Hua Nan Financial Holdings Co Ltd and Subsidiaries

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					Hua Nan Financial Holdings Co., Ltd. and
Subsidiaries
Consolidated Financial Statements for the
Years Ended December 31, 2006 and 2005 and
Independent Auditors’ Report
INDEPENDENT AUDITORS’ REPORT

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

We have audited the accompanying consolidated balance sheets of Hua Nan Financial Holdings
Co., Ltd. and subsidiaries (collectively, the “Company”) as of December 31, 2006 and 2005, and
the related consolidated statements of income, changes in stockholders’ equity and cash flows for
the years then ended. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial
Statements by Certified Public Accountants and auditing standards generally accepted in the
Republic of China. Those rules and standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly,
in all material respects, the consolidated financial position of Hua Nan Financial Holdings Co., Ltd.
and subsidiaries as of December 31, 2006 and 2005, and the consolidated results of their operations
and their cash flows for the years then ended, in conformity with the Guidelines Governing the
Preparation of Financial Reports by Financial Holding Companies, Governing the Preparation of
Financial Reports by Securities Issuers, Guidelines Governing the Preparation of Financial Reports
by Public Banks, Regulations Governing the Preparation of Financial Reports by Publicly Held
Bills Finance Companies, 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 and Operational
Reports by Enterprises Engaging in Non-life Insurance, requirements of the Business Accounting
Law and Guidelines Governing Business Accounting relevant to financial accounting standards,
and accounting principles generally accepted in the Republic of China (ROC).




                                                 -1-
As described in Note 3, the financial instruments of Hua Nan Financial Holdings Co., Ltd. are
measured in compliance to the Statement of Financial Accounting Standards (SFAS) No. 34,
“Accounting for Financial Instruments” and No. 36, “Presentation and Disclosure for Financial
Instruments” and related revisions of previously released SFASs.




January 30, 2007




                                        Notice to Readers

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

For the convenience of readers, the auditors’ report and the accompanying consolidated financial
statements have been translated into English from the original Chinese version prepared and used
in the Republic of China. If there is any conflict between the English version and the original
Chinese version or any difference in the interpretation of the two versions, the Chinese-language
auditors’ report and financial statements shall prevail. Also, as stated in Note 2 to the
consolidated financial statements, the additional footnote disclosures that are not required under
generally accepted accounting principles were not translated into English.



                                               -2-
HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Par Value)


                                                                                                                   Percentage                                                                                                                      Percentage
                                                                                  2006                2005         of Variation                                                                                      2006             2005         of Variation
ASSETS                                                                           Amount              Amount             %               LIABILITIES AND STOCKHOLDER’S EQUITY                                        Amount           Amount             %

Cash and cash equivalents (Notes 4 and 33)                                   $    40,385,806     $    44,545,442          (9)           Due to the Central Bank and other banks (Notes 18 and 33)               $   95,002,930    $ 132,274,360          (28)

Due from the Central Bank and other banks (Notes 5 and 33)                       147,516,871         145,254,012           2            Commercial paper Issued, net (Note 19)                                       3,968,170        1,289,661         208

Financial assets at fair value through profit or loss, net (Notes 2,                                                                    Financial liabilities at fair value through profit or loss (Notes 2
  3, 6, 17 and 33)                                                                59,781,895          84,332,602         (29)             3, and 6)                                                                 35,133,129       35,148,955            -

Bonds and bills purchased under resale agreements (Note 2)                         4,783,854           3,803,997         26             Bonds and bills sold under repurchase agreements (Notes 2, 20 and 30)       59,404,975       61,895,686           (4)

Receivables, net (Notes 2 and 7)                                                  42,475,143          42,195,254           1            Payables (Note 21)                                                          51,575,518       59,409,341          (13)

Discounts and loans, net (Notes 2, 7 and 33)                                  1,020,285,842          941,918,773           8            Deposits and remittances (Notes 22 and 33)                               1,274,405,863     1,241,438,886           3

Available-for-sale financial assets, net (Notes 2, 3, 9 and 17)                  130,931,832         109,392,647         20             Bank debentures payable (Notes 3 and 23)                                    45,650,000       34,000,000          34

Held-to-maturity financial assets, net (Notes 2, 3, 10 and 17)                   165,990,992         238,708,973         (30)           Other borrowing (Note 24)                                                    3,639,057        4,735,000          (23)

Investments accounted for using equity method (Notes 2 and 11)                          92,615           80,806          15             Accrued pension liability (Notes 2 nd 28)                                     803,449           524,039          53

Other financial assets, net (Notes 2, 3, 12 and 17)                               12,316,790          14,005,854         (12)           Other financial liabilities (Note 25)                                         822,743           506,953          62

Investments in real estate ,net (Notes 2 and 13)                                    123,728             124,560           (1)           Reserve for operations (Notes 2 and 26)                                      5,905,540        5,915,136            -

Property and equipment, net (Notes 2, 14 and 17)                                  25,612,822          24,980,712           3            Other liabilities (Notes 2 and 27)                                           7,563,506        7,799,698           (3)

Intangible assets (Notes 2 and 15)                                                  573,218             461,201          24                     Total Liabilities                                                1,583,874,880     1,584,937,715           -

Other assets, net (Notes 2, 16 and 17)                                            23,701,854          24,710,115          (4)           STOCKHOLDERS’ EQUITY
                                                                                                                                          Capital stock                                                             59,702,086       59,702,086            -
                                                                                                                                          Capital surplus                                                           12,408,866       12,408,866            -
                                                                                                                                          Legal reserve                                                              3,100,052        2,147,366           44
                                                                                                                                          Special reserve                                                              111,017          111,017            -
                                                                                                                                          Unappropriated earnings                                                   10,358,277       11,861,021          (13)
                                                                                                                                          Reserve for asset revaluation increment                                    3,403,045        3,403,045            -
                                                                                                                                          Cumulative translation adjustments                                           (62,903)         (67,023)          (6)
                                                                                                                                          Unrealized gains or losses on valuation of financial assets                1,667,226                -            -

                                                                                                                                                Total parent stockholders' equity                                   90,687,666       89,566,378            1

                                                                                                                                        MINORITY INTEREST                                                              10,716            10,855           (1)

                                                                                                                                                Total stockholders' equity                                          90,698,382       89,577,233            1

TOTAL                                                                        $1,674,573,262      $1,674,514,948            -            TOTAL                                                                   $1,674,573,262    $1,674,514,948           -


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

(With Deloitte & Touche audit report dated January 30, 2007)



                                                                                                                                  -3-
HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)


                                                                                                 Percentage
                                                                     2006           2005         of Variation
                                                                    Amount         Amount             %

INTEREST INCOME (Notes 2, 3 and 33)                                $ 48,435,475   $ 41,711,279         16

INTEREST EXPENSE (Note 33)                                         (24,613,240)   (19,996,032)         23

INTEREST INCOME, NET                                                23,822,235     21,715,247          10

NET INCOME (LOSS) EXCLUDING INTEREST INCOME
 Service fee and commissions income, net (Notes 2, 3 and 33)         5,837,484      5,389,949            8
 Income from insurance premiums, net (Note 2)                        1,156,004      1,556,563          (26)
 Gains on financial assets and liabilities at fair value through
   profit or loss (Note 3)                                           1,733,481      2,280,474          (24)
 Realized gains of available-for-sale financial assets (Note 3)        223,026        131,014           70
 Income from investments accounted for using equity method
   (Note 11)                                                            11,810            762        1,450
 Income from investments in real estate                                  5,039          7,120          (29)
 Foreign exchange gains, net (Note 3)                                1,023,989        903,909           13
 Other non-interest income (Note 3)                                  2,234,272      4,960,153          (55)

GROSS INCOME                                                        36,047,340     36,945,191           (2)

BAD-DEBT EXPENSES FROM LOANS                                        (8,670,235)    (7,829,238)         11

PROVISIONS FOR THE INSURANCE RESERVE                                   (15,628)      (332,171)         (95)

OPERATING EXPENSES (Notes 30 and 33)
  Personnel                                                        (10,837,645)   (10,487,666)           3
  Depreciation and amortization                                     (1,187,525)    (1,159,232)           2
  Other general and administrative expenses                         (5,951,069)    (5,949,822)           -

CONSOLIDATED INCOME BEFORE INCOME TAX
 FROM CONTINUING OPERATIONS                                          9,385,238     11,187,062          (16)

INCOME TAX EXPENSE (Notes 2 and 31)                                 (2,715,327)    (1,658,962)         64

CONSOLIDATED INCOME AFTER INCOME TAX FROM
 CONTINUING OPERATIONS                                               6,669,911      9,528,100          (30)

CUMULATIVE EFFECTS OF CHANGES IN
 ACCOUNTING PRINCIPLES (Note 3)                                      1,282,155               -           -

CONSOLIDATED NET INCOME                                            $ 7,952,066    $ 9,528,100          (17)

                                                                                                  (Continued)



                                                    -4-
HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)


                                                                                                     Percentage
                                                                     2006                2005        of Variation
                                                                    Amount              Amount            %

ATTRIBUTABLE TO
 Parent company                                                   $ 7,951,076      $ 9,526,859             (17)
 Minority interest                                                        990            1,241             (20)

                                                                  $ 7,952,066      $ 9,528,100             (17)

                                                                        2006                     2005
                                                                  Pretax After-tax         Pretax After-tax

BASIC EARNINGS PER SHARE (Note 32)
 Net income before cumulative effects of changes in
   accounting principles                                           $ 1.57     $ 1.12        $ 1.87      $ 1.60
 Cumulative effects of changes in accounting principles              0.22       0.21             -           -

       Net income                                                  $ 1.79     $ 1.33        $ 1.87      $ 1.60

                                                                                                     (Concluded)

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

(With Deloitte & Touche audit report dated January 30, 2007)




                                                    -5-
HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars)


                                                                                      Capital Surplus                                                  Retained Earnings                               Equity Adjustments
                                                                                                                                                                                                                            Unrealized
                                                               Additional                            Donated                                                                               Revaluation     Cumulative      Gains (Loss)
                                                Common          Paid-in           Treasury            Assets             Other            Legal             Special       Unappropriated   Increments      Translation     on Financial        Minority
                                                 Stock          Capital            Stock             Received           Reserve          Reserve            Reserve          Earnings       on Assets      Adjustments     Instruments         Interest          Total

BALANCE, JANUARY 1, 2005                       $ 55,796,342    $ 12,352,244   $      52,361      $       2,936      $       2,076       $ 1,070,177     $      9,494       $ 11,435,643    $      4,184    $   (111,016)   $           -   $      11,024      $ 80,625,465

Appropriation of 2004 earnings
  Legal reserve                                          -                -                  -                  -                 -       1,077,189                -         (1,077,189)               -              -                -               -                -
  Special reserve                                        -                -                  -                  -                 -               -          101,523           (101,523)               -              -                -               -                -
  Remuneration to directors and supervisors              -                -                  -                  -                 -               -                -            (95,932)               -              -                -             (45)         (95,977)
  Employees bonus                                        -                -                  -                  -                 -               -                -            (15,349)               -              -                -            (280)         (15,629)
  Cash dividends                                         -                -                  -                  -                 -               -                -         (3,905,744)               -              -                -          (1,085)      (3,906,829)
  Stock dividends                                3,905,744                -                  -                  -                 -               -                -         (3,905,744)               -              -                -               -                -

