2024 Q4 HNFHC Consolidated Financial Report

Hua Nan Financial Holdings Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2024 and 2023 and Independent Auditors' Report

The Company and its subsidiaries required to be included in the consolidated financial statements of affiliates in accordance with the "Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises" for the year ended December 31, 2024 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard

10 "Consolidated Financial Statements". Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we do not prepare a separate set of consolidated financial statements of affiliates.

Very truly yours,

HUA NAN FINANCIAL HOLDINGS CO., LTD.

March 14, 2025

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The Board of Directors and Shareholders Hua Nan Financial Holdings Co., Ltd.

1 1 0016 @JLN @ } {E@100 20@

Deloitte & Touche

20F, Taipei Nan Shan Plaza No. 1 00, Songren Rd.,

Xinyi Dist., Taipei 1 1 0016, *aiwan

Tel :+886 (2) 2725-9988

Fax:+886 (2) 4051-6888

https://www.deloitte.com.tw

We have audited the accompanying consolidated financial statements of Hua Nan Financial Holdings Co., Ltd. (the Company) and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2024 and 2023, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2024 and 2023, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by 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 Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Insurance Companies, the guidelines issued by the authority, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2024. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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Key audit matters for the Company and its subsidiaries' consolidated financial statements for the year ended December 31, 2024 are stated as follows:

Impairment Loss of Discounts and Loans

As detailed in Note 5 to the consolidated financial statements, the Company and its subsidiaries' management assess the impairment loss of discounts and loans based on the assumptions about the probability of default and the loss given default. The Company and its subsidiaries uses judgment in timely amending these assumptions and in adjusting the inputs to the impairment evaluation, based on the Company and its subsidiaries' historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. Amending and adjusting key assumptions and inputs used are critical judgments and estimates and complied with the relevant laws and regulations. Therefore, the impairment loss of discounts and loans is identified as a key audit matter.

Please refer to Note 4 to the consolidated financial statements for the accounting policies related to impairment evaluation on discounts and loans, Note 5 for critical accounting judgments and key sources of estimation uncertainty, significant assumptions and input values used refer to Note 52 and Note 14 for related presentation and disclosure.

Our audit procedures performed in respect of the above key audit matter include understanding the methodology, key assumptions and parameter settings used by the management to measure the financial asset impairment model in accordance with International Financial Reporting Standard No.9. Assessing whether it is appropriate to reflect the actual situation of discounts and loans and whether the key assumptions and inputs used are reasonable and consistent with the calculation of expected credit losses. Obtain the information related to the evaluation of such financial assets by the management, test the completeness of the related information, and then select samples from the cases of discounts and loans to verify the accuracy of the calculation. In addition, confirm the classification and the provision of allowance for impairment loss complied with the relevant laws and regulations.

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

In preparing the consolidated financial statements, management is responsible for assessing the Company and its subsidiaries' ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Company and its subsidiaries' financial reporting process.

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Standards on Auditing of the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the Standards on Auditing of the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and its subsidiaries' internal control.

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

4. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and its subsidiaries' ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern.

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

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

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2024 and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors' report are Yi-Chun Wu and Han-Ni Fang.

Deloitte & Touche Taipei, Taiwan Republic of China

March 14, 2025

Notice to Readers

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

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

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2024 AND 2023

(In Thousands of New Taiwan Dollars)

(Decrease)

INTEREST REVENUE (Notes 4, 35

and 44) $ 100,823,372 151 $ 87,744,182 147 15

(Continued)

)

(Continued)

(Decrease)

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translating the financial statements of foreign

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

HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

(In Thousands of New Taiwan Dollars)

Other Equity Unrealized Gain

Retained Earnings

Exchange Differences on Translating the Financial Statements of

(Loss) on Investment in Equity Instruments at Fair Value Through Other

Unrealized Gain (Loss) on Investment in Debt Instruments at Fair Value Through Other

Unrealized Gain (Loss) on Other Comprehensive Income

Capital Stock Capital Surplus Unappropriated Foreign Comprehensive Comprehensive Reclassified by Non-controlling

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

Net cash generated from (used in) operating activities 40,875,539 (21,346,525)

(Continued)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from capital reduction of investments accounted for using

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 29,858,298 (20,988,158)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

