2009 · 2009 annual report address 39 tunhwa s. rd., sec. 2, taipei, taiwan phone number...

2009 ANNUAL REPORT

Address 39 Tunhwa S. Rd., Sec. 2, Taipei, Taiwan Phone Number 886-2-2701-1777

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Letter to Shareholders ................................................................................................................2

Bank Overview ........................................................................................................................................................6

Introduction .................................................................................................................................................................7

Organization Structure ...............................................................................................................................................11

Directors（Including Independent Directors）.............................................................................................................14

Fund Raising Status And Operational Highlights ...................................................................21Capital & Dividend ......................................................................................................................................................22

Financial Bonds ...........................................................................................................................................................26

Preferred Shares .........................................................................................................................................................28

Issuance of Depository Receipt ....................................................................................................................................29

Employee Stock Option Plan (ESOP) ............................................................................................................................29

Merging or Acquisition With Other Financial Institutions .............................................................................................29

Scope of Business .......................................................................................................................................................30

Employees ..................................................................................................................................................................37

Corporate Responsibilities and Ethics ..........................................................................................................................38

Labor and Management Relationships ........................................................................................................................39

Important Contracts ...................................................................................................................................................40

Risk Management .......................................................................................................................................................41

Private Marketable Securities ......................................................................................................................................50

Audit Report of the Financial Report of 2009 issued by Auditing Committee ..............................................................51

Financial Review .......................................................................................................................52Independent Auditors' Report .....................................................................................................................................53

Financial Statements ...................................................................................................................................................54

Notes to Financial Statements .....................................................................................................................................62

Contact Details of Head Offices & Branches .........................................................................115

Contents

2009 ANNUAL REPORT

Letter To Shareholders

COSMOS BANK2

LETTER TO SHAREHOLDERS

2009 ANNUAL REPORT 3

Looking back at 2009, although the global markets seem to gradually recover as the financial gloom faded away, the

global economy is still facing difficult challenges ahead. The Dubai incidence and the credit crisis in southern Europe

have caused investors to panic and created turbulence in the worldwide financial markets. Government initiated

bailout plans including large financial expenditures, tax reduction and low interest rate in the capital market have

resulted in prevalence of hot money, inflation and anxiety over asset bubbles. Furthermore, the soaring unemployment

rate and slower salary adjustments have made private consumption more conservative and created uncertainties for

global economic recovery. According to statistics from the Directorate-General of Budget, Accounting and Statistics of

the Executive Yuan, while the overall 2009 economic growth rate was at -1.87%, the performance for each quarter

throughout the year was improving. The rate for the fourth quarter is expected to turn positive at 9.22% and the annual

growth rate at 4.72% next year. Once the ECFA is signed, the market will anticipate favorable financial opportunities

and developments going forward.

Over the past year, the Bank has undertaken various initiatives to enhance its capital structure, profitability and

operational efficiency. Capital injection and reduction was completed in September and end of October 2009

respectively to increase the net value per share. In addition, the reduced operating costs and expanded business scope

have not only enabled the Bank to provide customers with more comprehensive and wider financial services but also

enhanced the Bank's competitiveness in the financial market. Despite the “twBBB-/twA-3“ credit rating and “negative”

long/short-term outlook by Taiwan Ratings, we believe that the up-coming economic recovery and the constant

improvement in the Bank's operation will help improve the rating going forward.

To effectively increase its profitability, the Bank has implemented a series of plans to lower its costs, expand its businesses

and improve its asset quality. Over the past year, the Bank has closed 14 branches with relatively unsatisfactory

performance to reduce personnel costs and enhance productivity. Meanwhile, the Bank has introduced early retirement

program and talent recruitment to strengthen employee quality and competitiveness. Our operating expenses have

contracted substantially by around 24% in comparison with the previous year. With regards to business expansion, the

Bank began to sell new funds to enlarge the variety of products offered as well as to increase its share of the wealth



COSMOS BANK4

management market. As a result, fee income derived from wealth management grown by 194% as compared with

last year. In order to improve asset quality, the Bank adopted both application and behavior scorecards for credit card

and cash card businesses in order to strengthen credit limit management and to effectively reduce losses on bad debts

whilst remaining as a leading brand in the cash card market. On corporate banking, in addition to develop businesses

with medium enterprises, the Bank has implemented certain processes including prudent credit underwriting standards,

policies on differential pricing and ceilings on exposure positions and proactive monitoring thereof to enhance credit

quality and attain reasonable revenues. Following a series of initiatives, the Bank's Earnings Before Tax and Amortization

has turned positive from October 2009 along with a marked improvement on profitability.

As the Bank is still amortizing it's carried forward losses on disposal of non-performing loans and improving its asset

quality proactively, the losses after tax in 2009 were still around NTD 7.164 billion. However, this has decreased

substantially by 29.8% as compared with 2008. With a prudent risk management and credit approval procedure, the

NPL ratio at 2009 year-end also reduced by 1% to 2.86% as compared with 2008 year-end. Based on the foregoing

descriptions, the joint efforts by the management team have gradually led the Bank to a stable stage of management

and development.

2010 will be a year for the Bank to make wholehearted Changes, to take Challenges and to create Chances. Under

the guidance of the professional and experienced management team, our employees are expected to participate fully

in business promotion and development aided by a dedicated work attitude and corporate culture. The re-launch of

mortgage loans, personal loans, speedy turnaround financing for quality corporate customers and inter-bank facilities

will be another business extension in addition to the Bank's current key businesses including cash card, credit card,

SME and wealth management. The initiatives will not only build a complete service platform for enhancing customer

satisfaction, corporate reliability and profitability but also ensure balanced and sustainable development of the Bank's

businesses. In the future, the Bank will also introduce more innovated and differentiated financial products and services

to meet customers' demands.

With the launch of our latest TV commercial and new corporate identity system, Cosmos Bank has demonstrated its

wholehearted determination and perseverance. The continuing improvement in business performance has also given

the Bank confidence to advance in an increasingly competitive financial market. We believed that, by being diligent and

delivering prompt services, we will be capable of maximizing value for all our shareholders.

Paul Lo

Chairman


Management Team of Cosmos

5

2

67

3

8

1

9

4

12

1110 1

2

3

4

5

6

7

8

9

10

11

12

Chairman Paul Lo

Chief Operating Officer Wen Shu

Chief Financial Officer Pamela Wu

Executive Vice President Seraph Sun

Chief Risk Officer James Lin

Executive Vice President Joyce Chen

Executive Vice President M.T. Chang

Chief Auditor Jack Chou

Executive Vice President Lee Hua

Chief Information Officer Eric Pan

Deputy Chief Financial Officer Kok Kiun Wong

Executive Vice President Wen Yir Lu

Bank Overview

COSMOS BANK6

BANK OVERVIEW


I. Introduction

1. Date of Establishment

Cosmos Bank (the “Bank”) obtained the incorporation approval on Aug. 13, 1991 and acquired its license on Jan. 14,

1992. The official business opening date was Feb. 12,1992. Since incorporation, the Bank has been positioning itself to

provide excellent financial services to corporate clients and the general public as a commercial bank. On Dec. 28, 2007,

the two major world-renowned financial groups SAC and GE Money participated in capital injection, acquiring 81.7%

shares (fully diluted equity- please refer to “Note” for details). Under the leadership of the new Chairman Paul Lo and

the management team, the Bank is in full speed to become the local bank with world class capabilities as our ultimate

goal.

(Note: The “fully diluted equity” refers to the equity basis after mandatory convertible bonds.)

2. History of the Bank

(1) Merger & Acquisition, Investment in Related Companies and Corporate Restructure：

The Bank has no investment in related companies or undertaken corporate restructuring for the past year as of

the printing date of the annual report.

(2) Subsidiary to a specific financial holdings group：

The Bank is a commercial bank, and not a member of any financial holdings group.

(3) Directors (and independent directors) had major transfer or change of equity requiring declaration subject to

Section 3 Article 25 of Banking Act：

Title Name

Year 2009 As of Apr. 20, 2010 Total shareholding above 1% as

of Apr. 20, 2010

Shareholding (+/-)

Pledged shares (+/-)

Shareholding (+/-)

Pledged shares (+/-)

Director S.A.C. PEI Taiwan Holdings B.V.

524,402,766 524,402,766 0 0 Yes

Manager Mu-long Chuang -50,000 0 0 0 No

Manager Me-zu Chen -6,000 0 0 0 No

Note: 1. The transfer of shares or pledged shares without any changes for the personnel requiring declaration subject to laws are

excluded from the above table.

2. The decrease amount of capital reduction in 2009 is not included in the above table either.

3. The disclosure of consolidation of data is subject to the change of identities among internal parties.

4. S.A.C. PEI Taiwan Holdings B.V. converted preferred shares and partial mandatory convertible bonds (hereinafter referred to

as “MCB”) into common shares on Oct. 6, 2009.

Bank Overview

Unit: shares

Bank Overview

COSMOS BANK8

(4) From Jan. 1 of this year until the printing date of the Annual Report, the ownership of the Bank has not changed.

No drastic change in regards to management methods or business contents occurred either. Other important

items affecting the rights of shareholders are stated as below：

A. To strengthen the Bank's financial structure, the Bank has completed recapitalization plan dated Jan. 28,

2010. Details are as follows：

(a) SAC PEI Taiwan Holdings B.V.(“SAC”) has converted the entire preferred shares of NT$5.433 billion

into common shares. Moreover, SAC has also converted 20% of MCB into 605 million shares of common

stock.

(b) GE has agreed to convert the common shares issued by the Bank via private placement from the

“remaining payables” from the service fee of 2007 and 2008 equivalent to US$16.8 million. The

conversion price is NT$3.22 and the converted common shares was about 171 million. The Service Level

Agreement entered into between GE and Cosmos Bank has terminated on Jan. 1, 2009 in order to

uphold the Bank's plan to strengthen our capital and cost down policy.

(c) The Bank has completed the above-stated recapitalization plan dated Oct. 6, 2009. After capital injection,

the total paid-in capital of the Bank was NT$35.535 billion.

(d) In addition, in order to appropriate for the loss, improve financial structure and enhance capital adequacy

ratio after recapitalization, we continued to implement our capital reduction plan. The capital reduction

ratio is 54.3132019% and paid-in capital resulted in NT$16.235 billion.

B. The Board of Directors meeting dated Jan. 15, 2009 approved Jeffery M. Hendren as acting Chairman and

concluded his temporary role as president & CEO dated March 20 of the same year.

C. The Board of Directors approved to engage Mr. Paul Lo as chairman and acting president effective from Dec.

23, 2009.

D. The Board of Directors have approved to engage Mr. Richard Chang as the president of the Bank. However,

currently his engagement is awaiting the formal approval from Financial Supervisory Commission to take

effect.

E. To ensure sufficient business capital, improve financial structure and enhance the Bank's capital adequacy

ratio, the Bank's 18th ad-hoc Board of Directors' meeting of the 6th term dated May 7, 2010 approved to

issue common shares via private placement under NT$10 billion, aiming to raising more capital from the

qualified investors subject to related laws. However, this plan is awaiting the approval from 2010 AGM to

take effect.


(5) Key historical events

A. The Bank merged and acquired Tainan Fourth Credit Cooperative Union on April 13, 1998, Miaoli Credit

Cooperative Union on Aug. 13, 2001 and Hsinchu Fifth Credit Cooperative Union on July 28, 2003. The Bank

also merged Cosmos Bills Finance Corp. on Oct. 31, 2002.

B. Cosmos Bank launched the George & Mary Cash Card in 1999.

C. The Bank issued the first EMV (Europay, MasterCard, Visa) credit card co-branding with Core Pacific City

Living Mall in 2001.

D. The Bank built up the footprint of ALM (Auto Lending Machine) around the country in 2004 to provide more

accessible service channels for customers.

E. The Bank signed a contract with GE Consumer Finance of equity subscription dated Jan. 23, 2006 and

completed strategic recapitalization on June 8, 2006. Meanwhile, GE Group delegated directors and senior

managers to Cosmos Bank, opening the new chapter of the Bank to joint-manage with a foreign investor.

F. The Bank launched the first MoneyBack Platinum credit card offering special discounts at department stores in

Taiwan and cash rebate in 2006.

G. On Dec. 28, 2007, the Bank completed recapitalization for about NT$42 billion. SAC Private Capital Group

（S.A.C. PCG）became the biggest shareholder. In addition, GE Money also participated capital injection.

SAC and GE account for more than 80% equity in total. Under the contribution of capital and all types of

international resources from these two major shareholders, the Bank has introduced brand new management

team other than the professional members of Board of Directors with international visions and management

practices. The Bank has been in full speed to propel “Turnaround Plan” to improve corporate governance,

enhance business performance and catalyze more growth and turnaround. This Plan has explored a brand

new business opportunity for the Bank.

H. The Bank launched MoneyBack Signature Credit Card with not only cash rebate but also several premium

benefits in 2008.

I. The Bank rolled out a plan to adjust branch channels in 2009 with the goal of enhancing business

performance.

Bank Overview

COSMOS BANK10

J. With an eye to improving the Bank's financial structure, the Bank initiated a project to strengthen overall

capital in 2009. The Bank first issued common shares via private placement, converted partial MCB to

common shares and converted all preferred shares into common shares. After the above-stated approaches,

which generated much capital, the Bank reduced capital to appropriate partial cumulative loss. After the

project was completed, the paid-in capital was NT$16.23 billion.

K. Since April 8, 2010, the Bank has rebranded our CIS. Our new CIS concept derives from the idea of “Initiating

accumulation of wealth from the heart.” The new CIS is shaped with both square and circle with 3D joints to

symbolize our determination to start the new way of thinking. And with English alphabets of“C”and“B”,

the CIS is hinged with a heart and “Yuan-bao” (ancient Chinese money). Moreover, through the channels

in the middle, the CIS signifies the ongoing accumulation of wealth, representing our mission to offer more

valuable and innovative financial services and create more financial merits for our customers to ultimately

reach a brand new win-win situation.


II. Organization Structure

1. Business items of major departments.

Business / Function Dept. Major Business

Wealth Management Group

Wealth Management Dept., Branch Channel Mgt. Dept.,49 WM Branches Dept., Branch Administration Dept., Deposit Dept., Trust Dept., Mortgage Loan Dept.

To manage the Bank's wealth management,deposits, trust and mortgage loan business, with the wealth management branch as its marketing channel.

Corporate Banking Group

Credit Administration Dept., Corporate Channel Mgt. Dept., International Banking Dept., OBU Dept., Corporate Loan Collection Dept., Regional Corporate Loan Centers

To manage the Bank's corporate finance,development of foreign exchange business,credit examination and management, with theCorporate Loan Center as the channel todevelop and connect with customers.

Consumer Finance Group

Consumer Management Dept., Consumer Marketing Dept., Consumer Sales Dept., Consumer Credit & Ops. Dept., Consumer Collection Dept., Regional Consumer Finance Centers

To manage the product planning, cardoperations, credit examination and post-creditmanagement, collection business and etc. forproduct lines of the Bank's consumer financialbusiness, with the Regional Consumer Finance Centers responsible for marketing.

Financial Institution Group Financial Institution Dept.Correspondent remittance, credit, businessdevelopment and relation maintenance amongfinancial institutes.

Finance GroupTreasury Dept., Settlement Dept., FP&A Dept., Accounting Dept.

To manage the internal control of financialplanning, accounting and financial accounting,also responsible for financial arrangementsuch as investments, financial transactions etc.

Operation GroupCustomer Service & Operation Dept., General Affairs Dept., Safety & Health Dept.

Dept. of Customer Service, Deposit andRemittance is responsible for management ofcustomer service, phone marketing, deposit,remittance and etc.Dept. of General Affairs manages confidentialdata, documents, official seals,procurement ,operational maintenance, properties, paymentetc. Labor Security and Health Office managesmatters relating to security and health.

ITApplication Development, Maintenance and Administration, Service Provision AP

To manage development, maintenance andoperation of the Bank's information.

Risk Management Risk Management Dept. To manage the Bank's risk management.

HR HR Dept. To manage human resource.

General Counsel General Counsel dept.To manage the Bank's legal affairs and lawcompliance.

Audit Audit Dept.Responsible for the bank's internal audit activities.

Bank Overview

COSMOS BANK12

2. Organization Chart

Wealth Management

Group

CorporateBankingGroup

Consumer FinanceGroup

Financial Institution

Group

FinanceGroup

Risk Management

General Counsel

OperationGroup IT HR

Application Development, Maintenance

and Administration

ServiceProvision AP

Wealth Management

Credit Administration

Corporate Operation

Consumer Management

Financial Institution Treasury

Customer Service & Operation

GeneralAffairs

Safety& Health

Settlement

FP&A

Accounting

6 Corporate Loan Centers

Consumer Marketing

Sales Management

6 Consumer Finance Centers

Underwriting

Authorization

ConsumerOperation

Phone Collection

Settlement & Outsourcing

Legal & Recovery

ConsumerSales

Consumer Credit & Ops.

Consumer Collection

Large Corporate

Loan Center

Corporate Channel Mgt.

International Banking

OBU

Corporate Loan

Collection

BranchChannel Mgt.

49 WM Branches

BranchAdministration

Deposit

Trust

MortgageLoan

BoardSecretariat

Chief Auditor

BOD

ChairmanNominatingCommittee

CompensationCommittee

RiskCommittee

AuditCommittee

PresidentAudit


Wealth Management

Group

CorporateBankingGroup

Consumer FinanceGroup

Financial Institution

Group

FinanceGroup

Risk Management

General Counsel

OperationGroup IT HR

Application Development, Maintenance

and Administration

ServiceProvision AP

Wealth Management

Credit Administration

Corporate Operation

Consumer Management

Financial Institution Treasury

Customer Service & Operation

GeneralAffairs

Safety& Health

Settlement

FP&A

Accounting

6 Corporate Loan Centers

Consumer Marketing

Sales Management

6 Consumer Finance Centers

Underwriting

Authorization

ConsumerOperation

Phone Collection

Settlement & Outsourcing

Legal & Recovery

ConsumerSales

Consumer Credit & Ops.

Consumer Collection

Large Corporate

Loan Center

Corporate Channel Mgt.

International Banking

OBU

Corporate Loan

Collection

BranchChannel Mgt.

49 WM Branches

BranchAdministration

Deposit

Trust

MortgageLoan

BoardSecretariat

Chief Auditor

BOD

ChairmanNominatingCommittee

CompensationCommittee

RiskCommittee

AuditCommittee

PresidentAudit

Bank Overview

COSMOS BANK14

III. Directors（Including Independent Directors）

Title NameDate

ElectedTerm

(Note 1)Date FirstElected

Shareholding When ElectedPresent Shareholding

(Note 2)Spouse & Minor

ShareholdingShareholding inOthers' Names

Experience/EducationAlso serve

concurrently as

Other managers,directors orsupervisors Who have spouse

or family within 2-degree relationship

Shares (%) Shares (%) Shares (%) Shares (%) Title Name Relation

ChairmanPaul Lo（Note 6 & 8）

2009.06.19 3 years 2009.06.19 0 0.00 0 0.00 0 0.00 0 0.00

Honorary Doctorate and MBAfrom Indiana State University, USACEO and President ofSinoPac Holdings Company Chairman of Bank SinoPac.

Chairman and actingPresident of the Bank

None None None

Director

S.A.C. PEI Taiwan Holdings B.V.

2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00MBA from Harvard Business SchoolGoldman, Sachs & Co.'s merger departmentManaging Director at RHJ International/Ripplewood Holdings LLC

Managing Director of S.A.C. Private CapitalGroup

None None NoneRepresentative: Jeffrey M. Hendren（Note 8）

0 0.00 0 0.00 0 0.00 0 0.00

Director


2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00 MBA from Columbia UniversityGraduate School of BusinessSpecial Senior Advisor to the Board of RHJ InternationalManaging Director of Ripplewood Holdings LLC

Managing Director ofS.A.C. Private Capital GroupDirector of S.A.C. PEI Taiwan Holdings B.V.

None None NoneRepresentative: Peter Berger

0 0.00 0 0.00 0 0.00 0 0.00

Director


2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00MBA from Harvard Business SchoolGoldman Sachs & Co. in the Mergers and Acquisitions Group J.P. Morgan Securities Inc. in the Capital Markets GroupManaging Director at RHJ International/ Ripplewood Holdings LLCRepresentative of Ripplewood in Japan


None None NoneRepresentative: Frank Baker

0 0.00 0 0.00 0 0.00 0 0.00

Director


2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00 M.A. from Erasmus UniversityRotterdamIndependent Director of the Board of Directors in Yes Bank in India Board Director of Fetim/Benovem B.V. in Amsterdam

Chairman of the Board of Vastned RetailDirector of S.A.C. PEI Taiwan Holdings B.V.

None None NoneRepresentative: Wouter Kolff

0 00.00 0 0.00 0 0.00 0 00.00


Title NameDate

ElectedTerm






concurrently as




ChairmanPaul Lo（Note 6 & 8）

2009.06.19 3 years 2009.06.19 0 0.00 0 0.00 0 0.00 0 0.00

Honorary Doctorate and MBAfrom Indiana State University, USACEO and President ofSinoPac Holdings Company Chairman of Bank SinoPac.

Chairman and actingPresident of the Bank

None None None

Director


2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00MBA from Harvard Business SchoolGoldman, Sachs & Co.'s merger departmentManaging Director at RHJ International/Ripplewood Holdings LLC


None None NoneRepresentative: Jeffrey M. Hendren（Note 8）

0 0.00 0 0.00 0 0.00 0 0.00

Director


2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00 MBA from Columbia UniversityGraduate School of BusinessSpecial Senior Advisor to the Board of RHJ InternationalManaging Director of Ripplewood Holdings LLC

Managing Director ofS.A.C. Private Capital GroupDirector of S.A.C. PEI Taiwan Holdings B.V.

None None NoneRepresentative: Peter Berger

0 0.00 0 0.00 0 0.00 0 0.00

Director


2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00MBA from Harvard Business SchoolGoldman Sachs & Co. in the Mergers and Acquisitions Group J.P. Morgan Securities Inc. in the Capital Markets GroupManaging Director at RHJ International/ Ripplewood Holdings LLCRepresentative of Ripplewood in Japan


None None NoneRepresentative: Frank Baker

0 0.00 0 0.00 0 0.00 0 0.00

Director


2008.03.04 3 years 2008.03.04

1,650,000,000 19.56 524,402,766 32.3 0 0.00 0 0.00 M.A. from Erasmus UniversityRotterdamIndependent Director of the Board of Directors in Yes Bank in India Board Director of Fetim/Benovem B.V. in Amsterdam

Chairman of the Board of Vastned RetailDirector of S.A.C. PEI Taiwan Holdings B.V.

None None NoneRepresentative: Wouter Kolff

0 00.00 0 0.00 0 0.00 0 00.00

Base date: Apr. 20, 2010

Bank Overview

COSMOS BANK16

Director David M. Fite 2007.12.28 3 years 2007.12.05 0 0.00 0 0.00 0 0.00 0 0.00

M.A. of Business School, M.A. ofFood Research Department Stanford UniversityB.A. of Harvard CollegeManaging partner of Euclid Capital PartnersFormer Senior Corporate Officer and CFO of Shinsei Bank

None None None None

Director

GE Money TaiwanLtd.

2007.05.30 3 years 2007.05.30

700 0.00 105 0.00 0 0.00 0 0.00 University College Cork , IrelandBComm.Fellow of Institute of Chartered Accountants of IrelandChief Commercial Officer of GE Money- Global Partnerships

CCO of GE Capital-Global Banking

None None NoneRepresentative:Des O'Shea

0 0.00 0 0.00 0 0.00 0 0.00

Director

GE Money TaiwanLtd.

2007.05.30 3 years 2007.05.30

700 0.00 105 0.00 0 0.00 0 0.00 MBA from Columbia University Graduate School of BusinessCEO of GE Money Bank Switzerland at GE Money

COO of GE Capital-Global Banking

None None NoneRepresentative: Richard Neff（Note 9）

0 0.00 0 0.00 0 0.00 0 0.00

DirectorRoyden Kuikahi Nakamura（Note 6）

2009.06.19 3 years 2009.06.19 0 0.00 0 0.00 0 0.00 0 0.00

MBA from Georgetown UniversitySenior Financial Advisor of S.A.C.Private Capital GroupManaging Director of GS Nakamura LLC.

Senior FP&A managerof the BankSenior Financial Advisor of S.A.C. Private Capital GroupManaging Director of GS Nakamura LLC

None None None

Independent Director

Pu-yu Wang 2007.05.30 3 years 2007.05.30 0 0.00 0 0.00 0 0.00 0 0.00

MA of Dept. of Finance and Tax inNational Chengchi UniversityCPA of Taiwan and USADirector of Accounting Dept. in JCICCPA of Ingram & Wallis Corp. USACPA of William C. Chalmers Corp.USA

Director of AccountingDept. in JCIC

None None None

Title NameDate

ElectedTerm






concurrently as





Director David M. Fite 2007.12.28 3 years 2007.12.05 0 0.00 0 0.00 0 0.00 0 0.00

M.A. of Business School, M.A. ofFood Research Department Stanford UniversityB.A. of Harvard CollegeManaging partner of Euclid Capital PartnersFormer Senior Corporate Officer and CFO of Shinsei Bank

None None None None

Director

GE Money TaiwanLtd.

2007.05.30 3 years 2007.05.30

700 0.00 105 0.00 0 0.00 0 0.00 University College Cork , IrelandBComm.Fellow of Institute of Chartered Accountants of IrelandChief Commercial Officer of GE Money- Global Partnerships

CCO of GE Capital-Global Banking

None None NoneRepresentative:Des O'Shea

0 0.00 0 0.00 0 0.00 0 0.00

Director

GE Money TaiwanLtd.

2007.05.30 3 years 2007.05.30

700 0.00 105 0.00 0 0.00 0 0.00 MBA from Columbia University Graduate School of BusinessCEO of GE Money Bank Switzerland at GE Money

COO of GE Capital-Global Banking

None None NoneRepresentative: Richard Neff（Note 9）

0 0.00 0 0.00 0 0.00 0 0.00

DirectorRoyden Kuikahi Nakamura（Note 6）

2009.06.19 3 years 2009.06.19 0 0.00 0 0.00 0 0.00 0 0.00

MBA from Georgetown UniversitySenior Financial Advisor of S.A.C.Private Capital GroupManaging Director of GS Nakamura LLC.

Senior FP&A managerof the BankSenior Financial Advisor of S.A.C. Private Capital GroupManaging Director of GS Nakamura LLC

None None None


Pu-yu Wang 2007.05.30 3 years 2007.05.30 0 0.00 0 0.00 0 0.00 0 0.00

MA of Dept. of Finance and Tax inNational Chengchi UniversityCPA of Taiwan and USADirector of Accounting Dept. in JCICCPA of Ingram & Wallis Corp. USACPA of William C. Chalmers Corp.USA

Director of AccountingDept. in JCIC

None None None


Title NameDate

ElectedTerm






concurrently as




Bank Overview

COSMOS BANK18


Wen-yu Wang 2007.05.30 3 years 2007.05.30 0 0.00 0 0.00 0 0.00 0 0.00

PhD of Laws in University of

Stanford,USA

MA of Laws in Columbia University

BA of Laws in National Taiwan University

Professor of Dept. of Law in National Taiwan University

Visiting Professor of University of Hawaii, University of Hong Kong, National University of Singapore, and Beking University

Director of TSEC,TAIFEX and Taiwan Cooperative Bank

Member of Fair Trade Commission Legal Consultant of Lee and Li

Professor of College of Law in NationalTaiwan UniversityIndependent Director of Global Unichip Corp.

None None None


Ji-huang Lin 2007.05.30 3 years 2007.05.30 0 0.00 0 0.00 0 0.00 0 0.00

PhD. of Finance in University of

Oklahoma,USA

MA of Accounting in University of Oklahoma, USA

BA of Agricultural Economics Dept. in National Taiwan University

Professor of Dept. of Finance in National Chengchi University

Assistant Professor of Dept. of Finance in National Sun Yat-sen University

Chief Director of Dept. of Finance in National Chengchi University

Assistant Professor in South Australia University

Financial Analyst in Land Bank of

Taiwan

Professor of Dept. ofFinance, NationalChengchi University

None None None

Note : 1. The tenure of the 6th Term Board of Directors commenced on May 30, 2007 and will terminate on May 29, 2010.

