p.a. and limited to a balance of $480. Deposits exceeding $480 is calculated at demand savings deposit rate. Interest rates for others are the same as those offered to other customers.

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Whether terms and	conditions of the related party transactions are different from those of transactions with third parties.	None	None	None		Whether terms and	conditions of the related party transactions are different from those of transactions with third parties.	None	None	None
	Collateral	None	Real estate	Certificates of deposits of FCB	2012		Collateral	None	Real estate	Certificates of deposits of FCB
Status of performance	Non-performing loans	-	-	-		Status of performance	Non-performing loans	-	-	-
	Performing loans	9,347	457,723	1,143			Performing loans	10,448	498,365	77
	Ending balance	9,347	457,723	1,143	cember 31,		Ending balance	10,448	498,365	77
	Maximum balance for current period	12,532	482,976	1,159	De		Maximum balance for current period	11,920	565,674	407
	Number or name of related party	25	144	4			Number or name of related party	26	119	3
	Category of related party	Other related parties	Other related parties	Other related parties			Category of related party	Other related parties	Other related parties	Other related parties
	Items	Consumer loans	Residential mortgage loans	Other loans(Note)			Items	Consumer loans	Residential mortgage loans	Other loans(Note)

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FIRST FINANCIAL HOLDING CO., LTD.

Whether terms and	conditions of the related party transactions are different from those of transactions with third parties.	None	None	None
	Collateral	None	Real estate	Certificates of deposits of FCB
Status of performance	Non-performing loans	-	-	-
	Performing loans	11,964	485,180	565
	Ending balance	11,964	485,180	565
	Maximum balance for current period	12,206	491,637	576
	Number or name of related party	27	107	3
	Category of related party	Other related parties	Other related parties	Other related parties
	Items	Consumer loans	Residential mortgage loans	Other loans(Note)

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				Balance		$ 11,653						Balance	$8,908		50,864		8,815
	Period-end balance			Item	Valuation adjustment for trading	Liabilities – currency exchange	rate		Period-end balance			Item	Valuation adjustment for trading Assets – currency exchange rate	Valuation adjustment for trading	Liabilities– currency exchange	rate	Valuation adjustment for trading Liabilities – currency exchange rate
	Loss on	valuation for	current	period		($11,653)			Gain (Loss)	on valuation	for current	period	$8,908		(50,864)		(8,815)
			Nominal	principal		$2,293,060					Nominal	principal	$3,193,850		871,050		2,903,500
				Contract period		2013/12/20-2014/3/26						Contract period	2012/4/27-2013/9/18		2012/4/27-2013/9/18		2011/12/10~2013/1/31
		Title of derivative	instrument	contract	Foreign exchange contracts					Title of derivative	instrument	contract	Foreign exchange contracts	Foreign exchange contracts			Foreign exchange contracts
December 31, 2013				Name of related party		Bank of Taiwan		December 31, 2012				Name of related party	Bank of Taiwan		Bank of Taiwan		A mutual fund managed by FSIT
			Category of	related party	Other related parties						Category of	related party	Other related parties	Other related parties			Other related parties

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January 1, 2012	Gain on Period-end balance	Title of derivative valuation for	instrument Nominal current Category of	Name of related party contract Contract period principal period related party Item Balance	Other related parties Bank of Taiwan Foreign exchange contracts 2011/6/2-2012/3/16 $5,600,875 $105,931 Valuation adjustment for trading Assets – currency exchange rate $105,931	Other related parties A mutual fund managed by FSIT Foreign exchange contracts 2011/12/6-2012/3/30 2,028,425 2,808 Valuation adjustment for trading Assets – currency exchange rate 2,808	Note 1: The evaluation gain and loss are those gain and loss of financial derivatives measured by fair value at the ending period as of the	balance sheet date in the year.	Note 2: The balances in the balance sheet are the ending balances of financial derivative assets or liabilities of financial assets or liabilities at	fair value through income statement.

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G. Financial assets at fair value through profit or loss

Other related parties Mutual funds managed by FSIT Other related parties Mutual funds managed by FSIT	Other related parties Mutual funds managed by FSIT Other related parties Mutual funds managed by FSIT	December 31, 2013	December 31, 2013	December 31, 2012 Ending balance Percentage % $ 100,507 0.53 January 1, 2012 Ending balance Percentage % $ 999,737 4.80
		Ending balance $ 100,745	Percentage % 0.22	Ending balance
				$ 100,507

				Ending balance
				$ 999,737

H. Available-for-sale financial assets December 31, 2013 Ending balance Percentage% Other related parties Mutual funds managed by FSIT $ 253,321 0.26 Other related parties Mutual funds managed by FSIT I. Management fee and marketing service fee receivable December 31, 2013 Ending balance Percentage% Other related parties Mutual funds managed by FSIT $ 39,378 0.06 Other related parties Mutual funds managed by FSIT

	Other related parties Mutual funds managed by FSIT Other related parties Mutual funds managed by FSIT	December 31, 2013		December 31, 2012 Ending balance Percentage% $ 267,380 0.32 January 1, 2012 Ending balance Percentage% $ 195,922 0.24
		Ending balance $ 253,321	Percentage%	Ending balance
			0.26

				Ending balance
				$ 195,922
	Management fee and marketing service fee receivable
	Other related parties Mutual funds managed by FSIT Other related parties Mutual funds managed by FSIT	December 31, 2013		December 31, 2012 Ending balance Percentage% $ 41,689 0.07 January 1, 2012 Ending balance Percentage% $ 37,942 0.06
		Ending balance $ 39,378	Percentage%	Ending balance
			0.06

				Ending balance
				$ 37,942

Terms and conditions of the related party transactions are not significantly different from those of transactions with third parties.