YEAR 165,833,899 186,822,057

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 195,692,197 $ 165,833,899

(Continued)

Reconciliation of the amounts in the consolidated statements of cash flows with the equivalent items reported in the consolidated balance sheets as of December 31, 2024 and 2023:

December 31

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

1. GENERAL

   Hua Nan Financial Holdings Co., Ltd. (HNFH or the Company) was established by Hua Nan Commercial Bank Ltd. (HNCB) and EnTrust Securities Co., Ltd. ("EnTrust") through a share swap on December 19, 2001. After share swap, HNCB and EnTrust became HNFH's wholly owned subsidiaries. EnTrust was renamed Hua Nan Securities Co., Ltd. (HNSC) in June 2003.

   On August 15, 2003, South China Insurance Co., Ltd. (SCIC) and EnTrust Investment Trust Corporation became wholly owned subsidiaries of HNFH through a share swap. EnTrust Investment Trust Corporation changed its name to Hua Nan Investment Trust Corporation (HNIT) on June 2003.

   HNFH manages and invests in authorized domestic and overseas financial institutions.

   Hua Nan Commercial Bank, Ltd. ("HNCB") was established on March 1, 1947 through the restructuring of the Hua Nan Bank, which was founded in 1919. HNCB engages in (a) all commercial banking operations allowed by the Banking Act; (b) offshore banking business; (c) overseas branch operations authorized by the respective foreign governments; and (d) other operations as authorized by the central competent authorities.

   HNCB maintains its head office in Taipei. As of December 31, 2024, HNCB had Banking, Financial Trading, International Banking and Trust Departments as well as 186 domestic branches and representative offices, an offshore banking unit (OBU), 12 overseas branches (located in Los Angeles, New York, Hong Kong, Singapore, London, Ho Chi Minh City, Sydney, Shenzhen, Shanghai, Fuzhou, Macao and Manila, respectively), 1 overseas sub branch (Baoan in Shenzhen) and 3 overseas representative offices (Hanoi, Vietnam, Yangon, Myanmar and Bangkok, Thailand).

   The operations of HNCB's Trust Department are (1) trust business planning, managing and operating and

   (2) custody of nondiscretionary trust funds in domestic and overseas securities and mutual funds. These operations are regulated under the Banking Act and the Trust Enterprise Act.

   Hua Nan Securities Co., Ltd. (HNSC) was incorporated on June 17, 1988 in conformity with related regulations. HNSC's main business operations are (a) to accept orders to trade securities at centralized securities exchange market; (b) to trade securities for itself at centralized securities exchange market; (c) to underwrite securities; (d) to accept orders to trade securities at HNSC's business locations; (e) to trade securities for itself at HNSC's business location; (f) to act as a transfer agent for securities; (g) to engage in margin loan and securities financing for securities; (h) to engage in securities-related auxiliary futures trading services; (i) to accept orders to buy and sell foreign securities; (j) to engage in securities-related futures services; (k) to engage in other securities-related businesses approved by the governing authorities.

   South China Insurance Co., Ltd. (SCIC) was incorporated on May 1, 1963. SCIC is mainly engaged in property insurance services including automobile insurance, fire insurance, casualty insurance, liability insurance, and reinsurance of the preceding insurance businesses. SCIC has a head office in Taipei, 8 branches and 32 service centers in main cities in Taiwan.

   Hua Nan Investment Trust Corporation (HNIT) was registered on September 29, 1992. HNIT is mainly engaged in issuing beneficiary certificates to raise investment trust funds and making securities investments using these funds. HNIT was authorized by the governing authorities to be engaged in the operation of discretionary investment services in September 2001.

   Hua Nan Venture Capital Co., Ltd. (HNVC) was registered on January 28, 2004 under the "Company Act" and "Regulations for Scope and Guidance to Venture Capital Business". HNVC is mainly engaged in venture capital investments business, investment consulting business, and manage consulting business. HNVC invested business including domestic and overseas technology companies, other domestic and overseas venture capital companies, and other companies allowed by the related regulations.

   Hua Nan Asset Management Co., Ltd. (HNAMC) was invested by HNFH and was established on May 10, 2005. HNAMC is mainly engaged in properties purchase, properties leasing and purchase, evaluation, auction and management service of monetary creditor's rights of financial institutions.