Translation adjustments on investments
  accounted for using equity method                       -               -                  -                  -           (751)                  -                  -               -        3,398,861        43,993                 -                  -     3,442,103

Net income in 2005                                        -               -                  -                  -                 -                -                  -       9,526,859                -              -                -           1,241        9,528,100

BALANCE, DECEMBER 31, 2005                      59,702,086      12,352,244           52,361              2,936              1,325         2,147,366          111,017         11,861,021        3,403,045       (67,023)                -          10,855       89,577,233

Appropriation of 2005 earnings
  Legal reserve                                           -               -                  -                  -                 -        952,686                    -        (952,686)               -              -                -               -                -
  Special reserve                                         -               -                  -                  -                 -              -                    -               -                -              -                -               -                -
  Remuneration to directors and supervisors               -               -                  -                  -                 -              -                    -         (85,742)               -              -                -             (34)         (85,776)
  Employees bonus                                         -               -                  -                  -                 -              -                    -         (13,719)               -              -                -            (224)         (13,943)
  Cash dividends                                          -               -                  -                  -                 -              -                    -      (8,358,292)               -              -                -            (871)      (8,359,163)

Translation adjustments on investments
  accounted for using equity method                       -               -                  -                  -                 -                -                  -         (43,381)               -         4,120         1,667,226                  -     1,627,965

Net income in 2006                                        -               -                  -                  -                 -                -                  -       7,951,076                -              -                -             990        7,952,066

BALANCE, DECEMBER 31, 2006                     $ 59,702,086    $ 12,352,244   $      52,361      $       2,936      $       1,325       $ 3,100,052     $    111,017       $ 10,358,277    $ 3,403,045     $   (62,903)    $ 1,667,226     $      10,716      $ 90,698,382



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

(With Deloitte & Touche audit report dated January 30, 2007)




                                                                                                                                  -6-
HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars)


                                                                              2006            2005

CASH FLOWS FROM OPERATING ACTIVITIES
 Consolidated net income                                                   $ 7,952,066     $ 9,528,100
 Cumulative effects of changes in accounting principles                      (1,282,155)             -
 Adjustments to reconcile net income to net cash provided by operating
   activities
   Depreciation and amortization                                              1,187,525      1,159,232
   Income from investments accounted for using equity method                    (11,810)             -
   Bad-debt expenses for loan                                                 8,670,235      7,829,238
   Provisions for insurance reserves                                             42,663        434,861
   Gain on disposal of assets                                                  (109,691)      (176,950)
   Net changes in operating assets and liabilities
     Other assets                                                              (286,760)       361,339
     Accrued pension liability                                                  286,460        118,766
     Deferred tax asset decrease                                              1,814,772      1,016,158
     Receivables                                                               (297,292)    (5,161,040)
     Financial assets at fair value through profit or loss                   25,928,005      6,061,853
     Payables                                                                (7,830,549)    11,376,399
     Financial liabilities at fair value through profit or loss                 (17,919)     2,082,348
     Other liabilities                                                          (61,350)        25,446
     Other financial liabilities                                                315,790       (284,537)
     Others                                                                     623,138        745,194

       Net cash provided by operating activities                             36,923,128     35,116,407

CASH FLOWS FROM INVESTING ACTIVITIES
 Increase in bonds and bills purchased under resale agreements                 (979,857)       (639,665)
 Increase in due from the Central Bank and other institutions                (2,262,859)    (17,889,648)
 Increase in discounts and loans                                            (87,037,325)    (63,950,633)
 Decrease in other financial assets                                             592,583       2,258,381
 Increase in available-for-sale financial assets                            (20,127,139)    (23,975,426)
 Proceeds from held-to-maturity financial assets                             72,717,981      24,852,190
 Proceeds from sale of properties                                               249,368         535,005
 Acquisition of properties                                                     (998,991)       (985,604)
 Increase in other assets                                                      (517,037)     (1,134,759)

       Net cash used in investing activities                                (38,363,276)    (80,930,159)

CASH FLOWS FROM FINANCING ACTIVITIES
 (Decrease) increase in other loans                                          (1,095,943)       315,125
 (Decrease) increase in due from the Central Bank and other institutions    (37,271,430)    34,137,012
 Increase in deposits and remittances                                        32,966,977     30,775,344
 Increase in bond and bank debenture payable                                 11,650,000              -
 Increase (decrease) in commercial paper payable                              2,678,509     (1,199,479)
 (Decrease) increase in bonds and bills sold under repurchase agreement      (2,490,711)       562,890
 Bonuses paid to directors and employees                                       (635,997)      (690,966)
 Cash dividends paid                                                         (8,359,115)    (3,907,440)
 Decrease in other liabilities                                                 (161,778)    (1,296,902)

       Net cash (used in) provided by financing activities                   (2,719,488)    58,695,584

                                                                                             (Continued)



                                                      -7-
HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 AND 2005
(In Thousands of New Taiwan Dollars)


                                                                                 2006           2005

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                             $ (4,159,636)   $ 12,881,832

EFFECT OF INITIAL CONSOLIDATION OF SUBSIDIARIES                                         -       1,426,894

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                   44,545,442     30,236,716

CASH AND CASH EQUIVALENTS, END OF YEAR                                       $ 40,385,806    $ 44,545,442

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest paid                                                              $ 24,086,489    $ 19,562,493
  Income tax paid                                                            $ 1,717,636     $ 1,234,044

                                                                                               (Concluded)

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

(With Deloitte & Touche audit report dated January 30, 2007)




                                                      -8-
HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
(In Thousands of New Taiwan dollars, Unless Stated Otherwise)


1.   ORGANIZATION AND OPERATIONS

     Hua Nan Financial Holdings Co., Ltd. (HNFH) was established by Hua Nan Commercial
     Bank Ltd. (HNCB) and EnTrust Securities Co., Ltd. (“EnTrust”) through a share swap on
     December 19, 2001. HNCB and EnTrust exchanged stocks with HNFH at ratios of 1:1 and
     1.2821:1, respectively, with “1” representing HNFH’s share. Thus, HNCB and EnTrust
     became HNFH’s wholly owned subsidiaries. The shares of HNCB and EnTrust then ceased to
     be traded on the Taiwan Stock Exchange (TSE) and the over-the-counter exchange (OTC
     exchange), respectively, and HNFH became listed on the TSE. EnTrust was renamed Hua Nan
     Securities Co., Ltd. (HNSC) in June 2003.

     On December 26, 2002, HNFH acquired 57.49% equity interest (230,000,000 shares) in
     Central Bills Finance Corporation (CBF) for $2,300,000 thousand, which was approved by the
     Ministry of Finance (MOF) and related authorities. Since HNCB, a wholly owned
     subsidiary of HNFH, also holds 42.41% shares of CBF, HNFH and HNCB therefore holds a
     total of 99.90% of CBF’s shares. CBF was renamed Hua Nan Bills Finance Corporation
     (HNBF) in July 2003.

     On August 15, 2003, South China Insurance Co., Ltd. (SCIC) and Hua Nan Investment Trust
     Corporation (HNIT) became wholly owned subsidiaries of HNFH through a share swap at
     ratio of 1.794:1 and 0.37376:1 (with “1” representing HNFH share), respectively. HNIT was
     formerly the EnTrust Investment Trust Corporation before July 2003.

     HNFH manages and invests in financial institutions.

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

     HNCB maintains its head office in Taipei. As of December 31, 2006, HNCB had Banking,
     Financial Trading, International Banking and Trust Departments as well as 182 domestic
     branches and representative offices, an offshore banking unit (OBU), 6 overseas branches, and
     2 overseas representative offices.

     The operations of HNCB’s Trust Department are (1) trust business planning, managing and
     operating and (2) custody of nondiscretionary trust funds in domestic and overseas securities
     and mutual funds. These operations are regulated under the Banking Act and the Trust
     Enterprise Act.

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


                                                  -9-
Hua Nan Bills Finance Corporation (HNBF) was established on October 11, 1996. HNBF is
mainly engaged in (a) brokerage and proprietary trading of short-term notes and bills, (b)
certification and underwriting of short-term notes and bills, (c) brokerage and proprietary
trading of financial debentures, (d) certification and underwriting of financial debentures, (e)
endorsement and guarantee of short-term notes and bills, (f) agents of call loans between
financial institutions, (g) corporate financial consulting, (h) proprietary trading of government
bonds, (i) brokerage and proprietary trading of corporate bonds, (j) related equity investments.
As of December 31, 2006, HNBF has a head office in Taipei and one branch in Kaohsiung.

South China Insurance Co., Ltd. (SCIC) was incorporated on May 1, 1963. SCIC is mainly
engaged in property insurance services including fire insurance, casualty insurance,
automobile insurance, liability insurance, and reinsurance of the preceding insurance
businesses. As of December 31, 2006, SCIC has a head office in Taipei, seven branches in
Kaohsiung and twenty eight areas in main cities in Taiwan.

Hua Nan Investment Trust Corporation (HNIT) was registered on September 29, 1992. HNIT
is mainly engaged in public offering of securities investment trust funds and securities
investments with the preceding funds. HNIT was authorized by the governing authorities to be
engaged in the operation of discretionary investment services. As of December 31, 2006,
HNIT has two branches in Taichung and Kaohsiung.

Hua Nan Venture Capital Co., Ltd. (HNVC) was registered under the “Company Act” and
“Regulations for Scope and Guidance to Venture Capital Business”. HNVC is mainly engaged
in venture capital investments in domestic and oversea technology companies, other venture
capital companies, domestic manufacturing companies, and other companies allowed by the
related regulations.

Hua Nan Management & Consulting Co., Ltd. (HNMC) was established in February 2004 and
is mainly engaged in investments consulting, enterprise operation management consulting and
venture capital management consulting.

Hua Nan Asset Management Corp. (HNAMC) was invested by HNFH and was established on
May 10, 2005. HNAMC is mainly engaged in purchase, evaluation, auction and management
service of monetary creditor’s rights of financial institution.

HNCB Insurance Agency Co., Ltd. (HNCB Insurance Agency) was established on March 21,
2001 based on Company Act. HNCB Insurance Agency is mainly engaged in personal
insurance agency business.

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

Hua Nan Managed Future Co., Ltd. (HNMF) was invested by HNSC and was established on
June 21, 2004. HNMF is mainly engaged in futures management business.

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

Hua Nan Holdings Corp. was established in British Virgin Island on March 17, 1997. The
outstanding shares are 11,150,000 and are all held by HNSC. It is mainly engaged in holding
company business.

Hua Nan International Limited was established in Cayman Island on February 29, 2000 and
was a wholly owned subsidiary of Hua Nan Holdings Corp. It is mainly engaged in consulting
business.


                                           - 10 -
     Hua Nan Asset Management Corp. was established in Cayman Island on February 29, 2000
     and was a wholly owned subsidiary of Hua Nan Holdings Corp. It is mainly engaged in
     consulting business.

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

     The above consolidated entities are hereinafter referred to collectively as the “Company”.
     Please see Table 5 (attached) for more information on the consolidated entities.