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FIRST FINANCIAL HOLDING CO., LTD.

J. Handling charges income and other income

Other related parties Mutual funds managed by FSIT (Note) Others	2013	2012
	$ 483,578 5,502	$ 477,783 3,527
	$ 489,080	$ 481,310

Note: The above amounts represent income from management charges and trust handling charges.

The above amounts are collected based on the contracts signed among the related parties.

K. Information on salaries and remunerations to the Company’s directors, supervisors, president, vice-president and others:

Salaries and other short-term employee benefits Post-employment benefits Other long-term employee benefits Severance pay Total	2013	2012
	$ 311,278 6,189 214 2,326	$ 297,641 7,555 214 2,394
	$ 320,007	$ 307,804

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13. Pledged assets

Pledged assets provided by the First Group as of December 31, 2013, December 31, 2012, and January 1, 2012 were as follows:

Items	December 31, 2013 $ 10,376 2,350,478 49,371 609,983 11,500 1,293,303 92,073 46,317 572,162	December 31, 2012 $ 12,748 2,394,194 22,398 579,376 11,000 1,323,662 92,073 46,317 585,992	Purpose of Pledge
Held-to-maturity financial assets-bonds Available-for-sale financial assets – bonds Held-to-maturity financial assets Refundable deposits Other assets-time deposits Operating guarantee deposits Property and equipment Land Buildings Property investments			Bid bond for Central Government Bonds Guarantees deposited with the court for the provisional seizure, guarantees for trust business reserves, foreign branch’s guarantee deposited with Federal Reserve Bank and Federal Credit Bank Deposits with Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Bank (FRB) Deposits with FDIC and FRB Short-term borrowings and deposits for office rent, guarantees for line of settlement advance Operating guarantee deposits for securities, fully consigned businesses and offshore funds, and performance guarantee deposits for insurances. Overdraft loan guarantee. There was no overdraft loan as of December 31, 2013 and December 31, 2012. The pledge for property investment. However, the balance of borrowing was $0 as of December 31, 2013 and December 31, 2012. Purpose of Pledge
	$ 5,035,563	$ 5,067,760

Items	January 1, 2012
Available-for-sale financial assets – bonds Held-to-maturity financial assets Refundable deposits Other assets-time deposits Operating guarantee deposits Property and equipment Land Buildings Property investments	$ 2,045,086 27,394 718,249 11,000 1,361,102 92,073 46,317 585,992	Guarantees deposited with the court for the provisional seizure, guarantees for trust business reserves, foreign branch’s guarantee deposited with Federal Reserve Bank and Federal Credit Bank Deposits with FDIC and FRB Deposits with FDIC and FRB Short-term borrowings and deposits for office rent. Operating guarantee deposits for securities, fully consigned businesses and offshore funds, and performance guarantee deposits for insurances. Overdraft loan guarantee. There was no overdraft loan as of January 1, 2012. The pledge for property investment. However, the balance of borrowing was $0 as of January 1, 2012.
	$ 4,887,213

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FIRST FINANCIAL HOLDING CO., LTD.

14. Significant contingent liabilities and unrecognized contractual commitments

(1) FCB has the following commitments as of December 31, 2013, December 31, 2012, and January 1, 2012:

Unused loan commitments Unused credit commitments for credit cards Unused letters of credit issued Guarantees Collections receivable for customers Collections payable for customers Travelers’ checks consignment-in Guaranteed notes payable Trust assets Customers’ securities under custody Book-entry for government bonds under management Depository for short-term marketable securities under management	December 31, 2013
	$ 32,835,001 57,267,299 31,159,643 79,507,359 138,977,461 116,423,187 382,947 55,337,158 735,784,130 339,738,557 156,157,300 70,325,300

Unused loan commitments Unused credit commitments for credit cards Unused letters of credit issued Guarantees Collections receivable for customers Collections payable for customers Travelers’ checks consignment-in Guaranteed notes payable Trust assets Customers’ securities under custody Book-entry for government bonds under management Depository for short-term marketable securities under management	December 31, 2012
	$ 34,836,722 53,132,007 35,240,365 75,469,498 153,943,228 92,219,839 377,042 55,396,562 693,477,178 316,587,861 127,160,400 55,552,718

Unused loan commitments Unused credit commitments for credit cards Unused letters of credit issued Guarantees Collections receivable for customers Collections payable for customers Travelers’ checks consignment-in Guaranteed notes payable Trust assets Customers’ securities under custody Book-entry for government bonds under management Depository for short-term marketable securities under management	January 1, 2012
	$ 41,507,871 48,522,945 35,250,998 69,826,490 157,351,428 71,274,210 426,992 32,456,176 664,902,832 330,853,363 115,341,450 80,093,300

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2013 ANNUAL REPORT

(2) Due to the collapse of the Tung Xin building caused by an earthquake disaster on September 21, 1999, the residents filed a legal claim of loss of personal property against Hong Cheng Building Co., Ltd., Hong Ku Construction Co., Ltd., (including their directors and supervisors) and the Bank. As of December 31, 2013, the Bank is not liable for any damage incurred or compensation. As for criminal prosecution, the Highest Court has ruled that the employees of the Bank are not guilty.
(3) As of December 31, 2013, FS had entered into an agreement to purchase properties and equipment amounting to $34,168, and had paid $1,765.