   Hua Nan International Leasing Co., Ltd. (HNILC) was established on July 13, 2012. HNILC is mainly engaged in financing and leasing.

   Hua Nan International Leasing Corporation (HNILC Shenzhen) was established on October 25, 2012. HNILC Shenzhen is mainly engaged in financing and leasing.

   Hua Nan Futures Co., Ltd. (HNFC) was established on April 30, 1994 based on Company Act, Futures Trading Act and other related regulations. On July 25, 1994 HNFC received the authorized license from Securities and Futures Bureau of MOF and is mainly engaged in futures broker business and futures consulting business. On May 20, 2009, HNFC received the approval of operating future management and the authorized license.

   Hua Nan Investment Management Co., Ltd. (HNIM) was established on September 27, 1993 based on Company Act and other related regulations. HNIM is mainly engaged in security investment consulting business.

   Hua Nan Holdings Corp. was established in British Virgin Island on March 17, 1997. The outstanding shares are 100,000 and are all held by HNSC. It is mainly engaged in holding company business.

   Hua Nan Securities (HK) Limited was established in Hong Kong, and was a wholly owned subsidiary of Hua Nan Holdings Corp. It is mainly engaged in security business.

   The functional currency of the Company is New Taiwan dollars, and the consolidated financial statements are presented in New Taiwan dollars.

   As of December 31, 2024 and 2023, the Company and its subsidiaries ("the Group") had 11,398 and 11,100 employees, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS

   The consolidated financial statements were approved and authorized for issue by the board of directors on March 14, 2025.

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

   1. Initial application of the amendments to the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS),(IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, the "IFRS Accounting Standards") endorsed and issued into effect by the FSC

      The initial application of the IFRS Accounting Standards endorsed and issued into effect by the FSC did not have a material impact on the Group's accounting policies.

   2. The IFRS Accounting Standards endorsed by the FSC for application starting from 2025

      New, Amened and Revised Standards and Interpretations

      Effective Date

      Announced by IASB

      Amendments to IAS 21 "Lack of Exchangeability" January 1, 2025 (Note)

      Note: An entity shall apply those amendments for annual reporting periods beginning on or after January 1, 2025. Upon initial application of the amendments to IAS 21, the Group shall not restate the comparative information and shall recognize any effect of initially applying the amendments as an adjustment to the opening balance of retained earnings or, if applicable, to the cumulative amount of translation differences in equity as well as affected assets or liabilities.

      Amendments to IAS 21 "Lack of Exchangeability"

      The amendments stipulate that a currency is exchangeable into another currency when an entity is able to obtain the other currency within a time frame that allows for a normal administrative delay and through a market or exchange mechanism in which an exchange transaction would create enforceable rights and obligations. An entity shall estimate the spot exchange rate at a measurement date when a currency is not exchangeable into another currency to reflect the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions. In this situation, the Group shall disclose information that enables users of its financial statements to understand how the currency not being exchangeable into the other currency affects, or is expected to affect, its financial performance, financial position and cash flows.

   3. The IFRS Accounting Standards in issue but not yet endorsed and issued into effect by the FSC

      New IFRSs

      Effective Date

      Announced by IASB (Note)

      Annual Improvements to IFRS Accounting Standards - Volume 11 January 1, 2026

      Amendments to IFRS 9 and IFRS 7 "Amendments to the Classification and Measurement of Financial Instruments"

      Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture"

      January 1, 2026

      To be determined by IASB

      IFRS 17 "Insurance Contracts" January 1, 2023

      Amendments to IFRS 17 January 1, 2023

      Amendments to IFRS 17 "Initial Application of IFRS 9 and IFRS 17 - January 1, 2023 Comparative Information"

      IFRS 18 "Presentation and Disclosure in Financial Statements" January 1, 2027 IFRS 19 "Subsidiaries without Public Accountability: Disclosures" January 1, 2027

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

      Amendments to IFRS 10 and IAS 28 "Sale or Contribution of

      Assets between an Investor and its Associate or Joint Venture"

      The amendments stipulate that, when the Group sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction is recognized in full. Also, when the Group loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full.