     As of December 31, 2006 and 2005, the Company and its subsidiaries had 9,740 and 10,134
     employees, respectively.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation

     The accompanying consolidated financial statements have been prepared in conformity with
     the Guidelines Governing the Preparation of Financial Reports by Financial Holding
     Companies, Governing the Preparation of Financial Reports by Securities Issuers, Regulations
     Governing the Preparation of Financial Reports by Publicly Held Bills Finance Companies,
     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 and Operational Reports by Enterprises
     Engaging in Non-life Insurance, requirements of the Business Accounting Law and
     Guidelines Governing Business Accounting relevant to financial accounting standards, and
     accounting principles generally accepted in the ROC. In preparing financial statements in
     conformity with these criteria and principles, the Company is required to make certain
     estimates and assumptions that could affect the amounts of allowance for doubtful accounts,
     property depreciation, impairment losses on assets, pension, accrued litigation loss and reserve
     for losses on guarantees. Actual results could differ from these estimates.

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

     The Company’s significant accounting policies are summarized as follows:

     Consolidation

     The Company prepared consolidated financial statements based on the amended Statement of
     Financial Accounting Standards (SFAS) No. 7 - “Consolidated Financial Statements”
     effective January 1, 2005, which requires that consolidation include all direct and indirect
     subsidiaries and other investees over which the Company has a controlling interest. Thus,
     HNFC’s consolidated financial statements as of and for the year ended December 31, 2006
     and 2005 included the accounts of Hua Nan Financial Holdings Co., Ltd. (HNFH), Hua Nan
     Commercial Bank, Ltd.(HNCB), Hua Nan Securities Co., Ltd. (HNSC), Hua Nan Bills
     Finance Corporation (HNBF), South China Insurance Co., Ltd. (SCIC), Hua Nan Investment
     Trust Corporation (HNIT), Hua Nan Venture Capital Co., Ltd. (HNVC), Hua Nan
     Management & Consulting Co., Ltd. (HNMC), Hua Nan Asset Management Corp.
     (HNAMC), HNCB Insurance Agency Co., Ltd. (“HNCB Insurance Agency”), Hua Nan
     Futures Co., Ltd. (HNFC), Hua Nan Managed Future Co., Ltd.(HNMF), Hua Nan Investment


                                               - 11 -
Management Co., Ltd (HNIM), Hua Nan Holdings Corp., Hua Nan International Limited, Hua
Nan Asset Management Corp. and Hua Nan Securities (HK) Limited. All significant
intercompany transactions and balances have been eliminated for consolidation purposes.

Current/Noncurrent Assets and Liabilities

Since the length of the operating cycle in the banking industry and Bills Financing industry
could not be reasonably identified, accounts included in the Company’s financial statements
were not classified as current or non-current. Nevertheless, accounts were properly
categorized according to the nature of each account and sequenced by their liquidity. Except
for the matter stated in the preceding paragraph, cash and cash equivalents or assets to be
converted or consumed within 12 months are classified as current. Obligations to be
liquidated or settled within 12 months are classified as current. All other assets and liabilities
are classified as noncurrent

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

Financial Instruments at Fair Value through Profit or Loss

Financial instruments at fair value through profit or loss consist of financial assets or liabilities
held for trading and designated as at fair value through profit and loss upon initial recognition.
Financial instruments in this category are measured at fair value upon initial recognition.
Subsequent measurement is based on fair values and changes in fair values are recognized in
profit or loss for the period. Cash dividends received on equity investments are recognized in
profit or loss for the period.

Derivatives which do not meet the criteria for the hedge accounting are classified as financial
assets or liabilities held for trading. The derivatives are remeasured at fair value subsequently
with the changes in fair value recognized in current income.

Financial assets or liabilities designated as at fair value through profit and loss upon initial
recognition are designated to eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise from measuring assets or liabilities or recognizing
the gains and losses on them on different bases or when they are included in a group of
financial assets, financial liabilities or both which is managed and its performance is evaluated
on a fair value basis, in accordance with a documented risk management or investment
strategy.

The basis for fair value: for open-end mutual funds is net asset value on balance sheet date or
the last trading date. The cost of the funds sold is determined by the moving-average method.

Except for the emerging Stocks held by HNSC Dealing department, which are stated at cost,
stocks held by HNSC are stated at the closing price on the balance sheet date and the related
unrealized gains (losses) are recorded as evaluation profit or loss of trading security. The cost
of stocks sold is determined by the average method.

The fair value of bonds is determined on the latest price quotation of the Automatic Order
Matching and Execution System of the OTC exchange. If the financial instruments have no
quoted market prices, a valuation technique will be adopted to measure the fair value. The
cost of bonds sold is determined by the moving-average method.

Trading securities are evaluated by fair value on the balance sheet date and the related
unrealized gains or losses are recorded as evaluation gains or losses of trading securities.



                                            - 12 -
Futures tradings - HNSC receives commission from futures firms on futures trading. Margin
on futures trading of dealer is recorded as “futures security deposits receivable,” and “contract
gains/losses on futures.” Adjustments are made at the end of each period according to the
changes in futures index on the liquidation date or balance sheet date. “Realized gains/losses
on futures” is recorded when positions are cleared.

Options tradings - premiums received from short options or paid for long options, which are
used for trading purposes, are recognized as liabilities and assets, respectively. The margin
deposited for short options is recognized as margin deposits - options. Gains or losses
arising from daily marking to market of the carrying amounts of the options, from taking
opposite trade positions, and from settlement of options are recognized as realized or
unrealized gains or losses from options transactions - non-hedging. Premiums paid (received)
on option contracts (used for hedging purpose) are recognized as assets (liabilities). The
margin deposited for short options is recognized as margin deposits - options. Gains or losses
arising from daily marking to market of the carrying amounts of the options, from taking
opposite trade positions, and from exercise of options are recognized as realized or unrealized
gains or losses from options transactions - non-hedging.

For HNSC, the convertible bond swap transactions were divided as corporate bonds and
options sold to different investors with different needs. The accounting treatment for a
convertible bond sold outright is the same as for operating securities. The fair value of the
interest rate swap contract and the premium paid for a call option are both recognized as
derivative financial assets (liabilities) - GTSM and are marked to market. Gains or losses
from changes in fair value are recognized in the current period as gains or losses from
derivative transactions - GTSM. On the balance sheet date, outstanding option contracts are
marked to market, and the resulting gains or losses are recognized in the current period

There are two types of structured note transactions: Principal-guaranteed note transactions and
equity-linked note transactions. For the principal-guaranteed note transactions, HNSC
receives the contract price from the investors. HNSC guarantees that the investors will get a
fixed income from their investment and gives the investors the right to share in the profits on
the underlying assets. The contract price is recognized as follows: (a) principal-guaranteed
note liabilities - fixed income instruments. HNSC amortizes the principal and recognizes the
implied-interest expenses using the straight-line method. The interest expense is presented as
losses from principal-guaranteed note transactions. (b) principal-guaranteed note liabilities -
options. The related price is marked to market, and gains (losses) from valuation are
presented as gains (losses) from valuation - principal-guaranteed notes. However, the
valuation loss on principal-guaranteed note liabilities - options is deferred to the extent of the
unrealized gain on hedged securities, while the valuation loss on principal-guaranteed note
liabilities - options in excess of the unrealized gain on hedged securities is charged to current
income. For the equity-linked note transactions, HNSC receives the contract price from the
investors. HNSC simultaneously invests the investors’ funds in fixed-income instruments and
in long put options on underlying assets. The contract price received is recognized as follows:
(a) equity-linked note liabilities - fixed income instruments. HNSC amortizes the principal
and recognizes the implied interest expenses using the straight-line method. The interest
expense is presented as losses from equity-linked note transactions. (b) equity-linked note
liabilities - premiums. The options acquired from the investors are recognized as equity-linked
note assets - options and marked to market. Gains (losses) from valuation are presented as
gains (losses) from valuation - equity-linked notes. However, the valuation loss on
equity-linked note assets - options is deferred to the extent of the unrealized gain on hedged
securities, while the valuation loss on equity-linked note assets - options in excess of the
unrealized gain on hedged securities is charged to current income.

Warrants issued are accounted for as a liability at issue price before maturity or exercise.
When warrants are repurchased after they are issued, the repurchase price is recorded as
“repurchased warrants” in other current liabilities and treated as a reduction of the warrant


                                           - 13 -
issued. Warrants issued (including repurchased warrants) are measured at fair market value
on the balance sheet date.

Bills and Bonds Sold or Purchased under Repurchase or Resale Agreement

Bonds and bills purchased under resale agreements refer to the actual payment made to the
counterparty in transactions involving the purchase of securities, subject to an agreement by
the purchaser to resell the securities. Such transaction is treated as margin trading. Bonds
and bills sold under repurchase agreements refer to the actual receipts from the counterparty in
transactions involving the sale of bonds and bills by one party, subject to an agreement by the
seller to repurchase the securities. All related interest income or expenses are recognized on
an accrual basis.

Available-for-Sale Financial Assets

Available-for-sale financial assets are recognized at their fair value plus transaction cost and
are measured at fair value subsequent to the initial recognition, with changes in fair value
recognized as separate component of stockholders’ equity. If the financial assets are
derecognized, the accumulated gains or losses previously recognized in equity are recognized
in income statement. A regular way purchase or sale of financial assets is recognized and
derecognized using trade date accounting.

Cash dividends are recognized as income when dividends are declared. Stock dividends are
not recognized as investment income, but only recorded as an increase in shares and cost per
share is recalculated. Interests recognized under interest method resulting from amortization
of difference between cost and maturity amount of debt-instrument are credited or charged to
current income.

If there is an evidence of impairment, impairment loss, the difference between carrying
amount and estimated recoverable amount, is recognized. In a subsequent period, the
recovery of impairment loss of equity instruments is recognized directly in equity; the
recovery of impairment loss of debt investments, if the recovery can be objectively related an
event occurring after the loss was recognized, is reversed and the amount of the reversal is
included in net income or loss for the period.

Delinquent Loans

Under “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and
Deal with Non-performing/Non-accrual Loans”, the balance of overdue loans and other
credits extended by the Company and the related accrued interest are classified as delinquent
loans.

Delinquent loans transferred from loans should be recorded under discounts and loans. For
other non-accrual loans transferred from accounts other than loans, such as guarantees,
acceptances and receivables on factoring should be recorded under other financial assets.

Allowance for Credit Losses and Provision for Losses on Guarantees

HNCB and HNBF determine the allowance for credit losses and provision for losses on
guarantees by evaluating the losses on particular loans and overall credit portfolio and
considering discounts and loans, receivables, other financial assets including the balances of
bills purchased and non-accrual loans, as well as guarantees and acceptances on the balance
sheet date.

Under the “Rules for Bank Asset Evaluation, Loss Reserve Provision, and Disposal of
Overdue Loans and Bad Debts”, promulgated by the Ministry of Finance (MOF), HNCB


                                          - 14 -
evaluates credit losses on the basis of its borrowers’/clients’ financial position, HNCB’s prior
lending experience, principal and interest payment record borrowers/clients, collaterals
provided, and estimated collectibility of the loans.

The regulations were revised in July 2005 to reclassify deteriorating loans into “special
mention,” “substandard,” “doubtful,” and “uncollectible” categories. Provisions should be
made at 2%, 10%, 50%, and 100%, respectively, for each loan category, as the minimum
standard of the allowance for bad loans and guarantee. The effect of the revision to the
financial report of HNCB is immaterial.