As of December 31, 2013, December 31, 2012 and January 1, 2012, there were 337,229,800, 285,142,400 and 284,151,665 shares, respectively, of clients’ stocks under the custody of FS as a result of margin loan and stock loan activities. FS had also lent 16,410,000, 18,864,000 and 11,561,000 shares, respectively, to its clients as a result of securities lending activities and has received sufficient guarantee deposits for such activities.

Significant losses from disasters: None.
Significant subsequent events: None.
Others
(1) Information with respect to the transferring of financial assets and extinguishing of liabilities: None.
(2) Adjustment of key organization and significant change in regulatory system: None.
(3) Significant impact arising from changes in government laws and regulations: None.
(4) Information with respect to the subsidiary holding the capital stock of parent company: None.
(5) Information for private placement securities: None.
(6) Information for discontinued operations: None.
(7) Major operating assets or liabilities transferred from (or to) other financial institutions: None.
(8) Research developing plan and the amounts sponsored by others: None.
(9) Employee benefit information: Please see Note 6(24) d and (38).
(10)The main asset additions, expansion, construction, leasing, abandoned, idle, sale, transfer or long-term lease: None.
(11)The major contract signed, completed, canceled or lapsed: None.
(12)Information of the First Group’ engagement in co-marketing:
- A. Transactions among the First Group

Please refer to Notes 11 and 18 (5).

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FIRST FINANCIAL HOLDING CO., LTD.

B. Joint promotion of businesses

In order to create synergies within the group and provide customers financial services in all aspects, the Company has continuously established other financial service desks (including banking service, securities trading service, and insurance service desks) in its banks and securities subsidiaries to provide customers one-stop-shopping services.

C. Sharing of information

The Company has established “Measures for Protection of Customers’ Information for First Financial Holding Co., Ltd and its Subsidiaries” in accordance with the “Financial Holding Company Act”, “Computer-Process Personal Data Protection Law” and the related regulations stipulated by the Financial Supervisory Commission and the Company is required to publish its “Measures for Protection of Customers’ Information” at its website. Customers also reserve the right to have their information withdrawn from the information sharing mechanism.

D. Sharing of operating facilities or premises

The Company’s subsidiaries have set up 352 cross-selling service desks, among which 190 of FCB branches have established insurance service desks, 131 of FCB branches have instituted securities trading service desks and 26 of banking service desks and 5 insurance service desks are installed in brokerage department of FS and Yuanlin Branch.

E. Apportionment of revenues, costs, expenses, gains and losses

Revenues, costs, expenses, gains and losses arising from the mutual use of business facilities and cross-sales between the Company's subsidiaries are directly attributed to subsidiaries by nature of services.

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2013 ANNUAL REPORT

Information by business segments for 2013 is as follows:	Banking Securities Investment Insurance Other	Items business business trust business business business Consolidated	Net interest income $ 25,470,120 $ 315,527 $ 2,071 $ 299,392 ($ 154,678) $ 25,932,432	Net non-interest income 7,530,616 1,207,443 492,855 735,204 567,682 10,533,800	Net revenues 33,000,736 1,522,970 494,926 1,034,596 413,004 36,466,232	Provision for credit losses and recovery for	premiums reserve ( 4,027,156) - - 5 ( 19,355) ( 4,046,506)	Net change in insurance liabilities reserve - - - ( 397,078) - ( 397,078)	Operating expenses ( 16,532,183 ( ) 1,337,757 ( ) 323,073 ( ) 384,798 ( ) 395,683 ( ) 18,973,494 )	Net income (loss) from continuing operations	before income tax 12,441,397 185,213 171,853 252,725 ( 2,034) 13,049,154	Income tax expense ( 2,044,519 ( ) 21,063 ( ) 21,026 ( ) 135 ( ) 85,437 ( ) 2,172,180 )	Net income (loss) from continuing operations	after income tax $ 10,396,878 $ 164,150 $ 150,827 $ 252,590 ($ 87,471 ) $ 10,876,974	Information by business segments for 2012 is as follows:	Banking Securities Investment Insurance Other	Items business business trust business business business Consolidated	Net interest income $ 24,687,712 $ 222,652 $ 1,378 $ 295,305 ($ 139,747) $ 25,067,300	Net non-interest income 7,585,082 959,669 487,727 817,379 356,012 10,205,869	Net revenues 32,272,794 1,182,321 489,105 1,112,684 216,265 35,273,169	Provision for credit losses and recovery for	premiums reserve ( 3,551,425) - - 32 - ( 3,551,393)	Net change in insurance liabilities reserve - - - ( 652,170) - ( 652,170)	Operating expenses ( 16,638,687 ( ) 1,267,272 ( ) 316,404 ( ) 354,923 ( ) 345,098 ( ) 18,922,384 )	Net income (loss) from continuing operations	before income tax 12,082,682 ( 84,951) 172,701 105,623 ( 128,833) 12,147,222	Income tax expense ( 1,947,395 ) ( 16,476 21,547 ( ) 469 ( ) 24,841 ( ) 1,977,776 )	Net income (loss) from continuing operations	after income tax $ 10,135,287 ($ 68,475) $ 151,154 $ 105,154 ($ 153,674) $ 10,169,446 Note: Amounts eliminated in the consolidated financial statements among the First Group are discreted financial information by business	segment that are determined to be individually presented by each company’s classification for managing business groups.

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FIRST FINANCIAL HOLDING CO., LTD.