2. The capital reduction was approved by FSC of Executive Yuan, as per approval letter dated June 18, 2008. Capital reduction

ratio: 67.0718117%. The capital injection was approved by FSC of Executive Yuan, as per approval letters dated Sep. 22,

2009 and Oct. 8, 2009. The capital reduction was approved by FSC of Executive Yuan, as per approval letter dated Oct. 27,

2009. Capital reduction ratio: 54.3132019%.

3. The Director Simon Williams resigned from Director and Chairman on Jan. 15, 2009. Jeffrey M. Hendren was selected as

acting Chairman on the same date and the date of effectiveness was Feb. 1, 2009.

4. The Director Steve Chou resigned on Mar. 20, 2009.

5. Pearl Wang, the corporate representative director of GE Money Taiwan, Limited, resigned on Apr. 10, 2009. Mark Arnold

was appointed as corporate representative director on May 22, 2009.

Title NameDate

ElectedTerm






concurrently as






Wen-yu Wang 2007.05.30 3 years 2007.05.30 0 0.00 0 0.00 0 0.00 0 0.00

PhD of Laws in University of

Stanford,USA

MA of Laws in Columbia University

BA of Laws in National Taiwan University

Professor of Dept. of Law in National Taiwan University

Visiting Professor of University of Hawaii, University of Hong Kong, National University of Singapore, and Beking University

Director of TSEC,TAIFEX and Taiwan Cooperative Bank

Member of Fair Trade Commission Legal Consultant of Lee and Li

Professor of College of Law in NationalTaiwan UniversityIndependent Director of Global Unichip Corp.

None None None


Ji-huang Lin 2007.05.30 3 years 2007.05.30 0 0.00 0 0.00 0 0.00 0 0.00

PhD. of Finance in University of

Oklahoma,USA

MA of Accounting in University of Oklahoma, USA

BA of Agricultural Economics Dept. in National Taiwan University

Professor of Dept. of Finance in National Chengchi University

Assistant Professor of Dept. of Finance in National Sun Yat-sen University

Chief Director of Dept. of Finance in National Chengchi University

Assistant Professor in South Australia University

Financial Analyst in Land Bank of

Taiwan

Professor of Dept. ofFinance, NationalChengchi University

None None None

6. Paul Lo and Royden Kuikahi Nakamura were elected as directors of the Bank on Jun. 19, 2009 at the shareholders' general

meeting.

7. The Independent Director Chang-chi Chang resigned on Aug. 20, 2009.

8. Director Paul Lo was on board as Chairman on Dec. 23, 2009. The acting Chairman Jeffrey M. Hendren resigned on the

same date.

9. Mark Arnold, the corporate representative director of GE Money Taiwan, Limited resigned on Jan. 18, 2010. Richard Neff

was appointed as corporate representative director on Mar. 22, 2010.

10. Please refer to Table 1 for details on institution shareholders who have appointed corporate representative directors.


Title NameDate

ElectedTerm






concurrently as




Bank Overview

COSMOS BANK20

Table 1: Major shareholders of institution shareholder


Name of institution shareholder Major shareholders of institution shareholder

S.A.C. PEI Taiwan Holdings B. V. S.A.C. PEI Asia Investments Holdings II S.à r.l. (100%)

GE Money Taiwan, LimitedGE Capital Corporation (80%), GE Capital Asia Investments,Inc (20%)


FUND RAISING STATUS AND OPERATIONAL HIGHLIGHTS

Fund Raising Status And Operational Highlights

COSMOS BANK22

I. Capital and Dividend

1. Sources of Capital Unit: NT$1,000 , 1,000 sharesIssuing price unit: NT$

Year Month

Issuing price

Authorized Capital Paid-in capital Remarks

Shares Amount Shares Amount Sources of Capital

Jan. 1992 NT$10 1,200,000 12,000,000 1,200,000 12,000,000 Funding Capital

Apr. 1997 NT$10 1,253,460 12,534,600 1,253,460 12,534,600 Recapitalization of Earnings

Jul.1998 NT$10 1,337,481 13,374,810 1,337,481 13,374,810 Recapitalization of Earnings

Apr. 2000 NT$10 1,400,928 14,009,277 1,400,928 14,009,277 Recapitalization of Earnings

Oct. 2002 NT$10 1,771,002 17,710,015 1,771,002 17,710,015 Merge with Cosmos Bills Finance Corp.

Jun. 2006 NT$14 2,500,000 25,000,000 1,967,780 19,677,795 Private Placement of Shares

Dec. 2007 － 2,500,000 25,000,000 1,377,446 13,774,456 Capital Reduction

Dec. 2007 NT$2 20,000,000 200,000,000 8,436,650 84,366,500 Private Placement of Shares

Sep. 2008 － 20,000,000 200,000,000 2,778,036 27,780,360 Capital Reduction

Sep. 2009 NT$3.22 20,000,000 200,000,000 2,948,958 29,489,577 Private Placement of Shares

Oct. 2009 Note 1 20,000,000 200,000,000 3,553,464 35,534,639 Note 1

Oct. 2009 － 20,000,000 200,000,000 1,623,464 16,234,639 Capital Reduction

Note 1: S.A.C. PEI Taiwan Holdings B.V. converted partial Subordinated Unsecured Mandatory Convertible Bonds (“MCB”) that it had

held to common stocks of the Bank on Oct. 6, 2009. The conversion price was NT$6.0049020 subject to amendment of the

bond issuance regulations. It also converted the preferred stocks that it had held to common stocks of the Bank.

Unit: 1,000 shares

Type ofShares

Authorized CapitalRemarks

Outstanding Shares Unissued Shares Total

CommonShares

1,623,464 18,376,536 20,000,000Listed (1,436,965 thousandshares of which were private placement)


Unit: 1,000 shares, headcountBase date: Apr. 20, 2010

Composition ofShareholders

Number

GovernmentAgencies

FinancialInstitutions

Other Corporations

DomesticIndividuals

ForeignInstitution &Individuals

Total

Number of Shareholders

3 17 73 36,726 56 36,875

Shares held 0 328,564 39,420 121,535 1,133,945 1,623,464

Percentage ofShareholding

0.00% 20.24% 2.43% 7.49% 69.84% 100%

2. Composition of Shareholders

Note : Par value = NT$10

3. Distribution of Shareholding

(1) Distribution of Common Shares Unit: share, headcountBase date: Apr. 20, 2010

Level of Shareholdings Number of Shareholders Shares heldPercentage of Shareholding

1∼ 999 23,998 4,393,218 0.27%

1,000∼ 5,000 9,220 18,306,050 1.13%

5,001∼ 10,000 1,524 11,164,875 0.69%

10,001∼ 15,000 678 8,070,602 0.50%

15,001∼ 20,000 370 6,483,147 0.40%

20,001∼ 30,000 419 10,067,981 0.62%

30,001∼ 40,000 161 5,531,791 0.34%

40,001∼ 50,000 132 6,022,523 0.37%

50,001∼ 100,000 183 12,450,044 0.77%

100,001∼ 200,000 89 12,533,493 0.77%

200,001∼ 400,000 45 12,409,501 0.76%

400,001∼ 600,000 17 8,335,188 0.51%

600,001∼ 800,000 10 7,034,419 0.43%

800,001∼ 1,000,000 2 1,914,784 0.12%

1,000,001∼ 27 1,498,746,242 92.32%

Total 36,875 1,623,463,858 100.00%

(2) Distribution of preferred stock : None


COSMOS BANK24

Unit: ShareBase date: Apr. 20, 2010

SharesName of Major Shareholders

Number of Shareholding

Holding Percentage

S.A.C. PEI Taiwan Holdings B.V. 524,402,766 32.30%

GE Capital Asia Investment Holdings B.V. 517,168,617 31.86%

China Development Industrial Bank 193,098,975 11.89%

GE International Inc. 78,088,670 4.81%

Shin Kong Life Insurance Co., Ltd. 66,248,272 4.08%

Taiwan Shin Kong Commercial Bank Co., Ltd 40,252,903 2.48%

Bank Taiwan Life Insurance Co., Ltd. 12,457,999 0.77%

Allianz Life Insurance Co., Ltd. 7,474,799 0.46%

Sinon Life Insurance Co., Ltd. 7,474,799 0.46%

Taiwan Chance Funds account entrusted to Taipei Branch, HSBC 7,126,959 0.44%

YearItem

2009 2008Current Year up until

March 31, 2010

Market PricePer Share

Highest market price（NT$） 5.78 5.25 9.51

Lowest market price （NT$） 1.30 1.65 4.00

Average Market Price （NT$） 3.25 2.66 6.70

BVSBefore Distribution（NT$） 9.83 7.96 9.16

After Distribution（NT$） (Note 1) 7.96 (Note 1)

EPS

Weighted average shares（ThousandShares）

1,166,078 2,234,721 1,623,464

Primary EPS（NT$） (6.14) (4.57) (0.66)

Dividends Per Share

Cash dividends －－－

Share dividendsRevenue －－－

Capital gain －－－

Cumulative unappropriated dividends －－－

Return OnInvestment

P/E Ratio（Note 2） (Note 3) (Note 3) (Note 4)

Price / Dividends Ratio －－－

Cash dividend yield rate －－－

Note 1: The net per share after distribution of March 2010 and 2009 has not been approved by the Shareholders' Meeting .

Note 2: P/E ratio= Average Closing Price per share during the year/Earnings per share.

Note 3: The earning per share is negative so this is not applicable.

Note 4: The P/E ratio as of March 31, 2010 is not applicable as it is less than one year.

5. Market Price, Net Worth, Earnings, and Dividends per Share for the Past Two Years

4. List of Major Shareholders

Note: The above is Top 10 Shareholders based on the number of shareholding .


6. Dividend Policy and Execution Status

(1) Dividend Policy in the Articles of Incorporation (AOI)

For the purpose of long-term financial plan, increasing the self-owned capital adequacy rate, and considering

shareholders' demand for cash flow, if there is surplus from annual accounting settlements, it shall offset

previous year's loss after the business income tax is paid. When there is any surplus after offsetting, 30% of the

remaining surplus shall be reserved as a legal surplus reserve and a special surplus reserve for the shareholders'

equity deduction. Combined with previous year's cumulative unappropriated earnings, the remaining portion

shall be appropriated for shareholders as dividends by 80% and the rest 20% shall be distributed by the

following proportion:

a. 80% as shareholders' bonus.

b. 15% as employees' bonus.

c . 5% as remuneration for directors.

The total amount of cash dividends should not be less than 10% of the total amount of dividends distributed.

However, when cash dividend per share is less than NT$0.1, stock dividends shall be distributed instead of

stock dividends. If the cumulative surplus of the previous year or current year after-tax surplus is insufficient

for the appropriation as shareholders' equity deduction, a special surplus reserve of equivalent amount shall be

appropriated from the cumulative unappropriated earnings of the previous year and none of the earnings should

be distributed.

With regards to the aforementioned earnings, shareholders' meeting may decide to reserve all or part of it from

distribution based on future business needs as well as profit and loss.

The amount of cash surplus allocation shall not exceed 15% of the Bank's paid-in capital; however, this does not

apply to the situation when legal surplus reserve is equal to the paid-in capital.

(2) Plan to submit a proposal of dividend distribution in AGM: None.


COSMOS BANK26

II. Financial Bonds

Type1st term of 2006 Subordinate

Financial BondsSubordinate MCB (Private placement)

Date & Approval No.Official letter from FSC No.

09500481860 on Nov. 17, 2006Official letter from FSC No. 09600547240 on

Dec. 18, 2007

Issue Date Dec. 14, 2006 Dec. 28. 2007

Par Value NT$1,000,000（Note 1） NT$10,000,000 or its multiple

Place for Issue Taiwan R.O.C. Taiwan R.O.C.

Currency New Taiwan Dollars New Taiwan Dollars

Issued Price At par value At par value

Total AmountTotal amount is NT$7 billion, among which Type A is NT$4.5 billion and Type B is NT$2.5 billion

NT$19.8 billion

Interest RateType A: 3.00%Type B: 3.20%

Year 1, 2: coupon rate 6%Year 3, 4, 5: coupon rate 4%

Maturity

(1)Type A: 7 yearsMaturity date: Dec. 14, 2013

(2)Type B: 10 yearsMaturity date: Dec. 14, 2016

5 yearsMaturity date : Dec. 28, 2012

Lien Position Secondary Secondary

Guarantee Institution N/A N/A

Trustee N/A N/A

Consignee N/A N/A

Certified Lawyer N/A N/A

Certified CPA N/A N/A

Certified Financial Institution N/A Trust Dept. in En Tie Commercial Bank

Repayment Methods （Note 2） Converted to Common Shares of Cosmos

Unredeemed Balance NT$515,000 thousand NT$16,170,000 thousand

Paid-in Capital in last Fiscal Year NT$17,710,015 thousand NT$19,677,795 thousand

Net Worth in last Fiscal Year NT$20,397,283 thousand NT$11,893,997 thousand

PerformanceBased on the resolution of the Bondholders Meeting for 1st term Subordinate Financial Bonds Type A and B in 2006 (on Dec. 27, 2007, Note 2 and 3)

Normal

Redemption or Early Redemption

No early repayment, redemption, re-purchase,purchase or cancellation for part of or all of thefinancial bonds is allowed unless otherwise agreed by bondholders and regulators in advance in written form.


Type1st term of 2006 Subordinate

Financial BondsSubordinate MCB (Private placement)

Conversion and ExchangeConditions

N/A

(1) Mandatory conversion: The bonds will (a) terminate upon maturity or (b) be converted proportionally when all or requested bondholders see it necessary in order to maintain CAR above 8%, or Tier 1 capital above 4%. However, no mandatory conversion of this debenture is required before Series A Preferred Shares are fully converted.

(2) Free conversion: Applicable from the 31st day after the issue date but before the maturity date

Limitation Article Subordinate debenture Subordinate debenture

Fund Utilization PlanEnhance capital structure to fund medium and long-term business

developments and growth

Enhance capital structure to fund medium andlong-term business developments and growth

Balance of bonds as a percentage ofnet worth (%)

64.96% 170.80%

Whether it is accounted for eligiblecapital and type

Yes, tier 2 capital Yes, tier 2 capital

Name of credit rating agency, dateand result of rating

N/A N/A

Note : 1. The actual lowest selling unit is NT$10 million.

2. Cosmos Bank has signed a Subscription Agreement (and its amendments) with 9 financial institutions including China

Development Industrial Bank. They agreed to waive 58% of the domestic unsecured CB of 2006 issued with a principal

of NT$6,250 million and the subordinate bonds of the 1st term in 2006 issued with a principal of NT$6,485 million. Other

than the cash settlement of NT$1,130,291 thousand, the rest of the NT$4,218,409 thousand is converted into 2,109,204

thousand common shares. In addition, the amount of NT$4,183,724 thousand (deducting the after-tax issued cost of

NT$34,685 thousand) was listed as Shareholders' equity. The NT$5,539,725 thousand debt equity revenue will be listed

as extra ordinary gain. The 2006 1st term subordinate bonds bondholders Zhu-nan Credit Cooperative Bank, Singfor Life

Insurance Co., Ltd., San-zhi Agricultural Association in Taipei county did not sign the Subscription Agreement. As of year

2009 end, NT$515,000 thousand was left and listed as “Bank Debentures ”.

3. The resolutions made in the Bondholders' Meeting for the 1st term Subordinate Bonds (Type A & B) in 2006 held on

December 27, 2007 were reported to the local court on February 4, 2008 and approved by the Taipei District Court as set

forth in Ruling Notice No.700 issued on November 26, 2008. Bondholders Zhu-nan Credit Cooperative Bank, Singfor Life

Insurance Co., Ltd., San-zhi Agricultural Association in Taipei county are currently issuing an appeal to the court. Then Taipei

District Court overruled their appeal on November 6, 2009. Currently, these three bondholders are still in the process of re-

appeal for objection.

4. S.A.C. PEI Taiwan Holdings B.V. converted NT$3.63 billion of the MCB to 604,506,118 common shares on October 6, 2009.


COSMOS BANK28

III. Preferred Shares

Items Series A Preferred Shares （private placement）

Regulators' Approval Date and Number of Documents Official letter from FSC No. 09600503410 on Dec. 10, 2007

Issue Date Dec. 28, 2007

Par Value NT$10

Issue Price NT$2 per share

Number of Shares 1,650,000,000 shares (par value: NT$10)

Total Amount NT$16.5 billion (par value is calculated as NT$10 per share)

Obligations/Rights

Distribution of Dividends andBonus

Series A Preferred Shares will be based on the converted common shares and the dividends will be distributed on the same base date as the resolution of the Board of Directors and the pay day of common shares with the same proportion

Distribution of RemainingProperty

1. In case of settlement, prior to distributing or making any payment to holders of subordinate securities, the shareholders of Series A Preferred Shares are entitled to request the Bank to make payment in cash for the remaining property with exact number distributed to the shareholders legally (hereinafter referred to as “Order of Distributing Remaining Property”.)

2. In case of settlement and that the Bank's remaining property is not sufficient enough to distribute to all bondholders and shareholders, holders of Series A Preferred Shares and securities of the same lien position should be the priorities to be paid based on their proportion of total asset.

Execution of Voting Rights

The holders of Series A Preferred Shares have voting rights over all kinds of topics (including election of directors and supervisors) in the Shareholders' Meeting and their voting rights are equivalent to the number of common shares after conversion. Unless otherwise indicated in other rules or in the Issuance Policy of Series A Preferred Shares Article 7, the holders of Series A Preferred Shares have the same voting rights with holders of common shares.

Others

Unless otherwise provided in AOI, when the Bank issues any shares or securities related to equity, holders of Series A Preferred Shares have the priority to subscribe to securities related to their equity based on their proportion of outstanding equity (based on fully diluted equity) under statutory laws.

OutstandingPreferred Shares

Number of Redemption orConversion

543,315,107 shares

Unredeemed or UnconvertedBalance

1.The capital reduction was approved by Financial Supervisory Committee of Executive Yuan as per official Letter No.0970029185 dated June 18th 2008. Capital reduction ratio: 67.0718117%. After capital reduction, the Preferred Shares was 543,315,107 shares.

2.The entire Series A Preferred Shares have been converted to Common Shares on October 6, 2010. So currently, the balance of Preferred Share is Zero.

Terms of Redemption orConversion

Holders of Series A Preferred Shares may exercise their conversion rights (hereinafter referred to as“conversion rights”) to convert the preferred shares with fully-paid common shares that are exempt from any fee at par (hereinafter referred to as“conversion of shares”): (A) After issue date, the shareholders may exercise their rights at any time (B) When necessary, in order to maintain 8% CAR or 4% tier 1 capital (based on the BOD approved statement as presented by the CFO 30 days prior to the end of each quarter ), convert Series A Preferred Shares from the shareholders proportionally and (C) Exercise conversion rights on the 4th annual date after issue date. All Series A Preferred Shares should be converted before the conversion of Subordinate Unsecured CB.


IV. Issuance of Depository Receipt: None.

V. Employee Stock Option Plan (ESOP)

1. The Bank shall disclose any impact that ESOP has on the shareholders' rights along with the options that have not yet reached maturity as of the printing date of this annual report. Employee stock options by private placement shall be clearly marked: None.

2. As of the printing date of this annual report, managers and employees as the top 10 option holders and whose subscription amount is equivalent to NT$30 million or more, acquisition and subscription thereof: None.

VI. Merging or Acquisition With Other Financial Institutions

1. Comments from CPAs on the rationality for shares conversion ratio due to merging or acquiring other financial institutions: None.

2. Merging or acquiring other financial institutions in the recent 5 years: None.

3. As of the printing date of the annual report, any M&A proposals passed by the Board of Directors: None.

Items Series A Preferred Shares （private placement）

Market Price Per Share －

Other Rights

Converted or subscribed amount as of the printing date of this annual report

543,315,107 shares

Terms of Issuance and Conversion or Subscription

The same as the terms of bonds conversion

The impact of issue terms to the equity of preferred shareholders and current shareholders, and the possible dilution of equity

If preferred shares are converted into common shares, the amount of dilution will depend on the converted common shares

Impact of redeeming preferred shares to the CAR ratioAll have been converted to common shares, so there is no effect to the CAR ratio.


COSMOS BANK30

VII. Scope of Business

1. Business Overview

(1) Major Business Focuses

A. Deposit and Wealth Management

We provide all types of services in line with customers' needs for investments, including deposit, trust, and

insurance.

B. Consumer Banking

We offer cash card, credit card, personal loans and mortgages for our clients.

C. Corporate Banking

The Bank provides short-term working capital, mid- and long-term financing for corporations.

D. Foreign Exchange ( "FX" )

The Bank provides FX services such as export/import bill financing, foreign exchange, remittance of foreign

currencies, foreign currency loans and guarantees etc.

E. Other banking related businesses approved by the competent authorities.

(2) Business PortfolioUnit: NT$1,000

Item Year 2009 Year 2008 Increase (Decrease)

Net interest 4,587,461 6,269,786 -27%

Net fee income 1,315,645 795,238 65%

Loss on financial assets and liabilities at fair value through profit or loss

-1,077 -200 -439%

Realized gain on the sale of available-for-sale financial assets

226 49 361%

Income from equity investments under the equity method

15,947 7,024 127%

Foreign exchange gain (loss), net -6,083 68,568 -109%

Gain on reversal of asset impairment loss onasset impairment

478,901 -405,538 218%

Other non-interest gain, net 68,962 230,571 -70%

Loss on the sale of non-performing loans -6,614,437 -7,506,343 12%

Total net loss -154,455 -540,845 71%


(3) Summary of Major Businesses

A. Deposits

Unit: NT$1,000

ItemAs at Dec. 31, 2009 As at Dec. 31, 2008 Increase (Decrease)

Amount % Amount % Amount %

Demand Deposit 34,392,073 33.31% 29,533,706 24.09% 4,858,367 16.45%

Time Deposit 68,846,881 66.69% 93,059,533 75.91% -24,212,652 -26.02%

Total Deposits 103,238,954 100.00% 122,593,239 100.00% -19,354,285 -15.79%

B. Loans

Unit: NT$1,000



Consumer Loan 39,225,745 52.93% 50,805,611 51.82% -11,579,866 -22.79%

Corporate Loan 34,884,740 47.07% 47,232,286 48.18% -12,347,546 -26.14%

Total Loans 74,110,485 100.00% 98,037,897 100.00% -23,927,412 -24.41%

C. Wealth Management

Unit: NT$1,000

ItemYear 2009 Year 2008 Increase (Decrease)


Fund TransactionFee Income

514,574 78.23% 141,600 63.39% 372,974 263.40%

InsuranceFee Income

143,187 21.77% 81,764 36.61% 61,423 75.12%

Total 657,761 100.00% 223,364 100.00% 434,397 194.48%

D. Credit Card

Unit: NT$1,000; Cards


Amount / Cards Amount / Cards Amount / Cards %

Issued Cards 591,196 641,923 -50,727 -7.90%

Valid Cards 255,720 281,380 -25,660 -9.12%

Revolving CreditBalance

2,110,879 2,475,877 -364,998 -14.74%


COSMOS BANK32

E. Cash Card

Unit: NT$1,000; Cards


Amount/ Cards Amount/ Cards Amount/ Cards %

Issued cards 739,202 1,068,391 -329,189 -30.81%

Valid Cards 475,704 585,627 -109,923 -18.77%

Loan Balance 30,456,860 37,573,110 -7,116,250 -18.94%

F. Foreign Exchange

Unit: US$1,000

ItemYear 2009 Year 2008 Increase (Decrease)


Import 43,476 1.62% 73,098 2.98% -29,622 -40.52%

Export 10,535 0.39% 80,313 3.27% -69,778 -86.88%

Remittance 2,624,756 97.99% 2,300,703 93.75% 324,053 14.08%

Total 2,678,767 100.00% 2,454,114 100.00% 224,653 9.15%

2. Business Plan for 2010

(1) Consumer Banking

‧The Bank has re-entered into personal loan market to offer a comprehensive range of consumer banking

products to create business momentum.

‧We have stabilized our business scope of cash card and continue to maintain the largest market share. The

Bank has been proactively acquiring new customers with high activation rate to create more profit for the

Bank. For existing customers, we focus on increasing their activation and lower the attrition rate.

‧We have launched a personal loan business in combination with cash card as a“2 in 1”product in order to

provide both regular and temporary funding requirement for our customers.

(2) Corporate Banking

‧Expand our service scope to gradually increase the portfolio of mid-sized enterprises (between large

corporations and SMEs)

‧Provide working capital funding such as receivable financing, aim to deepen our relationships and enhance the

Bank's profitability.

‧The Bank will continue to focus on loans bundled with demand deposits to increase the Bank's margins.


(3) Wealth Management

‧The Bank will expand our wealth management team by recruiting talented RMs and provide them with well-

designed trainings. We will offer a wide range of wealth management services for our high net-worth clients

and improve their investment performances.

‧Expand our list of funds available for investors and enhance our fee revenue.

‧Reactivate mortgage business to provide a well-rounded assets-liabilities management services for WM clients.

(4) Financial Institutions Group

‧We will expand the business and limits with financial counterparties with the aim of exploring new revenue

areas.

(5) Treasury

‧We hope to expand our team of FX and bond traders, stay flexible and maximize returns from asset

management.

3. Market Analysis

(1) Macroeconomic Conditions Overview & Prospect

(2) Overview of banking developments and the Bank's Responses

A. Banking industry has been highly competitive resulting in declining margin

With the excess liquidity, the banking industry has been deriving its revenue mainly from the spread between

lending and deposit taking. Due to competitive price war and the homogeneous business nature, the market

has been saturated and experienced a thin profit margin. Return on assets is generally low. Nonetheless,

the Bank has niche products and sound risk management resulting in higher spread than industry average

margins. Going forward, we will continue to expand our scale and diversify our business growth so as to

provide integrated and customized services for both corporates and individuals with the aim of achieving long

term sustainable growth.

Economic Growth Rate (%)* Overview & Prospect

2009 -1.87

In order to resuscitate from the largest economic recession caused by financial tsunami as a result of subprime mortgages, all the countries around the world adopted flexible monetary policies and expanded government financial budgets, hoping to stimulate the recovery momentum. After 5 quarters of negative growth, Taiwan's economic growth in Q4 2009 was finally a positive number. Looking forward to 2010, Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C. (“DGBAS”) forecasted the annual growth rate to be 4.72%. With the advent of a more stable market momentum, we are positive about the macroeconomic environment in Taiwan.We also predict that Central Bank of the Republic of China is likely to adjust monetary policies subject to the fluctuations in domestic and foreign financialmarkets to avoid surplus capital in the market resulting in inflation and falling asset value.

Q1 -9.06

Q2 -6.85

Q3 -0.98

Q4 9.22

2010(f) 4.72

Q1(f) 9.24

Q2(f) 6.05

Q3(f) 3.95

Q4(f) 0.66

*Source: “National Income and Domestic Economic Outlook for 2010” issued by DGBAS on Feb. 22, 2010.


COSMOS BANK34

B. Strengthen competitive edge of niche products and stabilize consumer banking business

In order to secure the market leader position of our cash cards, the Bank will continue to offer all types of

campaigns offering competitive rates for new and existing customers. The reasonable and differentiated rates

will be able to meet the needs of different customer segments.

C. Realign corporate banking business and actively expand target customer pool

To expand the width and depth of our services. Continue to target SME customers but will revise the lending

composition of the business by gradually focusing on our relationships with high quality medium or large-

sized enterprises. We will quantify scoring standards via data analysis, strike a balance between risk and

reward, offer differentiated pricing and improve loan quality.

D. Stable growth in Wealth Management business

In line with the changes in the international market after the financial crisis, the Bank will focus on client

risk management. We will leverage on our strict product selection procedures and risk management process

to help our clients grow their wealth prudently. The Bank's income will be enhanced with the successful

management of our client's portfolio.

4. Research on Financial Products and Overview of Business Developments

(1) Overview of product development in the past 2 years

Please refer to 1.(3) "Summary of Major Business"

(2) Expenditures on Research and Development in the past 2 years

The Bank's research and development investment primarily focuses on human resource development. The

Bank held and supported professional trainings internally and externally in order to improve employees'

professional skills and broaden their knowledge. In addition, the Bank offered practical management programs

to train manager associates. Each business division assigned professionals to focus on R&D activities covering

marketing, product development, operations procedure improvement, and service network promotion. The

R&D expenditures for the past two years (excluding the payroll for professionals who are devoted to R&D and

expenditures for IT software and hardware development) are listed below:

(3) Result of research and development in the past 2 years

A. Trainings

Unit: NT$1,000

Item Year 2009 Year 2008 Growth Rate

Total Expenditure on Employee Training 6,315 11,522 -45.19%

Average Number of Employees 1,814 2,628 -30.97%

Average Training Expenditure Per Employee 3.48 4.38 -20.55%

Unit：person

Item Year 2009 Year 2008 Growth Rate

Internal Training 11,137 7,290 52.77%

External Training 1,305 1,192 9.48%

Total 12,442 8,482 46.69%


B. Results of business developments

2008

‧Launched the MoneyBack Signature Credit Card, offering a wide range of channel discounts and

established our brand image in the local VISA Signature market.