Unrecoverable portions of delinquent loans are written off upon approval of board of
managing directors. Recovery of written off delinquent loans is recognized as recovery of
allowance for loan losses.

An allowance for doubtful receivables of SCIC is provided based on a review of the
collectibility of accounts receivable and the regulation of Guidelines for Handling Assessment
of Assets, Loans Overdue, Receivable on Demand and Bad Debts by Insurance Enterprises
and then is determined by the ending balance.

Held-to-Maturity Financial Assets

Held-to-maturity financial assets are carried at their amortized cost. Held-to-maturity financial
assets are initially recorded at cost plus any other costs necessary for the transaction. Gains
or losses are recognized when held-to-maturity financial assets are derecognized, impaired or
amortized. A regular way purchase or sale of held-to-maturity financial assets is recognized
and derecognized using settlement date accounting.

If there is an objective evidence of impairment, impairment loss, the difference between
carrying amount and estimated recoverable amount, is recorded. However, if the recovery of
impairment loss of debt instrument is objectively related to an event occurring after the
impairment loss was recognized, the impairment loss can be reversed and the amount of the
reversal is included in net income or loss for the period. However, the reversal should not
result in a carrying amount exceeds what amortized cost would have been, had the impairment
not been recognized, at the date of reversal.

Investments Accounted for Using Equity Method

Investments in the companies, of which the Company holds more than 20% of the voting
shares or over which the Company can exercise significant influence, are accounted for by the
equity method.

Investments accounted for by the equity method are stated at cost plus (or minus) a
proportionate share in the investees’ net earnings (losses) or changes in net worth. Cash
dividends received are accounted for as a reduction of the carrying value of the investments
while stock dividends received result only in an increase in number of shares and are not
recognized as investment income. When an indication of impairment is identified, the
carrying amount is reduced, with the related impairment loss charged to the profit or loss.

Cost of investments accounted for using equity method sold is determined by the
weighted-average method.

The foreign currency financial statements of the subsidiaries accounted for using equity
method are translated into the New Taiwan dollars and used the equity as the basis. The
difference resulting from the foreign currency translations is listed as foreign currency
translation adjustment as a unique item under the shareholders’ equity.



                                           - 15 -
Investments in Real Estate

Investments in real estate are stated at cost, or cost plus revaluation increments, less
accumulated depreciation.

Property and Equipment

Properties are stated at cost, or cost plus revaluation increments, less accumulated
depreciation. Major renewals, additions and improvements are capitalized, while repairs and
maintenance are expensed as incurred.

An impairment loss is recognized when future recoverable values of property and equipment
are less than their carrying values. The loss is reversed and a gain is recognized when future
recoverable values of these property and equipment recover afterward. The reversed book
value should be less than the book value if no impairment has happened.

Depreciation is calculated using the straight-line method over the estimated useful lives of
assets. Leasehold improvements are depreciated over the lease periods or five years,
whichever is shorter. Revaluation increments are depreciated over the remaining useful lives
on the revaluation dates. For assets still in use beyond their originally estimated service
lives, further depreciation is calculated over the re-estimated useful lives.

Upon disposal or other sale of properties, their cost and related accumulated depreciation are
removed from the respective accounts. Any resulting gain (loss) is credited (charged) to the
current income. Up to December 31, 2000, gain on disposal of properties was recorded as
non-operating income and then transferred to revaluation increments on assets under
stockholders’ equity after deducting applicable income tax.

The reserve for asset revaluation increment based on revaluation for the lands is recorded as
other liabilities.

Goodwill

Until December 31, 2005, goodwill was amortized over five years. However, effective
January 1, 2006, under the newly revised SFAS No. 25 - “Business Combinations -
Accounting Treatment under Purchase Method,” goodwill is no longer amortized and is
assessed for impairment periodically.

Other Financial Assets

Financial assets carried at cost are investments in equity instruments, including unlisted stocks
and TIGER stocks, whose fair value cannot be reliably measured and are recognized at cost
initially. Cash dividends are recognized as income when dividends are declared, but
dividends distributed from net income prior to investment are accounted for as deduction of
investment. Stock dividends are not recognized as investment income, but only recorded as
an increase in shares and cost per share is recalculated. If there is an objective evidence of
impairment, the impairment loss is recorded and cannot be reversed thereafter.

Investments in bonds which are not actively traded in market but with fixed or determinable
payments are recorded at amortized cost. The accounting treatments for this kind of bonds
are similar to those for held-to-maturity financial assets, except there is no restriction on the
disposal of these bonds before their maturity.




                                           - 16 -
Collaterals Assumed

Collaterals assumed are recorded at cost. Impairment losses shall be recognized in profit or
loss by the difference between the original cost and the fair value evaluated on the balance
sheet date.

Pension Costs

The Company has two types of pension plans: Defined benefit and defined contribution.

For the defined benefit plan, the Company recognizes pension costs based on actuarial
calculations, and unrecognized net transitional asset or obligation is amortized the servicing
years. For the defined contribution plan, the Company recognizes pension costs based on the
Company’s contributions to the employees’ individual pension accounts during the
employees’ service periods.

When a defined benefit plan is amended, the prior service costs should be amortized on a
straight-line basis over the average period from the plan effective or amendment date until the
benefits become vested. When the benefits are vested immediately following changes in the
defined benefit plan, the Company should recognize the prior service cost as expense
immediately.

Securities Brokerage Debit and Credit Accounts

In accordance with the Regulations Governing the Preparation of Financial Reports by
Securities Firms, Debit items for trade brokerage: items to be offset against each other in the
trades brokered by a securities broker. When the statement is prepared, the balance after
offsetting debit items against credit items shall be recorded, but the details shall be explained
in the notes of the financial reports. Securities brokerage debit account included cash and
cash equivalents - settlement amounts, receivable securities purchased for customers,
settlement price, margin trading, and receivable notes for settlement. Securities brokerage
credit account included prices payable of securities sold for customers, settlement proceeds,
margin trading, and settlement accounts payable

Reserve for Default

In accordance with the Rules Governing the Administration of Securities Firms, HNSC
provides a monthly default reserve at 0.0028% of the settlement value with a maximum
reserve balance of $200,000 thousand. Futures merchants provide a monthly default reserve
at 2% of the commission income from futures trading.

This reserve shall be used only to offset against actual loss resulting from customers’ default
on securities transactions or other losses approved by the Securities and Futures Commission
(SFC).

Reserve for Trading Loss

In accordance with the Rules Governing the Administration of Securities Firms, HNFC
provides a monthly reserve for trading losses at 10% of the net gain from securities trading
with a maximum reserve balance of $200,000 thousand. This reserve shall only be used to
offset actual loss on securities trading.

Reserve for Operations

Reserves included unearned premium reserve, special reserve (catastrophe reserve and
equalization special reserve) and loss reserve, which are calculated in accordance with the
Insurance Law, regulations governing lodgment of reserve and related regulations.




                                           - 17 -
Under the regulations Governing Lodgment of Reserve and related regulations, unearned
premium reserves are calculated on the basis of the retention of loss for each issuance policy.
The reserve recognized in prior years is reversed to income when the related insurance policy
expires. The unearned premium reserve should be determined by the insurance actuary and
should be explained clearly on the submitted form to the authorized institution. After the
approval, it should not be changed without submitting further application.

The unearned premium reserve of the compulsory automobile liability insurance was reserved
based on the Letter issued by Ministry of Finance on March, 11, 2003 (ref. No. Tai-Cai-Bao
0920750290).

In accordance with the Regulations Governing the Setting Aside of Various Reserves by
Insurance Enterprises, Article 6, special reserves set aside by a non-life insurance enterprise
for retention shall include the following:

a. Special catastrophe reserve
b. Special risk-volatility reserve
c. Other special reserves additionally set aside to meet special needs

In accordance with the Regulations Governing the Setting Aside of Various Reserves by
Insurance Enterprises, Article 7, With respect to retention, a non-life insurance enterprise shall
set aside or handle its special catastrophe reserve in accordance with the following provisions:

a. For each type of insurance, a special catastrophe reserve shall be set aside at the reserve
   ratio prescribed by the competent authority.

b. Upon the occurrence of a catastrophic event, the actual retained losses in excess of NT$30
   million may be withdrawn from the special catastrophe reserve. The amount thus
   withdrawn shall be reported to the competent authority for recordation.

c. A special catastrophe reserve that has been set aside for more than 15 years may be retired
   in the manner prescribed by the competent authority, and the amount treated as income.

In accordance with the Regulations Governing the Setting Aside of Various Reserves by
Insurance Enterprises, Article 8, with respect to retention, a non-life insurance enterprise shall
set aside or handle a special risk-volatility reserve for each type of insurance in accordance
with the following provisions:

a. For each type of insurance, when actual losses minus the balance of the special
   catastrophe reserve for that type of insurance after deduction of payouts from the reserve
   is lower than expected losses, a non-life insurance enterprise shall set aside 30 percent of
   the difference in the special risk-volatility reserve.

b. For each type of insurance, when the balance of actual losses minus the balance of the
   special catastrophe reserve for that type of insurance after deduction of payouts from the
   reserve is greater than expected losses, that portion of actual losses in excess of expected
   losses may be withdrawn from the special risk-volatility reserve previously set aside. If
   the special risk-volatility reserve for a particular type of insurance is insufficient to cover
   [losses in excess of expected losses], the losses may be withdrawn from the special
   risk-volatility reserve previously set aside for another type of insurance. The insurance
   type of the reserve thus drawn upon, and the amount of the withdrawal, shall be reported
   to the competent authority for recordation.




                                           - 18 -
c. For each type of insurance, when cumulative provisions for the special risk-volatility
   reserve exceed 60 percent of the amount of retained earned premiums for the current year,
   that portion in excess shall be retired and treated as income; provided, however, that
   retirement of funds from the special risk-volatility reserve for personal accident insurance
   shall be handled in accordance with the provisions of Article 15, paragraph 1,
   subparagraph 3. With respect to the retirement of funds from the special risk-volatility
   reserve as set forth in subparagraph 3 of the preceding paragraph, the competent authority
   may separately prescribe or restrict the use of such funds in consideration of the need for
   stable and sound development of the insurance industry.

The special reserve for compulsory automobile liability insurance and motor compulsory
liability insurance should be set aside based on the Regulations for Deposit and Management
of the Reserve of Compulsory Automobile Liability Insurance

Based on Insurance Act, Article 145, paragraph 2 and the Regulations Governing the Setting
Aside of Various Reserves by Insurance Enterprises, for retention contracted prior to
December 31, 2005 (except for claims in the course of settlement, for which provisions are
calculated separately for each individual claim on the basis of the relevant documentation,
with a separate loss reserve set aside for each type of insurance), a separate loss reserve shall
be set aside for each type of insurance to cover claims incurred but not reported. The amount
of such a reserve shall be set as a given percentage of earned premiums, as provided below:

a. Fire insurance, hull insurance, fishing vessel insurance, automobile physical insurance,
   and optional automobile third party liability insurance: 1 percent

b. Transport insurance (including marine insurance as well as land-and-air insurance): 4
   percent

c. Aviation insurance, engineering insurance, other types of liability insurance, and other
   types of non-life insurance (including bonding insurance): 2 percent

For retention contracted on January 1, 2006 or later, a separate loss reserve for each type of
insurance shall be calculated and set aside using a method prescribed or agreed to by the
competent authority. Such calculation shall be based on past claims adjustment experience
and expenses.