						2012	187,294	1,966,486	7,000,000	1,896	786	9,156,462			81,253,607	18,200,167		7,248,854	4,128,990	18,450,625			1,002,850)		3,864,098	132,143,491	$141,299,953
							$																(
						2013	195,006	3,618,559	7,000,000	2,475	543	10,816,583			86,535,092	18,200,167		8,266,238	4,128,990	19,446,949			220,040)		4,371,853	140,729,249	151,545,832
							$																(				$
		First Financial Holding Co., Ltd.	Individual balance sheet	December 31	(Expressed In Thousands of New Taiwan Dollars)	2012 Liabilities	867,636 Payables	Current tax liabilities	1,000,000 Bonds payable	1,722 Deferred tax liabilities	1,783,160 Other liabilities	Total liabilities	133,715,373	3,918,105 Stockholders’ Equity	5,545 Common stock	2,281 Capital surplus	6,131 Retained earnings	Legal reserve	Special reserve	Unappropriated earnings	Other equity interest	Exchange difference on translation of	foreign financial statements	Unrealized gain and loss on	available-for-sale financial assets	Total equity	141,299,953 Total liabilities and equity
A. First Financial Holding Co., Ltd.	(A)					Assets 2013	Cash and cash equivalents $ 1,682,644 $	Securities purchased under	resell agreements 1,000,000	Receivables - net 1,613	Current tax assets 3,376,048	Investments accounted for	using equity method - net 142,300,877	Other financial assets -net 3,168,105	Property and equipment – net 3,728	Intangible assets – net 1,027	Other assets - net 11,790										Total assets $ 151,545,832 $

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2013 ANNUAL REPORT

(B)

First Financial Holding Co., Ltd. Individual Statements of Comprehensive Income For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Accounts Revenues Share of profit of associates accounted for using equity method Other revenues Total revenues Expenses and losses Share of loss of associates accounted for using equity method ( Operating expenses ( Other expenses and losses ( Total expenses and losses ( Income from continuing operations before income tax Income tax (expense) benefit ( Income from continuing operations after income tax Other comprehensive income (loss) Total comprehensive income for the period Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per share Diluted Consolidated Earnings Per share	2013 $ 11,112,205 226,400 11,338,605 12,144)( 232,502 )( 144,616 ( ) 389,262 ( ) 10,949,343 60,702 ) 10,888,641 ( 1,353,529 $ 12,242,170 $ 1.26 $ 1.26	2012 $ 10,641,494 251,854
		10,893,348
		291,250) 230,634) 145,104 ) 666,988 ) 10,226,360 40
		10,226,400 358,506 ) $ 9,867,894 $ 1.18 $ 1.18

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FIRST FINANCIAL HOLDING CO., LTD.

								Total	125,341,655		-	3,066,174)	-	-	10,226,400	358,506)	-	116	132,143,491		132,143,491		-	3,656,412)	-	10,888,641	1,353,529	140,729,249
First Financial Holding Co., Ltd .	Individual Statement of Change in Equity	For The Year Ended December 31	(Expressed In Thousands of New Taiwan Dollars)	Stock Capital surplus Retained earnings Other equity interest	Unrealized gain Exchange difference	and loss on on translation of	Common Additional Special Unappropriated available-for-sale foreign financial	stock paid-in capital Legal reserve reserve earnings financial assets statements	76,654,347 $ 18,583,439 $ 6,488,624 $ 4,162,118 $ 16,409,922 $ 3,043,205 $ - $		- - 760,230 - ( 760,230) - -	- - - - ( 3,066,174) - - (	4,215,988 - - - ( 4,215,988) - -	- - - ( 32,563) 32,563 - -	- - - - 10,226,400 - -	- - - - ( 176,549) 820,893 ( 1,002,850) (	383,272 ( 383,272) - - - - -	- - ( - 565 ) 681 - -	81,253,607 $ 18,200,167 $ 7,248,854 $ 4,128,990 $ 18,450,625 $ 3,864,098 ($ 1,002,850 ) $		81,253,607 $ 18,200,167 $ 7,248,854 $ 4,128,990 $ 18,450,625 $ 3,864,098 ($ 1,002,850) $		- - 1,017,384 - ( 1,017,384) - -	- - - - ( 3,656,412) - - (	5,281,485 - - - ( 5,281,485) - -	- - - - 10,888,641 - -	- - - - 62,964 507,755 782,810	86,535,092 $ 18,200,167 $ 8,266,238 $ 4,128,990 $ 19,446,949 $ 4,371,853 ($ 220,040 ) $
									$										$		$							$
								2012	Balance, January 1, 2012	Earnings distribution of 2011	Legal reserve	Cash dividends	Stock dividends	Reversal of special reserve	Net income for 2012	Other comprehensive income for 2012	Stock dividends from capital surplus	Others	Balance, December 31, 2012	2013	Balance, January 1, 2013	Earnings distribution of 2012	Legal reserve	Cash dividends	Stock dividends	Net income for 2013	Other comprehensive income for 2013	Balance, December 31, 2013

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2013 ANNUAL REPORT

First Financial Holding Co., Ltd. Individual Cash Flow Statement

For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars)