      Conversely, when the Group sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Group's interest as an unrelated investor in the associate or joint venture, i.e., the Group's share of the gain or loss is eliminated. Also, when the Group loses control of a subsidiary that does not contain a business but retains significant influence or joint control over an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Group's interest as an unrelated investor in the associate or joint venture, i.e., the Group's share of the gain or loss is eliminated.

      IFRS 17 "Insurance Contract"

      IFRS 17 sets out the accounting standards for insurance contract that will supersede IFRS 4 "Insurance Contract". The main standards and amendments of IFRS 17 are as follow:

      Level of aggregation of insurance contracts

      The Group shall identify portfolios of insurance contracts. A portfolio comprises contracts subject to similar risks and managed together. Contracts within a product line would be expected to have similar risks and hence would be expected to be in the same portfolio if they are managed together. The Group shall divide a portfolio of insurance contracts issued into a minimum of:

      1. A group of contracts that are onerous at initial recognition, if any;

      2. A group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently, if any; and

      3. A group of the remaining contracts in the portfolio, if any

         The Group shall not include contracts issued more than one year apart in the same group. The Group shall apply the recognition and measurement requirements of IFRS 17 to the Group of contracts issued.

         Recognition

         The Group shall recognize a group of insurance contracts it issues from the earliest of the following:

         1. The beginning of the coverage period of the Group of contracts;

         2. The date when the first payment from a policyholder in the Group becomes due; and

         3. For a group of onerous contracts, when the Group becomes onerous

         Measurement on initial recognition

         On initial recognition, the Group shall measure a group of insurance contracts at the total of the fulfilment cash flows and contractual service margin. The fulfilment cash flows comprise estimates of future cash flows, an adjustment to reflect the time value of money and the financial risks related to the future cash flows and a risk adjustment for non-financial risk. Contractual service margin is a component of the asset or liability for the Group of insurance contracts that represents the unearned profit the entity will recognize as it provides services in the future. The Group shall measure the contractual service margin on initial recognition of a group of insurance contracts at an amount that, unless onerous contracts applies, results in no income or expenses arising from a) the initial recognition of an amount for the fulfilment cash flows, measured by applying paragraphs; b) the derecognition at the date of initial recognition of any asset or liability recognized for insurance acquisition cash flows applying; and c) any cash flows arising from the contracts in the Group at that date.

         Subsequent measurement

         The carrying amount of a group of insurance contracts at the end of each reporting period shall be the sum of the liability for remaining coverage and the liability for incurred claims. Liability for remaining coverage comprise the fulfilment cash flows related to future service allocated to the Group at that date and the contractual service margin of the Group at that date. The liability for incurred claims, comprise the fulfilment cash flows related to past service allocated to the Group at that date. Impairment loss should be recognized immediately if contracts portfolio become onerous contracts during subsequent measurement.

         Onerous contracts

         An insurance contract is onerous at the date of initial recognition if the fulfilment cash flows allocated to the contract, any previously recognized acquisition cash flows and any cash flows arising from the contract at the date of initial recognition in total are a net outflow. The Group shall recognize a loss in profit or loss for the net outflow for the Group of onerous contracts, resulting in the carrying amount of the liability for the Group being equal to the fulfilment cash flows and the contractual service margin of the Group being zero. Contractual service margin remains zero, and no insurance contract revenue will be recognized before the recognized onerous amount is reversed.

         Premium allocation approach

         The Group may simplify the measurement of a group of insurance contracts using the premium allocation approach if, and only if, at the inception of the Group:

         1. The entity reasonably expects that such simplification would produce a measurement of the liability for remaining coverage for the Group that would not differ materially from the one that would be produced applying the requirements; or

         2. Coverage period of each contract in the Group is one year or less.

         The criterion 1) is not met if at the inception of the Group, the Group expects significant variability in the fulfilment cash flows that would affect the measurement of the liability for remaining coverage during the period before a claim is incurred.

         Using the premium allocation approach, the liability for remaining coverage on the initial recognition including:

         1. Premium received at initial recognition.

         2. Less any insurance acquisition cash flows at that date.

         3. Added or deducted for derecognition of the following items at the date of initial recognition:

            1. All insurance acquisition cash flow assets.

            2. All other assets or liabilities previously recognized in relation to cash flows associated with a group of insurance contracts.