The loss reserve referred to in the preceding paragraph shall be retired upon annual account
settlement for the following fiscal year and then set aside upon the basis of actual numbers
from that fiscal year's annual account settlement.

Operating Loss Reserve

Under the regulations of the Ministry of Finance, from 3% of the SCIC’s operating revenue
(excluding all other operations), SCIC should first evaluate each loan and receivable account
and apply for the write-off of these liabilities, if needed. If accounts need not be written off,
SCIC should recognize provisions for doubtful accounts or set up an operating reserve. The
reserve is intended to cover any material losses arising from decline in value of bonds and
other investment instruments of companies under financial difficulties or having delinquent
loans or bad debts.

Recognition of Revenue and Expenses

Revenues are recognized when the earning process is completed or virtually completed, and
earnings are realizable and measurable.




                                           - 19 -
Loans of HNCB are recorded at outstanding principal amounts. The interest income on loans
is recognized on an accrual basis. When the loans become past due and are considered
uncollectible, the principal and interest receivable are transferred to delinquent loan accounts,
and the accrual of interest income is ceased. Interest income will be recognized when the
interest of the delinquent loan is collected. According to the regulations issued by MOF, if
the repayment of loan is extended under an agreement, the related interest should be
recognized as deferred revenue and recognized as income when collected. Service fees are
recorded as income upon receipt or substantial completion of activities involved in the
earnings process.

Direct premiums are recognized when the insurance is approved and policies are issued in the
year. Premium adjustments, including policy cancellations, are recorded in the year these
adjustments are determined or in the year the cancellations occur. Commission expenses and
processing fees are recorded in the year when the related premiums are recognized.

Ceded and ceding business revenues and expenses, such as reinsurance commission expenses
and revenues, claims recovered from reinsurers and claims paid for ceded reinsurance, are
recognized whenever SCIC receives the related billing statements.

At year-end, SCIC will accrue the related reinsurance revenue and expense for the billing
statements that have not yet been received but are already considered likely to be received as
shown by past experience. All the insurance contracts related to the ceded and ceding business
are included in the calculation of unearned premium reserve, property insurance special
reserve and indemnification reserve. For these accruals and calculations, revenues and
expenses are matched with received billing statements.

Income Tax

Inter-period and intra- period income tax allocation is applied, in which tax effects of loss
carry-forward, deductible temporary differences and unused investment tax credits are
recognized as deferred income tax assets, and those of taxable temporary differences 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 certain acquisitions of equipment or technology, research and development
expenditures, personnel training expenditure and equity investments, are accounted for by the
flow-through method.

Adjustments of prior year’s tax liabilities are included in the current year’s tax expense.

The Company chose to adopt the linked-tax system in the filing of their returns. Under a
directive issued by the Accounting Research and Development Foundation of the ROC, the
linked-tax system requires a reasonable and systematic method for tax allocation. The tax
allocation is recorded as receivables or payables.

Income tax (10%) on unappropriated earnings after July 1, 1998 is recorded as income tax in
the year when the stockholder resolves the appropriation of the earnings.

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. If loss is possible but the amount
of the loss cannot be reasonably estimated, the information on the circumstances that might
give rise to the loss should be disclosed in the notes to the financial statements. .




                                           - 20 -
Foreign-Currency Transactions and Translation of the Foreign-Currency Financial
Statements

HNCB records foreign-currency transactions (except derivative transactions) in the respective
currencies in which these are denominated at rates in effect when the transactions occur.
Foreign-currency income and expenses are translated into New Taiwan dollars at the
exchange rates announced by the Central Bank of China (CBC) at each month end.
Foreign-currency assets and liabilities, except those resulting from forward contracts, are
translated into New Taiwan dollars on the balance sheet dates at closing rates published by the
CBC. Realized and unrealized foreign exchange gains or losses resulting from these
translations are credited or charged to current income. While the foreign exchange gains or
losses of the equity instruments classified as available-for-sale financial assets are recorded as
an equity adjustments under stockholders’ equity. Financial assets carried at cost are measured
at historical foreign exchange rate on the transaction date. Retained earnings or accumulated
deficits of overseas branches are translated into New Taiwan dollars at historical rates, and the
resulting unrealized gains or losses are recorded as “cumulative translation adjustments”
under stockholder’s equity.

Hedge Accounting

HNCB engages in part of transactions of the derivatives instruments to manage the risks of the
interest rate, foreign exchange rate and credit to which assets and liabilities are exposed.
Hedge transactions undertaken by HNCB consist of fair value hedge, cash flow hedge and
hedge of a net investment in a foreign operation. At the inception of the hedge, HNCB set
up the formal designation and documentation of the hedging relationship and the entity’s risk
management objective and strategy for undertaking the hedge. That documentation include
identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the hedging instrument’s effectiveness in
offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to
the hedged risk.

If the hedge relationship of the fair value hedge, cash flow hedge and hedge of a net
investment in a foreign operation meets all conditions defined in the hedge accounting during
the period, it shall be accounted for as follows:

(a) Fair value hedges: the gain or loss from re-measuring the hedging instrument at fair value
    or the change in the foreign currency component of its carrying amount shall be
    recognized in profit or loss; and the gain or loss on the hedged item attributable to the
    hedged risk shall adjust the carrying amount of the hedged item and be recognized in
    profit or loss.

(b) Cash flow hedges: the gain or loss on the hedging instrument shall be recognized directly
    in equity through the statement of changes in equity. If a hedge of a forecast transaction
    subsequently results in the recognition of a financial asset or a financial liability, the
    associated gains or losses that were recognized directly shall be reclassified into profit or
    loss in the same period or periods during which the asset acquired or liability assumed
    affects profit or loss.

(c) Hedge of a net investment: the gain or loss on the hedging instrument shall be recognized
    directly in equity through the statement of changes in equity. The gain or loss on the
    hedging instrument relating to the effective portion of the hedge that has been recognized
    directly in equity shall be recognized in profit or loss on disposal of the foreign operation.

Fair value hedges undertaken by HNCB are mainly designated to hedge the risk of the change
in fair value of the interest earning assets or interest bearing liabilities with fixed interest rate,
which is attributable to the fluctuations in interest rates or foreign exchange rates. Cash flow


                                             - 21 -
     hedges are mainly specified to hedge the risk of the change in cash flow of the interest earning
     assets, interest bearing liabilities and expected transactions, which is attributable to the
     fluctuations in interest rates or foreign exchange rates.

     Reclassifications

     Certain accounts of consolidated financial statements for the years ended December 31, 2005
     have been reclassified to be consistent with the presentation of consolidated financial
     statement for the years ended December 31, 2006.


3.   REASONS AND EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

     The Company adopts SFAS No. 34 “Accounting for Financial Instruments” and No. 36
     “Financial Instruments: Presentation and Disclosure”, and other related amended standards
     since January 1, 2006.

     The Effects of First-Time Application of Newly Published or Amended SFAS

     According to the newly published or amended SFAS, the Company reclassifies its financial
     assets and liabilities (including derivatives). Any adjustment related to financial instruments
     at fair value through profit or loss will be recorded as cumulative effects of changes in
     accounting principles. Adjustments related to financial assets carried at amortized cost,
     available-for-sale financial instruments and derivatives within the hedge relationship of cash
     flow hedge or hedge of a net investment in a foreign operation will be recorded as adjustment
     of shareholders’ equity.

     The Company revalues the costs of its equity instruments denominated in foreign currencies
     originally carried at costs using the prevailing exchange rate at the trade date. Cumulative
     loss originally recognized in equity is then transferred among accounts of other financial
     assets. Gains or losses with respect to cash flow hedge recognized as deferred assets or
     liabilities are then transferred to equity adjustment under stockholders’ equity.

     The summary of changes in accounting principles of financial statements for the years ended
     December 31, 2006 is as follows:

                                                          Cumulative Effects of
                                                               Changes in           Adjustments of
                                                          Accounting Principles   Shareholders’ Equity
                                                              (After Tax )            (After Tax)

     Financial assets at fair value through profit and
       loss                                                 $    1,121,228          $           -
     Available-for-sale financial assets                                 -                535,514
     Held-to-maturity financial assets                                   -                      -
     Derivative financial assets for hedging                             -                      -
     Financial assets carried at cost                                    -                      -
     Debt instruments in inactive market                                 -                      -
     Financial liabilities at fair value through profit
       and loss                                                    160,927                        -
     Derivative financial liabilities for hedging                        -                        -

                                                            $    1,282,155          $     535,514

     The above mentioned changes in accounting principle resulted in $1,282,155 thousand
     increase in the net income and $0.21 increase in after-tax basic earnings per share attributed to


                                                 - 22 -
stockholders of the Company for the year ended December 31, 2006.

Reclassifications Due to Newly Published or Amended Financial Accounting Standards

According to the letter No. (94) GI-MI 016 issued by Accounting Research and Development
Foundation an entity which applied SFAS No. 34 in 2006 for the first time should reclassify
its financial statements of 2005 to conform with 2006 presentation, but does not need to
restate such 2005 financial statements. However, if different methods are adopted to evaluate
the same accounting category, disclosures are required. Because of practical difficulty, pro
forma data of prior years is not provided.

In respect of financial instruments evaluation method used by the Company, the accounting
policies adopted for the years ended December 31, 2005 which are different from 2006 are
summarized as follows:

(a) Bills and securities purchased

   Bills and securities purchased, which are publicly-traded, easily converted to cash, and not
   acquired for purpose of controlling the investees or establishing close business
   relationship with the investees, are carried at the lower of cost or market value on the
   balance sheet date. Allowance for decline in market value is recognized when market
   value is lower than cost. The decline in market value is reversed within the recorded loss
   when market value recovers. The basis for fair value of quoted securities is the average
   closing price of the last month in the year.

(b) Trading Securities

   Trading securities include listed stocks, OTC stocks, emerging stocks, government bonds
   and convertible bonds etc. and are stated at the cost. Market prices for listed stocks,
   OTC stocks and convertible bonds are stated at latest quoted market prices and they are
   stated at the lower of cost or market value as of year end. Emerging stocks are accounted
   for under the cost method. Investments in government bonds are stated at the lower of
   cost or market value and the market prices are based on closing reference price from OTC.
   Trading securities are calculated based on the moving average method. Upon receiving
   the stock dividends from the invested company, only annotate the increases of the shares.

(c) Long-term investment

   Investments in companies in which the Company ownership interest with voting rights is
   less than 20% and in which the Company has no significant influence over the investee
   are valued using cost method. Under the cost method, investments in shares with quoted
   market prices are stated at the lower of cost or market value, and any unrealized loss is
   recognized as a reduction of shareholders’ equity. Cost of foreign long-term investments
   which is measured with the spot foreign exchange rate of the transaction date is translated
   with the spot foreign exchange rate on the balance sheet date. If the translated amount of
   foreign long-term investments is lower than the original cost, then the difference between
   translated amount and original cost is recorded as cumulative translation adjustments
   under stockholders’ equity. On the other hand, there is no need to make any adjustments
   if the original cost of foreign long-term investments is higher than the translated amount.