‧ Introduced the “Money+” MMR current savings account, providing deposit products that cater to our

wealth management clients' needs for both investment and savings.

‧ In alignment with the development of wealth management business, we launched several projects bundling

fixed deposit with wealth management products to expand our client base.

‧Established the online collateral appraisal system in connection with the underwriting system of corporate

banking. The computerized process, besides improving the underwriting efficiency, helps the Bank analyze

and monitor its collateral.

2009

‧The Bank sets up the Operations Center for Corporate Banking on Mar. 16, 2009 that focuses on MIS and

process improvement to lower our operations cost and improve efficiency.

‧We collaborated with Mech Smile to issue a co-brand “Smile” Signature and Platinum Card. It is our first

time to integrate different functions into the VIP card resulting in enhanced convenience for cardholders.

‧We worked with the movie industry for the first time to launch special offers for the movie “Up” and

initiated social work to enhance our brand image.

‧We offer services for our clients that enable them to collect all types of receivables domestically on behalf

of corporations (such as miscellaneous fee for tuition, registration fee, management fee of buildings,

payment for products and membership fee).

‧We launched XML collection system, offering immediate collection and account booking services for

corporate clients to enhance efficiency of fund management.

‧We promoted the debit function of ATM cards and collaborated with selected stores on joint marketing

campaign to increase the value propositions from ATM cards.

(4) Research and development plan in the future

‧ Introduce IT system for domestic receivable financing to control the customers' outstanding balance and

processing.

‧We plan to roll out instant card issuing in 2010 to shorten the waiting time of re-application for new ATM

cards and improve customers' satisfaction.

‧ In line with new online systems, we will offer more fund products with different combinations to meet the

asset allocation requirement of our clients.

‧Subject to the signing of the MOU, we will deliberate new business opportunities, such as collection for ATM

receivables of Union Pay and cash services.


COSMOS BANK36

5. Long Term Plan for Business DevelopmentFor long term perspective, the Bank will aim at polishing our brand image as a trustworthy bank and build up a

corporate culture of “proactive participation and commitment” to offer more diverse financial services. We will

also continue our efforts in becoming a professional and qualified “Local Bank with World Class Capabilities” and

create mutual benefits for our shareholders as well as employees.

(1) Consumer Banking

‧With stringent credit policy and behavioral scores, we segmented our customers based on their risk levels.

Accordingly, we implemented all types of projects to control risks of clients. In addition, with external crediting

information, we monitor non performing customers on a timely manner to effectively strengthen our risk

management. While upholding the principle of ensuring high standards of quality and quantity, we also seek

profit growth.

‧From data analysis, we are able to understand our customers' needs and provide tailor-made offers and services

to enhance business performance as the customers will identify and trust the Bank even further.

‧We will integrate the resources of consumer banking, wealth management and SMEs to expand more business

opportunities of consumer banking via more cross-sales.

‧With professional collection team and centralize experienced professionals, we hope to accelerate the speed of

clean NPL book by leveraging the power of this team specializing in NPL and overdue loans.

(2) Corporate Banking

‧We will increase the portfolio of loans of mid-sized enterprises. Moreover, via internal and external statistical

data, and research information from external source, we selected suppliers in industries with high potential and

focus on these targets to promote loan businesses.

‧We will develop new products with the framework of target industries and customer scales with the hope of

incorporating our products into financial solutions for our clients. We aim at satisfying all types of funding

demands for mid-sized enterprises and SMEs.

‧We will expand our FX loan businesses to increase its contribution rate of total revenue.

(3) Wealth Management

‧We will enhance our skills to integrate different products and improve RMs' productivity.

‧With strategic alliance to expand our sources of customer acquisition, we will provide 360-degree WM

solutions to help them plan different combinations of financial tools based on each individual's risk profile.

‧We seek to build up our professional image of wealth management business actively, targeting high net-worth

customer segment.

(4) Treasury

‧We will improve asset-liability management and expand our business scale to escalate Treasury's profitability,

becoming a major source of revenue.

‧We will develop financial products and our sales channels in order to provide more diverse options for

customers.


VIII. Employees

1. Employees Composition

2. Code of Employee Conduct and EthicsTo ensure everyone at Cosmos Bank have unified code of conducts, the Bank stipulated “Work Rules of Cosmos

Bank, in which the service rules are clearly defined and disclosed on the front page of intranet for every employee's

inquiry and reference. Also we have stipulated another rules regarding the code of conducts for our sales. The rules

specifically state that our employees should make efforts to achieve efficiency, accuracy and loyal/devoted to their

duties with the principles of teamwork, conformity and servicing with passion. Also, everyone should be disciplined

subject to regulatory requirements, and should not initiate improper loans, investments, transactions or ill profits

from others by means of their positions of this Bank. Meanwhile, it is also clearly pointed out in the Rules that we

have a system to reward good performance, those driving the benefits of the company or preventing embezzlement.

In addition, for those who broke the regulations or negligent at duty, we will also take disciplinary actions.

Accordingly, the management team and all employees have a common ground that benefits both the promotion of

our business and management of the entire organization.

3. Protective Measures for Work Place and Employee Safety

(1) The public areas where customers are served were constructed in accordance with the relevant building

regulations. Daily security maintenance is carried out based on the standards prescribed by the Financial

Supervisory Committee (FSC) and Banking Association. Our security system is linked to the police authorities and

security guards are also stationed at the respective business units to ensure security. Some security procedures

are outsourced to professional agents where possible.

(2) The“Labor Safety & Health Supervisor”,“Fire Security Administrator” and“Emergency Rescue Officer”have

been appointed to work at branches and offices and any vacancy is filled immediately.

(3) Formulate the annual “Employee Safety and Health Self Assessment Plan” in accordance with the “Rules of

Labor Safety and Health” and conduct on-site supervision in branches on an irregular basis to fully review any

suggestion for improving workplace.

Unit: Person

Year 2009 2008 Mar. 31, 2010

Number of employees 1,640 2,255 1,649

Average age 34.75 34.27 35.36

Average length of employment 6.92 6.44 7.40

Education

Master's degree 5.37% 5.27% 5.52%

University / College 86.16% 85.34% 86.18%

Senior High School 8.17% 8.99% 8.00%

Senior High School under 0.30% 0.40% 0.30%


COSMOS BANK38

(4) Formulate the “Rules overning the Processing of Official/Bereavement Leaves” to ensure that employees are

well looked after.

(5) Join the Security Maintenance Fund administered by the Bankers' Association through which more comprehensive

guarantees are provided to employees.

(6) The Bank has initiated health check for all employees in March 2009 to ensure sound health condition for

everyone.

(7) The Bank has produced 39 articles related to occupation safety and personal health and published on company

website on an irregular basis to educate everyone about related knowledge.

(8) The Bank has completed testing the quality of work environment in all offices in June and December, 2009. The

results showed very good response.

IX. Corporate Responsibilities and Ethics

1. The Bank issued“Safety Chip Card”and contributed 0.5% as a charity fund for the society.

2. The Bank has been seeking to enhance our service quality from the perspective of protecting consumers by being sympathetic and show that we care. In 2006, the Bank was ranked as an excellent bank in“Performance evaluation of protecting consumers”for market players in banking industry surveyed by Taiwan Academy of Banking and Finance (entrusted by Banking Bureau).

3. Realize the dreams of underprivileged childrenIn order to assist more underprivileged children to realize their dreams, the Bank donated NT$100,000 to Child

Welfare Foundation on July 22, 2009. Meanwhile, we treated 130 children to the movie theater of Living Mall and

enjoy “Up”, which rewarded the honor of opening film for the Cannes Festival of the same year.

4. Initiate “Volunteer donation for 88 flood” in August, 2009As Typhoon Morakot devastated Southern Taiwan, the Bank fulfilled our corporate social responsibility by initiating

donation campaign internally to show that “We care”. The total donation was around NT$2.1 million, hitting the

highest record in company history. The entire donation was contributed to “United Way of Taiwan” for their full

leverage to decide how to assist the victims and underprivileged groups to rebuild their homelands.

5. We care about employee rightsThe Bank has launched “We care about everyone” campaign to encourage our staff to join group activities,

build up mutual understanding and grow synergies. We also encourage all of them to take advantage of “family

day” and strike a balance between work and life. Other than providing good welfares for our employees, internal

regulations governing human resources are in strict compliance with the Labor Standards Act and other relevant

regulations.


In addition, the Bank's chairman as well as senior managers, including head of HR, have communications with the

head of Union on a regular basis. Whenever there is any issues reported by the Union related to employees' rights,

we can always handle with reasonable approaches, keeping our interactions with the Union benign and direct.

Moreover, four members from the Union are entitled to attend our HR Management Committee. Thus, they can fully

express their comments in the face of issues with major influences on employees' rights and benefits. The Bank also

has two-way communication channels (such as email boxes specifically for employees and e-papers). We seek to pay

attention and listen to our employees while at the same time making sure everyone is updated with the latest news

of the Bank.

X. Labor and Management Relationships

1. Employee welfare, retirement policy and implementations, labor and management agreements, measures for securing employees' benefits and implementations

(1) Welfares of Employees and Implementations

To build a good relationship between labor and management levels and strive for mutual benefits, the following

are welfares for our employees: higher deposit rates for employees, subsidies for fee charge of financial products,

general insurance of banking industry, labor insurance, health insurance and group insurance (including regular

life insurance, insurance in case of accidents and medical insurance- all subsidized by the Bank), and on- site

contracted and qualified doctors in shifts. We also offer services of medical advice and health check for everyone.

In addition, we provide subsidies for activities, uniforms and organized Employee Welfare Committee subject to

related laws, which is responsible for planning welfare items for everyone with the pool of funds appropriated

by the Bank. On the other hand, the Bank also distributes bonuses from the revenues depending on everyone's

performance to elevate work morale.

(2) Retirement Policy and Implementations

The Bank's retirement system is subject to Labor Standards Acts and pertinent regulations of labor pensions. The

Bank has also formulated retirement policy to ensure our employees can be protected in time of retirement.

(3) Labor and Management Agreement

The Bank has entered into a negotiation contract with the Union on Dec. 6 in 2007 which covers the following

items:

‧Retention rate: The Bank guarantees at least 85% retention rate within 2 years after recapitalization (excluding

those who leave the Bank voluntarily or apply for Early Retirement Program)

‧Lay off program: Within 3 years after recapitalization, if the Bank lays off anyone subject to Labor Standards

Law, the severance pay shall follow the rules. Based on years of employment, the Bank offers a 2 –month

average wage for each year (those with less than 6 months service will be counted as 6 months, and those

with 6-12 months will be regarded as working for 1 year) and another 2-month average wage.

‧Salary and other benefits: The Bank promises not to change any employment conditions to the entire staff 1)

before signing Collective Bargaining Agreement or 2) within 3 years after recapitalization.


COSMOS BANK40

‧Human Resources Management Committee: After capital injection, the Union is entitled to designate 4

employees to represent the interest of the entire staff to attend Human Resources Management Committee

(total seat number: 10).

‧Communication with the representatives of the Union: The Bank's chairman is required to meet with the

representatives of the Union at least once per month to discuss the rights of the entire staff.

‧ESOP: The Bank will stipulates “Issuance and Subscription Plan for ESOP” and the amount of stock options

to be granted will depend on the performance and years of service.

(4) Early Retirement Program in 2009

A. Applicable period：From Feb. 1, 2009 to Feb. 28, 2009, the employees entering into the Bank prior to 2007

are qualified for application.

B. Assessment methods：After approval, the qualified employees will receive a 2-month average wage for each

employment year. Those with less than 6 months service will be counted as 6 months, and those with 6-12

months will be regarded as working for 1 year.

2. Any loss incurred from labor/management disputes and estimate loss currently or in the future and counter measures in 2009 and prior to the printing date of the annual report：As some employees have dissidents on the calculation of this part of compensation after reception, and requested

the Bank to further provide the gap money, a total of 3 litigation cases are still in process in the court. The total of

requested compensation is NT$80,277 thousand. One of the cases has been ruled by the court in March 2010 that

the Bank should agree partial request of the applicant for about NT$470 thousand. However, the Bank will take on

other litigation proceedings for this case. And the rest of the similar cases are still in trial.

XI. Important Contracts

Nature of Contract Counter Party Period of Contract Contents Restriction Clause

Auto LoanConsignmentAgreement

GE Capital Taiwan Limited

(hereinafterreferred to as“GECT” )

June 29, 2006

Acquired auto loans totaling NT$1,359,280 thousand from GECT. Total cost of purchase wasNT$1,413,467 thousand. The premium was around 4%

None

Chiao Tung BankCo. ,Ltd. (Note)

August 17, 2006

Acquired auto loan totaling NT$1,023,770 thousand from Mega Commercial Bank. Total costof purchase was amounted to NT$1,064,721 thousand. The premium was 4%.

None

Note: Chiao Tung Bank Co., Ltd. has changed its name to Mega International Commercial Bank Co., Ltd.


XII. Risk Management

1. Framework of Risk Management OrganizationThe risk management of the Bank aims at balancing risks and returns, facilitating a multi-faceted development of

businesses and maximizing shareholder values. The risk management organization includes Board, Risk Committee,

Risk Management Committee, Risk Management Department and various management units.

The Board of Directors (BOD) is ultimately responsible for bank-wide risk management and supported by the Risk

Committee. The members of Risk Committee are selected Board members who are tasked to supervise bank-wide

risk-related issues on behalf of the BOD. Within the Committee lies the Risk Management Committee, which is

responsible for coordinating, promoting and implementing bank-wide risk management system, and reports to

Risk Committee on a regular basis. The Bank has also established a specialized Risk Management Department,

which is responsible for monitoring credit risks, market risks, operational risks and liquidity risks etc. Meanwhile, the

Department build up risk identification, assessment, disclosure and reporting under the New Basel Capital Accord.

The Department also prepare various reports on a regular basis to help the management on strategy decision

making. In addition, the Bank has a Legal Department that is responsible for implementing and management of legal

risks and compliance. Each management under CEO should implement risk management policies and appropriate

internal control system and rules. Based on their business requirements, they should support promotion of risk

management init iatives. The Internal Audit Department, on the other hand, is charge of auditing the implementation

of internal control system in each department.

2. Risk Management Policy

(1) In pursuit of sustainable operation for the Bank's risk management, we refer to the Best Practices of the New

Basel Capital Accord to develop a comprehensive risk assessment structure and capital adequacy management

system in order to ensure that the Bank meets the minimum statutory capital requirements and may withstand

any impact on capital under various stress scenarios.

(2) The Bank's strategies for credit asset portfolio aims at profitability and risk diversification with a special focus on

qualified retail portfolio. By segmenting customer risk into different tiers, the Bank is able to control the overall

risk of asset portfolio within an acceptable range. The Bank also proactively transfers risks by means of Small and

Medium Business Credit Guarantee Fund (SMEG) in order to ensure the Bank's obligatory claim over collaterals,

mitigate the impact of delinquency while at the same time achieve risk capital saving. Besides, the Bank drives to

improve the underwriting procedures, develop risk management tools, and improve risk management system to

effectively monitor the overall asset quality and risk.

(3) Liquidity, security and profitability are the major objectives of our assets and liabilities management. Other than

reviewing the tenures of assets and liabilities as well as analyzing the structure of maturity dates to adjust the

gaps to suitable benchmarks, the Bank also stipulates risk limits on rates in order to mitigate the rate fluctuation

in the market and its influence to cost of fund and profitability. In addition to setting investment cap and

guideline for financial instruments. We also use the sensibility index of market risk factors and risk limits to

monitor the market risk and control profit/loss in order not to take excessive investment risk due to the market

price fluctuation.


COSMOS BANK42

(4) To enforce participation of risk management, the Bank not only formulate regulations, code of conduct and

rewards/discipline policies to govern employee conduct, but also set up standardized operational procedures,

strengthen internal control systems, improve the control of IT system, and provide timely and accurate risk

information report. By leveraging warning mechanisms such as risk appetite, key indicators and risk events, the

Bank plans improvement measures ahead of time.

3. Risk Evaluation & Control Measures and Exposure Quantification

(1) Credit Risk Management Policy and Capital Requirement

A. Credit Risk Management PolicyYear 2009

Item Details

1. Credit Risk Strategy, Goal, Policy, and Procedure

(1) Management StrategyThe loan development strategy of the Bank focuses on cash card, credit card, and SME loan. In 2010, we will relaunch mortgage business, P-loan and loans to mid- and large-sized enterprises, hoping to expedite the growth of loan assets and diversify risks. We develop the niche market by accurately assessing the risk level of customers, solvency, and credit spreads. In order to accurately select target customers, we also pursue a reasonable balance between risk and profit.

(2) Management GoalThe main goals of our credit risk management are appropriately evaluating the risk of default, controlling credit quality, and diversifying loan risk in order to control the overall risk of loan portfolio within the authorized risk appetite.

(3) Management PolicyThe purpose of formulating credit risk management policy is to establish a standardized monitoring/controlling procedures of credit risk identification, evaluation, information disclosure and reporting, including the credit standard of target customers, underwriting procedures, loan approval procedures, procedure of reviewing exceptional cases, risk monitoring and management, credit review, NPL management and document / data management requirement.

(4) Management ProcedureAll responsible units execute the following management procedure according to credit risk management policy：a. Credit Review and Underwriting

We accurately select the target customers and control the credit quality of asset portfolio by reviewing certifications based on credit standard of target customer.

b. Loan ApprovalThe authorized directors in respective ranks may grant credit line to customers who pass underwriting assessments under the structure of credit limit management and regulations on credit authorization. The Bank manages the credit limit structure and credit authorization system by complying with the provisions of the Banking Act and other relevant statutory regulations. We have set credit ceilings on each sole counterparty, same related corporation/group, collateralized stock, industry and country. We periodically review the authorized limits delegated to respective directors based on their professional degree and the conditions of credit control over asset quality.

c. Interim and Follow-up Credit ManagementAs to Corporate Banking, We keep track of the financial status of our corporate customers through the account officer and periodic credit review. We conduct regular risk assessment report on credit asset portfolio and set up an early alert mechanism to take preemptive strategies in line with the change of economic environment and asset quality. As to Consumer Banking , We track and monitor any change in asset quality through periodic Portfolio Quality Review (PQR) . In addition, problematic loans are centralized and tracked through IT systems, application of analysis model and periodic review to improve debt recovery rate and accelerate NPL collection.


d. Risk Report and Information DisclosureRisk Management Department is in charge of assessing risk and monthly/quarterly reporting. Risk management report covering risk management index and risk capital requirements are produced regularly and submitted to Chief Risk Officer, the senior management and the Board of Directors.

e. Development, operation and validation of risk information systemTo assess customers' default risk effectively, we develop risk assessment models by using quantitative statistics as references for credit decisions. We have developed the credit scoring models based on respective types of products and clients, by which selection of new clients, risk-based pricing and management of credit line are implemented. We also adopt analysis of customer behavioral models to formulate collection strategies for delinquent loan. To enhance the effectiveness and consistency of our underwriting standards, the Bank has built up a computerized credit assessment system to elevate its operating efficiency and computerization as well as a basis for further development and improvement on quantitative models.We have periodic validation mechanism for risk analysis model. The analyst, who is not the developer, will execute the validation of model effectiveness to evaluate if the model is proper and make necessary modification accordingly.

2. Credit Risk Management Organization & Structure

The Board of Directors is ultimately responsible for credit risk management. The Risk Committee under the Board is comprised of board members to monitor risks based on their delegation of authority. The Risk Management Committee, set up by the Risk Committee in accordance with the Organization Charter approved by the Board, is in charge of coordinating the overall risk management system and reports regularly to the Board of Directors. The Risk Management Department is in charge of promoting policies on risk management, operating procedures and submitting periodic report to Chief Risk Officer, the Risk Management Committee and Risk Committee. Units in charge of underwriting conduct assessments base on the credit standards set for target customers. In addition, the Bank has formulated the“Guidelines Governing the Delegation of Authorities for Credit Granting”to delegate the authority to respective directors in charge of credit underwriting.Through a collegiate system, the Credit Committee deliberates on important loan applications or applications for large credit line to control the overall credit quality. The Bank also set up credit review mechanism to review disbursement procedures so as to ensure the underwriting system and policies are fully obeyed.

3. The Scope and Characteristics of Credit Risk Report and Measurement System

To allow the Board of Directors a full understanding and control of the credit risk undertaken by the Bank, the Risk Management Department provides the Risk Committee with periodic reports regarding assessment of credit risk index and review of risk management performance, including risk portfolio of credit assets, NPL ratio and loss rate, and assessment of risk capital requirement in order to constantly track any change in credit asset quality.

4. Credit Risk Policies of Hedging and Risk Mitigation Sustainable effective Strategy and Procedure of monitoring hedging and risk deduction tools

The Bank's strategies for credit risk hedging or mitigation is evaluated depending on borrower and transaction risk. The Bank requests specific clients to provide appropriate collateral with good liquidity as well as proper amount or transfer guarantee from assurance institute (such as SMEG) to secure our loan rights. The derivatives has not been introduced as a tool for credit risk mitigation so far.We monitor the effectiveness of hedging. In addition to confirm the required legal documents when making agreements ,We provide periodic assessment on value fluctuation of collateral in order to decide if additional collaterals or adjustment on credit line is necessary.

5. The Method for Regulatory Capital Requirement

We calculated the regulatory capital requirement of credit risk based on “The Calculation Approach of the Regulatory Equity Capital Requirement and RWA of the Bank -The Standardized Approach of Credit Risk”.

Item Details


COSMOS BANK44

B. Risk Exposure after Risk Mitigation under Standardized Approach and Capital Requirement

B. Asset securitization: None.

(2) Asset Securitization Risk Management Procedures, Exposure and Allocated Capital

A. Asset Securitization Risk Management Procedures

Unit: NT$1,000

Base date: Mar. 31, 2010

Type of Risk Exposure Risk Exposure after Risk

MitigationCapital Requirement

Sovereigns 37,979,934 －

Non Central- Government Public Sector Entities －－

Banks ( Multilateral Development Banks included) 5,310,492 105,839

Corporates (Securities firms and Insurance companies included)

17,009,642 1,063,112

Claims included in the Retail Portfolios 53,093,954 2,933,742

Residential Property 4,623,145 168,067

Equity Securities Investment 552,870 176,918

Other Assets 18,674,649 1,353,620

Total 137,244,686 5,801,298

Year 2009

Item Details

1. Asset securitization management strategy and procedure

N/A (Note: The Bank does not act as an asset securitization initiation institute or credit enhancement institute. It only has a few asset-backed security investments which is governed by the relevant internal regulations on Marketable Securities Investment)

2. Asset securitization management organization and structure

N/A

3. Asset securitization risk report and the range and characteristics of measurement system

N/A

4. Asset securitization hedge or risk deduction policy, and the strategy and procedure of monitoring consistent efficiency of evasion and risk deduction tools

N/A

5. Method used to allocate legal capital “Calculation Methods of Liable Capital and Risk Weighted Assets of the Bank — Asset securitization Transaction Standard Law” is used to calculate its needs of legal liable capital.


D. Securitization Products

a. General List of Invested Securitization Products

b. (a) Disclosure of information relating to one single investment on securitization products with original

cost over NT$300 million (not including those held by the Bank acting as the initiation institute for the

purpose of credit enhancement): None

(b) Disclosure of information relating to the said product held by the Bank acting as the securitization

initiation institute for the purpose of credit enhancement: None

(c) Disclosure of information relating to the Bank acting as the purchasing institute or purchase-settling

institute for credit impairment assets of securitization products: None

c. Disclosure of information relating to the Bank acting the guaranteeing institute for securitization products

or providing current financing limit: None

Unit: NT$1,000


ItemAccounting item

on booksOriginal cost

Accumulated evaluation profit / loss

Accumulated impairment

Book value

Beneficial securities from bond asset securitization or asset-backed securities (CBO)

155131520 Investment on debt products without active markets -- securitization products -- CBO

$ 24,677 －－ $ 24,677

Unit: NT$1,000


Type of exposure

Non-Originating Bank Initiation Bank

Securitization exposure amount

purchased or held

Capital Requirement

Exposure Amount

Allocated Capital before Securitization

Non-Asset-backed Commercial Paper

Asset-backed Commercial

paper

Traditional Portfolio

Retained Position

Position not

Retained

Retained Position

Position not

Retained

CBO (Mortgage bond)

24,757 990 －－－－－－

Total 24,757 990 －－－－－－

C. Asset Securitization Exposure and Allocated Capital


COSMOS BANK46

Year 2009

Item Details

1. Operational Risk Management Strategy and Procedure

The definition of the Bank's operational risks are internal operational risk, mistakes made by staff and systematic errors, or risk of external events that incur indemnities to the Bank, including the legal risk. However, the strategic risk and reputation risk are excluded.

To effectively control operational risks, the Bank has set up a sound internal control measures and standard operational procedures. We have set up review mechanism and IT system for risk management. The self-assessment, internal auditing review mechanisms on a regular or irregular basis, and risk analysis would ensure that the effective execution of review mechanism and system. We have also established the contingency plan and remote back-up systems based on supervisory regulations to control potential accidental losses and continuous operation. We have done comprehensive assessment in advance, continuous monitoring, and required amendment based on professional services.

We also outsource some of our operations and review them based on supervisory and internal regulations to ensure the legitimacy and the rights and benefits of the Bank and customers.

The Bank has trained employees on risk management to improve their skills and ensure they understand the regulatory requirements clearly.

2. Operational Risk Management Organization and Structure

Under the Bank's structure of operational risk management, the management team in Head Office is responsible for formulating the operation guidelines for various businesses, implementing internal audit system and controlling operational risk. In case of any risk event related to operations, each unit shall report according to our regulations. And the management team in HQ is in charge of monitoring improvement measures and the implementations to effectively control bank-wide operational risks.

The Legal Department is in charge of legal risk management and promotion of legal compliance. The Audit Department takes charge of independent auditing to ensure full compliance of business guidelines.

The Bank has set up the Department of Operational Risk Management based on “Pillar II Supervisory Review Process”. The Department is responsible for setting up procedures for identifying, assessing, reporting operational risks and approaches to relevant information disclosure. Operational risk reports are submitted to the Risk Management Committee and Board of Directors on a regular basis.

3. The Scope and Characteristics of Operational Risk Report and Measurement System

Each department is responsible for reporting events incurred by operational risks upon occurrence based on the type of operational risk and loss defined in “The New Basel Capital Accord.” The purpose is to understand and improve the existing operation procedures, IT systems and employee trainings. Through Risk Control and Self Assessment Plan, the Bank will review the design of each operation procedure and set up primary risk index to enhance risk control and set up an effective early warning mechanism.

4.Operational Risk Hedging or Risk Mitigation Policy. Sustainable effective Strategy and Procedure of monitoring hedging and risk mitigation tools

Based on supervisory regulation and internal analysis, the Bank seeks insurance coverage (For example, comprehensive insurance, accident insurance, and fire insurance) to offset our operational risks which might cause major loss. The Bank view insurance as risk mitigation and strengthen the ability for assessing to ensure the affordable risk and adjust risk management strategy.

5. Method for Regulatory Capital Requirement

We calculated the regulatory capital requirement based on “The Calculation Approach of the Regulatory Equity Capital Requirement and RWA of the Bank─ The Basic Index Approach for Operational Risk”.

(3) Operational Risk Management Policy and Capital Requirement

A. Operational Risk Management Policy


(4) Market Risk Management Policy and Capital Requirement

A. Market Risk Management PolicyYear 2009

Item Details

1. Market Risk Management Strategy and Procedure

With an eye to strengthening bank-wide communication and integration on market risk information, controlling all types of negative impacts to our capital or revenue from expected or unexpected incidents, the Bank not only follows regulatory requirements in terms of market risk management, but also sets investment caps and loss-stop limits for the investments of all types of financial products. Thus, we can regulate the investment positions of Treasury. Our Settlement Department evaluates the P/L of our holding positions on a daily basis whereas Risk Management Department sets risk limits based on market risk factors. Accordingly, the Risk Management Department can measure and monitor bank-wide risk exposure, prevent the Bank from exposing too much risk as a result of the fluctuation of market price, and report to senior managers and Risk Management Committee on a regular basis.

2. Market Risk Management Organization and Structure

The Bank's Board of Directors is the ultimate unit responsible for market risk management. Under which the Risk Committee executes the supervising on bank-wide risks on behalf of the Board. The Committee is authorized by the BOD to formulate Risk Management Committee and AL-CO Committee to coordinate bank-wide market risk management systems, as well as planning and education for the systems. These committees also submit regular reports to the BOD.