         At the end of each subsequent reporting period, the carrying amount of the liability is the carrying amount at the start of the reporting period plus the premiums received in the period, plus insurance acquisition cash flows, minus the amount recognized as insurance revenue for coverage provided in that period, and minus any investment component paid or transferred to the liability for incurred claims.

         Investment contracts with discretionary participation features

         An investment contract with discretionary participation features does not include a transfer of significant insurance risk. IFRS 17 applies to investment contract with discretionary participation features and insurance contract if issuer also issues insurance contract.

         Modification and derecognition

         If the terms of an insurance contract are modified and certain conditions are satisfied, the Group shall derecognize the original contract and recognize the modified contract as a new contract. The Group shall derecognize the insurance contract when contract is extinguished or its substance is being modified.

         Transition rules

         The Group shall provide apply retrospective approach, and apply modified retrospective approach or the fair value approach if retrospective approach is inapplicable.

         Modified retrospective approach achieve the closest outcome to retrospective application possible using reasonable and supportable information available without undue cost or effort. Fair value approach should be applied if reasonable and supportable information are unavailable.

         To apply the fair value approach, the Group shall determine the contractual service margin or loss component of the liability for remaining coverage at the transition date as the difference between the fair value of a group of insurance contracts at that date and the fulfilment cash flows measured at that date.

         Redesignation of financial assets

         At the date of initial application of IFRS 17, an entity which had applied IFRS 9 may redesignate the classification of an eligible asset that meets the condition in paragraph C29 of IFRS 17. The entity is not required to restate the comparative information to reflect changes in the classifications of these assets, and any difference between the previous carrying amount and the carrying amount at the date of initial application of these financial assets should be recognized in the opening retained earnings (or other component of equity, as appropriate) at the date of initial application. If the entity restates the comparative information, the restated financial statements must reflect all the requirements of IFRS 9 for those affected financial assets.

         In addition, an enterprise which had applied IFRS 9 before the initial application of IFRS 17 could apply the classification overlay on an individual basis to the financial assets that had been derecognized during the comparative period as if those financial assets had been reclassified in the comparative period in accordance with the redesignation requirements in paragraph C29 of IFRS 17.

         IFRS 18 "Presentation and Disclosures in Financial Statements"

         IFRS 18 will supersede IAS 1 "Presentation of Financial Statements". The main changes comprise:

         • Items of income and expenses included in the statement of profit or loss shall be classified into the operating, investing, financing, income taxes and discounted operations categories.

         • The statement of profit or loss shall present totals and subtotals for operating profit or loss, profit or loss before financing and income taxes and profit or loss.

         • Provides guidance to enhance the requirements of aggregation and disaggregation: The Group shall identify the assets, liabilities, equity, income, expenses and cash flows that arise from individual transactions or other events and shall classify and aggregate them into groups based on shared characteristics, so as to result in the presentation in the primary financial statements of line items that have at least one similar characteristic. The Group shall disaggregate items with dissimilar characteristics in the primary financial statements and in the notes. The Group labels items as "other" only if it cannot find a more informative label.

         • Disclosures on Management-defined Performance Measures (MPMs): When in public communications outside financial statements and communicating to users of financial statements management's view of an aspect of the financial performance of the Group as a whole, the Group shall disclose related information about its MPMs in a single note to the financial statements, including the description of such measures, calculations, reconciliations to the subtotal or total specified by IFRS Accounting Standards and the income tax and non-controlling interests effects of related reconciliation items.

           Amendments to IFRS 9 and IFRS 7 "Amendments to the Classification and

           Measurement of Financial Instruments"

           The amendments mainly amend the requirements for the classification of financial assets, including if a financial asset contains a contingent feature that could change the timing or amount of contractual cash flows and the contingent event itself does not relate directly to changes in basic lending risks and costs (e.g., whether the debtor achieves a contractually specified reduction in carbon emissions), the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding if, and only if:

         • In all possible scenarios (before and after the occurrence of a contingent event), the contractual cash flows are solely payments of principal and interest on the principal amount outstanding; and

         • In all possible scenarios, the contractual cash flows would not be significantly different from the contractual cash flows on a financial instrument with identical contractual terms, but without such a contingent feature.