(d) Forward exchange contracts

   Forward exchange contracts, which are qualified for hedge accounting and designated to
   hedge the risk derived from foreign debt instruments, are recorded at the spot rates on the
   contract date. The difference between the amounts translated using the spot rates and the
   amounts translated using the contracted forward rates are amortized over the term of the


                                         - 23 -
   forward contrasts. For contracts open as of the balance sheet dates, the gains or losses
   arising from the differences between the contracted forward rates and the spot rates on the
   balance sheet date are credited or charged to current income. Gains or losses arising
   from the differences between the contracted forward rates and spot rates at settlement are
   credited or charged to current income.

   Forward exchange contracts, which are designated to hedge the risk of the change in
   foreign exchange rate of the identifiable foreign commitment, are recorded at the spot
   rates on the contract date. The difference between the amounts translated using the spot
   rate and the amounts translated using the contracted forward rates are deferred until the
   transactions actually happen. On the transaction date, the difference mentioned above
   are about to adjust the price of the identifiable foreign commitment. Adjusted cost of the
   identifiable foreign commitment shall not exceed its fair value.

   Forward exchange contracts, which are not qualified for hedge accounting, are recorded at
   the contracted forward rates. For contracts open as of the balance sheet dates, the gains
   or losses arising from the differences between the contracted forward rates and the
   forward rates available for the remaining maturities of the contracts are credited or
   charged to current income. Gains or losses arising from the differences between the
   contracted forward rates and spot rates at settlement are credited or charged to current
   income.

   Receivables and payables on the forward contracts are netted out on the balance sheet
   dates.

(e) Stock warrants issued liabilities/repurchase of stock warrants issued

   Warrants issued are accounted for as a liability at issue price before maturity or exercise.
   When warrants are repurchased after they are issued, the repurchase price is recorded as
   “repurchased warrants” in other current liabilities and treated as a reduction of the warrant
   issued. Warrants issued (including repurchased warrants) are measured at fair market
   value on the balance sheet date. If the stock warrants are hedged against its own
   investment securities as of the balance sheet date, the unrealized loss on the changes in
   market value of the stock warrants, which is less than the unrealized gain from the
   increase in market value of the hedging instruments, should be deferred; however, if the
   loss is greater than the above mentioned unrealized gain, it should be included in current
   year’s results.

(f) Structured-Product Transactions

   There are two types of structured note transactions: Principal-guaranteed note transactions
   and equity-linked note transactions.

   For the principal-guaranteed note transactions, the Company receives the contract price
   from the investors. HNSC guarantees that the investors will get a fixed income from
   their investment and gives the investors the right to share in the profits on the underlying
   assets. The contract price is recognized as follows: (a) principal-guaranteed note liabilities
   - fixed income instruments. HNSC amortizes the principal and recognizes the
   implied-interest expenses using the straight-line method. The interest expense is
   presented as losses from principal-guaranteed note transactions. (b) principal-guaranteed
   note liabilities - options. The related price is marked to market, and gains (losses) from
   valuation are presented as gains (losses) from valuation - principal-guaranteed notes.
   However, the valuation loss on principal-guaranteed note liabilities - options is deferred to
   the extent of the unrealized gain on hedged securities, while the valuation loss on
   principal-guaranteed note liabilities - options in excess of the unrealized gain on hedged
   securities is charged to current income.

                                          - 24 -
For the equity-linked note transactions, the Company receives the contract price from the
investors. The Company simultaneously invests the investors’ funds in fixed-income
instruments and in long put options on underlying assets. The contract price received is
recognized as follows: (a) equity-linked note liabilities - fixed income instruments. The
Company amortizes the principal and recognizes the implied interest expenses using the
straight-line method. The interest expense is presented as losses from equity-linked note
transactions. (b) equity-linked note liabilities - premiums. The options acquired from
the investors are recognized as equity-linked note assets - options and marked to market.
Gains (losses) from valuation are presented as gains (losses) from valuation -
equity-linked notes. However, the valuation loss on equity-linked note assets - options is
deferred to the extent of the unrealized gain on hedged securities, while the valuation loss
on equity-linked note assets - options in excess of the unrealized gain on hedged securities
is charged to current income.

The contract prices of structured-products of fixed income instruments are stated at cost
and recognize interest income based on the accrual basis over the holding period. It was
stated at the lower of cost or market value on the balance sheet date.

Interest rate swap contracts are recorded through memorandum entries on the contract
dates since there is no exchange of contract (notional) principals. Interest received or paid
upon each settlement is recorded as interest revenue or expense.

The Company agrees to swap the specific asset (e.g. cash) for another specific asset (e.g.
bonds) of the counter-party for a period of time upon the agreements. They would also
agree to swap the fixed interest rate for the floating interest on these bonds. The net
interest upon each settlement is recorded as an adjustment to interest revenue.

Premiums paid or received on speculative options are accounted for as assets or liabilities.
Any gain or loss is recognized upon settlement. Options are stated at the market value
and any gain or loss is recognized in current operations. Ending balances are presented
under other short-term investment or other liabilities.
.
The Company receives commission from futures firms on futures trading. Margin on
futures trading of dealer is recorded as “futures security deposits receivable,” and
“contract gains/losses on futures.” Adjustments are made at the end of each period
according to the changes in futures index on the liquidation date or balance sheet date.
“Realized gains/losses on futures” is recorded when positions are cleared.

In conformity with the newly published and amended SFAS adopted by the Company, the
financial statements as of and for the years ended December 31, 2005 were reclassified as
follows:

                                                 Pre-reclassification   After-reclassification

Balance Sheet

Bills and securities purchased                    $ 373,313,759            $             -
Long-term investments (excluding
  investments under equity method)                    68,229,756                         -
Remittance purchased                                      75,862                         -
Delinquent loans                                         604,872                         -
Customer guarantee deposit                               997,185                         -
Financial assets at fair value through profit
  or loss                                                        -             84,332,602
Bonds and bills purchased under resale
  agreements                                                     -              3,803,997


                                        - 25 -
                                                         Pre-reclassification   After-reclassification

        Investments in Real Estate                                      -                 124,560
        Available-for-sale financial assets                             -             109,392,647
        Held-to-maturity financial assets                               -             238,708,973
        Other assets                                            9,301,660               2,270,416
        Other financial assets                                          -              14,005,854
        Bank debentures payable                               (63,033,000)            (34,000,000)
        Corporate bonds payable                                (6,000,000)                      -
        Financial liabilities at fair value through
           profit or loss                                                -            (35,148,955)

                                                          $ 383,490,094           $ 383,490,094

        Income Statement

        Interest income                                   $      (848,188)        $    (4,506,553)
        Service fee income                                       (235,279)               (224,845)
        Other operating income                                   (325,293)                      -
        Income from securities                                 (5,823,291)                      -
        Net income excluding interest income                            -                 (47,867)
        Gain on financial assets and liabilities at
           fair value through profit or loss                             -             (2,321,894)
        Realized gains of available-for-sale
           financial assets                                              -               (130,892)

                                                          $    (7,232,051)        $    (7,232,051)


4.   CASH AND CASH EQUIVALENTS

                                                                2006                    2005

     Notes and checks for clearing                        $ 20,624,271            $ 21,995,932
     Cash                                                    8,404,756               8,142,792
     Due from other banks                                    1,706,622               3,717,965
     Cash equivalent                                         1,566,318               2,436,457
     Cash on hand - foreign currency                           624,485                 615,163
     Cash in banks                                           7,459,354               7,637,133

                                                          $ 40,385,806            $ 44,545,442


5.   DUE FROM THE CENTRAL BANK AND OTHER BANKS

                                                                2006                    2005

     Due from other banks                                 $ 98,721,082            $ 101,218,432
     Reserve - checking accounts                            15,028,242               11,426,982
     Reserve - demand accounts                              33,544,629               32,389,216
     Reserve - foreign-currency deposit                         97,950                  115,010
     Others                                                    124,968                  104,372

                                                          $ 147,516,871          $ 145,254,012




                                                - 26 -
     Under the relevant regulations, the Company maintains a certain amount of deposit in the
     reserve - demand account at a prescribed percentage of the daily average of clients’ deposits.
     The reserve is subject to withdrawal restrictions and adjusted monthly. The reserve -
     demand account carries interest at a rate announced by the Central Bank.

     Reserve - checking accounts and reserve - foreign-currency deposit are not interest bearing
     and may be withdrawn anytime.


6.   FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR
     LOSS

                                                               2006                    2005

     Financial assets

     Financial assets held for trading
     Investment in bill                                   $ 22,800,137           $ 20,491,508
     Bank debentures                                         8,122,238             20,324,153
     Corporate bond                                          3,831,686             16,260,293
     Listed stock                                            5,796,772              6,375,561
     Trading securities - dealer                             2,622,346              1,918,430
     Trading securities - underwriting                         239,737                636,258
     Trading securities - others                                70,301                      -
     Beneficiary certificate                                 3,003,670              3,667,448
     Government bond                                         2,332,970              9,936,068
     Derivatives instruments                                 1,167,959                 41,602
                                                            49,987,816             79,651,321

     Financial assets designated as at fair value
       through profit or loss
     Bank debentures                                           3,605,732                  5,000
     Corporate bond                                            4,611,308              1,478,500
     Government bond                                             694,394              1,795,781
     Investment in bill                                                -                  2,000
     Structured deposit                                          882,645              1,400,000
                                                               9,794,079              4,681,281

                                                          $ 59,781,895           $ 84,332,602

     Financial liabilities

     Financial liabilities held for trading
     Derivatives instruments                              $    1,663,897         $      115,955
     Stock warrant liabilities                                    24,586                      -
     Stock warrant repurchased                                   (18,444)                     -
                                                               1,670,039                115,955
     Financial liabilities designated as at fair value
       through profit or loss
     Bank debentures                                          33,463,090             35,033,000

                                                          $ 35,133,129           $ 35,148,955

     The amounts of the financial assets at fair value through profit and loss pledged on December
     31, 2006 and 2005 are disclosed in Note 17.



                                                 - 27 -
     The nominal principal of outstanding derivative contracts as of December 31, 2006 and 2005
     are as follows:

                                                                          Contract Amounts
                                                                   2006                      2005

     Cross-currency swap                                    $ 17,694,341             $ 15,054,973
     Interest rate swap                                      211,718,556               84,729,378
     Options                                                  41,202,536               12,978,503
     Forward contract                                          4,224,840               48,009,464
     Future contracts                                            262,439                   61,546
     Currency swap                                            36,130,288               23,952,111
     Assets securitization commercial papers                   3,900,000                        -
     Fixed interest rate commercial papers                    14,393,000                8,790,000

     Net gains derived from financial assets at fair value through profit or loss and derivative
     financial assets for hedging amounted to $5,260,843 thousand and net loss derived from
     financial liabilities at fair value through profit or loss and derivative financial liabilities for
     hedging amounted to $3,600,455 thousand for the year ended December 31, 2006.


