Taishin Financial : 2022 2Q consolidated financial statements

Taishin Financial Holding Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the

Six Months Ended June 30, 2022 and 2021 and Independent Auditors' Report

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders

Taishin Financial Holding Co., Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Taishin Financial Holding Co., Ltd. ("Taishin Financial Holding") and its subsidiaries (collectively referred to as the "Group"), which comprise the consolidated balance sheets as of June 30, 2022, December 31, 2021 and June 30, 2021, the consolidated statements of comprehensive income for the three months ended June 30, 2022 and 2021 and for the six months ended June 30, 2022 and 2021, changes in equity and cash flows for the six months ended June 30, 2022 and 2021, and the notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the "consolidated financial statements").

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of June 30, 2022, December 31, 2021 and June 30, 2021, its consolidated financial performance for the three months ended June 30, 2022 and 2021 and the six months ended June 30, 2022 and 2021, and its cash flows for the six months ended June 30, 2022 and 2021 in accordance with the Regulations Governing the Preparation of Financial Statements by Financial Holding Companies, Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Securities Issuers, Regulations Governing the Preparation of Financial Reports by Insurance Enterprises, and the International Accounting Standard 34 "Interim Financial Reporting" endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China (ROC).

Basis for Opinion

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

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the six months ended June 30, 2022. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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The following were the key audit matters in the audit of the consolidated financial statements of the Group for the six months ended June 30, 2022:

Impairment of Loans

Commercial lending is the core business of the Group. Loans are mainly recorded in Taishin International Bank Co., Ltd. ("Taishin Bank"), a subsidiary of Taishin Financial Holdings, and represent the Group's significant accounts, which reached around 53% of the Group's total assets as of June 30, 2022. The Group assesses the impairment of loans of Taishin Bank in accordance with IFRS 9 "Financial Instruments" and "Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans" issued by the Financial Supervisory Commission (FSC) (the "Regulations"), and the impairment of loans is recognized at the higher of the amount based on IFRS 9 and the Regulations. See Notes 5 and 13 to the consolidated financial statements for the relevant and additional information. The Group management's judgement and the assumptions used have significant impact on the impairment assessments. Therefore, we considered the impairment of loans as a key audit matter. Refer to Note 6 to the consolidated financial statements for the relevant and additional information.

Our audit procedures on the impairment of loans included the following: We obtained an understanding and tested the design and operating effectiveness of controls and procedures to identify loans and advances exposed to impairment and confirmed that provisions against those assets were made. We identified the loans and checked from public information the creditworthiness of the borrowers and also checked the Group's existing records of such borrowers that have already been included in the individual assessment of lifetime expected credit losses (ECLs). We recalculated the amount of the impairment of loans and confirmed that main assumptions and parameters used in the Group's impairment assessment model of ECLs complied with IFRS 9. In addition, we tested the classification of loan accounts in accordance with the Regulations and confirmed that the amount of the impairment of loans complied with the Regulations.

Insurance Liability - Valuation of Reserve for Life Insurance Liability and Liability Adequacy Test

Taishin Life Insurance Co., Ltd. ("Taishin Life Insurance"), a subsidiary of Taishin Financial Holding, adopts actuarial models and several significant assumptions for estimating the reserve for life insurance liability and the reserve for liability adequacy. Judging the reserve for life insurance liability involves significant assumptions, which include the mortality rate, discount rate, lapse rate, morbidity rate, etc. The setup of assumptions is based on legislation, regulations, knowledge of the Group's actual experience and industry-specific experience. The tests performed in respect of the adequacy of the reserve for liability on insurance contracts are in accordance with the regulations enacted by the Actuarial Institute of the Republic of China, and the setup of future test discount rates accounts for the Group's best estimate scenario as well as the rate of the portfolio return under the current information.

Refer to Notes 5, 6 and 28 to the accompanying consolidated financial statements for the details on the related information, accounting policies, accounting estimate and assumption uncertainty for the evaluation of the reserve for life insurance liability and the reserve for the liability adequacy test.

Since any changes in the actuarial models and important assumptions may lead to significant impacts on the results of the evaluation of the reserve for life insurance liability and for the liability adequacy test; therefore, we identified the reserves for life insurance liability and for the liability adequacy test as a key audit matter.

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The corresponding audit procedures were as follows:

1. We obtained an understanding of the internal controls related to management's estimation of the reserves for life insurance liability and for the liability adequacy test as well as evaluated the operating effectiveness of these internal controls.
2. We obtained actuarial reports regarding management's estimations of the reserves for life insurance liability and for liability adequacy test as well as evaluated the Group's contracted actuarial specialist's professional ability and competence.
3. Our actuarial specialist performed the following procedures, and we compared the results with the actuarial report published by the Group's contracted actuary and evaluated the rationality of the actuarial models and significant assumptions regarding the recognition of the reserve for life insurance liability applied by management. The main audit procedures are described as follows:
4. 1. Our actuarial specialist randomly sampled the insurance products of Taishin Life Insurance and we examined the calculations of the reserve for life insurance liability and confirmed that the calculations were in accordance with the regulations.
   2. Our actuarial specialist focused on the actuarial models and important assumptions of selected insurance policies and verified the recognized amount of the reserve for life insurance liability.
   3. Our actuarial specialist performed profiling tests, which focused on long-term insurance policies, and identified abnormal single insurance policies that recognized amounts of reserve for life insurance liability as of June 30, 2022.
   4. Our actuarial specialist used the previously recognized amounts of the reserve for life insurance liability. Taking into consideration the business development for the year, our actuarial specialist performed ratio analysis to determine the reasonableness of the reserve for life insurance liability and to estimate the overall recognized amount of reserve for life insurance liability.
5. Our actuarial specialist performed the following procedures, and we compared the results with the actuarial report published by the Group's contracted actuary and evaluated the rationality of discount rate for future years on the recognition of the reserve for liability adequacy test applied by management. The main audit procedures were as follows:
6. 1. Our actuarial specialist focused on testing the selected insurance policies provided by Taishin Life Insurance for our audit, and our actuarial specialist examined the assumptions and confirmed that they were consistent with the regulations and the important built-in assumptions through the use of actuarial tools.
   2. Our actuarial specialist focused on testing the selected insurance policies and evaluated the discount rates for the future years applied by Taishin Life Insurance for the reserve for liability adequacy test, and we performed individual recalculations.
   3. Our actuarial specialist performed a comparative analysis of the prior period's results. Taking into consideration the impact of the current business development, our actuarial specialist evaluated the rationality of the calculation in the reserve for liability adequacy test.
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Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Statements by Financial Holding Companies, Regulations Governing the Preparation of Financial Reports by Public Banks, Regulations Governing the Preparation of Financial Reports by Securities Firms, Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, Regulations Governing the Preparation of Financial Reports by Securities Issuers, Regulations Governing the Preparation of Financial Reports by Insurance Enterprises, and the International Accounting Standard 34 "Interim Financial Reporting" endorsed and issued into effect by the Financial Supervisory Commission of the ROC, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance, including the audit committee, are responsible for overseeing the Group's financial reporting process.

Auditors' Responsibilities for the Audit of the Consolidated Financial Statements

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

As part of an audit in accordance with the auditing standards generally accepted in the ROC, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
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