           The amendments also stipulate that, when settling a financial liability in cash using an electronic payment system, an entity can choose to derecognize the financial liability before the settlement date if, and only if, the entity has initiated a payment instruction that resulted in:

         • The entity having no practical ability to withdraw, stop or cancel the payment instruction;

         • The entity having no practical ability to access the cash to be used for settlement as a result of the payment instruction; and

         • The settlement risk associated with the electronic payment system being insignificant.

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

4. SUMMARY OF MATERIAL ACCOUNTING POLICY INFORMATION Statement of Compliance

   The consolidated financial statements have been prepared in accordance with 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 Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Insurance Companies, and IFRSs as endorsed and issued into effect by the FSC.

   Basis of Preparation

   The consolidated financial statements have been prepared on the historical cost basis except for financial instruments measured at fair values, and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

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

   1. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

   2. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

   3. Level 3 inputs are unobservable inputs for the asset or liability.

Since the length of the operating cycle in the banking industry and the insurance industry could not be reasonably identified, accounts included in the Group's financial statements were not classified as current or non-current. Nevertheless, accounts were properly categorized according to the nature of each account and sequenced by their liquidity. Except for the matter stated in the preceding paragraph, cash and cash equivalents or assets to be realized within 12 months after the reporting period are classified as current. Liabilities to be liquidated or settled within 12 months and liabilities for which the Group do not have an unconditional right to deter settlement for at least 12 months after the reporting period, are classified as current (even if an agreement to refinance; or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue). Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. All other assets and liabilities are classified as non-current.

The consolidated financial statements, however, do not show the classification of current or non-current assets/liabilities because the banking industry accounts are the major parts of the consolidated accounts.

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

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

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. The consolidated entities, nature and percentage of ownership is shown in Table 12.

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity's functional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. Non-monetary items measured at fair value are recognized at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction (i.e. not retranslated).

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

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

For the purpose of presenting consolidated financial statements, the functional currencies of the Group are translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the end of the reporting period, and income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. The resulting currency translation differences are recognized in other comprehensive income.

Cash and Cash equivalents include cash on hand, bank deposits, due from other banks, notes and checks for clearing, and time deposits within three months that can be readily terminated without the deduction of principal, and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the consolidated statement of cash flows, cash and cash equivalents include cash and cash equivalents in consolidated balance sheets, and those amounts of due from the Central Bank and other banks and securities purchased under agreements to resell that meet the definition of cash and cash equivalents that approved by the FSCs IAS 7 "Statement of Cash Flows", etc.

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

The Group uses the equity method to account for its investments in associates. Under the equity method, investments in an associate are initially recognized at cost and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the associate. The Group also recognize the changes in the Group's share of equity of associates.

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

Financial assets and financial liabilities are recognized when the Group become a party to the contractual provisions of the instruments.

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Trade date basis means that when financial assets are purchased or sold, the delivery date was within the period prescribed by regulation or market practice.

1. Measurement category

   Financial assets are classified into the following categories: Financial assets at fair value through profit or loss ("FVTPL"), financial assets at amortized cost ("AC") and investments in debt instruments and equity instruments at fair value through other comprehensive income ("FVOCI").

   1. Financial assets at FVTPL

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

      Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on such a financial asset.

      Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Publicly traded stocks - at closing prices; open-end mutual funds - at net asset values; domestic bonds - at prices quoted by the Taiwan GreTai Securities Market; overseas bonds - at prices quoted by the Bloomberg, the Refinitiv or the counterparty in transactions and financial assets and financial liabilities without quoted prices in an active market - at values determined using valuation techniques.

   2. Financial assets at amortized cost

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

      1. The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

      2. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

         Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, receivables at amortized cost, discounts and loans and other financial assets, are measured at amortized cost, which equals the gross carrying amount determined by the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

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

         1. Purchased or originated credit-impaired financial assets, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial assets; and

         2. Financial assets that have subsequently become credit-impaired, interest income should be calculated by applying the effective interest rate to the amortized cost of the financial asset starting from the next reporting period following the credit impairment.