			2013			2012
Cash Flows From Operating Activities
Net income		$	10,949,343		$	10,226,360
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and other amortization			4,778			5,453
Interest revenue	(		9,949)	(		11,047	)
Interest expense			144,500			144,500
Dividend income	(		203,005)	(		228,207	)
Loss on abandonment of property and equipment			33			19
Share of profit of associates accounted for using equity
menthod	(		11,100,061)	(		10,350,244	)
Changes in assets and liabilities
Increase in other assets	(		3,158)			3,480
Decrease in other financial assets			-			1
Increase in receivables			7,712			23,536
Decrease in other liabilities	(		243)	(		172	)
Interest received			10,058			10,752
Dividends received			4,068,262			2,449,881
Income tax (paid) received	(		1,517)			23,899
Interest paid	(		144,500 )	(		144,500	)
Net cash provided by operating activities			3,722,253			2,153,711
Cash Flows from Investing Activities
Acquisition of property and equipment	(		346)	(		213)
Acquisition of intangible assets	(		487)	(		542)
Proceeds from capital reduction of other financial
assets			750,000			-
Net cash used in investing activities			749,167	(		755 )
Cash Flows from Financing Activities
Dividends paid	(		3,656,412 )	(		3,066,174 )
Net cash used in financing activities	(		3,656,412 )	(		3,066,174 )
Net increase (decrease) in cash and cash equivalents			815,008	(		913,218)
Beginning balance of cash and cash equivalents			1,867,636			2,780,854
Ending balance of cash and cash equivalents		$	2,682,644		$	1,867,636
Components of cash and cash equivalents
Cash and cash equivalents shown in the balance sheet			1,682,644			867,636
Due from the Central Bank and call loans to banks qualified
as cash and cash equivalents as defined by IAS No. 7			1,000,000			1,000,000
Ending balance of cash and cash equivalents		$	2,682,644		$	1,867,636

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FIRST FINANCIAL HOLDING CO., LTD.

				2012	153,182,097		78,151		21,767,918	44,584	3,077,230	59,083,560	1,058,159	1,613,307,734	42,700,000	26,492,206	5,814,944	5,713,261	2,410,778	1,934,730,622			62,720,000	19,669,729	38,321,176	2,698,376	123,409,281	2,058,139,903
				2013	$ 141,376,177 $		69,243		14,906,202	7,973	10,966,322	56,180,601	2,419,451	1,723,640,108	42,700,000	52,821,627	5,631,201	5,713,261	2,439,916	2,058,872,082			66,351,000	19,669,729	41,759,944	3,806,954	131,587,627	$ 2,190,459,709 $
FCB	Individual balance sheet	December 31	(Expressed In Thousands of New Taiwan Dollars)	2013 2012 Liabilities	52,387,493 $ 50,505,404 Due to the Central Bank and other banks	Funds borrowed from Central Bank and other	158,990,690 119,882,099 banks	Financial liabilities at fair value through profit	41,551,918 14,156,062 or loss	54,367,660 50,926,915 Derivative liabilities of hedging - net	2,633,664 1,638,521 Securities sold under repurchase agreements	1,422,151,000 1,429,197,217 Payables	85,244,237 70,435,968 Current tax liabilities	304,053,858 276,126,146 Deposits and remittances	Financial bonds payable	4,560,836 4,361,449 Other financial liabilities	28,230,177 5,124,537 Liabilities reserve	5,848,151 27,503,679 Deferred tax liabilities	27,709,269 5,491,850 Other liabilities	286,389 247,655 Total liabilities	1,384,874 1,391,563	1,059,493 1,150,838 Equity	Common stock	Additional paid-in capital	Retained earnings	Other equity interest	Total equity	2,190,459,709 $ 2,058,139,903 Total liabilities and equity
					$																							$
				Assets	Cash and cash equivalents	Due from the Central Bank and call loans to	other banks	Financial assets at fair value through profit or	loss	Receivables – net	Current tax assets	Loans discounted, net	Available-for-sale financial assets – net	Held-to-maturity financial assets – net	Investments accounted for under the	equity method – net	Other financial assets – net	Investment property - net	Property and equipment - net	Intangible assets – net	Deferred income tax assets	Other assets – net						Total assets

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2013 ANNUAL REPORT

(B)

FCB

Individual Condensed Statements of Comprehensive Income

For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

	Accounts Interest income Interest expenses ( Net interest income Net non-interest income Net revenues Provision for bad debt expense and guarantee policy reserve ( Other expenses ( Income from continuing operations before income tax Income tax expense ( Net income Other comprehensive income (loss) Total comprehensive income for the period Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share Diluted Consolidated Earnings Per Share	2013 $ 36,776,302 11,910,850 ( ) 24,865,452 7,911,031 32,776,483 3,922,121)( 16,269,940 ( ) 12,584,422 1,939,695 ( ) 10,644,727 ( 1,165,003 $ 11,809,730 $ 1.60 $ 1.60	2012 $ 35,463,166 11,437,668 ) 24,025,498 7,997,135 32,022,633 3,393,466) 16,408,555 ) 12,220,612 1,837,190 ) 10,383,422 391,472 ) $ 9,991,950 $ 1.56 $ 1.56

223

FIRST FINANCIAL HOLDING CO., LTD.