7.   RECEIVABLES

                                                                   2006                      2005

     Margin loans receivables                               $ 11,835,082             $    9,300,285
     Acceptances receivable                                    9,246,504                  9,220,438
     Interest receivable                                       6,196,471                  5,359,704
     Refundable tax                                            1,983,450                  1,668,043
     Receivables                                               5,717,066                  8,098,263
     Receivables factoring - without recourse                  2,580,685                          -
     Insurance fee receivables                                   316,205                    331,698
     Indemnity refundable on reinsurance ceded                   225,381                    277,347
     Others                                                    5,274,495                  8,963,116
                                                              43,375,339                 43,218,894
     Less allowance for bad debts                                900,196                  1,023,640

                                                            $ 42,475,143             $ 42,195,254


8.   DISCOUNTS AND LOANS, NET

                                                                   2006                      2005

     Unsecured short-term loans and unsecured
       overdraft                                            $     303,950,016        $   296,274,111
     Secured short-term loans and secured overdraft               123,639,144            116,722,207
     Unsecured medium-term loans                                  132,631,809            133,391,221
     Secured medium-term loans                                     96,668,713             84,669,344
     Unsecured long-term loans                                     30,794,013             28,916,201
     Secured long-term loans                                      307,692,820            260,493,101
     Receivables financing                                            493,432                      -
     Bills discounted and import and outward bills                 13,223,004             14,921,729
     Delinquent loans                                              21,529,488             16,038,441
                                                                1,030,622,439            951,426,355
     Less allowance for bad debts                                  10,336,597              9,507,582

                                                            $ 1,020,285,842          $   941,918,773



                                                - 28 -
     The unrecognized interest revenue on delinquent loans of HNCB amounted to $1,093,519
     thousand and $986,342 thousand in 2006 and 2005, respectively.

     In 2006 and 2005, the Company wrote off credits only after completing the required legal
     procedures.

     The changes in the allowance for bad debts in 2006 and 2005 are summarized below:

                                                                    2006
                                              Specific Risk      General Risk            Total

     Balance, January 1                       $ 7,035,905        $ 2,471,677       $ 9,507,582
     Provision                                  8,317,892            352,343         8,670,235
     (Decrease) increase                       (8,617,478)           776,978        (7,840,500)
     Effects of exchange rate changes                  53               (773)             (720)

     Balance, December 31                     $ 6,736,372        $ 3,600,225       $ 10,336,597

                                                                    2005
                                              Specific Risk      General Risk            Total

     Balance, January 1                       $ 6,450,644        $ 2,144,353       $ 8,594,997
     Provision                                  7,497,381            331,857         7,829,238
     Decrease                                  (6,916,509)           (22,427)       (6,938,936)
     Effects of exchange rate changes               4,389             17,894            22,283

     Balance, December 31                     $ 7,035,905        $ 2,471,677       $ 9,507,582


9.   AVAILABLE-FOR-SALE FINANCIAL ASSETS

                                                              2006                  2005

     Government bond                                    $ 47,460,146            $ 46,056,271
     Corporate bond                                       33,088,322              30,631,389
     Bank debentures                                      45,053,547              30,349,364
     Investment in bill                                    1,680,613                 296,394
     Listed stock                                          2,129,129               1,085,484
     Beneficiary certificate                                 877,181                       -
     Real estate investment trust                             41,933                  73,745
     Structured deposit                                      600,961                 900,000

                                                        $ 130,931,832           $ 109,392,647

     The amounts of the available-for-sale financial assets pledged on December 31, 2006 and
     2005 are disclosed in Note 17.




                                            - 29 -
10. HELD-TO-MATURITY FINANCIAL ASSETS

                                                              2006                     2005

   Certificate of deposit purchased                       $ 160,895,134          $ 233,816,886
   Commercial paper                                           1,258,171              1,814,726
   Bank debentures                                            2,762,893              2,652,802
   Government bond                                              788,027                678,722
   Treasury bills                                               495,575                      -
   Corporate bond                                                90,918                 46,647
   Bank acceptances                                               1,286                      -
   Less refundable deposits pledge                             (301,012)              (300,810)

                                                          $ 165,990,992          $ 238,708,973

   The amounts of the held-to-maturity financial assets pledged on December 31, 2006 and 2005
   are disclosed in Note 17.


11. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

                                                      2006                        2005
                                                          Ownership                   Ownership
                                               Amount     Interest %       Amount     Interest %

   Stocks with no quoted market prices
     Chung-Hua Real Estate
       Management Co.                          $ 92,615       30.00        $ 80,806       30.00

   The Company and its subsidiary recognized $11,810 thousand and $762 thousand income
   from long-term equity investments under the equity method in 2006 and 2005, respectively
   based on the investees’ audited financial statements


12. OTHER FINANCIAL ASSETS

                                                              2006                     2005

   Financial assets carried at cost
     Stocks with no quoted market prices                  $   5,247,995          $    5,446,347
     TIGER stock                                                106,520                  76,872
                                                              5,354,515               5,523,219

   Remittance purchased
     Remittance purchased                                        36,851                  75,862

   Delinquent loans transferred from accounts
     other than loans
     Other delinquent loans                                   2,482,146                3,636,819
     Less allowance for bad debts                              (918,428)              (1,507,632)
     Other delinquent loans, net                              1,563,718                2,129,187

   Derivative financial assets for hedging
     Derivative financial assets for hedging                     38,969                        -

   Bonds not actively traded in market                        4,457,914               5,280,401
   Margin account                                               864,823                 997,185

                                                          $ 12,316,790           $ 14,005,854



                                               - 30 -
   Investments in equity instruments mentioned above are carried at cost on account of no quoted
   price in the active market and no reliable measurement for the fair value.

   Common stocks of Debt Instruments Depository and Clearing Co., Ltd. Taiwan (DIDC) the
   Company originally owned transferred into 689 thousand shares of Taiwan Depository &
   Clearing Corporation and cash $46,084 under the consolidation with Taiwan Securities
   Central Depository Co., Ltd. (TSCD) in Jan 2006.

   The amounts of the financial assets carried at cost pledged on December 31, 2006 and 2005
   are disclosed in Note 17.


13. INVESTMENT IN REAL ESTATE
                                                            2006                    2005
   Real estate

   Cost of land                                        $       42,826         $       42,826
   Cost of building                                            41,165                 41,165
   Revaluation of land                                         56,008                 56,008
   Revaluation of building                                      3,959                  3,959
   Cost and revaluation                                       143,958                143,958
   Less accumulated depreciation                              (20,230)               (19,398)

                                                       $      123,728         $      124,560

   Real estate investments mentioned above were revalued in prior years. The amount of
   revaluation increments was $59,967 thousand, and provision of land revaluation increment tax
   amounted to $20,629 thousand was made.


14. PROPERTY AND EQUIPMENT
                                                            2006                    2005

   Land
     Cost                                              $    6,100,544         $    4,767,863
     Revaluation increments                                 7,954,294              8,919,313
                                                           14,054,838             13,687,176

   Buildings
     Cost                                                  12,824,040             12,402,840
     Revaluation increments                                    40,664                 43,361
                                                           12,864,704             12,446,201

   Office equipment                                         5,037,244              4,537,648
   Transportation equipment                                   984,535                982,561
   Other equipment                                          3,137,836              2,984,552
   Lease improvements                                         504,821                512,257
   Prepaid equipment and construction in progress             105,360                 91,786

                                                       $ 36,689,338           $ 35,242,181

   Accumulated depreciation
     Building                                          $    3,814,759         $    3,500,217
     Office equipment                                       3,793,709              3,557,972
     Transportation equipment                                 742,809                706,033
     Other equipment                                        2,340,731              2,131,314
     Lease improvements                                       384,508                365,933

                                                       $ 11,076,516           $ 10,261,469


                                            - 31 -
   HNCB and SCIC revalued its land and buildings several times in prior years. As of
   December 31, 2006, land and building revaluation increments (for both operating and
   non-operating assets) amounted to $14,628,446 thousand; reserve for land value increment tax
   (included in long-term liabilities) amounted to $4,761,786 thousand. The Land Tax Act was
   amended on January 1, 2005, and announced on February 1, 2005. According to this Act,
   HNCB and SCIC reduced by $3,398,861 thousand the reserve for land value increment tax.
   The reduction was recorded in reserve for asset revaluation increment.

   The amounts of the properties and equipments, $792,074 and $792,074 thousand of land and
   $333,642 and $346,344 thousand of building, pledged as collateral to financial institute on
   December 31, 2006 and 2005 are disclosed in Note 17.


15. INTANGIBLE ASSETS

                                                             2006                      2005

   Goodwill                                             $      41,065         $          61,034
   Computer software                                          532,151                   400,165
   Others                                                           2                         2

                                                        $     573,218         $         461,201

   The goodwill mentioned above was the excess of purchase price (cash) and its net assets when
   HNSC consolidated its subsidiary from another securities firm. According to SFAS No. 25
   “Business combination”, goodwill should be amortized through straight-line-method in five
   years, but goodwill need not be amortized according to new regulation of new SFAS since
   January 1, 2006.

   The changes in intangible assets in 2006 and 2005 are summarized below:

                                                         2006
                                            Reduction This    Accumulated
                          Total Amount          Year            Amount            Ending Balance

   Goodwill                $ 502,275         $      19,969      $ 461,210          $     41,065

                                                         2005
                                            Reduction This    Accumulated
                          Total Amount          Year            Amount            Ending Balance

   Goodwill                $ 502,275         $      86,996      $ 441,241          $     61,034


16. OTHER ASSETS

                                                             2006                      2005

   Deferred income tax assets, net                      $    3,559,553        $     5,363,847
   Non-operating assets, net                                 7,858,382              8,320,352
   Refundable deposits                                       1,380,602              1,415,478
   Pledged assets                                            2,842,470              1,716,912
   Collaterals assumed, net                                  1,960,449              2,103,183
   Others                                                    6,100,398              5,790,343

                                                        $ 23,701,854          $ 24,710,115

                                           - 32 -
   Non-operating assets consist of:

                                                            2006               2005

   Land
     Cost                                              $      840,704     $    1,841,437
     Revaluation increments                                 6,618,460          5,746,738
                                                            7,459,164          7,588,175

   Buildings
     Cost                                                    632,617             983,412
     Revaluation increments                                   15,028              12,472
                                                             647,645             995,884

   Total cost and revaluation increments                    8,106,809          8,584,059
   Less accumulated depreciation                              267,517            282,797
                                                            7,839,292          8,301,262
   Others                                                      19,090             19,090

                                                       $    7,858,382     $    8,320,352

   Buildings and part of the land included in non-operating assets had been leased to other
   entities.