The Risk Management Department is entitled to assist Risk Management Committee and Asset/Liability Management Committee to stipulate policies of market risk management and pertinent amendments. The Department also executes approved management structure of market risk, and the identification, measurement, disclosure and reporting of risks.

The Treasury Department reports to Asset/Liability Management Committee on bank-wide management of assets and liabilities. The Settlement Department is in charge of supervising the limits of trading and investment positions. The Audit Department is responsible for providing independent assessment on the process of risk management of the Bank.

B. Operational Risk-Based Capital Requirement

Unit：NT$1,000Base date: Mar. 31, 2010

Year Gross Margin Legally Required Capital

2007 9,252,668

－2008 7,472,677

2009 6,086,198

Total 22,811,543 1,140,577


COSMOS BANK48

Item Details

3. The Scope and Characteristics of Market Risk Report and Measurement System

The scope of risk assessment focuses on trading positions on the book. In addition, the Bank categorizes market risks as rate, FX and securities. The Bank has built measurement systems for each category in order to monitor the potential impacts from fluctuating market price on the holding positions of the Bank and adjust our strategies accordingly. For the assets and liabilities on the banking book, the Bank quantifies the latent impacts from the gap of risk sensitivity to our economic value and revenues on accounting book. The Bank also sets a management target in terms of risk caps as a reference for our strategy planning on asset/liability management. The Risk Management Department communicates with our front-end management units on a regular basis regarding exposures and observance to risk caps in order to strengthen our communication and early warning effects. In addition, the Department is also required to update to Risk Management Committee about the management of bank-wide market risks, including the education on policies and assessment of risk exposure.

4. Market Risk Hedging or Risk Mitigation Policy. Sustainable effective Strategy and Procedure of monitoring hedging and risk mitigation tools

The purpose of hedge aims at preventing the Bank from suffering the risks of holding assets, liabilities or trading positions. Before initiating any hedge transaction, we will evaluate our risk exposure on assets or liabilities to achieve risk mitigation by reversal transactions. And according to the related regulations, we conduct hedge efficiency tests on the fluctuation of fair value and cash flow against hedged items. The results are submitted to ALCO Committee regularly for review.

5. Method for Regulatory Capital Requirement

We calculated the regulatory eligible capital requirement based on “The Calculation Approach of the Regulatory Eligible Capital Requirement and RWA of the Bank ─ The Standardized Approach for Market Risk”.

Unit: NT$1,000


Type of Risk Capital Requirement

Interest Rate Risk 36,860

Equity Securities Risk －

Foreign Exchange Risk 81,625

Commodity Risk －

Total 118,485

B. Market Risk-Based Capital Requirement


(5) Liquidity Risk

A. Maturity Analysis of Assets and Liabilities

a. Maturity Analysis of Assets and Liabilities (NTD)

B. The method of liquidity management:

The Bank manage the liquidity risk based on ”Directions for Auditing Liquidity of Financial Institutions”. The annual

liquidity reserve in 2009 was 21.01%, which is higher than the required percentage of 7%.

Note: 1.The above amounts included only U.S. dollar held by the head office, domestic branches and OBU of the Bank.

2.If overseas assets are above 10% of total assets of the Bank, it is necessary to provide supplementary disclosure information.

Unit: US$ 1,000


Total

Remaining Period to Maturity

1~ 30 Days 31~90 Days 91~180 Days181 Days ~

1 YearOver 1 Year

Assets 151,910 126,397 19,707 4,181 － 1,625

Liabilities 151,910 94,106 8,166 7,735 10,436 31,467

Gap － 32,291 11,541 ( 3,554) ( 10,436) ( 29,842)

Cumulative Gap

－ 32,291 43,832 40,278 29,842 －

b. Maturity Analysis of Assets and Liabilities (USD)

Note: The above amounts included only New Taiwan dollar held by the head office and domestic branches of the Bank (i.e., excluding

foreign currency).

Unit: NT$ 1,000


Total


1~ 30 Days 31~90 Days 91~180 Days181 Days ~

1 YearOver 1 Year

Main capital inflow on maturity

119,526,195 26,517,364 19,346,991 7,622,901 32,072,655 33,966,284

Main capital outflow on maturity

158,707,260 15,178,613 25,058,481 36,585,591 48,088,075 33,796,500

Gap ( 39,181,065) 11,338,751 ( 5,711,490) ( 28,962,690) ( 16,015,420) 169,784


COSMOS BANK50

XIII. Private Marketable Securities

Item Date of issue: Sep. 29, 2009

Type of private marketable securities

Common shares

Resolved amount and date of resolution of the shareholders' meeting

1. Shareholder's general meeting on Jun. 19, 2009 2. Common stock: 170,921,739 shares（NT$10 par value）

Grounds and rationality for the price set

1. Issuing price: NT$3.22 per share 2. The private price was set based on the arithmetic average of closing price of the Bank's shares

at Taiwan Stock Exchange 3 business days before the date of pricing.

Method of selecting the specified person

1. It should be in compliance with the requirements of a specified person provided in Par. 1, Art. 43-6 of the Securities Transaction Act.

2. The method of selecting the specified person is authorized to the board of directors to decide and select from these people who are able to provide with direct or indirect beneficial results for the Company's future operation and also meet the requirements made by the authority.

Critical reason of undertaking private replacement

For a better time effect, shares are issued through private placement, in order to pour funds promptly to improve financial structure and enhance capital adequacy ratio.

Number of shares (or number of corporate bonds)

170,921,739 shares

Date of payment completion and date of declaration

1. Date of payment completion: Sep. 29, 2009 2. Date of declaration: After pricing ─ Jul. 29, 2009; After collecting payment in full ─ Sep. 29,

2009

Date of delivery Sep. 29, 2009

Information of private investor

Private investor Qualification and condition

Subscribed quantity

Relation with the Bank

Participation in the Bank's operation

General Electric International Inc.

Subpar. 1, Par. 1, Art. 43-6 of the securities transaction act

170,921,739 shares

Affiliated company of GE Capital Asian InvestmentHolding Co., Ltd., a major shareholderholding over 10%shares of the Bank

2 directors and a part of high ranking management personnel appointed jointly by GE Capital Asian Investment Holding Co., Ltd.

Actual subscription price (or conversion price)

NT$3.22 per share

Difference between actual subscription price (or conversion price) and reference price

The difference between subscription price NT$3.22 and reference price NT$4.03 is up to 20.1%. A report of rationality of price has been issued in compliance with regulations.

Effect of private placement to shareholders' equity

Shares issued below face value resulted in the accumulated loss increasing by NT$1,158,849,390

Use of private funds and progress of plan execution

The Bank's capital adequacy ratio has been enhanced to 16.74%. It has agreed with the provision of“Regulations Governing Capital Adequacy of the Bank”requiring a minimum capital adequacy rate of 8%.

Private placement effect Improving financial structure and enhancing capital adequacy ratio


XIV. Audit Report of the Financial Report of 2009 issued by Auditing Committee

Audit Report by Auditing Committee

The business report, financial statements, and proposal of profit or loss appropriation for the year 2009

were prepared by the board of directors. The financial statement has been audited by KPMG Certified Public

Accountants and the auditors' report with qualified opinions has also been issued. In our opinion, the above

business report, financial statements and proposal of profit or loss appropriation generally agree with major

aspects of the status of the Bank after being audited by the Auditing Committee. This report is hereby issued in

compliance with Article 14-4 of the Securities Transaction Act and Article 219 of the Company Law.

Cosmos Bank ,Taiwan

Independent Director:

Wen-yu Wang

Pu-yu Wang

Ji-huang Lin

Financial Review

COSMOS BANK52

FINANCIAL REVIEW


I. Independent Auditors' Report

The Board of Directors and Stockholders

Cosmos Bank, Taiwan:

We have audited the accompanying balance sheets of Cosmos Bank, Taiwan as of December 31, 2009 and 2008, and

the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These

financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on

these financial statements based on our audits.

We conducted our audits in accordance with the Regulations Governing the Auditing of Financial Statements of

Financial Institutions by Certified Public Accountants and auditing standards generally accepted in the Republic of

China. Those standards and regulations require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the overall financial

statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As stated in note 4(k) to the financial statements, the Bank signed individual contracts with asset management

companies between 2004 and 2006 to sell non-performing loans. Based on the Law Governing Mergers of Financial

Institutions, the losses on these sales were amortized using the straight-line method over 60 months. The unamortized

balance was recorded as deferred losses on the sale of non-performing loans. Had these losses not been deferred,

the carrying value of the deferred losses as of December 31, 2009 and 2008, would have decreased by $8,647,483

thousand and $15,384,878 thousand, respectively, and retained earnings would have decreased by $6,485,612

thousand and $11,538,659 thousand, respectively. In addition, the loss after tax would have decreased by $4,960,828

thousand and $5,629,758 thousand for the years ended December 31, 2009 and 2008, respectively.

In our opinion, except for the effects of the deferred loss on the sale of the non-performing loans mentioned in the

third paragraph, the financial statements referred to above present fairly, in all material respects, the financial position

of Cosmos Bank, Taiwan as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the

years ended December 31, 2009 and 2008, in conformity with the Guidelines Governing the Preparation of Financial

Reports by Public Banks, the related financial accounting standards of the “Business Entity Accounting Act” and of the

“Regulation on Business Entity Accounting Handling”, and accounting principles generally accepted in the Republic of

China.

April 23, 2010

Note to Readers

The accompanying financial statements are intended only to present the financial position, results of operations and

cash flows in accordance with the accounting principles and practices generally accepted in Taiwan, the Republic

of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial

statements are those generally accepted and applied in Taiwan, the Republic of China.

The auditors’ report and the accompanying financial statements are the English translation of the Chinese version

prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of,

the English and Chinese language auditors’ report and financial statements, the Chinese version shall prevail.

Financial Review

Financial Review

COSMOS BANK54

II. Financial Statements

COSMOS BANK, TAIWANBalance Sheets

December 31, 2009 and 2008

(Expressed in thousands of New Taiwan dollars)

Assets2009

Amount2008

Amount

Percentage Increase

(Decrease)%

Cash and cash equivalents (notes 4(a) and 5) $ 2,457,826 3,457,234 (29)

Due from the Central Bank and call loans to banks (notes 4(b) and 5) 30,024,429 27,069,521 11

Financial assets at fair value through profit or loss, net (note 4(c)) 148,733 156,029 (5)

Receivables, net (notes 4(d) and 5) 5,616,359 6,771,268 (17)

Assets held for sale (note 4(e)) 61,724 156,498 (61)

Discounts and loans, net (notes 4(f) and 5) 71,129,196 93,593,380 (24)

Available-for-sale financial assets, net (notes 4(g) and 6) 998,753 891,086 12

Equity investments under the equity method, net (notes 4(h) and 5) 19,970 50,775 (61)

Other financial assets, net (notes 4(i) and 6) 1,064,510 1,447,533 (26)

Fixed assets, net (note 4(j)) 6,515,238 6,587,495 (1)

Intangible assets 125,528 67,540 86

Other assets, net (notes 4(k) and 5) 18,286,535 24,287,317 (25)

Total assets $ 136,448,801 164,535,676 (17)

see accompanying notes to financial statements


Liabilities and Stockholders' Equity2009

Amount2008

Amount

Percentage Increase

(Decrease)%

Due to the Central Bank and other banks (note 4(l)) $ 12,089,156 13,216,356 (9)

Financial liabilities at fair value through profit or loss (note 4(c)) 3,728 13,027 (71)

Securities sold under repurchase agreements (note 4(m)) - 7,034 -

Payables (note 4(n)) 2,287,315 3,362,457 (32)

Deposits and remittances (notes 4(o) and 5) 103,253,606 122,600,724 (16)

Bank debentures (note 4(p)) 515,000 515,000 -

Accrued pension liabilities (note 4(q)) 182,176 286,515 (36)

Other financial liabilities (note 4(p)) 1,885,870 2,111,318 (11)

Other liabilities 277,641 301,168 (8)

Total liabilities 120,494,492 142,413,599 (15)

Capital stock (note 4(s))

Common stock 16,234,639 22,347,209 (27)

Preferred stock - 5,433,151 -

Total capital stock 16,234,639 27,780,360 (42)

Capital surplus

Others (note 4(s)) 12,961,607 15,844,318 (18)

Total capital surplus 12,961,607 15,844,318 (18)

Retained earnings

Accumulated deficit (note 4(s)) (13,272,434) (21,519,090) 38

Total accumulated deficit (13,272,434) (21,519,090) 38

Others

Unrealized gains on financial instruments 30,497 16,489 85

30,497 16,489 85

Total stockholders' equity 15,954,309 22,122,077 (28)

Commitments and contingencies (note 7)

Total liabilities and stockholders' equity $ 136,448,801 164,535,676 (17)

Financial Review

COSMOS BANK56

2009Amount

2008Amount

Percentage Increase

(Decrease)%

Interest revenue $ 6,613,163 9,920,451 (33)

Less: interest expense (2,025,702) (3,650,665) 45

Net interest 4,587,461 6,269,786 (27)

Net revenues (losses) other than interest

Service fee income, net 1,315,645 795,238 65

Losses on financial assets and liabilities at fair value through profit or loss (note 4(c)) (1,077) (200) (439)

Realized gains on the sale of available-for-sale financial assets 226 49 361

Income from equity investments under the equity method (note 4(h)) 15,947 7,024 127

Foreign exchange (losses) gains, net (6,083) 68,568 (109)

Gain on reversal of asset impairment loss (loss on asset impairment) (notes 4(e), (j), and (k)) 478,901 (405,538) 218

Other noninterest gains, net (notes 4(i), (k), and (u)) 68,962 230,571 (70)

Loss on the sale of nonperforming loans (note 4(k)) (6,614,437) (7,506,343) 12

Total net losses other than interest (4,741,916) (6,810,631) 30

Total net revenues (losses) (154,455) (540,845) 71

Provision for loan losses (note 4(f)) (3,753,449) (6,065,720) 38

Operating expenses (note 5)

Personnel (2,203,040) (2,747,572) 20

Depreciation and amortization (475,690) (566,583) 16

Others (1,678,595) (2,417,039) 31

Total operating expenses (4,357,325) (5,731,194) 24

COSMOS BANK, TAIWANIncome Statements

For the years ended December 31, 2009 and 2008

(Expressed in thousands of New Taiwan dollars, except earnings per share, which are expressed in New Taiwan dollars)


2009Amount

2008Amount

Percentage Increase

(Decrease)%

Loss before income tax (8,265,229) (12,337,759) 33

Income tax benefit (note 4(r)) 1,100,958 2,135,393 (48)

Net loss $ (7,164,271) (10,202,366) 30

BeforeTax

After Tax

BeforeTax

After Tax

Loss per share (note 4(t)) $ (7.09) (6.14) (5.52) (4.57)

Loss per share – retroactive $ (12.08) (9.99)


Financial Review

COSMOS BANK58

COSMOS BANK, TAIWANStatements of Changes in Stockholders' Equity


(in thousands of New Taiwan dollars)

Common stock Preferred stock Capital surplus Accumulated deficitUnrealized valuation gains

on financial instrumentsTotal

Balance at January 1, 2008 $ 67,866,500 16,500,000 15,831,910 (67,902,864) 2,978 32,298,524

Capital decrease, June 25, 2008 (45,519,291) (11,066,849) - 56,586,140 - -

Stock-based compensation - - 12,408 - - 12,408

Net loss for the year ended December 31, 2008 - - - (10,202,366) - (10,202,366)

Unrealized valuation gains on financial instruments - - - - 13,511 13,511

Balance at December 31, 2008 22,347,209 5,433,151 15,844,318 (21,519,090) 16,489 22,122,077

Private placement of common shares – settlement of debts in 2009 1,709,217 - - (1,158,849) - 550,368

Private placement of common shares – Mandatory

Convertible Bonds converted in 2009 6,045,062 - (2,900,186) (2,730,224) - 414,652

Issuance of common stock for conversion of preferred stock 5,433,151 (5,433,151) - - - -

Capital decrease, October 30, 2009 (19,300,000) - - 19,300,000 - -




Balance at December 31, 2009 $ 16,234,639 - 12,961,607 (13,272,434) 30,497 15,954,309



Common stock Preferred stock Capital surplus Accumulated deficitUnrealized valuation gains

on financial instrumentsTotal

Balance at January 1, 2008 $ 67,866,500 16,500,000 15,831,910 (67,902,864) 2,978 32,298,524

Capital decrease, June 25, 2008 (45,519,291) (11,066,849) - 56,586,140 - -




Balance at December 31, 2008 22,347,209 5,433,151 15,844,318 (21,519,090) 16,489 22,122,077

Private placement of common shares – settlement of debts in 2009 1,709,217 - - (1,158,849) - 550,368

Private placement of common shares – Mandatory

Convertible Bonds converted in 2009 6,045,062 - (2,900,186) (2,730,224) - 414,652

Issuance of common stock for conversion of preferred stock 5,433,151 (5,433,151) - - - -

Capital decrease, October 30, 2009 (19,300,000) - - 19,300,000 - -




Balance at December 31, 2009 $ 16,234,639 - 12,961,607 (13,272,434) 30,497 15,954,309


Financial Review

COSMOS BANK60

COSMOS BANK, TAIWANStatements of Cash Flows



2009 2008

Cash flows from operating activities:

Net loss $ (7,164,271) (10,202,366)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization 475,690 566,583

Provision for loan losses 3,753,449 6,065,720

Expense resulting from stock option plan 17,475 12,408

Amortization of loss on the sale of nonperforming loans 6,614,437 7,506,343

Amortization of discount on convertible bank debentures 230,569 277,870

Loss on sale of properties, net 226 347

Loss on financial assets and liabilities at fair value through profit or loss, net 1,077 200

Income from equity investments under the equity method (15,947) (7,025)

Loss (gain) on sale of debt instruments with no active market 1,753 (685)

Gain on the sale of available-for-sale financial assets, net (159) -

(Gain on reversal of asset impairment) loss on asset impairment (478,901) 405,538

Recovery of loans and receivables written off in prior years 1,494,675 993,438

Gain on disposal of assets held for sale and foreclosed collateral, net (112,278) (16,920)

Net changes in operating assets and liabilities:

(Increase) decrease in financial assets at fair value through profit or loss (3,080) 36,935

Decrease in receivables 144,804 202,476

Decrease (increase) in prepaid expenses 46,087 (12,409)

Increase in other financial assets (37,780) (10,410)

Increase in deferred income tax assets, net (1,101,900) (2,098,888)

Decrease in payables (524,774) (1,139,890)

Decrease in other liabilities (23,527) (159,075)

Decrease in provision for pension cost (104,339) (766,754)

Others - 3,453

Net cash provided by operating activities 3,213,286 1,656,889

Cash flows from investing activities:

(Increase) decrease in due from the Central Bank and call loans to banks (2,954,908) 13,483,170

Decrease in discounts and loans 18,307,657 13,530,952

Acquisition of properties (17,682) (102,331)

Acquisition of long-term investment - (1,003)


Proceeds from the sale of properties 942 -

Proceeds from the sale of available-for-sale financial assets 6,303 530,372

Acquisition of available-for-sale financial assets (99,803) (777,006)

Proceeds from the sale of debt instruments with no active market 463,676 412,238

Increase in intangible assets (97,949) (27,600)

(Increase) decrease in refundable deposits (68,860) 15,930

Rebates from the sale of nonperforming loans 140,175 113,266

Proceeds from the sale of assets held for sale and foreclosed collateral 542,649 69,186

Decrease in other assets 89,915 268,880

Other (2,092) (867)

Net cash provided by investing activities 16,310,023 27,515,187

Cash flows from financing activities:

Decrease in due to the Central Bank and other banks (1,127,200) (18,940,811)

Decrease in deposits and remittances (19,347,118) (8,525,336)

Decrease in securities sold under repurchase agreements (7,034) (33,886)

Decrease in other financial liabilities (41,365) (1,224,749)

Net cash used in financing activities (20,522,717) (28,724,782)

Net (decrease) increase in cash and cash equivalents (999,408) 447,294

Cash and cash equivalents at beginning of year 3,457,234 3,009,940

Cash and cash equivalents at end of year $ 2,457,826 3,457,234

Supplementary cash flow information

Interest paid $ 2,246,360 3,994,369

Income tax paid $ 17,758 3,571

Supplemental disclosures of non-cash investing and financing activities:

Reclassification of assets $ 283,807 9,220

Unrealized valuation gain on financial instruments $ 14,008 13,511

Investment in financial assets accounted for under equity method transferred to cost method $ 46,752 -

Private placement of common shares $ 965,020 -

Capital reduction, October 30, 2009 $ 19,300,000 -

Preferred shares converted into common stock $ 5,433,151 -


2009 2008

Financial Review

COSMOS BANK62

III.Notes to Financial Statements


(Expressed in New Taiwan dollars unless otherwise specified)

1. Organization and Operations

Cosmos Bank, Taiwan (the “Bank”) engages in banking activities permitted by the Banking Act of the Republic of

China (Banking Act).

As of December 31, 2009, the Bank had a main office, an offshore banking unit (OBU), and 48 domestic branches.

In accordance with the resolution of the 32nd meeting of the 6th session of the Bank's Board of Directors held on

January 23, 2009, in an effort to improve operational effectiveness, the Bank applied to close 12 branches, and on

March 24, 2009, the Bank obtained the approval from the FSC under Jin Guan Yin (2) No. 09800043360 and then

closed the branches. As of December 31, 2009 and 2008, the Bank had 1,640 and 2,255 employees, respectively.

The business of the Bank's Trust Department includes planning, managing and operating trust business regulated

under the Banking Act and Trust Business Regulations of the Republic of China (ROC).

The shares of the Bank have been traded on the Taiwan Stock Exchange (TSE) since June 29, 1998. Under the

TSE’s operating rules and regulations, the Bank had to change the way of credit trading its shares on September 5,

2007. However, the trading method has been back to the credit trading since May 6, 2009.

Under section 64 of the Banking Act of the Republic of China, “Directors and Supervisors shall report to the

central government authority when banks have accumulated losses over 1/3 of the capital. The central government

authority shall have the Bank recover the capital within three months, otherwise the Bank shall be ordered to

suspend its business or be taken over by the government.” To avoid the situation as described under Section 64 of

the Banking Act of the Republic of China, the Financial Supervisory Commission (FSC) issued Directive Jin Guan Yin

(1) No. 09700480350 and requested the Bank to actively improve operating results and to propose practical plans

to strengthen the Bank's capital structure. In the 33rd meeting of the 6th session of the Bank's Board of Directors

held on February 25, 2009, the Bank approved a plan to enhance capital; please refer to paragraph (a) below. In

addition, on July 23, 2009, the FSC issued Directive Jin Guan Yin Guo No. 09800325300 and stated that the Bank

had accumulated losses over 1/3 of the capital. According to Jin Guan Yin (2) No. 09800101560, the Bank should

implement plans to strengthen its capital structure and recover the capital before October 31, 2009.

(a) The contents of the capital increase and reduction of common stock plan are as follows:

(1) In order to improve the Bank's financial structure, General Electric International Inc. (GEII) and GE Processing

Services Pty Limited (GE Australia) have reached an agreement to resolve the differences regarding their

technical service agreement with the Bank. Under the new agreement, the remaining payable will be

partially settled by cash, and the remainder will be through a private placement of common shares.

(2) Based on the issuance principles of the 2007 issuance of preferred shares, the preferred shares will be

converted into common shares at a 1:1 ratio.

(3) S.A.C. PEI Taiwan Holdings B.V. holds Subordinated Unsecured Mandatory Convertible Bonds (MCB) issued by

the Bank in 2007, a portion of which will be converted prior to the maturity date into common shares.

(4) The Bank will complete a capital reduction to offset accumulated losses and the share discount from the

issuance of common shares from the abovementioned capital injection.


(b) The Bank will actively dispose of non-performing loans and reduce personnel costs and recurring expenses

in order to reduce the speed at which capital is used. Also, it will continue to engage in product innovation,

improve the risk management process, and implement internal control policies in order to improve the operating

efficiency of the Bank.

In the stockholders' meeting held on June 19, 2009, the Bank approved the capital increase and capital reduction

plan under which the Bank would reduce the capital by $19,300,000 thousand after issuance of common shares

by a private placement of common shares, conversion of $3,630,000 thousand of the MCB into common shares,

and conversion of preferred shares into common shares. The abovementioned technical service agreement

regarding the settlement through a private placement of common shares was approved by the meeting of the

Bank's Board of Directors held on July 28, 2009, and the Board of Directors set the share pricing date as that

date and proposed the private placement of common shares be settled at $3.22 per share. The proposed share

price remained unchanged from the resolution of the extraordinary meeting of the Board of Directors held on

August 25, 2009, and was agreed by the authorized representative of GEII and GE Australia.

Regarding the capital increase, the Bank applied to increase the common stock on August 26, 2009, and

obtained approval from the FSC under Jin Guan Guo No. 09800425750 on September 22, 2009. According

to the resolution of the meeting of the Board of Directors on September 28, 2009, the Bank set September 29,

2009 as the basis date of a private placement with General Electric International Inc. (GEII) and October 6, 2009

as the basis date of Series A Preferred Shares converted into common shares and a portion of the MCB converted

into common shares. The Bank obtained approval to change the amount of capital from the FSC under Jin Guan

Yin Guo No. 09800473800 on October 8, 2009.

Regarding the capital reduction, the Bank submitted a capital reduction application to compensate for its

accumulated loss and offset the share discount resulting from the aforementioned issuance of common

shares, and obtained approval from the FSC under Jin Guan Cheng Fa No. 0980055038 on October 27, 2009.

According to the resolution of the Board of Directors on October 29, 2009, the Bank set October 30, 2009, as

the capital reduction basis date and January 20, 2010, as the stock market quote date. The Bank completed the

capital reduction registration on November 10, 2009.

2. Summary of Significant Accounting Policies

The financial statements are the English translation of the Chinese version prepared and used in the Republic of

China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language

financial statements, the Chinese version shall prevail.

The Bank's financial statements have been prepared in conformity with the Guidelines Governing the Preparation of

Financial Reports by Public Banks, the Business Entity Accounting Act, the Regulation on Business Entity Accounting

Handling, and accounting principles generally accepted in the Republic of China. In preparing financial statements in

conformity with these guidelines and principles, the Bank is required to make certain estimates and assumptions that

could affect the amounts of allowance for possible losses, reserve for losses on guarantees, property depreciation,

impairment loss on assets, valuation of financial instruments at fair value, pension, employee bonuses, directors'

and supervisors' remuneration, share-based payments, allowance for income tax assets, income tax, and accrued

litigation loss. Actual results could differ from these estimates.

Since the operating cycle in the banking industry cannot be reasonably identified, accounts included in the

Bank's financial statements are not classified as current or noncurrent. Nevertheless, these accounts are properly

categorized according to the nature of each account and sequenced by liquidity. Please refer to Note 4(u) for the

maturity analysis of assets and liabilities.

Financial Review

COSMOS BANK64

The Bank's significant accounting policies are summarized as follows:

(a) Basis of Preparation

The accompanying financial statements include the accounts of the Head Office, the OBU, and all the branches.

All interoffice transactions and balances have been eliminated.

(b) Cash and Cash Equivalents

The Company considers cash on hand, due from banks, and checks for clearing to be cash and cash equivalents.

(c) Financial Instruments at Fair Value Through Profit or Loss

Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (“FVTPL”)

include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial

recognition. The Bank recognizes a financial asset or a financial liability on its balance sheet when the Bank

becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when

the Bank has lost control of its contractual rights over the financial asset. A financial liability is derecognized

when the obligation specified in the relevant contract is discharged, cancelled or expired.

Financial instruments at FVTPL are initially measured at fair value. At each balance sheet date subsequent to the

initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair

value recognized directly in profit or loss in the year in which they arise. On derecognition of a financial asset

or a financial liability, the difference between its carrying amount and the sum of the consideration received and

receivable or consideration paid and payable is recognized in profit or loss. All regular way purchases or sales of

financial assets are recognized and derecognized on a trade-date basis.

Financial instruments used in derivative transactions that do not qualify for hedge accounting are classified as

financial assets or liabilities held for trading. If the fair value of a derivative is a positive number, the derivative is

carried as an asset, and if the fair value is a negative number, the derivative is carried as a liability.

Fair values are determined as follows: (a) short-term bills - at reference prices published by Reuters; (b) bonds -

at year-end reference prices published by the GreTai Securities Market (GTSM); (c) listed stocks and GTSM stocks -

at closing prices as of the balance sheet date; and (d) financial assets/liabilities without quoted prices in an active

market - at values determined using valuation techniques.