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

         1. Significant financial difficulty of the issuer or the borrower;

         2. Breach of contract, such as a default;

         3. It is becoming probable that the borrower will enter bankruptcy or undergo a financial reorganization; or

         4. The disappearance of an active market for that financial asset because of financial difficulties.

   3. Investments in debt instruments at FVOCI

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

      1. The financial asset is held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of such financial assets; and

      2. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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

   4. Investments in equity instruments at FVOCI

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

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

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

2. Impairment of financial assets

   The Group recognize a loss allowance for expected credit losses on financial assets at amortized cost (including receivables and discounts and loans), investments in debt instruments that are measured at FVOCI.

   The Group always recognize lifetime expected credit losses (i.e. ECLs) for receivables that are not related to credit. For all other financial instruments, the Group recognize lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measure the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

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

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

   The Group's credit risk management policy please refer to Note 52.

   Under the "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Nonaccrual Loans" (the "Regulations"), HNCB evaluates credit losses on the basis of the estimated collectability. In accordance with the Regulations, credit assets are classified as normal assets, assets that require special mentioned, assets with substandard, assets with doubtful collectability, and assets on which there is loss. After evaluating the pledge value of certain credit assets on which there is loss, HNCB evaluate the possibility of recovering assets.

   Based on the above Regulations, the minimum allowance for impairment losses and provision for losses on guarantees for the normal assets, assets that require special mentioned, assets that are substandard, assets with doubtful collectability, and assets on which there is loss should be 1%, 2%, 10%, 50% and 100% of outstanding, respectively. In order to enhance banks' endurance to real estate mortgage and the exposed risk in main land China, FSC issued Rule No. 10300329440 and Rule No. 10410001840. Rule No. 10300329440 states that loss reserve and guarantee liability provisions of loans related to housing and repairing and construction, must be at least 1.5%. Rule No. 10410001840 states that loss reserve and guarantee liability provisions of first category financial assets (including short-term trade financing) must be at least 1.5%.

   According to FSC Rule No. 10600006550, HNCB recognized allowance and guarantee responsibility reserve on and off the balance sheets' credit assets in accordance with "Regulations of the Procedures for Banking Institutions to Evaluate Assets and Deal with Past - Due/Non-performing Loans" and the test of impairment for financial assets. The larger amounts will be set as the standard of recognizing the allowance for doubtful accounts.

   HNCB wrote off bad loans based on the possibilities of recovering overdue receivables as well as Non-performing loans and the values of collateral after the revaluation was approved by the board of directors.

3. Derecognition of financial assets

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

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

Equity instruments

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

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

The repurchase of the Company's own equity instruments is recognized in and deducted directly from equity, the carrying amount are calculated based on weighted average by share types. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of the Company's own equity instruments.

Financial liabilities

1. Measurement and recognition

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

   Financial liabilities at FVTPL

   Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

   A financial liability is classified as held for trading if:

   1. The main purpose is to repurchase in a short term;

   2. The financial liabilities recognized initially are part of the identified financial instruments combined for management and were held for short-term profit; or

   3. Derivative financial instruments (except for financial guarantee contracts and derivative financial instruments designated for hedge).

      Financial liabilities held for trading are stated at fair value with any gain or loss arising on remeasurement recognized in profit or loss.

2. Derecognition of financial liabilities

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

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

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

When a financial instrument is modified, the Group assesses whether the modification will result in derecognition. If modification of a financial instrument results in derecognition, it is accounted for as derecognition of financial assets or liabilities. If the modification does not result in derecognition, the Group recalculates the gross carrying amount of the financial asset or the amortized cost of the financial liability based on the modified cash flows discounted at the original effective interest rate with any modification gain or loss recognized in profit or loss. The cost incurred is adjusted to the carrying amount of the modified financial asset or financial liability and amortized over the modified remaining period.

For the changes in the basis for determining contractual cash flows of financial assets or financial liabilities resulting from the interest rate benchmark reform, the Group elects to apply the practical expedient in which the changes are accounted for by updating the effective interest rate at the time the basis is changed, provided the changes are necessary as a direct consequence of the reform and the new basis is economically equivalent to the previous basis. When multiple changes are made to a financial asset or a financial liability, the Group first applies the practical expedient to those changes required by interest rate benchmark reform, and then applies the requirements of modification of financial instruments to the other changes that cannot apply the practical expedient.

While adopting IFRS 9 at the beginning of 2018. SCIC adopted IFRS 4 "Insurance Contracts" to recognize profit and loss of designated financial assets by overlay approach.