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

15,889 28,814 87,123) )27,154
1
10,747,111 0,863,0001 6,400,000 6,314,537 17,177,537
2012
$ $
( (
)
07,203 28,814 52,479 20,427
1
11,059,260 1,166,4631 6,400,000 6,460,863 17,627,326
2013
$ $
(
Equity
Liabilities
(accumulated deficit)
S Other liabilities – noncurrent Additional paid-in capital Retained earnings Other equity interest Total stockholders’ equity Total liabilities and equity
F
ecember 31
D
774,377Total liabilities 252,838 42,219 39,483Common stock 931,472
15,137,148Current liabilities 17,177,537
012
2
Individual Condensed Balance Sheets
$ $
(Expressed In Thousands of New Taiwan Dollars)
803,695 221,441 47,252 34,420 1,074,026
013 15,466,522 17,627,326
2
$ $
Assets
under the equity method
C. First Securities (A) Current assets Investments accounted for Property and equipment Intangible assets – net Deferred income tax assets Other assets - noncurrent Total assets
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2013 ANNUAL REPORT

(B)

FS

Individual Condensed Statements of Comprehensive Income

For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Accounts Revenues Service fee expense Employee benefit expense Share of (loss)/profit of associates accounted for using equity method Operating expenses Income (loss) from continuing operations before income tax Income tax (expense) benefit Net income (loss) Other comprehensive income (loss) Total comprehensive income (loss) for the period Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share Diluted Consolidated Earnings Per Share	2013 $ 1,437,136 ( 111,052) ( 725,513) 23,171 ( 467,257 ) 156,485 ( 16,613 ) 139,872 6,454 $ 146,326 $ 0.22 $ 0.22	2012
		$ 1,195,949 ( 105,354) ( 728,396) 22,620 ( 526,022 ) ( 141,203) 19,826 ( 121,377) ( 34,147 ) ($ 155,524 ) ($ 0.19 ) ($ 0.19 )

225

FIRST FINANCIAL HOLDING CO., LTD.

						2012	142,993	16,414	159,407		600,000	4,632	378,434	1,012 )	982,054	1,141,461
							$									$
														(
						2013	116,755	9,516	126,271		600,000	4,632	386,954	2,755	994,341	1,120,612
							$									$
		FSIT	Individual Condensed Balance Sheets	December 31	(Expressed In Thousands of New Taiwan Dollars)	2013 2012 Liabilities	425,868 $ 445,010 Current liabilities	496,509 500,688 Other liabilities – noncurrent	155,152 156,176 Total liabilities	1,833 3,033 Equity	41,250 Common stock 36,554	Additional paid-in capital	Retained earnings	Other equity interest	Total equity	1,120,612 $ 1,141,461 Total liabilities and equity
							$									$
D. FSIT	(A)					Assets	Current assets	Property and equipment	Investment property	Deferred income tax assets	Other assets– noncurrent					Total assets

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2013 ANNUAL REPORT

(B)

FSIT

Individual Condensed Statements of Comprehensive Income For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Accounts Operating revenues Operating expenses ( Operating income Non-operating income and gain Income from continuing operations before income tax Income tax expense ( Net income Other comprehensive income Total comprehensive income for the period Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share Diluted Consolidated Earnings Per Share	2013 $ 486,181 370,449 ( ) 115,732 8,744 124,476 21,026 ( ) 103,450 7,077 $ 110,527 $ 1.72 $ 1.72	2012 $ 479,703 358,700 ) 121,003 9,402 130,405 21,547 ) 108,858 9,618 $ 118,476 $ 1.81 $ 1.81

227

FIRST FINANCIAL HOLDING CO., LTD.

					2012	294,899		592	13,580,922	129,266	22,873		8,984,462	23,013,014			2,250,000	1,479,179)	413,890	1,184,711	24,197,725
						$												(			$
					2013	202,424		19,464	13,997,777	94,666	5,362		13,325,009	27,644,702			2,250,000	1,502,990)	226,264	973,274	28,617,976
						$												(			$
	FALI	Individual Condensed Balance Sheets	December 31	(Expressed In Thousands of New Taiwan Dollars)	2013 2012 Liabilities	3,310,764 $2,831,250 Payables	276,848 281,130 Financial liabilities at fair value	36,373 38,503 through profit or loss	Liabilities reserve	1,380,414 422,069 Other liabilities	Deferred tax liabilities	9,765,169 11,157,215 Insurance product liabilities of	153,025 116,385 separate accounts	4,690 1,362 Total liabilities	2,628 4,852	7,529 8,078 Equity	355,527 352,419 Common stock	Accumulated deficit	13,325,009 8,984,462 Other equity interest	28,617,976 $ 24,197,725 Total equity	Total liabilities and equity
(A)					Assets	Cash and cash equivalents $	Receivables	Current tax assets	Financial assets at fair value	through profit or loss	Available-for-sale financial	assets	Loans	Reinsurance reserve assets	Property and equipment	Intangible assets	Other assets	Insurance product assets of	separate accounts	Total assets $

228

2013 ANNUAL REPORT

(B)

(2) FALI Individual Condensed Statements of Comprehensive Income For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

	Accounts Operating revenues Operating costs ( Operating expenses ( Operating loss ( Non-operating income and gain Loss from continuing operations before income tax ( Income tax expense ( Net loss ( Other comprehensive loss ( Total comprehensive loss for the period ( Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share ( Diluted Consolidated Earnings Per Share (	2013 $ 10,329,764 9,969,072) ( 384,794 ( ) 24,102) ( 426 23,676) ( 135 ( ) 23,811) ( 187,626 ( ) $ 211,437 ) ( $ 0.11 ) ( $ 0.11 ) (	2012 $ 7,333,321 7,085,061) 364,399 ) 116,139) 375 115,764) 469 ) 116,233) 17,525 ) $ 133,758 ) $ 0.52 ) $ 0.52 )

229

FIRST FINANCIAL HOLDING CO., LTD.