(d) Securities Purchased/Sold Under Resell/Repurchase Agreements

Securities purchased under resell agreements and securities sold under repurchase agreements are generally

treated as collateralized financing transactions. Interest earned on resell agreements or interest incurred on

repurchase agreements is recognized as interest income or interest expense over the life of each agreement.

(e) Assets Held for Sale

Assets held for sale are initially measured at the lower of the book value of the assets before they were classified

as held for sale or the net fair value. An impairment loss is recognized when the net fair value is lower than the

book value. The impairment loss is reversed if an increase in the investment recoverable amount is due to an

event that occurred after the impairment loss was recognized, and the accumulated impairment loss is debited

to net fair value; however, the adjusted carrying amount of the investment may not exceed the carrying amount

that would have been determined had no impairment loss been recognized for the investment in prior years.

Assets classified as held for sale cannot be depreciated, depleted, or amortized.

(f) Accounts Receivable

For the Bank, consumer loans to credit card holders are reflected by the amounts reported by merchants. Interest

income is recognized on an accrual basis using the interest method.


A credit card loan or accrued interest that is over 90 days past due is reclassified to a non-accrual account

without accruing interest. Interest collected while accruing of interest has stopped is included in earnings only to

the extent of cash actually received.

The Bank engages in factoring and management of accounts receivable. The interest and transaction fees from

factoring and management of such accounts are treated as current income. An allowance for credit losses is

provided by reviewing the balance of factoring accounts receivable at period-end.

(g) Loans

Loans are recorded at the amount of outstanding principal excluding unearned income. Interest income is

recognized on an accrual basis using the interest method.

When a loan becomes overdue, interest receivable is no longer accrued internally. Interest income is recorded

when payment is actually received.

(h) Overdue Loans

Under Ministry of Finance (MOF) guidelines, the Bank classifies loans and other credits (including accrued

interest) overdue for at least six months as overdue loans. However, the following loans are excluded: (1) The

borrowers paid by installment after negotiations; or (2) the borrowers negotiated with the Bank through the R.O.C.

Unsecured Consumer Financing Debt Negotiation Mechanism and Consumer Debt Clearance regulations.

Overdue loans (except other credits) are classified as discounts and loans, and other overdue credits (such as

guarantees, acceptances, and credit card charges) are classified as other financial assets.

( i ) Allowances for Possible Losses and Reserve for Losses on Guarantees

In accordance with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and

Deal with Non-performing/Non-accrual Loans”, the Bank evaluates credit assets on and off the balance sheet,

and evaluates the collectability of credit assets in consideration of the overdue periods and their collateral values.

Under the abovementioned regulations, the Bank makes 100%, 50%, 10%, and 2% provisions for credits

deemed uncollectible, highly uncollectible, substandard, and special mention, respectively, as minimum provisions

for possible losses. Meanwhile, the Bank makes provisions for credit card receivables in accordance with the

“Regulations Governing Institutions Engaging in Credit Card Business.”

In addition, the Bank may adopt a special reserve as a specified provision to enhance the asset quality when the

credit assets encounter depreciation risk or other significant unfavorable factors.

The Bank would write off overdue loans and credits after deducting the estimated recovery amount, and the

write-offs are then approved by the Board of Directors.

( j ) Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly

attributable to the financial asset acquisition. When assets are subsequently measured at fair value, the changes

in fair value are excluded from earnings and reported as a separate component of stockholders' equity. The

accumulated gains or losses are recognized as earnings when the financial asset is de-recognized from the

balance sheet. The Bank uses trade-date accounting when recording transactions.

Cash dividends are recognized on the ex-dividend date, except for dividends distributed from the pre-acquisition

profit, which are treated as a reduction of investment cost. Stock dividends are not recognized as investment

income but are recorded as an increase in the number of shares. The total number of shares subsequent to the

Financial Review

COSMOS BANK66

increase is used for recalculation of cost per share. The difference between the initial cost of a debt instrument

and its maturity amount is amortized using the effective interest method (or the straight-line method can be used

if there will be no significant difference), with the amortized interest recognized in profit or loss.

If an available-for-sale financial asset is determined to be impaired, a loss is recognized. If the impairment loss on

equity securities decreases, this loss is reversed to the extent of the decrease and recorded as an adjustment to

stockholders' equity; and for available-for-sale debt instruments, if the decrease can be objectively related to an

event occurring after the impairment loss, it should be reversed through profit or loss.

(k) Equity Investments under the Equity Method

Investments in which the Bank holds 20% or more of the investees' voting shares or exercises significant

influence over the investees' operating and financial policy decisions are accounted for by the equity method.

The difference between the investment cost and net equity of an investee is amortized over 10 years. However,

under the revised Statement of Financial Accounting Standards No. 5 - “Long-term Investments under Equity

Method”, the differences between investment cost and net equity in the previous investments are no longer

amortized starting from January 1, 2006. The difference is tested for impairment in a fixed period each year. An

impairment loss is recognized when the recoverable amount is less than the carrying amount.

For equity-method investments, stock dividends received are recognized only as increases in the number of shares

held, and not as income. Cost of equity investments sold is determined by the weighted-average method.

(l) Other Financial Assets

Investments in equity instruments (including unlisted stocks) with no quoted market prices in an active market

and with fair values that cannot be reliably measured are recognized at cost on acquisition. If there is objective

evidence that a financial asset is impaired, an impairment loss is recognized. However, impairment loss reversal is

prohibited.

Debt instruments with no active market are those without quoted market prices in an active market and with fair

values that cannot be reliably measured. These instruments are carried at amortized cost.

An impairment loss is recognized when there is objective evidence that the investment is impaired. The

impairment loss is reversed if an increase in the investment's recoverable amount is due to an event which

occurred after the impairment loss was recognized; however, the adjusted carrying amount of the investment

may not exceed the carrying amount that would have been determined had no impairment loss been recognized

for the investment in prior years.

(m) Fixed Assets

Fixed assets are carried at cost less accumulated depreciation. Major betterments, additions and renewals are

capitalized, while repairs and maintenance are expensed as incurred.

Depreciation is computed using the straight-line method over service lives initially estimated as follows (plus one

year to represent estimated salvage value):

(i) buildings: 20 to 60 years;

(ii) machinery and equipment: 2 to 5 years;

(iii) transportation and communications equipment: 2 to 15 years;

(iv) miscellaneous equipment: 2 to 10 years.


Properties that have reached their estimated useful lives but are still being used are depreciated over their

newly estimated service lives.

Upon sale or other disposal of properties, the related cost and accumulated depreciation are removed from

the accounts, and any gain or loss is credited or charged to net nonoperating income.

(n) Intangible Assets

Computer software initially is measured at cost and is amortized over 5 years. Goodwill previously was amortized

over 10 years; however, effective from January 1, 2006, the Bank adopted Statement of Financial Accounting

Standards No. 25 - “Business Combinations” whereby goodwill is no longer amortized and is assessed for

impairment periodically.

(o) Foreclosed Collateral

Foreclosed collateral taken over is booked at the acquisition cost stated by the court. Foreclosed collateral is

recorded at the lower of cost or net realizable value on the balance sheet date. If collateral assumed is not

disposed of within the statutory period, relevant regulations require that the Bank should either apply for an

extension of the disposal period or increase its provision for possible losses.

(p) Deferred Loss on the Sale of Nonperforming Loans

In compliance with the Law Governing Mergers of Financial Institutions, loss on the sale of nonperforming loans

is amortized using the straight-line method over 60 months.

(q) Asset Impairment

Under Statement of Financial Accounting Standards No. 35 - “Impairment of Assets”, the Bank evaluates

impairment on the balance sheet date if an asset (equity investment under the equity method, fixed asset, asset

held for sale, goodwill, foreclosed collateral, idle asset, or deferred charge classified under other assets - other) is

impaired.

If an asset is impaired, its recoverable amount is compared with its carrying amount. If the recoverable amount

is lower than the carrying amount, the carrying amount of the asset should be reduced to its recoverable

amount, and the reduction should be recognized as impairment loss. After recognizing impairment of assets,

the calculation of depreciation or amortization expense should be based on the adjusted book value minus its

residual value and amortized in a reasonable and systematic manner over the remaining estimated useful period.

The accumulated impairment loss on an asset (except goodwill) recognized in prior years should be reversed if

the recoverable amount increases. In addition, the asset carrying amount should be increased to its recoverable

amount, but this increase should not exceed the carrying amount of the asset that would have been determined

net of depreciation or amortization had no impairment loss been recognized for the asset in prior years.

( r ) Bank Debentures

For convertible bonds issued, the Bank first determines the carrying amount of the liability component by

measuring the fair value of a similar liability (including any embedded non-equity derivatives) that does not have

an associated equity component, then determines the carrying amount of the equity component, representing

the equity conversion option, by deducting the fair value of the liability component from the fair value of the

convertible bonds as a whole. The liability component (excluding the embedded non-equity derivatives) is

measured at amortized cost using the effective interest method, while the embedded non-equity derivatives are

measured at fair value. Upon conversion, the Bank uses the aggregate carrying amount of the liability and equity

components of the bonds at the time of conversion as the basis to record the common shares issued.

Financial Review

COSMOS BANK68

Pursuant to a newly released SFAS, transaction costs of bonds issued on or after January 1, 2006, are allocated

in proportion to the liability and equity components of the bonds. Transaction costs allocated to the equity

component are accounted for as a deduction from equity, net of any income tax benefit.

(s) Pension Costs

The Bank has two types of pension plans: defined benefit and defined contribution.

Under the defined benefit pension plan, pension costs are recorded on the basis of actuarial calculations.

Unrecognized net transition obligation is amortized over 15 years, and prior service cost and actuarial gains

or losses are amortized over the employees' remaining service years using the straight-line method. Under

the defined contribution pension plan, the Bank recognizes its required monthly contributions to employees'

individual pension accounts as current expense during the employees' service periods.

( t ) Share-Based Payments

The issuance of compensatory stock options and stock appreciation rights is treated under SFAS No. 39 -

“Share-based Payment”. Their value is based on the expected amount of shares and the fair value on the

grant day, and expense is recognized over the vesting period using the straight-line method. At the same time,

adjustment is made to capital surplus – employee stock option for share-based payment, while adjustment is

made to liabilities for non-share-based payment.

(u) Employee Bonuses and Directors' and Supervisors' Remuneration

Starting on January 1, 2008, employee bonuses and directors' and supervisors' remuneration are accrued

in accordance with Interpretation 96 Ji-Mi No. 052 issued by the Accounting Research and Development

Foundation in Taiwan and are recorded under personnel costs. If the subsequent resolution by the shareholders'

meeting differs from the amount disclosed in the financial statements, it is recognized as a change in estimates

and recorded under current-period profit/loss.

(v) Recognition of Interest Revenue and Service Fees

Interest revenue on loans is recorded on an accrual basis. Under MOF regulations, no interest revenue is

recognized on loans and other credits extended by the Bank that are classified as overdue loans. The interest

revenue on those loans is recognized upon collection.

The unpaid interest on rescheduled loans should be recorded as deferred revenue (included in other liabilities),

and the paid interest is recognized as interest revenue.

Service fees are recorded when a major part of the earnings process is completed and revenue is realized.

(w) Income Tax

Provision for income tax is based on intra-period and inter-period tax allocation. The tax effects of deductible

temporary differences, unused tax credits, operating loss carryforwards, and debit of stockholders' equity

adjustments are recognized as deferred income tax assets, and those of taxable temporary differences and credits

to stockholders' equity adjustments are recognized as deferred income tax liabilities. A valuation allowance is

provided for deferred income tax assets that are not certain to be realized.

Tax credits for personnel training and stock investments are recognized in the current period.

Income taxes (10%) on undistributed earnings generated annually since 1998 are recorded as expenses in the

year when the stockholders resolve to retain the earnings.


(x) Foreign-currency Transactions

The Bank records foreign-currency transactions in the respective currencies in which these are denominated.

Every month-end, foreign currency income and expenses are translated into New Taiwan dollars at the month-

end exchange rate. On the balance sheet date, monetary assets and liabilities denominated in foreign currencies

are reporting using the month-end exchange rates, and exchange differences are recognized in the income

statement.

Unrealized exchange differences on nonmonetary financial assets (investments in equity instruments) are a

component of the change in their entire fair value. For nonmonetary financial assets and liabilities classified

as financial instruments measured at fair value through profit or loss, unrealized exchange differences are

recognized in the income statement. For nonmonetary financial instruments that are classified as available-for-

sale, unrealized exchange differences are recorded directly under stockholders' equity until the asset is sold or

becomes impaired. Nonmonetary financial instruments that are classified as carried at cost are recognized at the

exchange rates on the transaction dates.

(y) Contingencies

A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the

amount of loss can be reasonably estimated. A footnote disclosure is made of a situation that might result in a

possible loss but for which the amount of loss cannot be reasonably estimated.

(z) Earnings per Share

Basic earnings per share are calculated using the net income after taxes minus dividends paid on preferred

shares and then divided by the weighted-average number of common shares outstanding during the period.

Newly issued shares through retained earnings or capital surplus, or issued through a resolution of the 2008

shareholders' meeting or before, should be recalculated. If the measurement date is before the balance sheet

date, then they should also be recalculated.

The employee stock options and the employee bonuses settled using shares that have yet to be approved by

the shareholders' meeting are deemed to be potential common stock. If the potential common stock possesses

diluting effects, then diluted EPS must be disclosed in addition to basic EPS. If diluting effects do not exist, then

only basic EPS are required to be disclosed.

3. Accounting Changes

Effective January 1, 2008, the Bank adopted the newly released SFAS No. 39 - “Share-based Payment” in the

accounting for employee stock options. As a result of the change in accounting standards, the net loss for the year

ended December 31, 2008, increased by $9,305 thousand while the basic loss per share after tax increased by 0.003

dollars.

The Bank adopted Interpretation 96 Ji-Mi No. 052 “Accounting for Employee Bonuses and Directors' and

Supervisors' Remuneration” issued by the Accounting Research and Development Foundation in Taiwan. Employee

bonuses and directors' and supervisors' remuneration should be accounted for as an expense and not a distribution

of earnings. This change in accounting standards has no significant effect on the Bank.

Financial Review

COSMOS BANK70

(a) Cash and cash equivalents

December 31,2009

December 31,2008

Cash on hand $ 1,727,227 2,122,234

Due from banks 491,720 679,600

Checks for clearing 238,879 655,400

$ 2,457,826 3,457,234

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

December 31,2009

December 31,2008

Call loans to banks $ 6,137,545 7,051,739

Deposit in the Central Bank 20,330,000 15,000,000

Reserves for deposits - a/c B 2,742,388 3,167,133

Reserves for deposits - a/c A 563,743 1,450,468

Deposits 250,753 400,181

$ 30,024,429 27,069,521

As required by law, the reserves for deposits in the Central Bank are calculated by applying the prescribed rates

to the average monthly balances of various types of deposit accounts. The use of reserves for deposits - a/c B is

restricted by the Central Bank.

(c) Financial instruments at fair value through profit or loss (FVTPL)

December 31,2009

December 31,2008

Held-for-trading financial assets

Government bonds $ 144,522 149,815

Cross-currency swap contracts 1,956 6,214

Forward exchange contracts 1,809 -

Foreign-currency swap contracts 446 -

$ 148,733 156,029

Held-for-trading financial liabilities

Forward exchange contracts $ 1,772 1,569

Foreign-currency swap contracts - 5,244

Cross-currency swap contracts 1,956 6,214

$ 3,728 13,027

The Bank engages in derivative transactions mainly to hedge its exchange rate and interest rate exposures. The

Bank's financial hedging policy is to reduce or minimize its market price or cash flow exposures.

4. Summary of Major Accounts


Outstanding derivative contracts as of December 31, 2009 and 2008, were as follows:

December 31,2009

December 31,2008

Cross-currency swap contracts $ 263,842 267,278

Foreign-currency swap contracts 48,045 98,580

Forward exchange contracts 243,396 29,926

Net gains on financial assets held for trading for the years ended December 31, 2009 and 2008, were $5,687

thousand and $18,218 thousand, respectively. The net loss on financial liabilities at FVTPL for the years ended

December 31, 2009 and 2008, was $6,764 thousand and $18,418 thousand, respectively.

(d) Receivables, net

December 31,2009

December 31,2008

Credit cards $ 3,523,949 4,049,637

Accounts receivable - no recourse 158,694 569,171

Accrued interest 299,133 520,888

Acceptances 58,776 46,738

Tax refund receivable 41,221 61,841

Accrued income 73,744 57,499

Rental deposits 1,370,700 1,000,700

Others 1,915,400 524,578

7,441,617 6,831,052

Less: allowance for possible losses (1,825,258) (59,784)

$ 5,616,359 6,771,268

As of December 31, 2009 and 2008, rental deposits receivable amounting to $1,370,700 thousand and

$1,000,700 thousand, respectively, resulted from the relocation to self-owned property, of which, deposits from

Prince Motors and Cosmos Construction Management Corporation amounted to $910,700 thousand. After

deducting the value of collateral of $166,700 thousand from deposits of Prince Motors and Cosmos Construction

Management Corporation, the shortage was $744,000 thousand, and was recorded as a provision for possible

losses. As of April 23, 2010, the repayment agreement was under negotiation.

From May 2007 to February 2008, the Bank sold structured notes, which were issued by GVEC Resource Inc.

(GVEC), through a specific trust fund amounting to USD 48,920 thousand. PEM Corporation, a member of the

GVEC group, was found to have committed fraud by the U.S. Securities and Exchange Commission (SEC). In

view of its social responsibility, the Bank's Board of Directors decided to buy back the structured notes and ask

for compensation from PEM Corporation on June 26, 2009, and the total sales minus prepaid interest amounting

to $1,438,034 thousand (USD 44,896 thousand) was recognized as other receivables. The Bank made a

provision for $650,944 thousand after the evaluation of the amount of assets recoverable. Please refer to note

4(n).

Financial Review

COSMOS BANK72

(f) Discounts and loans, net

December 31,2009

December 31,2008

Bills negotiated $ 14,925 23,937

Discounts - 975

Overdraft - 5,584

Loans

Short-term 33,190,632 42,904,699

Medium-term 22,910,611 33,301,513

Long-term 16,074,222 19,117,932

Overdue loans 1,920,095 2,683,257

74,110,485 98,037,897

Less: allowance for possible losses (2,981,289) (4,444,517)

$ 71,129,196 93,593,380

As of December 31, 2009 and 2008, the balances of loans for which accrual of interest revenues was

discontinued were $1,886,591 thousand and $2,605,209 thousand, respectively. The unrecognized interest

revenues on these loans were $179,339 thousand and $369,793 thousand for the years ended December 31,

2009 and 2008, respectively.

As of December 31, 2009 and 2008, the Bank had written off certain loans after carrying out the required legal

procedures.

(e) Assets held for sale

December 31,2009

December 31,2008

Land held for sale $ 90,673 213,988

Buildings held for sale 37,826 60,717

128,499 274,705

Less: accumulated impairment loss (66,775) (118,207)

$ 61,724 156,498

On January 16, 2008, the Board of Directors of the Bank resolved to sell ten plots of land and buildings which

were previously used for the Bank's auto service division or warehouse. In 2008, two pieces of property

were sold. In 2009, three sales contracts were signed, and two of three transactions had been completed by

December 31, 2009. Another one was reclassified to a self-use fixed asset, which was approved by the Board

of Directors and approved by the FSC. Impairment losses of the other four buildings and plots of land were

recognized at net fair value under held-for-sale buildings and land. Impairment losses of $24,826 thousand and

$4,177 thousand were recognized for the years ended December 31, 2009 and 2008, respectively. Sales profits

were $6,699 thousand and $0 thousand for the years ended December 31, 2009 and 2008, respectively, and

were recognized as net revenues other than interest in the income statements.


The details of the provision for loan losses for the years ended December 31, 2009 and 2008, were as follows:

The years ended

December 31,2009

December 31,2008

Provisions for possible losses on discounts and loans $ 2,767,427 5,615,056

Provision for possible losses on receivables 782,662 3,443

Overdue accounts receivable and other assets 215,627 447,221

Provision (Reserve) for losses on guarantees (12,267) -

$ 3,753,449 6,065,720

(g) Available-for-sale financial assets, net

December 31,2009

December 31,2008

Government bonds $ 975,228 871,923

Visa Card shares 23,525 13,962

Master Card shares - 5,201

$ 998,753 891,086

The details and changes in allowance for possible losses on discounts and loans are summarized below:

December 31, 2009

Specific Risk General Risk Total

Opening balance at January 1, 2009 $ 3,817,726 626,791 4,444,517

Provisions 2,020,474 746,953 2,767,427

Recovery of written-off credits 1,389,100 - 1,389,100

Write-offs (4,993,963) - (4,993,963)

Effects of exchange rate changes (20) - (20)

Other adjustment - (625,772) (625,772)

Ending balance at December 31, 2009 $ 2,233,317 747,972 2,981,289

December 31, 2008

Specific Risk General Risk Total

Opening balance at January 1, 2008 $ 5,542,767 765,766 6,308,533

Provisions 5,754,031 (138,975) 5,615,056

Recovery of written-off credits 912,417 - 912,417

Write-offs (8,351,815) - (8,351,815)

Effects of exchange rate changes (39,674) - (39,674)

Ending balance at December 31, 2008 $ 3,817,726 626,791 4,444,517

Financial Review

COSMOS BANK74

(h) Equity investments under the equity method, net

December 31, 2009 December 31, 2008

CarryingValue

% ofOwnership

CarryingValue

% ofOwnership

Reliance Securities Investment Trust Corporation, Ltd. (RSIT) $ - - 43,594 20.00

Cosmos Insurance Brokers Co., Ltd. 19,970 100.00 7,181 100.00

$ 19,970 50,775

For the years ended December 31, 2009 and 2008, net income on this investment was $15,947 thousand

and $7,024 thousand, respectively. Net income is calculated and recognized in accordance with the financial

statements of the investee companies during the same period.

The Bank no longer possesses significant influence over RSIT, which was originally accounted for under the equity

method, as the Bank did not participate in RSIT's capital increase plan, and its holding in RSIT fell below 20%.

Starting August 7, 2009, the book value of $46,752 thousand was reclassified as financial assets carried at cost.

(i) Other financial assets, net

December 31,2009

December 31,2008

Debt instruments with no active market, net $ 37,953 513,762

Financial assets carried at cost, net 769,582 722,830

Others 256,975 210,941

$ 1,064,510 1,447,533

(i) Debt instruments with no active market were as follows:

December 31,2009

December 31,2008

Special-purpose trust beneficiary certificates $ 37,953 481,197

Leveraged spread notes - 32,565

$ 37,953 513,762

For the year ended December 31, 2009, the net loss recognized on leveraged spread notes amounted to

$1,753 thousand.


(ii) Financial assets carried at cost were as follows:


CarryingValue

% ofOwnership

CarryingValue

% ofOwnership

Unlisted common stock with no quoted market price:

CDIB & Partners Investment Holding Ltd. $ 500,000 4.95 500,000 4.95

Taiwan Asset Management Corporation 100,000 0.57 100,000 0.57

Euroc II Venture Capital Corporation 33,263 7.50 33,263 7.50

Financial Information Service Co., Ltd. 49,120 1.23 49,120 1.23

Reliance Securities Investment Trust Corporation, Ltd. (RSIT) 46,752 12.31 - -

Euroc III Venture Capital Corp. 18,357 5.00 18,357 5.00

Taiwan International Future Co. Ltd. 10,250 0.51 10,250 0.51

Taiwan Depository & Clearing Corp. 6,345 0.08 6,345 0.08

Yang-Kuan Asset Management Corporation 3,445 5.74 3,445 5.74

Lien-An Service Co. 1,250 5.00 1,250 5.00

Taipei Forex Inc. 800 0.40 800 0.40

Cosmos Construction Management Corporation (CCMC) - 9.39 - 9.39

$ 769,582 722,830

Beginning August 7, 2009, RSIT was accounted for under the cost method. For more details, please refer to

note 4(h).

(iii) Other financial assets were as follows:

December 31,2009

December 31,2008

Pledged certificates of deposit $ 256,308 208,595

Others 667 2,346

$ 256,975 210,941

(j) Fixed assets, net

December 31, 2009

CostAccumulated depreciation


Net

Land $ 4,136,933 - - 4,136,933

Buildings 2,652,128 483,947 - 2,168,181

Machinery and equipment 1,650,355 1,467,351 - 183,004

Transportation and communications equipment 262,644 249,091 - 13,553

Miscellaneous equipment 346,909 333,342 - 13,567

Total $ 9,048,969 2,533,731 - 6,515,238

Financial Review

COSMOS BANK76

December 31, 2008

CostAccumulated depreciation


Net

Land $ 4,288,952 - 277,575 4,011,377

Buildings 2,774,061 455,613 89,597 2,228,851

Machinery and equipment 1,663,334 1,345,889 54,738 262,707

Transportation and communications equipment 264,851 234,794 7,851 22,206

Miscellaneous equipment 369,631 339,960 6,829 22,842

Prepayment for equipment 39,512 - - 39,512

Total $ 9,400,341 2,376,256 436,590 6,587,495

The Bank defines each product line as a CGU to test assets, including fixed assets, deferred charges, and

intangible assets, for impairment. The recoverable amount of a CGU is its value in use, and the key assumptions

on the economic conditions that will occur over the remaining useful life of the CGU, such as estimated future

cash flows, are based on each CGU's operations or objective data on its business cycle. Under the assumption

of sustainable operations, the Bank estimated each CGU's net cash flow for future years. As of December 31,

2009 and 2008, the weighted-average cost of capital (WACC) rates for future cash flows were 1.96% and 3.48%,

respectively. In 2009, the Bank estimated the expected future cash inflow to be larger than the book value of the

assets, so the Bank reversed the impairment losses on fixed assets and deferred charges amounting to $436,590

thousand and $67,137 thousand, respectively.

(k) Other assets, net

December 31,2009

December 31,2008

Deferred loss on the sale of nonperforming loans $ 8,647,483 15,384,878

Others:

Prepayments 111,807 71,821

Prepayments of pension 6,609 519

Deferred charges 193,409 367,664

Less: accumulated impairment – deferred charges (note 4(j)) - (67,137)

Foreclosed collateral, net - 391,500

Deferred income tax assets, net (note 4(r)) 8,000,000 6,898,100

Refundable deposits 1,012,510 1,541,370

Less: accumulated impairment – refundable deposits (13,200) (388,700)

Leased assets 305,261 -

Less: accumulated depreciation – leased assets (25,256) -

Others 47,912 87,302

9,639,052 8,902,439

$ 18,286,535 24,287,317


(i) Deferred loss on the sale of nonperforming loans

Between 2004 and 2006, the Bank signed contracts to sell the following nonperforming loans:

1) In 2004, the Bank signed contracts with Chung-Cheng Asset Management Co. (CCAM) and Cosmos

Marketing Consulting Co. (CMC) to sell nonperforming loans of $4,700,691 thousand and $3,753,942

thousand, respectively. These transactions, with a selling price of $495,402 thousand, resulted in a loss

of $7,959,231 thousand. CCAM and CMC both committed that if, within five years from the contract

date, there are proceeds from the sale of nonperforming loans, 45% of these proceeds net of the yield

amount, related tax and litigation expenses, and necessary administrative expenditures should be returned

to the Bank. For the years ended December 31, 2009 and 2008, the Bank received proceeds of $14,564

thousand and $17,328 thousand (treated as a reduction of deferred loss on the sale of nonperforming

loans), respectively.

2) In 2005, the Bank signed contracts with P.I.C.K. Second Fund Co., Ltd. (P.I.C.K.), CMC, and Hui-Cheng First

Asset Management Co., Ltd. to sell nonperforming loans of $820,961 thousand, $6,029,567 thousand,

and $1,619,640 thousand, respectively. These transactions, with a selling price of $644,643 thousand,

resulted in a loss of $7,825,525 thousand.

3) In 2006, the Bank signed contracts with Yang-Kuan Asset Management Co., Ltd. (YKAM), ORIX Taiwan

Corporation (ORIX), and CMC to transfer and sell to these three companies nonperforming loans

of $103,239 thousand, $2,454,035 thousand, and $19,465,842 thousand, respectively. For these

transactions, the Bank should receive a payment of $1,140,590 thousand in cash and some YKAM stock at

face value. These sales resulted in a loss of $20,882,526 thousand. CMC agreed that if there are proceeds

from the sale of nonperforming loans within five years from the contract date, 50% of these proceeds, net

of the yield amount, related tax and litigation expenses, and necessary administrative expenditures, should

be returned to the Bank. For the years ended December 31, 2009 and 2008, the Bank received proceeds

of $106,303 thousand and $103,362 thousand (treated as a reduction of deferred loss on the sale of

nonperforming loans), respectively.