Under "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans", nonperforming loans should be reclassified as overdue loans within performing period of 6 months. However the Nonperforming loans paid by installments after negotiation are exempted from the aforementioned rules.

Overdue loans transferred from loans should be recorded under discounts and loans. For other loans transferred from accounts other than loans, such as guarantees, acceptances, receivables factoring and credit card receivables should be recorded under other financial assets.

Margin loans pertain to the provision of funds to customers for them to buy securities. Margin loans receivable represents the amount given to customers. The securities bought by customers are used to secure these loans and are recorded through memo entries as "collateral securities." The collateral securities are returned when the loans are repaid.

The refinancing of margin loans with securities finance companies is recorded as "refinancing borrowings," which are collateralized by securities bought by customers.

The collateral securities are disposed of by HNSC when their market values fall below a pre-agreed level and the customer fails to maintain this level. If the proceeds of the disposal of collateral security cannot cover the balance of the loan and the customer cannot timely settle the deficiency, then the balance of the margin loan is reclassified under "overdue receivables." If a collateral security cannot be sold in the open market, the balance of the loan is reclassified under "other receivables" or "overdue receivables."

Stock loans are securities lent to customers for short sales. The deposits received from customers on securities lent out are credited to "deposits on short sale." The securities sold short are recorded as "stock loans" using memo entries. The proceeds of the sales of securities lent to customers less any dealer's commission, financing charges and securities exchange tax are recorded under "short sales proceeds payable." When the customers return the stock certificates to HNSC, HNSC gives back to customers the deposits received and the proceeds of the sales of securities.

The margins deposited by securities firms to securities finance companies are recorded as "loan from refinanced margin." The refinancing securities delivered to HNSC are recorded as "refinancing stock collaterals" using memo entries. A portion of the proceeds of the short-sale of securities borrowed from securities finance companies is retained by the securities finance companies as collateral and recorded as "refinancing deposits receivable."

Bonds and bills purchased under resale agreements refer to the actual payment made to the counterparty in transactions involving the purchase of securities, subject to an agreement by the purchaser to resell the securities. Such transaction is treated as margin trading. Bonds and bills sold under repurchase agreements refer to the actual receipts from the counterparty in transactions involving the sale of bonds and bills, subject to an agreement by the seller to repurchase the securities.

In the resale transaction of bonds purchased under resell agreements, the proceeds of bonds sold, listed as liability account "Bonds purchased under resell agreement - short trading" are included in financial liabilities at FVTPL - current and evaluated at fair market price at the end of the period. The fair values refer to the bond reference prices in OTC as of the balance sheet date, and unrealized valuation gains or losses are presented as "Gains (losses) on valuation of borrowed securities and bonds under resale agreements". The costs to resell and purchase are calculated by the average method, and the gains or losses on sale are presented as "Gains (losses) on covering of borrowed securities and bonds under resale agreements".

The securities lending business and money lending-purpose unrestricted business and securities lending of Hua Nan Securities Co., Ltd. pertains to the provision of funds, which are recognized as securities loan receivable two business days after the funds are given to customers and receivable of securities business money lending-any use; an allowance for bad debt is estimated at the end of the period on the basis of the collectability of the loan receivable. The collaterals obtained from securities lending are recorded through memo entries as "collateral securities." The collateral securities are returned when the loans are repaid. Revenue from customers' payments is recognized as securities lending commissions and fees.

The collateral securities obtained through securities lending are recorded through memo entries as "collateral securities." Cash collaterals are recorded as "securities lending refundable deposits." Deposits for securities borrowed from TSE are recorded as "securities borrowing margin." For the issuance demand of the put warrants and the hedging demand of options, guaranteed price deposits borrowed from securities holders of underlying securities or paid in markets are recorded as "borrowed securities collateral receivable" and the deposits are recorded as "securities borrowing margin."

Securities lending refundable deposits (or securities borrowing margin) will be repaid (or collected) on the return of borrowed securities. Securities lending income and service fees received for securities lending business are recognized as securities lending income (included in other no-interest income.)

Hua Nan Futures Co., Ltd. engages in futures brokerage, deposits the transaction margins and premiums received from customers as required under existing regulations into designated accounts.