F. First Financial Assets Management Co., Ltd.

(A)

FFAM

Individual Condensed Balance Sheets

	FFAM Individual Condensed Balance Sheets
Assets Current assets Investments accounted for under the equity method Property and equipment Investment property Intangible assets Deferred income tax assets Other assets– noncurrent Total assets	(Expressed In Thousands of New Taiwan Dollars) December 31 2013 2012 Liabilities 2013 $ 336,228 $ 452,669 Current liabilities $ 2,413,332 Other liabilities – noncurrent 20,581 962,817 886,402 Total liabilities 2,433,913 2,854 966 2,787,247 1,053,136 Equity 1,045 640 Common stock 1,450,000 7,047 4,289 Additional paid-in capital 1,800 16,752 Retained earnings 13,311 204,131 Other equity interest 24,146 Total equity 1,680,077 $ 4,113,990 $ 2,411,413 Total liabilities and equity $ 4,113,990	2012
		$ 802,829 14,710
		817,539
		1,450,000 1,800 166,864 ( 24,790 ) 1,593,874
	$ 4,113,990
		$ 2,411,413

(B)

FFAM

Individual Condensed Statements of Comprehensive Income

For The Years Ended December 31

	For The Years Ended December 31	For The Years Ended December 31
(Expressed In	Thousands of New Taiwan Dollars, Except		Earnings Per			Share)
	Accounts		2013			2012
Operating revenues		$	344,763		$	269,235
Operating expenses		(	153,845	)	(	122,220	)
Operating income			190,918			147,015
Non-operating expense		(	8,779 )			5,083
Income from continuing operations before income tax			182,139			152,098
Income tax expense		(	31,081	)	(	25,925	)
Net income			151,058			126,173
Other comprehensive income (loss)			49,518		(	21,188	)
Total comprehensive income for the period		$	200,576		$	104,985

Earnings Per Share (in NT dollars)

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2013 ANNUAL REPORT

Basic Consolidated Earnings Per Share Diluted Consolidated Earnings Per Share

$ 1.04 $ 1.04	$ 0.87
	$ 0.87

G. First Venture Capital Co., Ltd.

(A)

FVC

	FVC
Assets Current assets Available-for-sale financial assets Deferred income tax assets Total assets	Individual Condensed Balance Sheets (Expressed In Thousands of New Taiwan Dollars) December 31 2013 2012 Liabilities 2013 $ 74,192 $ 123,591 Current liabilities $ 100,033 1,656,628 1,331,032 Total liabilities 100,033 13,671 16,541 Equity Common stock 1,500,000 Accumulated deficit( 78,532) Other equity interest 222,990 Total equity 1,644,458 $ 1,744,491 $ 1,471,164 Total liabilities and equity $ 1,744,491	2012
		$ 100,113
		100,113
		1,500,000 ( 133,693) 4,744
		1,371,051
		$ 1,471,164

(B)

FVC

Individual Condensed Statements of Comprehensive Income

For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Accounts Operating revenues Operating expenses Non-operating income and expense Income (loss) from continuing operations before income tax Gain on income tax Net income (loss) Other comprehensive income Total comprehensive income (loss) for the period Earnings per share (In NT dollar) Basic Consolidated Earnings Per Share Diluted Consolidated Earnings Per Share	2013 2012 $ 69,908 ($ 85,711) ( 23,783)( 30,979) ( 990 ) 333 45,135 ( 116,357) 10,027 5,763 55,162 ( 110,594) 218,246 83,685 $ 273,408 ($ 26,909 ) $ 0.37 ($ 0.74 ) $ 0.37 ($ 0.74 )

231

FIRST FINANCIAL HOLDING CO., LTD.

H. First Financial Management Consulting Co., Ltd.

(A)

FFMC

Individual Condensed Balance Sheets

	FFMC Individual Condensed Balance Sheets
Assets	(Expressed In Thousands of New Taiwan Dollars) December 31 2013 2012 Liabilities 2013 $ 43,261 $ 48,247 Current liabilities $ 4,122 71 77 Other liabilities – noncurrent 3,236 8 16 Total liabilities 7,358 550 547 66 335 Equity Common stock 20,000 Additional paid-in capital 89 Retained earnings 16,509 Total equity 36,598 $ 43,956 $ 49,222 Total liabilities and equity $ 43,956	2012
Current assets Property and equipment Intangible assets Deferred income tax assets Other assets Total assets		$ 5,575 3,217
		8,792
		20,000 89 20,341
		40,430
		$ 49,222

(B)

FFMC

Individual Condensed Statements of Comprehensive Income

For The Years Ended December 31

	FFMC Individual Condensed Statements of Comprehensive Income For The Years Ended December 31	FFMC Individual Condensed Statements of Comprehensive Income For The Years Ended December 31	FFMC Individual Condensed Statements of Comprehensive Income For The Years Ended December 31
	(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share) Accounts 2013 Operating revenues, net 2012 $ 29,631 $ 37,187 Operating expenses ( 15,982 ( ) 16,219 Operating income ) 13,649 20,968 Non-operating income and gain 617 Income from continuing operations before income tax 172 14,266 21,140 Income tax expense ( 2,425 ( ) 3,594 Net income ) 11,841 17,546 Other comprehensive income (loss) ( 92 463 Total comprehensive income for the period ) $ 11,933 $ 17,083 Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share $ 5.92 $ 8.77 Diluted Consolidated Earnings Per Share $ 5.92 $ 8.77

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2013 ANNUAL REPORT

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I. First P&C Insurance Agency Co., Ltd.