Under the Law Governing Mergers of Financial Institutions, the Bank deferred and amortized all of the

losses on the sale of the above nonperforming loans by the straight-line method over 60 months. The

unamortized amounts of $8,647,483 thousand and $15,384,878 thousand as of December 31, 2009 and

2008, respectively, were presented under deferred loss on the sale of nonperforming loans. The amortized

amounts of $6,614,437 thousand and $7,506,343 thousand for the years ended December 31, 2009 and

2008, respectively, were classified as amortization of loss on the sale of nonperforming loans.

(ii) Foreclosed collateral, net

December 31,2009

December 31,2008

Foreclosed collateral $ 87,311 504,117

Accumulated impairment (87,311) (112,617)

$ - 391,500

Financial Review

COSMOS BANK78

An item of the Bank's real estate collateral, whose acquisition cost and accumulated impairment loss were

$416,806 thousand and $25,306 thousand, respectively, was sold for $403,010 thousand on November 30,

2009. The Bank's other real estate collateral which was off balance sheet and fully impaired before 2009 was

disposed of in 2009, and the selling price and related disposal expenses were $94,300 thousand and $231

thousand, respectively. The abovementioned disposal gain was recognized as net revenues other than interest

amounting to $105,579 thousand in the income statements.

The Bank evaluated the impairment of collateral by using the net fair value as the collateral's recoverable

amount. The impairment losses on the collateral were $0 and $22,380 thousand for the years ended

December 31, 2009 and 2008, respectively.

(iii) Please refer to note 4(r) for the deferred income tax assets, net.

(iv) Leased assets, net:

December 31,2009

December 31,2008

Leased assets – land $ 175,479 -

Leased assets – buildings 129,782 -

305,261 -

Less: Accumulated depreciation (25,256) -

$ 280,005 -

( l ) Due to the Central Bank and other banks

December 31,2009

December 31,2008

Due to Chunghwa Post Co., Ltd. $ 12,088,155 13,214,885

Due to the Central Bank 1,001 1,471

$ 12,089,156 13,216,356

(m) Securities sold under repurchase agreements

As of December 31, 2008, securities sold for $7,034 thousand under repurchase agreements would be

purchased for $7,052 thousand by January 2009.

As of December 31, 2008, available-for-sale financial assets amounting to $6,900 thousand (face value) had

been sold under repurchase agreements.


(n) Payables

December 31,2009

December 31,2008

Accrued expenses $ 372,281 1,211,193

Accrued interest 285,754 736,981

Payable on funds purchased 115,948 34,703

Checks for clearing 238,879 655,400

Collections payable 33,651 158,416

Acceptance 58,827 46,890

Others 1,181,975 518,874

$ 2,287,315 3,362,457

In accordance with the resolution of the Bank's Board of Directors on June 26, 2009, the Bank bought back the

structured notes amounting to $1,438,034 thousand (USD44,896 thousand) from investors and recognized the

amount as other payables. The notes were issued by GVEC and sold by the Bank to investors through a specific

trust fund. As of December 31, 2009, the Bank had bought back half of the notes amounting to approximately

USD22,448 thousand, and the rest of the notes would be bought back by January 31, 2010.

(o) Deposits and remittances

December 31,2009

December 31,2008

Deposits:

Checking $ 901,528 889,463

Demand 9,402,841 8,152,464

Time 14,439,128 26,017,892

Savings 78,442,257 87,363,920

Negotiable certificates of deposit 53,200 169,500

Remittances 14,652 7,485

$ 103,253,606 122,600,724

(p) Bank debentures

December 31, 2009

Cosmos Bank Maturity Date Rate Par ValueDiscount Amount

Book Value

First subordinated bank debenture issued in 2006 B

2006.12.14~2016.12.14

3.20% annually $ 515,000 - 515,000

December 31, 2008

Cosmos Bank Maturity Date Rate Par ValueDiscount Amount

Book Value

First subordinated bank debenture issued in 2006 B

2006.12.14~2016.12.14

3.20% annually $ 515,000 - 515,000

Financial Review

COSMOS BANK80

( i ) On November 9, 2006, the Board of Directors resolved to publicly issue a subordinated bank debenture, with

the amount not to exceed $7,000,000 thousand, to strengthen the Bank's capital structure for future growth.

This public issuance was approved by the Financial Supervisory Commission (FSC) on November 17, 2006 (FSC

approval document: Jin-Kuan-Yin-(2)-Zi No. 09500481860).

On December 14, 2006, the Bank issued one 7-year ($4,500,000 thousand) and one 10-year ($2,500,000

thousand) subordinated bank debenture, with interest payable annually at 3% and 3.2%, respectively, and

the principal fully repayable on maturity.

Under an original subscription agreement that was signed on December 26, 2007, together with an appendix

to the agreement, China Development Industrial Bank Inc. and eight other banks agreed to reduce by 58%

the total creditors' right to the first convertible bank debenture issued in 2006, with a principal of $6,485,000

thousand. The residual amount will be partially paid by cash and partially paid by the Bank's common shares.

Chu Nan Credit-Cooperative Association, Singfor Life Insurance Co., Ltd., and Taipei Sanjhih Hsiang Farmers'

Association subscribed for a subordinated bank debenture issued by the Bank in 2006. The principal of this

debenture was $515,000 thousand (classified as bank debentures) as of December 31, 2009. However,

these subscribers did not sign the subscription agreement. The Bank filed a petition with the courts to waive

certain conditions of the debentures. On November 26, 2008, the case was accepted by the Taiwan Taipei

District Court, civil division, but the counterparties filed an appeal with the collegiate bench of the Taipei

District Court. A retrial for the effectiveness of the subscription agreement was accepted by the collegiate

bench of the Taipei District Court on October 28, 2009. On November 24, 2009, the Bank's Board of the

Directors resolved to revise the terms of the subordinated bank debentures, and the Bank stopped calculating

and paying interest from the second day after the Bank settled the creditors' right with its common shares.

However, the counterparties filed an appeal with the High Court, and the lawsuit is in the process of

judgment by the court.

(ii) On December 28, 2007, the Bank privately placed Subordinated Unsecured Mandatory Convertible Bonds (the

“Bonds”). GE Capital Asia Investments Holdings B.V. and S.A.C. PEI Taiwan Holdings B.V. subscribed for

these Bonds, and their holdings amounted to $1,650,000 thousand and $18,150,000 thousand, respectively.

The issuance period is five years, and the interest rate is from 4.00% to 6.00%. The coupon interest for

year 1 should be fully paid on the issue date, and for year 2 should be fully paid on the first day of year 2.

The coupon interest rate of the first two years is 6%. For years 3 to 5, the coupon interest (4%) is payable

quarterly from the end of the three months after the first day of year 3. The conversion price upon issuance

is NT$2.00 per share, which can be modified anytime using a certain formula. The Bonds can be converted

without restrictions between the 31st day of the issuance date and the maturity date.

Advance repayment, redemption, purchase, cancellation or amendment of all or part of the Bonds is

prohibited under the contract unless the Bank receives a written consent from the bondholders.

Under Statement of Financial Accounting Standards No. 36 - “Financial Instruments: Disclosure and

Presentation”, the Bank recognized (a) the conversion option as capital surplus – others, which amounted

to $15,819,198 thousand ($15,944,124 thousand less $124,926 thousand in transaction cost after income

tax) and (b) the accrued interest on the Bonds, which amounted to $3,826,385 thousand ($3,855,876

thousand less $29,491 thousand in transaction cost after income tax), classified as other financial liabilities.

For the years ended December 31, 2009 and 2008, the Bank recognized $230,569 thousand and $280,150

thousand, respectively, in interest. As of December 31, 2009 and 2008, the balance of accrued interest on the

Bonds was $1,681,283 thousand and $1,817,655 thousand, respectively.


Under mandatory terms, the Bonds should be converted into fully paid common shares of the Bank (i) on the

maturity date or (ii) whenever needed to maintain the Bank's capital adequacy ratio at 8% or higher or the

Tier 1 capital ratio at 4% or higher, with the related calculation to include the pro rata conversion of holdings

on the date of the conversion.

In order to strengthen the Bank's financial structure, the Board of Directors approved the proposal to have

S.A.C. PEI Taiwan Holdings B.V. convert the Bonds in the amount of $3,630,000 thousand into common

stock before the maturity date. The conversion ratio was 20%, and the Bank obtained approval from the FSC

under Jin Guan Yin Guo No. 09800425750 on September 22, 2009. In accordance with the resolution of the

Bank's Board of Directors on September 28, 2009, the conversion date was October 6, 2009, the conversion

price upon issuance was NT$6.0049020 per share, and the Bonds should be converted into 604,506 thousand

common shares, with $10 face value per share. The abovementioned capital increment was approved by the

FSC under Jin Guan Yin Guo No. 09800473800 on October 8, 2009.

(q) Pension plan

The Labor Pension Act (the “Act”), which took effect on July 1, 2005, provides for a new defined contribution

pension plan. Bank employees subject to the earlier promulgated Labor Standards Law were allowed to choose

between the pension mechanism under the Labor Standards Law or the mechanism under the Act. For those

employees who chose to be subject to the pension mechanism under the Act, their service years before the

enforcement of the Act will be retained. However, those hired on or after July 1, 2005, automatically become

subject to the Act.

Based on the Act, the rate of the Bank's required monthly contributions to the employees' individual pension

accounts is 6% of monthly wages and salaries.

Pension expenses were $359,181 thousand and $356,431 thousand for the years ended December 31, 2009

and 2008, respectively (among which $65,191 thousand and $83,746 thousand, respectively, belong to pension

expenses for the defined contribution plan).

For the Bank's employees who chose to continue to be subject to the Labor Standards Law, benefit payments are

based on length of service and average monthly salary or wages upon retirement.

The Bank has two funds under its defined benefit plan: one for management and the other for nonmanagement

employees (“employees”). The Bank makes monthly contributions to the employees' pension fund, which is

managed by the employees' fund committee and deposited in the committee's name in the Central Trust of

China (merged with Bank of Taiwan in July 2007, with Bank of Taiwan as the surviving entity). The pension fund

for management is administered by the employees' pension fund administrative committee and deposited under

the committee's name to an account in the Bank.

On December 6, 2007, the Bank signed with the Bank's labor union an Employee Benefit Proposal – Early

Retirement Plan (ERP), under which the Bank would carry out the following enhanced pension plan in stages:

( i ) Eligibility and limit on eligibility

1) First stage from January 1 to June 30, 2008 - The ERP will be open to all employees whose sum of age and

years of service is at least 50 years.

2) Second stage from July 1 to December 31, 2008 - The ERP will be open to all employees other than the

employees described in item (1) above if the sum of the age and the years of service is less than 50 years.

However, the qualified employees cannot exceed 20% of the non-senior employees.

Financial Review

COSMOS BANK82

3) The third stage from February 1 to 28, 2009 - The ERP will be open to all employees who enrolled earlier

than December 31, 2007, and are still on the job at February 1, 2009, and thereafter.

4) Taking into consideration the stability and development of the Bank's future operations, the pension

expense of the next two years is accrued based on the original plan for the employees that meet the

conditions of the first stage but are required by the Bank to remain for 2 more years.

(ii) Entitlement

The senior employees who apply for early retirement will be entitled to a lump-sum payment equal to two

months' average salary for each service year. A service period that is equal to or more than a half year is

counted as one service year, and a service period that is less than a half year is counted as a half year of

service.

The Board of Directors approved the ERP on December 11, 2007, and January 15, 2009. For the years ended

December 31, 2009 and 2008, pension expense recognized as a result of the ERP amounted to $240,155

and $286,514 thousand, respectively. In accordance with the resolution of the Bank's Board of Directors on

January 23, 2009, the Bank applied to close 12 branches, and the Bank paid severance payment amounting

to $40,576 thousand as pension expenses for the year ended December 31, 2009. As of December 31, 2009

and 2008, ERP pension liability amounted to $182,176 and $286,515 thousand, respectively.

Based on the actuarial report, the Bank's funded status was reconciled with accrued pension liabilities as of

December 31, 2009 and 2008, as follows:

December 31,2009

December 31,2008

Benefit obligation:

Non-vested benefit obligations $ (305,844) (341,130)

Vested benefit obligation (54,485) (95,988)

Accumulated benefit obligation (360,329) (437,118)

Additional benefits based on future salaries (189,563) (217,482)

Projected benefit obligation (549,892) (654,600)

Fair value of plan assets 731,370 699,645

Funded status 181,478 45,045

Unamortized prior service cost (2,434) (4,265)

Unrecognized net loss (174,363) (44,116)

Unrecognized transition obligation 1,928 3,855

Prepaid pension (classified on other assets) $ 6,609 519

The vested benefits amounted to $61,270 thousand and $109,872 thousand as of December 31, 2009 and

2008, respectively.


The net pension costs in 2009 and 2008 consisted of the following items:

2009 2008

Service cost $ 16,016 19,197

Interest cost 14,054 29,535

Expected return on plan assets (16,907) (21,353)

Amortization 1,927 (1,026)

Amortized (reverse amortized) prior unamortized service cost (1,831) (40,182)

Pension cost, net 13,259 (13,829)

Add: ERP pension expenses 280,731 286,514

Net periodic pension cost $ 293,990 272,685

Actuarial assumptions were as follows:

December 31,2009

December 31,2008

Discount rate 2.00% 2.25%

Expected rate of increase in salaries 3.00% 3.00%

Expected rate of return on plan assets 2.00% 2.50%

Changes in the employees' and management's pension funds were as follows:

2009 2008

Employees' pension fund

Beginning balance $ 499,667 548,848

Net income or loss adjustment for prior year - (3,641)

Contribution 4,604 8,558

Interest income 6,345 9,147

Benefits paid (3,816) (63,245)

Ending balance $ 506,800 499,667

Management's pension fund

Beginning balance $ 342,133 319,851

Contribution 14,744 21,163

Interest income 2,313 11,701

Benefits paid - (10,582)

Ending balance $ 359,190 342,133

Financial Review

COSMOS BANK84

( r ) Income tax

( i ) The Bank's income is subject to an income tax rate of 25%, and the Bank adopted the Income Basic Tax Act.

According to the amendment of the Income Basic Tax Act on May 27, 2009, the income tax rate will be

changed to 20% from the year 2010. Income tax benefit was calculated as follows:

For the year ended

December 31,2009

December 31,2008

Income tax expense – current before tax credits $ 943 1,957

Net changes in deferred income tax expense (benefit):

Loss carryforwards (1,983,797) (3,726,938)

Amortization and impairment of goodwill 10,039 (64,632)

Tax credits (2,925) (4,097)

Decrease (increase) in allowance for possible losses on loans and receivables (310,618) 509,815

Employee stock options 3,102 (3,102)

Loss on the transfer of foreclosed collateral to fixed assets 283 353

Decrease (increase) in provision for various losses (83) 9,795

Pension costs 35,486 191,818

Impairment loss (reversal of impairment loss) 52,606 (3,425)

Unrealized foreign exchange loss (gain) (11,741) 902

Unrealized valuation loss (gain) on financial instruments 2,160 (1,377)

Effect on deferred income tax of income tax rate change 2,083,666 -

Valuation allowance (reversal) for deferred income tax assets (1,018,926) 992,000

Others (13,165) -

(1,153,913) (2,098,888)

Adjustment of prior year's tax 52,012 (38,462)

Income tax benefit $ (1,100,958) (2,135,393)

(ii) The income tax computed at the statutory tax rate was reconciled with the provision for income tax for the

years ended December 31, 2009 and 2008, as follows:

For the year ended

December 31,2009

December 31,2008

Income tax benefit before income tax at statutory rate (25%) $ (2,066,307) (3,084,440)

Financial asset loss - 1,507

Tax-exempt gain on domestic cash dividend (5,035) (14,081)

Interest expense on bank debenture (215,965) (216,073)

Tax-exempt losses (earnings) from OBU 1,212 (6,718)

Tax-exempt losses (gain) on sale of land 19,611 (4,030)

Adjustment of prior year's tax 52,955 201,644

Valuation allowance (reversal) for deferred income tax assets (1,018,926) 992,000

Effect on deferred income tax of income tax rate change 2,242,449 -

Others (110,952) (5,202)

$ (1,100,958) (2,135,393)


(iii) Net deferred income tax assets and liabilities as of December 31, 2009 and 2008, were as follows:

December 31,2009

December 31,2008

Deferred income tax assets (liabilities)

Loss carryforwards $ 7,913,708 7,773,545

Allowance for possible losses on loans and receivables 968,932 878,619

Pension costs 35,113 89,114

Impairment loss 15,398 97,175

Employee stock options - 3,102

Unrealized foreign exchange loss (gain) 5,698 (7,554)

Loss on the transfer of foreclosed collateral to fixed assets 10,737 13,775

Provision for loss 457 468

Tax credits 11,278 10,608

Unrealized loss (gain) on financial instruments (401) 1,507

Amortization of goodwill 20,154 37,741

8,981,074 8,898,100

Less: Valuation allowance (981,074) (2,000,000)

Net deferred income tax assets $ 8,000,000 6,898,100

(iv) As of December 31, 2009, the Bank's unused investment tax credits and their related expiration years, mainly

resulting from personnel training expenditures from the past five years under the Statute for Upgrading

Industries, were as follows:

Occurrence yearUnused investment tax

creditsExpiry year

2006 $ 3,313 (assessed) 2010

2007 2,673 (assessed) 2011

2008 3,461 (reported) 2012

2009 1,831 (estimated) 2013

$ 11,278

(v) In accordance with the amendment to the Income Tax Act, taxable losses from the past ten years as assessed

by the authorities may be used to reduce net income in the current year.

As of December 31, 2009, loss carryforwards were as follows:

Accrued YearTotal Credits

GrantedTotal Tax Credits

GrantedExpiry Year

2006 (assessed) $ 4,608,024 921,605 2016

2007 (assessed) 11,400,998 2,280,199 2017

2008 (reported) 13,803,205 2,760,641 2018

2009 (estimated) 9,756,315 1,951,263 2019

$ 39,568,542 7,913,708

Financial Review

COSMOS BANK86

(vi) Imputed tax credits are summarized as follows:

December 31,2009

December 31,2008

Accumulated deficit for year 1998 and thereafter $ (13,272,434) (21,519,091)

Balance of stockholders' imputed tax credits $ 984,647 967,790

(vii) Income tax returns through 2007 have been examined by the tax authorities. The Taipei National Tax

Administration will refund 65% of certain withholding taxes. The Bank accepted the refund at this

percentage.

(s) Stockholders' equity

( i ) Capital

In order to strengthen financial structure and offset the discount from capital injection, the meeting of the

Board of Directors on April 21, 2008, and the shareholders' meeting on May 23, 2008, approved reducing

capital by $56,586,140 thousand and cancelling 5,658,614 thousand shares (comprising 4,551,929

thousand common shares and 1,106,685 thousand preferred shares), which constitutes a capital reduction

of approximately 67.0718%. The capital reduction was approved by the Financial Supervisory Commission,

Executive Yuan, on June 18, 2008. The basis date of the capital reduction was June 25, 2008, the registration

of capital reduction was completed on July 16, 2008, and the share exchange was completed on September 3,

2008.

In accordance with the resolution of the Board of Directors on February 25, 2009, and the stockholders'

meeting held on June 19, 2009, the Bank had a private placement of common shares with General Electric

International Inc. to settle the Bank's debts. On September 28, 2009, the Board of Directors set the share

pricing date as September 29, 2009, and the private placement amounted to $550,368 thousand, with

170,922 thousand shares issued at $3.22 per share. The face value of each share is 10 dollars; therefore, the

Bank's capital increased $1,709,217 thousand, and the private placement was approved by the FSC under Jin

Guan Yin Guo No. 09800425750.

In addition, in accordance with the resolution of the Board of Directors on February 25, 2009, and the

stockholders' meeting held on June 19, 2009, the Series A Preferred Shares of the Bank and a portion of

the MCB would be converted into the Bank's common shares, and the Bank obtained approval from the

FSC under Jin Guan Yin Guo No. 09800425750. According to the resolution of the Board of Directors on

September 28, 2009, the Board of Directors set the conversion date as October 6, 2009, and approved the

Series A Preferred Shares conversion application of S.A.C. PEI Taiwan Holdings B.V. which had been delivered

on October 5, 2009, and the preferred shares were converted into 543,315 thousand common shares with a

face value is 10 dollars per share.

The abovementioned capital increase through the private placement of common shares, the conversion of

preferred shares into common shares, and the conversion of a portion of the MCB into common shares was

completed and approved by the FSC under Jin Guan Yin Guo No. 09800473800 on October 8, 2009, and the

Bank also completed the registration of this capital increase with the Ministry of Economic Affairs on October

23, 2009.


In order to strengthen the financial structure, the shareholders' meeting on June 19, 2009, approved reducing

capital by $19,300,000 thousand and reducing the number of shares by 1,930,000 thousand shares, which

constitutes a capital reduction of approximately 54.3132%. The capital reduction was approved by the FSC

under Jin Guan Zheng Fa No. 0980055038 on October 27, 2009. In addition, the basis date of the capital

reduction was October 30, 2009, the registration of the capital reduction was completed on November 10,

2009, and the share exchange was completed on January 20, 2010.

As of December 31, 2009 and 2008, the Bank had authorized capital stock amounting to $200,000,000

thousand (of which $12,580,000 thousand was reserved for employee stock options). The capital stock

included common stock of $16,234,639 thousand and $22,347,209 thousand, and preferred shares of $0

thousand and $5,433,151 thousand, totaling $16,234,639 thousand and $27,780,360 thousand, as of

December 31, 2009 and 2008, respectively. The face value of each share is 10 dollars.

(ii) Capital surplus

Under related regulations, capital surplus may only be used to offset a deficit. However, capital surplus (from

issuance in excess of common stock par value, issuance of common stock for combinations, and treasury

stock transactions) and donations may be transferred to common stock on the basis of the percentage of

shares held by the stockholders. Any capital surplus transfer should be within a certain percentage prescribed

by law.

Capital surplus was as follows:

December 31,2009

December 31,2008

Mandatory convertible bonds $ 12,919,012 15,819,198

Issuance of employee stock options 29,883 12,408

Expiration of options 12,712 12,712

$ 12,961,607 15,844,318

(i i i ) Appropriation of earnings and dividend policy

The Bank's earnings appropriation policy is aligned with its goals to maintain the adequacy of capital and

provide for future financial needs. Under the Bank's Articles of Incorporation (the “Articles”), annual net

income, less any losses of prior years, should be appropriated 30% as legal reserve and appropriated as

special reserve (booked as a deduction item of stockholders' equity), and the remainder plus unappropriated

earnings of prior years should be appropriated 80% as dividend to stockholders, and the remaining 20%

should be appropriated as follows:

1) 80% as bonus to stockholders

2) 15% as bonus to employees

3) 5% as remuneration to directors and supervisors

The cash dividends should be at least 10% of the total dividends to be paid/distributed. However, if the cash

dividend is less than NT$0.1 per share, the entire dividend should be paid in stock.

Financial Review

COSMOS BANK88

Under a directive of the Securities and Futures Bureau, the Bank has to appropriate a special reserve from

current year's earnings and the unappropriated earnings generated in prior years that is equal to the debit

balance of any stockholders' equity account (except deficit). The special reserve should be adjusted on the

basis of the debit balance of the stockholders' equity account as of year-end.

In making this appropriation, the Bank should consider its capital adequacy ratio, long-term financial position,

and stockholders' cash needs, and the shareholders' meeting may decide not to appropriate any dividend and

bonus in full or in part.

Under the Law Governing Mergers of Financial Institutions, loss on the sale of nonperforming loans is

amortized using the straight-line method over five years, and special reserve equal to the loss should be

appropriated.

The appropriation of the deficit resolved by the Board of Directors and stockholders on June 19, 2009, and

May 23, 2008, respectively, was as follows:

2008 2007

Accumulated deficit, beginning of 2008 and 2007 $ (67,902,864) (7,765,847)

Capital decrease to offset accumulated deficit 56,586,140 5,903,339

Less: discount on new issue - (56,586,140)

prior-year net loss (10,202,366) (9,454,216)

Accumulated deficit $ (21,519,090) (67,902,864)

Information on appropriation of earnings or deficit offsetting will be available on the Market Observation Post

System of the Taiwan Stock Exchange (http://emops.tse.com.tw) after the related meetings.

Under the Company Act, legal reserve should be appropriated until the reserve equals the Bank's paid-in

capital. This reserve may only be used to offset a deficit. When the reserve reaches 50% of the aggregate

par value of the Bank's outstanding capital stock, up to 50% thereof may be declared as stock dividends. In

addition, the Banking Act provides that, before the legal reserve equals the Bank's paid-in capital, annual cash

dividends and bonuses should not exceed 15% of paid-in capital.

The Bank recorded an after-tax loss in 2009, and therefore is not required to accrue any employee bonuses

or directors' and supervisors' remuneration. The Bank recorded an after-tax loss in 2008, and there were no

distributable earnings to provide any employee bonuses or directors' and supervisors' remuneration.

(iv) Employee stock option plans and the stock appreciation right plan of executives

To attract and encourage professionals, enhance employees' loyalty to the Bank, and create maximum benefits

to stockholders and the Bank, the Board of Directors approved on May 22, 2008, an employee stock option

plan. As of June 12, 2008, the Bank had registered this plan with the Financial Supervisory Commission. A

full-time employee who first reported for work before the plan issue date qualifies for the plan. A full-time

employee of a Bank subsidiary in which the Bank owns over 50% of voting shares directly or indirectly in or

outside Taiwan will also qualify for the plan.


The options granted are valid for 10 years and are exercisable at certain percentages after the second

anniversary from the grant date. The options were granted at an exercise price equal to the grant date

closing price of the Bank's common stock listed on the Taiwan Stock Exchange. For any subsequent changes

in common shares, the exercise price and the number of options are adjusted accordingly. The Bank issued

838,700 thousand units of employee share options, and a unit can convert into one common share of the

Bank. As a result, the Bank retained 838,700 thousand new shares of common stock for the plan.

The abovementioned plan expired on June 11, 2009, and the Bank's Board of Directors approved the “2010

regulation on the issuance and subscription of employee stock options” in the meeting of the Board of

Directors held on February 25, 2010. The total issuance amount of the new employee stock options was

161,391 thousand units, which had considered the effect of capital reduction. Meanwhile, the Bank's Board

of Directors approved the stock appreciation right plan of executives on December 22, 2009, and the Bank

could settle the stock appreciation right plan by the Bank's common shares or by cash.

The information on employee benefits from share-based payment transactions as of December 31, 2009 and

2008, is as follows:

2009 2008

Expenses resulting from equity-settled share-based payment transactions $ 18,095 12,408

Balance of liabilities resulting from share-based payment transactions 620 -

Additional paid-in capital resulting from equity-settled share-based payment transactions 17,475 12,408

The information on the Bank's share-based payment transaction plans as of December 31, 2009, is as follows:

Stock appreciation right plan of executives

Employee stockoption plan

Grant date 2009.12.22 2008.5.5~2008.9.9

Grant amount (thousand shares) 16,571 6,580

Vesting period 2009.12.22~2013.12.21 2008.5.5~2012.9.8

The details of the Bank's employee benefit plan are as follows:

2009

Stock appreciation rightplan of executives

Employee stock option plan

Units(thousand

shares)Exercise price

(dollars)

Units(thousand

shares)Exercise price

(dollars)

Outstanding units as of January 1, 2009 and 2008 - $ - 8,160 12.36~20.21

Units granted (thousand shares) 16,571 7.33 - -

Units exercised - - (1,580) 15.82

Balance at period-end 16,571 6,580

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COSMOS BANK90

2008

Stock appreciation rightplan of executives

Employee stock option plan

Units(thousand

shares)

Exercise price (dollars)

Units(thousand

shares)

Exercise price (dollars)

Outstanding units as of January 1, 2008 and 2007 - $ - - -

Units granted (thousand shares) - - 17,862 5.65~9.23

Balance at period-end - 17,862

When estimating the fair value of the stock options granted using the Black-Scholes Option Model, the Bank

takes into account the following factors:

December 31, 2009

Stock appreciation right plan of executives

Employee stockoption plan

Exercise price (dollars) 7.33 12.36~20.21

Stock price on grant date (dollars) 7.33 12.36~20.21

Weighted-average expected contractual remaining life 5.98~6.98 6.00~7.00

Expected share price volatility (%) 45.84~47.34 41.60~42.95

Risk-free interest rate (%) 1.13~1.23 2.23~2.74

(v) Unrealized gain or loss on financial instruments

The movements as of December 31, 2009 and 2008, of unrealized gain or loss on available-for-sale financial

instruments were as follows:

2009 2008

Balance, beginning of year $ 16,489 2,978

Recognized in stockholders' equity 14,234 13,560

Transferred to profit or loss (226) (49)

Balance, end of year $ 30,497 16,489

(t) Earnings per share

2009 2008

Before income tax

After income tax

Before income tax

After income tax

Basic earnings per share (New Taiwan dollars):

Net loss $ (8,265,229) (7,164,271) (12,337,759) (10,202,366)

Weighted-average number of shares outstanding (thousands) 1,166,078 1,166,078 2,234,721 2,234,721

Basic earnings per share (New Taiwan dollars) $ (7.09) (6.14) (5.52) (4.57)

Retroactively adjusted weighted average of outstanding shares (thousands) - - 1,020,972 1,020,972

Basic earnings per share – retroactive $ - - (12.08) (9.99)


There was a net loss as of December 31, 2009 and 2008; thus, the basic loss per share equaled the diluted loss

per share as of December 31, 2009 and 2008.

(u) Financial instruments

(i) Fair value of financial instruments


Carrying Amount

EstimatedFair Value

Carrying Amount

EstimatedFair Value

Assets

Financial assets at fair value through profit or loss $ 148,733 148,733 156,029 156,029

Available-for-sale financial assets 998,753 998,753 891,086 891,086

Financial assets carried at cost 769,582 See ii (5) 722,830 See ii (5)

Debt instruments with no active market 37,953 See ii (6) 513,762 See ii (6)

Liabilities

Financial liabilities at fair value through profit or loss $ 3,728 3,728 13,027 13,027

(ii) Methods and assumptions applied to estimate the fair value of financial instruments are summarized as

follows:

1) For financial instruments measured at fair value through profit or loss and available-for-sale financial assets,

fair value is best determined on the basis of quoted market prices. However, in many instances where

there are no quoted market prices for the Bank's various financial instruments, fair values are based on

estimates using other financial data and appropriate valuation methodologies.

2) The carrying amounts of short-term financial instruments approximate their fair values because of the short

maturities of these instruments, such as cash and cash equivalents, due from the Central Bank and call

loans to banks, securities purchased under resell agreements, net receivables (except tax refund receivable),

refundable deposits, due to the Central Bank and other banks, payables (except tax payable), remittances,

securities sold under repurchase agreements, and guarantee deposits received.

3) If there are no active market prices for derivative financial instruments, fair values of forward contracts will

be calculated using the discounted cash flow method, while values of options are provided by counter-

parties.

The Bank estimates the fair value of each forward contract on the basis of the exchange rates quoted by

Reuters on each settlement date. The fair value of a cross-currency swap contract is calculated using the

prices quoted by Bloomberg.

4) Discounts and loans, cash deposits and MCB are interest-earning assets and interest-bearing liabilities.

Thus, their carrying amounts represent fair value. The fair value of overdue loans is based on their carrying

amount, net of allowance for possible losses.

5) If equity investments carried at cost consist of unlisted stocks, these investments have no quoted market

prices in an active market and their fair value cannot be reliably measured. Thus, the Bank does not

disclose their fair value.

6) If there are trade prices or prices quoted by major market players, the latest trade prices or quoted prices

are used as the basis for determining the fair value of debt instruments with no active market, and this kind

of instrument would be classified as other financial assets.

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COSMOS BANK92

7) Other financial liabilities include an appropriate loan fund. They are items that can be transferred to other

banks at any time depending on the business situation. Thus, the carrying amounts of these liabilities

represent their fair values.

(iii) As of December 31, 2009 and 2008, the fair values of financial assets and liabilities determined using quoted

market prices or estimated using a valuation method were as follows:


Quoted Market Prices

Estimated Market Prices

Quoted Market Prices

Estimated Market Prices

Financial assets

Financial assets at fair value through profit or loss $ 144,522 4,211 149,815 6,214

Available-for-sale financial assets 998,753 - 891,086 -

Financial liabilities

Financial liabilities at fair value through profit or loss - 3,728 - 13,027

From the above, the gain and loss recognized by the Bank on the valuation of financial instruments at

estimated market prices for the years ended December 31, 2009 and 2008, were a gain of $2,003 thousand

and a loss of $ 6,027 thousand, respectively.

(iv) For the years ended December 31, 2009 and 2008, the interest revenues for financial assets and liabilities at

fair value were $6,593,630 thousand and $9,885,020 thousand, respectively. The incurred interest expenses

were $2,014,844 thousand and $3,624,026 thousand, respectively.

(v) For the years ended December 31, 2009 and 2008, the adjustments of stockholders' equity credited

directly from the available-for-sale financial assets amounted to $14,234 thousand and $13,560 thousand,

respectively.

(vi) Financial risk information

1) Market risk

The Bank is engaged in investment in interest rate instruments including bonds, notes, and similar

financial instruments. As a result, it is exposed to interest rate risk. Since the fair value of these financial

instruments is sensitive to the market interest rates, the following is the sensitivity variation for a 0.01%

increase in market interest rates.

December 31, 2009

CurrencyPrincipal Amount

Average Duration (Years)

The Effect on the Fair Value per

Variation of 0.01%

New Taiwan Dollars $ 1,113,553 2.71687 NT$ 315

December 31, 2008

CurrencyPrincipal Amount

Average Duration (Years)

The Effect on the Fair Value per

Variation of 0.01%

New Taiwan Dollars $ 1,456,797 2.64804 NT$ 398

U.S. Dollars 1,030 0.13970 US$ 0.013


The Bank monitors profit or loss on investment positions by marking to market to consider investment

strategies and investment positioning.

The Bank evaluated the market risk of financial instruments using daily value at risk (VaR). VaR is the

potential loss in market value of financial instruments held by the Bank within a certain confidence interval

for a specified period. As of December 31, 2008 and 2009, the Bank had price risk from holding bonds.

VaR of securities held by the Bank is shown in the table below. The Bank made an assumption that, if

there is a 99% level of confidence, there is only a 1% chance that the Bank will incur a loss on its financial

instruments within a day. In addition, based on VaR assumptions, there are only 2 out of 200 days when

the Bank could face losses on its financial instruments. The average, highest and lowest amounts of the

interest rate and price risks that were calculated at the daily VaR for the years ended December 31, 2009

and 2008, were as follows (thousands):


Type of Market Risk Average Highest Lowest Average Highest Lowest

Fair value interest rate risk $ 7,348 8,148 6,704 4,218 7,284 1,908

The Bank engages in trade financing and foreign currency exchange; thus, it is exposed to exchange risks

on differences between spot and forward rates. The Bank's policy is to have a square position on its

forward contracts. If the contract transactions do not square off, all Bank employees are authorized to

handle the contracts in accordance with the Cosmos Bank Handling International Financing Transaction

Rules. In addition, the exchange rate risks and interest rate risks on foreign security investments or other

international financing business are hedged by cross-currency swap contracts, and the gains and losses on

these contracts are measured at rates quoted by Reuters. These gains and losses are assessed and reported

to Bank management regularly in order to adjust the hedge strategy.

2) Credit risk

The Bank is exposed to potential loss due to contract defaults by counter-parties or financial instrument

issuers.

The Bank evaluates the creditworthiness of credit applications case by case, taking into account the

applicant's credit history, credit rating and financial condition. As of December 31, 2009 and 2008, about

44.48% and 47%, respectively, of total loans had been granted, and about 14% and 13%, respectively,

had been secured. Collateral, mostly in the form of cash, inventories, marketable securities and other

assets, may be required depending on the evaluation result. However, there is no collateral for issuing credit

cards. Thus, the Bank evaluates the creditworthiness of credit card holders regularly and modifies the credit

facilities if necessary. If the counter-parties or others concerned (e.g., guarantors) break a contract, the

Bank will execute its right on the collateral and decrease its credit risk.

In addition, the Bank discloses its maximum credit exposure without taking collateral fair value into

consideration.

The maximum credit exposure of financial assets is the carrying amounts of financial assets on the balance

sheet date.

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COSMOS BANK94

The amounts of financial contracts with off-balance-sheet credit risks as of December 31, 2009 and 2008,

were as follows:

December 31,2009

December 31,2008

Credit card and cash card commitments $ 94,970,462 125,261,011

Guarantees and letters of credit issued 800,078 837,524

Irrevocable loan commitments 394,378 411,619

Concentration of credit risk exists when counter-parties to financial transactions are individuals or groups

engaged in similar activities or activities in the same region, which would cause their ability to meet

contractual obligations to be similarly affected by changes in economic or other conditions. It is also

affected by the nature of the borrowers' operations. The concentration of the Bank's credit risk was as

follows:

December 31,2009

December 31,2008

Group

Private enterprise $ 31,584,471 40,902,040

Natural person 42,516,447 57,113,718

Non-profit enterprise 9,567 22,139

$ 74,110,485 98,037,897

Industries

Wholesale, retail and catering $ 10,379,478 13,161,593

Manufacturing 8,019,569 11,903,896

Finance, insurance and real estate 5,745,127 6,588,967

$ 24,144,174 31,654,456

3) Liquidity risk

As of December 31, 2009 and 2008, the liquidity reserve ratios were 25.10% and 17.11%, respectively.

The Bank has sufficient equity capital and working capital to execute all contract obligations and has no

liquidity risk.

The management policy of the Bank is to match the contractual maturity profile to the interest rates for its

assets and liabilities. Because of uncertainties regarding the transaction conditions, however, the maturities

did not fully match the interest rates, resulting in gaps that may potentially give rise to gain or loss.


The Bank applied appropriate ways to group assets and liabilities. The maturity analysis of assets and

liabilities was as follows:

December 31, 2009

Due inOne Month

Due afterOne MonthUp to Three

Months

Due afterThree

Months Up to

Six Months

Due afterSix Months

Up toOne Year

Due afterOne Year

Up toSeven Years

Due afterSeven Years Total

Assets

Cash and cash equivalents

$ 2,457,826 - - - - - 2,457,826

Due from the Central Bank and call loans to banks

20,770,705 3,612,902 3,954,453 1,247,171 439,198 - 30,024,429

Financial assets at fair value through profit or loss

148,733 - - - - - 148,733

Available-for-sale financial assets

21,978 - 18,527 8,597 949,651 - 998,753

Debt instruments with no active market

- - - 37,953 - - 37,953

Equity investments under the equity method

- - - - - 19,970 19,970

Financial assets carried at cost

- - - - - 769,582 769,582

Receivables 3,067,054 505,604 678,786 1,305,493 1,830,859 53,821 7,441,617

Discounts and loans

6,018,605 3,422,970 5,230,406 30,946,376 24,218,038 4,274,090 74,110,485

Other financial assets - others

102,431 122,614 32,212 94 72 32,212 289,635

Foreclosed collateral

- - 1,869 - 85,442 - 87,311

Refundable deposits

45,780 2,369 1,270 93,019 870,072 - 1,012,510

$32,633,112 7,666,459 9,917,523 33,638,703 28,393,332 5,149,675 117,398,804

Liabilities

Due to the Central Bank and other banks

$ 487,577 1,386,262 2,929,490 7,285,827 - - 12,089,156

Financial liabilities at fair value through profit or loss

3,728 - - - - - 3,728

Payables 1,450,534 290,666 96,743 163,922 268,203 17,247 2,287,315

Deposits and remittances

10,113,829 14,645,641 16,738,931 45,757,230 15,997,975 - 103,253,606

Bank debentures - - - - 515,000 - 515,000

Other financial liabilities

14,080 296 9,744 12,574 1,849,176 - 1,885,870

$12,069,748 16,322,865 19,774,908 53,219,553 18,630,354 17,247 120,034,675

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COSMOS BANK96

December 31, 2008

Due inOne Month

Due afterOne MonthUp to Three

Months

Due afterThree

Months Up to

Six Months

Due afterSix Months

Up toOne Year

Due afterOne Year

Up toSeven Years

Due afterSeven Years Total

Assets

Cash and cash equivalents

$ 3,457,234 - - - - - 3,457,234

Due from the Central Bank and call loans to banks

22,369,521 1,600,000 3,100,000 - - - 27,069,521

Financial assets at fair value through profit or loss

156,029 - - - - - 156,029

Available-for-sale financial assets

18,476 - - - 872,610 - 891,086

Debt instruments with no active market

- - - - 513,762 - 513,762

Equity investments under the equity method

- - - - - 50,775 50,775

Financial assets carried at cost

- - - - - 722,830 722,830

Receivables 1,796,884 598,981 833,888 2,501,881 1,091,924 7,494 6,831,052

Discounts and loans

6,922,427 5,440,533 7,028,838 39,990,666 31,836,220 6,819,213 98,037,897

Other financial assets - others

104,538 104,655 246 127 747 46,152 256,465

Foreclosed collateral

- - 418,675 - 85,442 - 504,117

Refundable deposits

418,511 15,278 8,028 29,760 1,069,793 - 1,541,370

$35,243,620 7,759,447 11,389,675 42,522,434 35,470,498 7,646,464 140,032,138

Liabilities

Due to the Central Bank and other banks

$ 888,047 2,586,262 3,889,090 5,852,957 - - 13,216,356

Financial liabilities at fair value through profit or loss

13,027 - - - - - 13,027

Securities sold under repurchase agreements

7,034 - - - - - 7,034

Payables 1,649,150 359,780 236,562 914,523 201,675 767 3,362,457

Deposits and remittances

11,886,169 16,831,641 21,491,961 52,517,215 19,873,738 - 122,600,724

Bank debentures - - - - - 515,000 515,000

Other financial liabilities

30,378 955 28,648 45,189 2,006,148 - 2,111,318

$14,473,805 19,778,638 25,646,261 59,329,884 22,081,561 515,767 141,825,916


4) Fair value interest rate risk and cash flow interest rate risk

When market interest rates change, the cash flows on floating-interest-rate assets will also fluctuate, and

the Bank may suffer risks due to any adverse interest rate changes. Thus, the Bank used cross-currency

swap contracts to reduce risks from adverse changes in market interest rates.

(vi) Risk control and hedge policy

The Bank documents its risk management policies, including overall operating strategies and risk control

philosophy. When each business unit is engaged in various operations, it must abide by the risk management

policies and hedging policies as approved by the Board of Directors in order to implement risk management,

strengthen businesses, and limit risks that may arise from operation to an acceptable level. Risk management

polices and other policies are adjusted in accordance with the Bank's overall organization, operating plan,

management targets, and strategy. The Board of Directors reviews the policies regularly and reviews whether

the Bank's policies are executed properly to control the Bank's risks.

5. Related-party Transactions

(a) Related parties

Related Party Relationship with the Bank

S.A.C. PEI Taiwan Holdings B.V. Main stockholder

S.A.C. PEI Asia Investments Holdings II S.ar.al. (“Lux. Co. II”) Parent company of S.A.C. PEI Taiwan Holdings B.V.

S.A.C. PEI Asia Investments Holdings I S.ar.al. (“Lux. Co. I”) Parent company of Lux. Co. II

S.A.C. Private Equity Investors, L.P. (“SAC PEI”) Parent company of Lux. Co. I

S.A.C. Private Equity GP, L.P. (“SAC PEI GP”) Partnership with SAC PEI

GE Capital Asia Investments Holdings B.V (“GE Asia Holdings”) Main stockholder

General Electric Capital Corporation (GECC) Affiliate of GE Asia Holdings

GE Capital Taiwan Holdings Inc. (“GE Holdings”) Affiliate of GE Asia Holdings

General Electric International Inc. (GEII) Affiliate of GE Asia Holdings

GE Processing Services Pty Limited (“GE Australia”) Affiliate of GE Asia Holdings

GE Capital Thailand Affiliate of GE Asia Holdings

GE Money Taiwan Ltd. Affiliate of GE Asia Holdings

Reliance Securities Investment Trust Corporation, Ltd. (RSIT) Equity-method investee (The Bank no longer has significant influence from August 7, 2009.)

Cosmos Insurance Brokers Co., Ltd. 100%-owned investee

Others The Bank's chairman, president, managers and their relatives with a kinship of up to the second degree of consanguinity with the chairman and president

Note: The Bank disclosed related-party transactions as of December 31, 2009, and the transactions with non-related parties as of

December 31, 2009, were not included in the balance sheet as of December 31, 2009.

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COSMOS BANK98

(b) Significant transactions between the Bank and related parties

(i) Loans, deposits

For the year ended December 31, 2009

December 31, 2009Interest Rate

(%)

Revenue(Expense)AmountAmount %

Loans $ 11,268 0.02 1.04~18.25 293

Deposits $ 134,012 0.13 0~6.045 (3,244)

For the year ended December 31, 2008

December 31, 2008Interest Rate

(%)

Revenue(Expense)AmountAmount %

Loans $ 20,861 0.02 2.375~18.25 1,210

Deposits $ 151,125 0.12 0~7.365 (4,481)

( i ) Loans

December 31, 2009

Type

Account Volume

(Number of Names)

Highest Balance for the

Year Ended December 31, 2009

Ending Balance

Normal Loans

Nonper-forming Loans Collateral

Differences in

Transaction Terms from Those for Unrelated

Parties

Consumer loans for employees

8 $ 4,188 2,327 2,327 - Real estate; some loans

had no collateral

None

Self-use housing mortgage loan 11 20,506 8,941 8,941 - Real estate None

December 31, 2008

Type

Account Volume

(Number of Names)

Highest Balance for the

Year Ended December 31, 2008

Ending Balance

Normal Loans

Nonper-forming Loans Collateral

Differences in

Transaction Terms from Those for Unrelated

Parties

Consumer loans for employees

7 $ 27,322 2,399 2,399 - Real estate; some loans

had no collateral

None

Self-use housing mortgage loan 10 36,998 18,462 18,462 - Real estate None

(In Thousands of New Taiwan Dollars)

(In Thousands of New Taiwan Dollars)

Loan Classification

Loan Classification


In accordance with sections 32 and 33 of the Banking Act of the Republic of China, no unsecured credit shall

be extended by the Bank to any interested party, and for any secured credit extended by the Bank to any

interested party, the terms of such extended credit shall not be more favorable than those terms offered to

other same-category customers. However, the foregoing rule on unsecured credit shall not apply to consumer

loans and loans extended to the government.

(ii) Equity investment

In June 2008, the Bank paid $1,144 thousand to purchase shares in Cosmos Insurance Brokers. In July 2008,

it was adjusted to $1,002 thousand after auditing.

(iii) Support service agreements

1) GE Asia Holdings subscribed for the Bank's common shares and GECC bought call options from China

Development Industrial Bank Inc. under certain subscription agreements. The Bank also has support service

agreements (SSAs) with GEII and GE Australia signed on June 5, 2006. Under the SSAs, GE Holdings and

GE Australia will provide the Bank with management systems, data processing service, system support,

and IT (information technology) services as part of intensive training and technology transfer services. The

SSAs also provide for the integration of Global Best Practices with Bank operations to redesign or enhance

systems for business development and management operations, such as strategic planning and analysis,

product design, marketing, client relationship management, employee-performance management, human

resources, process upgrade, risk management, overdue loan processing, Six Sigma enhancement, etc.

They also support information processing for all systems, system development and maintenance, daily

operations, and strategic support.

Unless constrained by uncontrollable environmental factors, GE Holdings and the Bank promise to fully

cooperate with each other to use global human resources and obtain best practices and key information

and technology that can help the Bank enhance earnings generation. The Bank will pay GE Holdings (1)

technology provision service fees of US$84,000 thousand, payable at US$11,000 thousand in the year

ending December 31, 2006; US$22,000 thousand annually from 2007 to 2009; and US$7,000 thousand

for the period ending June 30, 2010; and (2) consulting expenses of up to US$3,339 thousand for

assigning directors, chief manager, CEO, CFO, CRO, managers of the Claims Department, etc., and costs of

supporting personnel based on the assignment period.

As an effort by GE to assist the Bank to improve its financial structure and to resolve the differences

regarding the service contracts with GEII and GE Australia, the Bank and GE agreed to calculate the

remaining payables in 2006 to 2008 in accordance with the terms and methods specified under the

agreements. In accordance with the agreement approved by the Board of Directors on April 15, 2009, the

remaining payable amount should be calculated based on the estimate of 2 professional valuation firms,

and not exceeding USD18,500 thousand.

In accordance with the agreement signed between GEII, GE Australia and the Bank, the remaining amount

payable is limited to USD18,500 thousand; therefore, the Bank reversed the service fee accrued in 2008

amounting to USD22,000 (NT$759,066) thousand, and the remaining portion amounting to USD3,500

(NT$141,523) thousand was recorded under other non-interest income. The remaining amount payable

of USD18,500 thousand was repaid using cash amounting to USD1,700 thousand and a private placement

of common shares amounting to USD16,800 (NT$550,368) thousand. As of December 31, 2009, the

payables from personnel secondment fees amounted to $6,012 thousand; and as of December 31, 2008,

the payables from technical service fees and personnel secondment amounted to $745,148 thousand,

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COSMOS BANK100

recorded under expenses payable. For the years ended December 31, 2009 and 2008, the technical service

fees and secondment fees amounted to $52,757 thousand and $137,238 thousand, respectively, and are

recorded under other administrative and management expenses. In addition, the Bank acquired the Vision

Plus system from GE Australia in order to integrate the Bank's consumer banking business, which resulted

in prepayment of USD1,000 thousand. As a result of the abovementioned agreement, the Bank agreed to

waive its claims on the prepayment, and therefore the prepayment was reversed and recorded under non-

interest income/loss in 2008.

In the abovementioned agreement, both parties agree that once the capital strengthening plan is

completed, the agreement will be retroactively terminated on January 1, 2009. The agreement was

approved by the annual shareholders' meeting on June 19, 2009. On July 10, 2009, the Bank signed an

addendum to the abovementioned agreement with GEII and GE Australia; in the addendum, both parties

agreed that the share pricing date regarding the private placement of common shares would be no later

than July 31, 2009, or another date that both parties agree to, while that in the original abovementioned

agreement was no later than July 9, 2009.

In accordance with the resolution of the 16th meeting of the 6th session of the Bank's Board of Directors

held on July 28, 2009, the share pricing date was July 28, 2009. The private placement of common shares

was settled at $3.22 per share. The price mentioned above was unchanged after reconsideration in the

extraordinary meeting of the Bank's Board of Directors held on August 25, 2009. Moreover, this price was

also accepted by the directors who represented GEII and GE Australia. The Bank has already completed

implementation of the private capital strengthening plan. For more details, please see note 4(s)(i).

2) The Bank obtained from GE Capital Thailand the right to use NAOS for $15,115 (USD400) thousand based

on a support services agreement. For the years ended December 31, 2009 and 2008, the Bank amortized

the right in the amount of $3,023 thousand, classified as depreciation and amortization.

3) Due to the uniqueness of the technology service contract, Vision Plus software, and NAOS, the Bank cannot

acquire comparable prices from an unrelated party. However, other related-party transactions which were

comparable to those with unrelated parties did not appear significantly extraordinary.

(iv) To improve its car loan operations, the Bank signed a car loan acquisition contract with GE Capital to buy

car loans amounting to $1,359,280 thousand for $1,413,467 thousand. The premium rate is about 4%,

estimated at the net value calculated using the cash flow model. In addition, on August 17, 2006, the Bank

signed a contract for the purchase from Mega International Commercial Bank of a car loan for $1,023,770

thousand, the amount due to GECC for GECC's providing services to Mega Bank for a price of $1,064,721

thousand, with a premium rate of about 4%. The transaction price was calculated using the future cash flow

model.

(v) Fee income

The Bank, Cosmos Insurance Broker Co., Ltd., and other insurance companies signed contracts for three-

party cooperative promoting and marketing to sell insurance products through the channels of the Bank. The

Bank's channel fee income from the abovementioned transactions was $149,224 thousand and $75,040

thousand for the years ended December 31, 2009 and 2008, respectively.


(vi) Compensation

Salaries and remuneration paid to the Bank's directors, general managers, vice presidents, and other main

executives in 2009 and 2008 were as follows:

2009 2008

Salaries $ 75,180 160,308

Bonus and special allowances 21,051 11,900

Business executive expense 8,107 7,418

$ 104,338 179,626

In addition to the abovementioned service costs, the Bank also paid housing rental, car rental, driver,

and other personal expenses amounting to $8,000 thousand and $12,112 thousand in 2009 and 2008,

respectively. Meanwhile, the Bank accrued or contributed pension expense, services cost of employee stock

option plans, and services cost of stock appreciation rights plans amounting to $18,870 thousand and $13,080

thousand in 2009 and 2008, respectively.

6. Pledged Assets

(a) Government bonds with carrying value of $50,700 thousand (recorded as available-for-sale financial assets, net,

amounting to $46,900 thousand, and refundable deposits amounting to $3,800 thousand) as of December 31,

2009, and government bonds with carrying value of $368,000 thousand (recorded as available-for-sale financial

assets, net, amounting to $350,500 thousand, and other receivables amounting to $17,500 thousand) as of

December 31, 2008, had been placed with the court as guarantee deposits in line with the Bank's request for

court approval to seize and sell the properties of the Bank's debtors to satisfy the debtors' obligations to the

Bank.

(b) As of December 31, 2009 and 2008, the Bank had provided government bonds (recorded as available-for-sale

financial assets, net) with carrying value of $220,000 thousand as the reserve and deposits for guarantee of the

Bank's operating business.

(c) As of December 31, 2009 and 2008, negotiable certificates of deposit (NCDs) of $236,308 thousand and

$208,595 thousand (recorded as other financial assets, net), respectively, had been provided as collateral for spot

exchange transactions.

(d) The Bank provided a Central Bank certificate of deposit amounting to $20,000 thousand as the collateral for

collections of treasury tax.

7. Commitments and Contingencies

In addition to the disclosures in Note 4(u), the commitments as of December 31, 2009, were as follows:

(a) The Bank leases from unrelated parties the premises occupied by its branches under operating lease agreements

expiring on various dates until April 30, 2015. Refundable deposits on these leases amounted to $926,958

thousand as of December 31, 2009. The leases also require the payment of rentals monthly, semiannually or

annually, or a refundable rental deposit which generates no interest.

Financial Review

COSMOS BANK102

Future minimum annual rentals on these leases as of December 31, 2009, were as follows:

Period Amount

2010.01.01~2010.12.31 $ 208,497

2011.01.01~2011.12.31 129,718

2012.01.01~2012.12.31 49,599

2013.01.01~2013.12.31 17,730

2014.01.01~2014.12.31 4,920

$ 410,464

(b) Significant outstanding purchase contracts

ItemContract amount

Prepayment Payable

Banking information and operating systems $ 44,509 5,747 38,762

Premise improvements, water and electricity, and air conditioning

6,402 - 6,402

$ 50,911 5,747 45,164

(c) The Bank's ex-chairman, Sheng-Fa Hsui, and ex-vice chairman, Xian-Rong Hsui, were prosecuted for involvement

in illegal events. With the exception of the insider trading portion, which is still being tried, the defendants have

been ruled by the Taipei District Court to be in violation of the Banking Act and sentenced. The Bank is now

being managed by a new management team, which uses high standards to administer the Bank, and would not

be influenced by this legal case.

(d) The Bank sold structured notes, which were issued by GVEC Resources Inc. (GVEC), through a specific trust

fund, amounting to USD48,920 thousand. PEM Corporation, a member of the GVEC group, was found to have

committed fraud by the U.S. Securities and Exchange Commission (SEC). Due to the fraud, the Bank's Board of

the Directors' meeting held on June 26, 2009, approved buying back the structured notes from the investors

and asked for compensation from PEM Corporation. The Bank recognized the estimated compensation as

other receivables amounting to $1,438,034 thousand (USD44,896 thousand) and made a provision amounting

$650,944 thousand, based on evaluation of the amount of assets recoverable. Please see notes 4(d) and 4(n).

(e) The Bank's ex-employees disagreed with the payment of pensions and asked the Bank to pay higher pensions.

Three lawsuits were lodged with the court, and these lawsuits requested $80,277 thousand. For one of the

lawsuits, the High Court decided that the Bank should pay an ex-employee approximately $470 thousand.

However, the Bank plans to appeal this decision. The other two lawsuits are in the process of judgment by the

court.