(A)

FPCIA Individual Condensed Balance Sheets December 31

(Expressed In Thousands of New Taiwan Dollars)

Liabilities	2013	2012
Current liabilities Total liabilities Equity	$ 4,402 4,402 3,000 89 9,454 12,543 $ 16,945	$ 4,335 4,335 3,000 89 8,854 11,943 $ 16,278
Common stock Additional paid-in capital Retained earnings Total equity Total liabilities and equity

(B)

FPCIA Individual Condensed Statements of Comprehensive Income For The Years Ended December 31

(Expressed In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Accounts Operating revenues Operating costs Operating expenses Operating income Non-operating income and gain Income from continuing operations before income tax Income tax expense Net income Other comprehensive income Total comprehensive income for the period Earnings Per Share (in NT dollars) Basic Consolidated Earnings Per Share Diluted Consolidated Earnings Per Share	2013 $ 41,568 ( 29,884) ( 4,548 ) 7,136 215 7,351 ( 1,256 ) 6,095 - $ 6,095 $ 20.32 $ 20.32	2012 $ 38,839 ( 27,634) ( 4,658 ) 6,547 73 6,620 ( 1,125 ) 5,495 - $ 5,495 $ 18.32 $ 18.32

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FIRST FINANCIAL HOLDING CO., LTD.

(13) Profitability, asset quality, management information, and liquidity and market risk sensitivity of subsidiaries:

A. Consolidated:

Consolidated:
		2013	2012
Return on total assets (%)	Before taxes	0.59	0.58
	After taxes	0.50	0.48
Return on stockholders’ equity (%)	Before taxes	9.53	9.39
	After taxes	7.94	7.86
Netprofit margin ratio(%)		29.83	28.83

Note 1:Return on total assets = Income before (after) income tax / average total assets.

Note 2:Return on stockholders’ equity = Income before (after) income tax / average stockholders’ equity.

Note 3:Net profit margin ratio = Income after income tax / net revenues.

Note 4:The term “Income before (after) income tax” means net income from January 1 to the balance sheet date of the reporting period.

B. FFHC

FFHC
		2013	2012
Return on total assets (%)	Before taxes	7.48	7.42
	After taxes	7.44	7.42
Return on stockholders’ equity (%)	Before taxes	8.03	7.94
	After taxes	7.98	7.94
Netprofit margin ratio(%)		97.38	97.79

Note 1:Return on total assets = Income before (after) income tax / average total assets.

Note 2:Return on stockholders’ equity = Income before (after) income tax / average stockholders’ equity.

Note 3:Net profit margin ratio = Income after income tax / net revenues.

Note 4:The term “Income before (after) income tax” means net income from January 1 to the balance sheet date of the reporting period.

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2013 ANNUAL REPORT

C. FCB and Its subsidiaries:

(A) Profitability

(A) Profitability
		2013	2012
Return on total assets (%)	Before taxes	0.59	0.60
	After taxes	0.50	0.51
Return on stockholders’ equity (%)	Before taxes	9.87	10.23
	After taxes	8.35	8.69
Netprofit margin ratio(%)		32.48	32.43

Note 1:Return on total assets = Income before (after) income tax / average total assets.

Note 2:Return on stockholders’ equity = Income before (after) income tax / average stockholders’ equity.

Note 3:Net profit margin ratio = Income after income tax / net revenues.

Note 4:The term “Income before (after) income tax” means net income from January 1 to the balance sheet date of the reporting period.
(B) Asset quality of FCB
a. Non-performing loans and assets quality

Please refer to Note 8 (4) I a).

b. Non-performing loans and overdue receivables exempted from reporting to the competent authority

Please refer to Note 8 (4) I b)

c. Profile of concentration of credit risk and credit extensions of FCB

Please refer to Note 8 (4) I c).

d. Structure analysis of time to maturity of FCB
i. Structure analysis of NTD time to maturity

Please refer to Note 8(5) f a).

ii. Structure analysis of USD time to maturity of FCB

Please refer to Note 8(5) f b).

e. Sensitivity analysis of interest rate for assets and liabilities of FCB

Please refer to Note 8(6) N.

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FIRST FINANCIAL HOLDING CO., LTD.

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D. Information for FS and its subsidiaries is stated below:

Profitability

Profitability
		2013	2012
R l %	Before taxes	0.90	( 0.83)
eturn on tota assets ()	After taxes	0.80	( 0.71)
Return on stockholders’ equity (%)	Before taxes	2.45	( 2.21)
	After taxes	2.19	( 1.90)
Netprofit margin ratio(%)		10.37	( 10.90)

Note 1:Return on total assets = Income before (after) income tax / average total assets.

Note 2:Return on stockholders’ equity = Income before (after) income tax / average stockholders’ equity.

Note 3:Net profit margin ratio = Income after income tax / net revenues.

Note 4:The term “Income before (after) income tax” means net income from January 1 to the balance sheet date of the reporting period.

E. Information for FSIT is stated below:

Profitability

Profitability
		2013	2012
Return on total assets (%)	Before taxes	(0.09)	(0.51)
	After taxes	(0.09)	(0.51)
Return on stockholders’ equity (%)	Before taxes	(2.19)	(9.25)
	After taxes	(2.21)	(9.29)
Netprofit margin ratio(%)		(3.14)	(12.90)

Note 1:Return on total assets = Income before (after) income tax / average total assets.

Note 2:Return on stockholders’ equity = Income before (after) income tax / average stockholders’ equity.

Note 3:Net profit margin ratio = Income after income tax / net revenues.

Note 4:The term “Income before (after) income tax” means net income from January 1 to the balance sheet date of the reporting period.

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2013 ANNUAL REPORT

General Information

Corporate Headquarters