8. Major Casualty Losses: None

9. Significant Subsequent Events: None


10 . Others

(a) Trust business under the Trust Law

(i) Trust-related items, as shown in the following balance sheets and trust property list

Balance Sheets of Trust Accounts


Trust AssetsDecember 31, 2009

December 31, 2008 Trust Liabilities

December 31, 2009

December 31, 2008

Account payables

Cash in bank $ 792,676 75,564 Accrued expenses $ 153 11

Short-term investments VAT tax payables 100,522 97

Bonds 3,630,032 8,413,840 Advanced revenues 5,839,036 2,128,285

Mutual funds 24,984,447 17,448,181 Receipts under custody - 330,000

Common stock 172,142 544,956 Suspense credits 396 -

Accounts receivableSecurities under custody

payable- 14,074

Notes receivable 31,352 - Other payables 173 -

Accounts receivable 66 - Other advance receipts 7,847 -

Excess business tax paid 227 - Trust capital

Prepaid account Money 28,786,621 26,057,000

Prepaid expenses 4,555,570 1,833,829 Securities - 350,000

Prepaid taxes 171 121 Real property 16,537 16,439

Real property 16,200 16,200 Superficies 1,189,000 1,189,000

Intangible assets Other liabilities 500 -

Superficies 1,189,000 1,189,000 Net income 2,022 480

Securities under custody - 14,074 Accumulated deficit 1,658 1,161

Other assets

Deferred expenses 572,222 550,782

Refundable deposit 360 -

Trust assets $ 35,944,465 30,086,547 Trust liabilities $ 35,944,465 30,086,547

Financial Review

COSMOS BANK104

Trust Property List


Investment ItemsDecember 31,

2009December 31,

2008

Cash in bank $ 792,676 75,564

Short-term

Bonds 3,630,032 8,413,840

Mutual funds 24,984,447 17,448,181

Common stock 172,142 544,956

Real property

Others 16,200 16,200

Intangible assets

Superficies 1,189,000 1,189,000

Securities under custody - 14,074

$ 30,784,497 27,701,815

Statements of Income on Trust Accounts

Years Ended December 31, 2009 and 2008

December 31,2009

December 31,2008

Revenues

Interest $ 554 201

Other revenues 1,543 316

Revenues from beneficiary certificates 2,097 517

Expenses

Management fees 15 36

Levies 55 1

Service fees 5 -

Expenses from beneficiary certificates 75 37

Net income before tax 2,022 480

Income tax expenses - -

Net income $ 2,022 480

Note: The above statements of income are for the business of the trust division, and the amounts are not included in the profit and

loss of the Bank.

(ii) Nature of trust business operations under the Trust Law: Please refer to note 1.


(b) Average amount of, and average interest rate on, interest-earning assets and interest-bearing liabilities:

Average balance was calculated as the daily average balances of interest-earning assets and interest-bearing

liabilities.

2009

AverageBalance

AverageRate (%)

Interest-earning assetsCash and cash equivalents – due from banks $ 620,163 0.07

Due from the Central Bank and call loans to banks 27,902,975 0.54

Financial assets at fair value through profit or loss (excluding stocks and funds) 150,430 5.77

Receivables of credit cards 3,683,726 10.71

Discounts and loans (excluding overdue loans) 82,101,584 7.24

Available-for-sale financial assets (excluding stocks and funds) 885,952 2.22

Debt instruments with no active market 217,281 1.89

Other financial assets – other (excluding stocks) 229,330 0.42

Interest-bearing liabilitiesDue to the Central Bank and other banks 12,415,182 1.19

Securities sold under repurchase agreements 1,090 0.54

Demand deposits 8,128,948 0.07

Savings - demand deposits 23,777,961 0.36

Time deposits 15,953,938 1.58

Savings - time deposits 64,068,165 1.99

Bank debentures 515,000 3.20Other financial liabilities (Note) 1,939,520 11.89

2008

AverageBalance

AverageRate (%)

Interest-earning assetsCash and cash equivalents – due from banks $ 1,007,906 0.53

Due from the Central Bank and call loans to banks 29,242,145 2.01

Financial assets at fair value through profit or loss (excluding stocks and funds) 155,682 5.65

Receivables of credit cards 4,149,270 11.46

Discounts and loans (excluding overdue loans) 103,875,272 8.28

Available-for-sale financial assets (excluding stocks and funds) 530,840 2.36

Debt instruments with no active market 768,623 3.11

Other financial assets – other (excluding stocks) 205,071 2.91

Interest-bearing liabilitiesDue to the Central Bank and other banks 21,113,926 2.54

Securities sold under repurchase agreements 10,478 1.81

Demand deposits 7,498,152 0.40

Savings - demand deposits 22,724,263 0.83

Time deposits 39,535,735 2.98

Savings - time deposits 52,821,231 2.63

Bank debentures 515,000 3.20Other financial liabilities (Note) 2,999,862 9.33

Note: The face value of the Subordinated Unsecured Mandatory Convertible Bonds issued by the Bank amounted to $19,800,000

thousand, of which, $15,800,000 thousand was recorded under stockholders' equity, which resulted in a high average

interest rate on the financial liabilities. The actual coupon rate is 6%. After the Bank converted 18.33% of the Subordinated

Unsecured Mandatory Convertible Bonds (MCB) on October 6, 2009, the face value of outstanding MCB amounted to

$16,170,000 thousand, of which, $12,920,000 thousand was recorded under stockholder's equity.

Financial Review

COSMOS BANK106

(c) Asset quality, concentration of credit extensions, interest rate sensitivity, profitability, and maturity analysis of

assets and liabilities

(i) Asset quality

Period December 31, 2009

Items Nonperforming

Loans(Note 1)

Loans

Ratio of Nonperforming

Loans(Note 2)

Allowance for PossibleLosses

CoverageRatio

(Note 3)

Corporate Banking

Secured $ 760,785 20,865,138 3.65% 365,693 48.07%

Unsecured 433,112 14,019,602 3.09% 1,140,382 263.30%

Consumer Banking

Housing mortgage(Note 4)

131,940 5,015,089 2.63% 5,831 4.42%

Cash card 631,969 30,456,860 2.07% 1,267,903 200.63%

Small-scale credit loans (Note 5)

66,098 1,324,521 4.99% 159,131 240.75%

Other (Note 6)

Secured 59,332 2,254,370 2.63% 11,587 19.53%

Unsecured 38,513 174,905 22.02% 30,762 79.87%

Loan 2,121,749 74,110,485 2.86% 2,981,289 140.51%

Nonperforming Receivables

(Note 1)Receivables


Receivables (Note 2)


Coverage Ratio

(Note 3)

Credit cards 33,554 3,556,429 0.94% 50,294 149.89%

Factored accounts receivable without recourse (Note 7)

1,238 159,053 0.78% 308 24.88%

Amounts of executed contracts on negotiated debts not reported as nonperforming loans (Note 8)

1,676,269

Amounts of executed contracts on negotiated debts not reported as nonperforming receivables (Note 8)

7,088

Amounts of executed debt settlement program and rehabilitation program not reported as nonperforming loans (Note 9)

260,514

Amounts of executed debt settlement program and rehabilitation program not reported as nonperforming receivables (Note 9)

1,265


Period December 31, 2008

Items Nonperforming

Loans(Note 1)

Loans


Loans(Note 2)


CoverageRatio

(Note 3)

Corporate Banking

Secured 1,069,952 27,978,635 3.82% 419,019 39.16%

Unsecured 757,949 19,253,651 3.94% 1,501,806 198.15%

Consumer Banking

Housing mortgage(Note 4) 130,783 6,399,368 2.04% 8,825 6.75%

Cash card 1,510,634 37,573,110 4.02% 2,140,947 141.73%

Small-scale credit loans (Note 5) 297,810 2,645,975 11.26% 349,768 117.45%

Other (Note 6)

Secured 47,241 3,981,411 1.19% 20,682 43.78%

Unsecured 6,734 205,747 3.27% 3,470 51.53%

Loan 3,821,103 98,037,897 3.90% 4,444,517 116.32%

Nonperforming Receivables

(Note 1)Receivables


Receivables (Note 2)


Coverage Ratio

(Note 3)

Credit cards 49,044 4,093,549 1.20% 56,369 114.94%

Factored accounts receivable without recourse (Note 7) 6,552 572,909 1.14% 2,946 44.97%

Amounts of executed contracts on negotiated debts not reported as nonperforming loans (Note 8)

2,106,322

Amounts of executed contracts on negotiated debts not reported as nonperforming receivables (Note 8)

9,447

Amounts of executed debt settlement program and rehabilitation program not reported as nonperforming loans (Note 9)

305,453

Amounts of executed debt settlement program and rehabilitation program not reported as nonperforming receivables (Note 9)

-

Note 1: Nonperforming loans are reported to the authorities and disclosed to the public, as required by the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/ Non-accrued Loans.”Nonperforming credit card receivables are reported to the authorities and disclosed to the public, as required by the Banking Bureau's letter dated July 6, 2005 (Ref. No. 0944000378).

Note 2: Ratio of nonperforming loans: Nonperforming loans ÷ Outstanding loan balance.Ratio of nonperforming credit card receivables: Nonperforming credit card receivables ÷ Outstanding credit card receivables balance.

Note 3: Coverage ratio of loans: Allowance for possible losses for loans ÷ Nonperforming loans. Coverage ratio of credit card receivables: Allowance for possible losses for credit card receivables ÷ Nonperforming credit card receivables.

Note 4: The mortgage loan is for house purchase or renovation and is fully secured by housing that is purchased (owned) by the borrower, the spouse or the minor children of the borrowers.

Note 5: Based on the Banking Bureau's letter dated December 19, 2005 (Ref. No. 09440010950), small-scale credit loans are unsecured, involve small amounts, and exclude credit cards and cash cards.

Note 6: Other consumer banking loans refer to secured or unsecured loans that exclude housing mortgages, cash cards, credit cards and small-scale credit loans.

Note 7: As required by the Banking Bureau in its letter dated July 19, 2005 (Ref. No. 0945000494), factored accounts receivable without recourse are reported as nonperforming receivables within three months after the factors or insurance companies refuse to indemnify Banks for any liabilities on these accounts.

Note 8: The amounts of executed contracts on negotiated debts that are not reported as nonperforming loans or receivables are reported in accordance with the Banking Bureau's letter dated April 25, 2006 (Ref. No. 09510001270).

Note 9: The amounts of the executed debt settlement program and rehabilitation program not reported as nonperforming loans or receivables are reported in accordance with the Banking Bureau's letter dated September 15, 2008 (Ref. No. 09700218940).

Financial Review

COSMOS BANK108

(ii) Concentration of credit extensions

December 31, 2009

Rank Business Groups' Standard Industrial Classification and Symbol

Total Amount of Credit

Endorsement or Other Transactions

Percentage of the Bank's

Equity (%)

1 A Group-014910 Railway Transportation $ 4,130,638 25.89

2 B Group-014841 Retail Sale of Automobiles in Specialized Stores 3,478,141 21.80

3 C Group-013010 Motor Vehicles Manufacturing 2,304,679 14.44

4 D Group-016499 Other Financial Intermediation 1,883,852 11.81

5 E Group-016499 Other Financial Intermediation 1,126,504 7.06

6 F Group-016899 Other Real Estate 1,016,775 6.37

7 G Group-016700 Real Estate Development 773,759 4.85

8 H Group-014546 Wholesale of Tobacco Products and Alcoholic Beverages 655,517 4.11

9 I Group-016499 Other Financial Intermediation 476,253 2.98

10 J Group-012411 Iron and Steel Smelting 448,486 2.81

December 31, 2008

Rank Business Groups' Standard Industrial Classification and Symbol

Total Amount of Credit

Endorsement or Other Transactions

Percentage of the Bank's

Equity (%)

1 A Group-014910 Railway Transportation $ 4,202,158 19.00

2 B Group-014841 Retail Sale of Automobiles in Specialized Stores 3,645,120 16.48

3 C Group-013010 Motor Vehicles Manufacturing 2,304,679 10.42

4 D Group-016499 Other Financial Intermediation 1,884,865 8.52

5 E Group-016499 Other Financial Intermediation 1,423,754 6.44

6 F Group-016899 Other Real Estate 1,374,275 6.21

7 G Group-016700 Real Estate Development 914,759 4.14

8 H Group-014546 Wholesale of Tobacco Products and Alcoholic Beverages 735,694 3.33

9 I Group-016499 Other Financial Intermediation 545,735 2.47

10 K Group-013510 Electricity Supply 488,777 2.21

Note 1: Ranked by the total amount of credit, endorsement or other transactions; list excludes government-owned or state-run

enterprises. If the creditor is a group enterprise, the Bank would express the amount of credit by aggregating the total credit

of this group enterprise, indicated with the symbol of the enterprise and industrial classification. The Bank would further

identify the industry in which the group enterprise has the most exposure. The industrial classification refers to the Industrial

Classification Standard of the Directorate General of Budget, Accounting and Statistics (DGBAS).

Note 2: Group enterprise refers to a group of corporate entities as defined by Article 6 of the “Supplementary Provisions to the

Taiwan Stock Exchange Corporation's Rules for Review of Securities Listings.”

Note 3: The total amount of credit, endorsement or other transactions is the sum of various loans (including import and export

negotiations, discounts, overdrafts, unsecured and secured short-term loans, margin loans receivable, unsecured and secured

medium-term loans, unsecured and secured long-term loans, and overdue loans), exchange bills negotiated, factored

accounts receivable without recourse, acceptances and guarantees.




(iii) Interest rate sensitivity information

1)

Interest Rate Sensitivity

December 31, 2009

Items1 to 90Days

91 to 180 Days

181 Days toOne Year

Over One Year

Total

Interest-rate-sensitive assets $ 92,041,910 4,655,895 1,220,397 3,945,207 101,863,409

Interest-rate-sensitive liabilities 61,072,212 36,094,330 12,368,472 3,927,406 113,462,420

Interest rate sensitivity gap 30,969,698 (31,438,435) (11,148,075) 17,801 (11,599,011)

Net worth 16,515,272

Ratio of interest-rate-sensitive assets to liabilities (%) 89.78

Ratio of interest rate sensitivity gap to net worth (%) (70.23)


December 31, 2008

Items1 to 90Days

91 to 180 Days

181 Days toOne Year

Over One Year

Total

Interest rate-sensitive assets $ 105,814,044 4,789,798 2,248,343 8,010,351 120,862,536

Interest rate-sensitive liabilities 42,467,070 41,676,366 45,322,659 4,574,613 134,040,708

Interest rate sensitivity gap 63,346,974 (36,886,568) (43,074,316) 3,435,738 (13,178,172)

Net worth 19,525,503



Note 1: The above amounts included only New Taiwan dollar amounts held by the head office and branches of the Bank (i.e.,

excluding foreign currency).

Note 2: Interest-rate-sensitive assets and liabilities are interest-earning assets and interest-bearing liabilities with revenues or costs

affected by interest rate changes.

Note 3: Interest rate sensitivity gap = Interest-rate-sensitive assets － Interest-rate-sensitive liabilities.

Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest-rate-sensitive assets/Interest-rate-sensitive liabilities (in New

Taiwan dollars).



Financial Review

COSMOS BANK110

2)


December 31, 2009

Items1 to 90Days

91 to 180 Days

181 Days toOne Year

Over One Year

Total

Interest-rate-sensitive assets $ 94,332 4,280 - - 98,612

Interest-rate-sensitive liabilities 16,981 60,409 9,533 - 86,923

Interest rate sensitivity gap 77,351 (56,129) (9,533) - 11,689

Net worth (20,474)




December 31, 2008

Items1 to 90Days

91 to 180 Days

181 Days toOne Year

Over One Year

Total

Interest rate-sensitive assets $ 113,152 8,374 - - 121,526

Interest rate-sensitive liabilities 28,128 48,222 12,476 - 88,826

Interest rate sensitivity gap 85,024 (39,848) (12,476) - 32,700

Net worth 818

Ratio of interest rate-sensitive assets to liabilities (%) 136.81

Ratio of interest rate sensitivity gap to net worth (%) 3,997.56

Note 1: The above amounts included only U.S. dollar amounts held by the head office, domestic branches, OBU and overseas

branches of the Bank, and excluded contingent assets and contingent liabilities.

Note 2: Interest-rate-sensitive assets and liabilities are interest-earning assets and interest-bearing liabilities with revenues or costs

affected by interest rate changes.

Note 3: Interest rate sensitivity gap = Interest-rate-sensitive assets － Interest-rate-sensitive liabilities.

Note 4: Ratio of interest-rate-sensitive assets to liabilities = Interest-rate-sensitive assets/Interest-rate-sensitive liabilities (in U.S.

dollars).

(in thousands of U.S. dollars)



(iv) Profitability

ItemsYear Ended December 31,

2009Year Ended December 31,

2008

Return on total assets Before income tax (5.49) (6.67)

After income tax (4.76) (5.52)

Return on equityBefore income tax (43.41) (45.34)

After income tax (37.63) (37.49)

Net income ratio (Note 6) (Note 6)

Note 1: Return on total assets = Income before (after) income tax/Average total assets.

Note 2: Return on equity = Income before (after) income tax/Average equity.

Note 3: Net income ratio = Income after income tax/Total net revenues.

Note 4: Income before (after) income tax was the income for the years ended December 31, 2009 and 2008.

Note 5: The above profitability ratios are expressed annually.

Note 6: Not calculated as total net revenue is negative.

(v) Maturity analysis of assets and liabilities

1)

Maturity Analysis of Assets and Liabilities

December 31, 2009

Total


1-30 Days 31-90 Days 91-180 Days181 Days-

1 YearOver 1 Year


$ 118,814,657 27,998,444 7,198,954 10,105,969 33,738,974 39,772,316


151,133,743 11,750,194 21,637,214 26,019,591 55,972,415 35,754,329

Gap (32,319,086) 16,248,250 (14,438,260) (15,913,622) (22,233,441) 4,017,987


December 31, 2008

Total



1 YearOver 1 Year


$ 141,865,475 30,885,240 7,493,938 11,028,449 42,678,811 49,779,037


181,450,863 17,057,875 27,050,736 32,993,382 62,332,060 42,016,810

Gap (39,585,388) 13,827,365 (19,556,798) (21,964,933) (19,653,249) 7,762,277

Note: The above amounts included only New Taiwan dollar amounts held by the head office and domestic branches of the Bank (i.e.,

excluding foreign currency).

(Unit: %)



Financial Review

COSMOS BANK112

2)


December 31, 2009

Total



1 YearOver 1 Year


$ 136,692 103,436 17,676 13,847 - 1,733


136,692 92,109 8,874 12,083 9,553 14,073

Gap - 11,327 8,802 1,764 (9,553) (12,340)


December 31, 2008

Total



1 Y earOver 1 Year


$ 132,513 100,525 14,820 9,809 - 7,359


132,513 66,077 10,194 4,694 12,526 39,022

Gap - 34,448 4,626 5,115 (12,526) (31,663)

Note 1: The above amounts included only U.S. dollar amounts held by the head office, domestic branches and OBU of the Bank.

Note 2: If overseas assets are above 10% of total assets of the Bank, it is necessary to provide supplementary disclosure information.




(vi) Capital adequacy ratio

YearItems


Eligible Capital

Tier 1 capital $ 7,946,304 $ 11,662,965

Tier 2 capital 7,848,773 10,431,493

Tier 3 capital - -

Eligible capital 15,795,077 22,094,458

Risk-weighted Assets

Credit risk

Standardized approach 77,306,567 102,786,791

Internal rating-based approach - -

Securitization 18,988 667,840

Operational risk

Basic indicator approach 14,257,214 18,065,504

Standardized approach/Alternative standardized approach

- -

Advanced measurement approach - -

Market riskStandardized approach 1,440,169 1,557,409

Internal model approach - -

Risk-weighted assets 93,022,938 123,077,544

Capital adequacy ratio 16.98% 17.95%

Ratio of tier 1 capital to risk-weighted assets 8.54% 9.48%

Ratio of tier 2 capital to risk-weighted assets 8.44% 8.47%

Ratio of tier 3 capital to risk-weighted assets - -

Ratio of common stock to total assets 11.90% 13.58%

Leverage 5.95% 7.43%

Note 1: Eligible capital and risk-weighted assets are calculated under the “Regulations Governing the Capital Adequacy Ratio of

Banks” and the “Explanation of Methods for Calculating the Eligible Capital and Risk-Weighted Assets of Banks.”

Note 2: Formulas used were as follows:

1) Eligible capital = Tier 1 capital + Tier 2 capital + Tier 3 capital.

2) Risk-weighted assets = Risk-weighted assets for credit risk + Capital requirements for operational risk and market risk x

12.5.

3) Capital adequacy ratio = Eligible capital ÷ Risk-weighted assets.

4) Ratio of Tier 1 capital to risk-weighted assets = Tier 1 capital ÷ Risk-weighted assets.



7) Ratio of common stock to total assets = Common stock ÷ Total assets.

8) Leverage ＝ Tier 1 capital ÷ Adjusted average assets [Average Assets – Deduction from Tier 1 capital (“Goodwill,”

“Deferred loss on sale of nonperforming loans” and the amount that should be deducted from Tier 1 capital according

to the “Explanation of Methods for Calculating the Eligible Capital and Risk-Weighted Assets of Banks”)].

Note 3: Under the regulation on capital adequacy ratios, the Bank had to use the standardized approach to calculate its credit risks

and had to reduce its Tier 1 capital when its operating reserve and allowance for possible losses became insufficient. The

Bank calculated its capital adequacy ratios by referring to “The Expected Loss Interpretation of the Banking Bureau,”

previous loss experience, property risk, and risk-related developments and also reported them to the supervisors from the

Banking Bureau.

(Unit: in thousands of New Taiwan dollars)

Financial Review

COSMOS BANK114

(d) Account reclassification

Certain accounts in the financial statements for the year ended December 31, 2008, were reclassified to conform

to 2009 financial statements disclosure format.

(e) Personnel, depreciation and amortization expenses

Year ended December 31, 2009

Year ended December 31, 2008

Personnel expenses

Salaries $ 1,487,366 1,936,193

Insurance 98,009 140,724

Pension 359,181 356,431

Others 258,484 314,224

Depreciation expenses 241,554 352,476

Amortization expenses 234,136 214,107

11. Segment Financial Information

(a) Industry information: The Bank operates solely in the commercial banking business.

(b) Geographic information: The Bank's foreign operating units or identifiable assets did not reach 10% of the

Bank's revenues or total assets.

(c) Export sales: Not applicable

(d) Major customers: Not applicable


Office/Branch Phone Number Address

Head Office 886-2-2701-1777 39 Tunhwa S.Rd., Sec. 2, Taipei, Taiwan

Head Office (Chungho) 886-2-8023-9088 2F, 188 Chingping Rd., Chungho City, Taipei County, Taiwan

Chiencheng Branch 886-2-2555-7777 70 Chengteh Rd., Sec. 1, Taipei, Taiwan

Chunghsiao Branch 886-2-2778-1277 270 Chunghsiao E. Rd., Sec. 4, Taipei, Taiwan

Sanchung Branch 886-2-2981-2233 192 Chungyang Rd., Sec. 3, Sanchung City, Taipei County, Taiwan

Taichung Branch 886-4-2328-3331 160-1 Taichung Kang Rd., Sec. 1, Taichung City, Taiwan

Tainan Branch 886-6-226-8777 351 Hsimen Rd., Sec. 2, Tainan City, Taiwan

Kaohsiung Branch 886-7-336-7977 80 Szuwei 3rd Rd., Kaohsiung, Taiwan

Chengtung Branch 886-2-2778-8777 224 Nanking E. Rd., Sec. 3, Taipei, Taiwan

East Taipei Branch 886-2-2570-5777 160 Nanking E. Rd., Sec. 4, Taipei, Taiwan

Panchiao Branch 886-2-2259-7767 15 Minsheng Rd., Sec. 3, Panchiao City, Taipei County, Taiwan

Taoyuan Branch 886-3-339-7779 80 Nanhwa St., Taoyuan City, Taoyuan County, Taiwan

Chungli Branch 886-3-427-2777 13-1 Chungyang E. Rd., Chungli City, Taoyuan County, Taiwan

North Kaohsiung Branch 886-7-346-3677 878 Minchu 1st Rd., Kaohsiung, Taiwan

Hsinchuang Branch 886-2-2277-6377 331 Suyuan Rd., Hsinchuang City, Taipei County, Taiwan

Chungcheng Branch 886-7-241-1777 151 Chungcheng 4th Rd., Kaohsiung, Taiwan

Yuanlin Branch 886-4-833-9777 266 Jeuguang Rd., Yuanlin Township, Changhwa County, Taiwan

Banking Business Dept. 886-2-2701-1777 39 Tunhwa S.Rd., Sec. 2, Taipei, Taiwan

Sungchiang Branch 886-2-2517-3777 137 Sungchiang Rd., Taipei, Taiwan

Luchou Branch 886-2-2289-8877 401 Chihsien Rd., Luchou City, Taipei County, Taiwan

Fengshan Branch 886-7-741-9777 165-3 Poai Rd., Fengshan City, Kaohsiung County, Taiwan

Hsinchu Branch 886-3-525-5577 645 Sida Rd., Hsinchu City, Taiwan

Sungshan Branch 886-2-2761-6688 132 Sungshan Rd., Taipei, Taiwan

Tucheng Branch 886-2-2260-5588 123 Chincheng Rd., Sec. 3, Tucheng City, Taipei County, Taiwan

Chungho Branch 886-2-8668-5566 200 Chingping Rd., Chungho City, Taipei County, Taiwan

Chienkang Branch 886-6-225-6131 167 Chungyi Rd., Sec. 2, Tainan City, Taiwan

Contact Details Of Head Offices And Branches

Contact Details Of Head Offices And Branches

COSMOS BANK116

Keelung Branch 886-2-2433-6566 193 Maijin Rd., Keelung City, Taiwan

Touliu Branch 886-5-533-1566 80 Shiping Rd., Touliu City, Yunlin County, Taiwan

Tungmen Branch 886-6-225-6141 26 Fuchien Rd., Sec. 1, Tainan City, Taiwan

Peimen Branch 886-6-236-4401 133 Kaiyuan Rd., Tainan City, Taiwan

Pingtung Branch 886-8-738-5678 451 Kuangtun Rd., Pingtung City, Pingtung County, Taiwan

Linsen Mini Branch 886-6-237-6391 184 Linsen Rd., Sec. 2, Tainan City, Taiwan

Kueijen Mini Branch 886-6-330-8777 23 Chungcheng S. Rd., Sec. 1, Kueijen Hsiang, Tainan County, Taiwan

Haitung Branch 886-6-250-2183 129 Haitien Rd., Sec. 1, Tainan City, Taiwan

Yungkang Branch 886-6-272-7757 21 Yungda Rd., Sec. 2, Yungkang City, Tainan County, Taiwan

Tienmu Branch 886-2-8866-1117 246 Chungshan N. Rd., Sec. 6, Taipei, Taiwan

Hsintien Branch 886-2-2918-1199 202 Peihsin Rd., Sec. 3, Hsintien City, Taipei County, Taiwan

Taan Branch 886-2-3322-3677 8 Sinsheng S. Rd., Sec. 2, Taipei, Taiwan

Miaoli Branch 886-37-265-725 81 Chungcheng Rd., Miaoli City, Miaoli County, Taiwan

Pateh Branch 886-2-3765-1111 88 Pateh Rd., Sec. 4, Taipei, Taiwan

Hualien Branch 886-3-835-2299 560 Chungcheng Rd., Hualien City, Hualien County, Taiwan

Chikuang Branch 886-4-2222-0077 63 Chungcheng Rd., Taichung City, Taiwan

Changhwa Branch 886-4-728-7777 199-3 Hsiaoyang Rd., Changhwa City, Changhwa County, Taiwan

Fengyuan Branch 886-4-2515-2777 329 Chungshan Rd., Fengyuan City, Taichung County, Taiwan

Tali Mini Branch 886-4-2486-6363 331 Chunghsing Rd., Sec. 2, Tali City, Taichung County, , Taiwan

Chiayi Branch 886-5-228-0777 193, Xinrong Rd., Chiayi City , Taiwan

Fengcheng Branch 886-3-526-1101 59 Chungcheng Rd., Hsinchu City, Taiwan

Nanta Branch 886-3-526-3155 339 Nanta Rd., Hsinchu City, Taiwan

Chuke Branch 886-3-577-5131 238 Kuangfu Rd., Sec. 1, Hsinchu City, Taiwan

Taitung Mini Branch 886-89-329-797 341 Chunghwa Rd., Sec. 1, Taitung City, Taitung County, Taiwan

Lotung Branch 886-3-953-3377 50 Kungcheng Rd., Lotung Township, I-Lan County, Taiwan

Office/Branch Phone Number Address

2009 ANNUAL REPORT

Address 39 Tunhwa S. Rd., Sec. 2, Taipei, Taiwan Phone Number 886-2-2701-1777

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