17. PLEDGED ASSETS

                                                            2006               2005

   Financial assets designated as at fair value
     through profit or loss - bond (par value)         $            -     $    1,797,000
   Financial assets designated as at fair value
     through profit or loss - investment in bills
     (par value)                                                    -              2,000
   Available-for-sale financial assets - bonds - par
     value                                                  2,399,000          1,371,400
   Held-to-maturity financial assets - certificates
     of deposit purchased                                  11,000,000         10,000,000
   Other financial assets - financial assets carried
     at cost                                                        -             55,871
   Other assets - pledged assets                            2,842,470          1,716,912
   Property and equipment - land                              792,074            792,074
   Property and equipment - building, net                     333,642            346,344


18. DUE TO THE CENTRAL BANK AND OTHER BANKS

                                                            2006               2005

   Call loans from other banks                         $ 59,743,516       $ 80,532,961
   Overdraft                                              7,495,697          6,624,129
   Deposits from other banks                                297,563       $ 3,689,618
   Deposits from Taiwan Post Co., Ltd.                   27,155,698         41,123,860
   Deposits from the Central Bank                           310,456            303,792

                                                       $ 95,002,930       $ 132,274,360




                                              - 33 -
19. COMMERCIAL PAPER ISSUED, NET

                            Guarantee or Acceptance
       Character                  Institution                    2006                     2005

   Commercial paper     Chung Hsing Bills Finance
                           Corp.                             $      140,000         $                -
                        Mega International
                           Commercial Bank                          500,000                      -
                        Li Hua Bills Finance Corp.                  120,000                      -
                        Grand Bills Finance Corp.                   290,000                150,000
                        International Bills Finance
                           Corp.                                   500,000                       -
                        Fuhwa Bank                               1,000,000                       -
                        China Bills Finance Corp.                  810,000                       -
                        Chinatrust Commercial Bank                 260,000                 690,000
                        Taishin International Bank                       -                 300,000
                        Taiwan Finance Corp.                       200,000                       -
                        Chinatrust Bills Finance Corp.             150,000                 150,000
                        Less discount of commercial
                           paper payable                             (1,830)                     (339)

                                                             $   3,968,170          $     1,289,661

   Year interest rates of the commercial paper issued are 1.41%~1.62% and 1.20%~1.34% on
   December 31 2006 and 2005.


19. BONDS AND BILLS SOLD UNDER REPURCHASE AGREEMENTS

   The amount of bonds and bills sold under repurchase agreements are $59,404,975 and
   $61,895,686 thousand on December 31 2006 and 2005, and interest rate are 0.90%~3.60%
   and 1.05%~1.92%.


21. PAYABLES

                                                             2006                        2005

   Notes and checks in clearing                       $    20,624,271          $        21,995,932
   Bank acceptances payable                                 9,525,588                    9,619,222
   Interest payable                                         5,111,223                    4,512,868
   Accrued expenses                                         2,386,824                    2,281,557
   Guaranteed price deposits received from                  1,148,277                    1,396,016
      securities borrowers
   Deposits received from securities borrowers              1,011,273                    1,164,794
   Collections for others                                   2,308,847                    4,298,175
   Others                                                   9,459,215                   14,140,777

                                                         $ 51,575,518              $ 59,409,341




                                           - 34 -
22. DEPOSITS AND REMITTANCES

                                                            2006                  2005

   Savings deposits                                   $   673,098,117        $   665,728,816
   Time deposits                                          282,213,752            271,305,095
   Demand deposits                                        261,769,068            244,313,676
   Checking account deposits                               50,239,972             51,597,791
   Negotiable certificates of deposits                      6,205,700              7,592,000
   Remittances                                                879,254                901,508

                                                      $ 1,274,405,863        $ 1,241,438,886


23. DEBENTURES PAYABLE

                                                            2006                  2005

   Bank debentures payable                            $   34,950,000         $   28,000,000
   Corporate debentures payable                           10,700,000              6,000,000

                                                       $ 45,650,000          $ 34,000,000

   a. Bank debentures payable on December 31, 2006 and 2005 are summarized below:

                                                                 2006                2005

      90-1 term 10-year subordinated debentures; 4.20%
        fixed rate; maturity on August 30, 2011; the rate
        will become floating if the Company cannot
        redeem the debenture by August 30, 2006                $         -       $ 6,200,000
      90-2 term seven-year subordinated debenture; 3.80%
        fixed rate; maturity on October 22, 2008                 3,800,000          3,800,000
      91-1 term five-year subordinated debenture; 4.10%
        fixed rate; maturity on April 29, 2007                   4,250,000          4,250,000
      91-2 term five-year subordinated debenture; 4.10%
        fixed rate; maturity on April 29, 2007                     700,000            700,000
      91-3 term five-year subordinated debenture; 4.10%
        fixed rate; maturity on May 20, 2007                       880,000            880,000
      91-4 term five-year subordinated debenture; 4.10%
        fixed rate; maturity on May 20, 2007                     1,070,000          1,070,000
      91-5 term five-year subordinated debenture; 3.75%
        simple interest rate in first three years and floating
        rate in last two years; maturity on May 20, 2007           300,000            300,000
      91-6 term five-year subordinated debenture; floating
        rate; maturity on May 20, 2007                             300,000            300,000
      91-7 term seven-year subordinated debenture;
        floating rate; maturity on May 20, 2009                  5,000,000          5,000,000
      91-8 term seven-year subordinated debenture;
        floating rate; maturity on June 18, 2009                 2,500,000          2,500,000
      92-10 term five-year subordinated debenture; 2.80%
        fixed rate; maturity on May 7, 2009                      3,000,000          3,000,000
      95-1 term five-and-half-year subordinated debenture;
        2.45% fixed rate; maturity on December 15, 2011          2,400,000                     -
      95-2A term eight-year subordinated debenture;
        floating rate; maturity on September 15, 2014            1,000,000                     -


                                            - 35 -
                                                                   2006               2005

       95-3 term twelve-year subordinated debenture; 2.6%
         fixed rate; maturity on September 26, 2018               1,050,000                   -
       95-4 term seven-year subordinated debenture;
         floating rate; maturity on November 3, 2013              5,000,000                   -
       95-5 term ten-year subordinated debenture; 2.45%
         fixed rate; maturity on November 27, 2016                1,700,000                   -
       95-6 term seven-year subordinated debenture;
         floating rate; maturity on December 14, 2013             2,000,000                   -

                                                               $ 34,950,000       $ 28,000,000

   b. Corporate debentures payable on December 31, 2006 and 2005 are summarized below:

       In November 2002, HNFHC made a first issued of unsecured subordinated debenture in
       21 types with aggregate face value of $6,000,000 thousand, payable annually, principal
       due on the maturity date, November 2007 (simple interest, 3.00% interest; compound
       interest, half-yearly, 2.9778% interest).

       In June 2006, HNFHC made a first issue of unsecured subordinated debenture with
       aggregate face value of $4,700,000 thousand, 2.85% interest, payable annually, principal
       due on the maturity date (7 years after the issue date).


24. OTHER BORROWINGS

   a. Short-term debts

       Character of Debts                                      2006                2005

       Unsecured debts                                     $   3,085,057      $   3,700,000
       Secured debts                                             554,000          1,035,000

                                                           $   3,639,057      $   4,735,000

   b. The ranges of interest rate of other borrowings were 1.72%~5.60%and 1.35%~1.62%,
      respectively, on December 31 2006and 2005.

   c. Collaterals of the borrowings mentioned above on December 31, 2006 and 2005 are
      disclosed in Note 17.


25. OTHER FINANCIAL LIABILITIES

                                                               2006                2005

   Derivative financial liabilities for hedging            $    219,158       $           -
   Funds received for sub-loans                                 603,585             506,953

                                                           $    822,743       $     506,953




                                                  - 36 -
26. TOTAL RESERVES

                                                              2006                   2005

   Reserves of insurance industry                       $    5,119,456          $    5,026,998
   Reserve for default                                         219,103                 215,372
   Reserve for guarantees                                      353,591                 364,316
   Reserve for transaction loss                                130,935                 225,400
   Reserve for bad debts                                        82,455                  83,050

                                                        $    5,905,540          $    5,915,136


27. OTHER LIABILITIES

                                                              2006                   2005

   Reserve for land value increment tax (Note 13
     and 14)                                            $    4,782,415          $    4,829,608
   Guarantee deposits received                               1,226,711               1,384,449
   Unearned receipts                                           853,367                 613,305
   Deferred revenue                                            113,779                 127,575
   Others                                                      587,234                 844,761

                                                        $    7,563,506          $    7,799,698


28. PENSION

   For the defined benefit plan, the Company recognizes pension costs based on actuarial
   calculations.

   The Labor Pension Act (the “Act”) took effect on July 1, 2005. A new defined contribution
   pension plan is stipulated by this Act. Employees may choose the pension mechanism under
   the LSA or under this Act. Under the Act, the rate of an employer’s monthly contribution to
   Labor Pention Fund should be at least 6% of the employee’s monthly wages.

   The Company has pension plans under the Labor Standard Act, which is the defined benefit
   plan. Under the plan, the Company made monthly contributions, equal to 12%of salaries, to
   a pension fund. The fund is deposited in the Central Trust of China in the name of the
   workers’fund administration committee, which manages the fund.

   HNCB and its subsidiary have pension plans under the Labor Standard Act, which is the
   defined benefit plan. Under the plan, the Company made monthly contributions under the
   permition of Department of Labor on July 9, 2001, equal to 12%of salaries, to a pension fund
   which is deposited in the Central Trust of China in the name of the workers’ fund
   administration committee. Under the Labor Standard Act, the actuarial amount actuarial
   report is charged to expense.

   HNSC and its subsidiaries have pension plans under the Labor Standard Act, which is the
   defined benefit plan. A lump sum payment of retirement payments equal to two base units
   shall be paid for each year of service, provided that each year of service exceeding fifteen
   years shall be entitled to only one unit of base wage, and that the maximum shall be forty-five
   units. The payments of retirement are calculated based on average basic pay of the last half
   year before retirement. HNSC make monthly contributions, equal to 2%of salaries, to a
   pension fund, which is deposited in the Central Trust of China in the name of the workers’


                                             - 37 -
fund administration committee.

HNBF has pension plans under the Labor Standard Act, which is the defined benefit plan. A
lump sum payment of retirement payments equal to two base units shall be paid for each year
of service, provided that each year of service exceeding fifteen years shall be entitled to only
one unit of base wage, and that the maximum shall be forty-five units. The payments of
retirement are calculated based on average basic pay of the last half year before retirement.
HNBF make monthly contributions, equal to 2%of salaries, to a pension fund, which is
deposited in the Central Trust of China in the name of the workers’ fund administration
committee.

The Labor Pension Act (the “Act”) took effect on July 1, 2005, and the Act is taken by SCIC.
A new defined contribution pension plan is stipulated by this Act. Employees may choose the
pension mechanism under the LSA or under this Act. For those employees who were subject
to the LSA before the enforcement of this Act, still work for the same business entity after the
enforcement of the Act, and choose to be subject to the pension mechanism under the Act,
their service year before the enforcement if this Act will be retained. Under the Act, the rate
of an employer’s monthly contribution to Labor Pension Fund should be at least 6% of the
employee’s monthly wages.

HNIT has pension plans under the Labor Standard Act, which is the defined benefit plan. A
lump sum payment of retirement payments equal to two base units shall be paid for each year
of service, provided that each year of service exceeding fifteen years shall be entitled to only
one unit of base wage, and that the maximum shall be forty-five units. The payments of
retirement are calculated based on average basic pay of the last half year before retirement.
HNBF make monthly contributions, equal to 2%of salaries, to a pension fund, which is
deposited in the Central Trust of China in the name of the workers’ fund administration
committee.

The Labor Pension Act (the “Act”) took effect on July 1, 2005, and the Act is taken by
HNAMC and HNCM. A new defined contribution pension plan is stipulated by this Act.
Employees may choose the pension mechanism under the LSA or under this Act. For those
employees who were subject to the LSA before the enforcement of this Act, still work for the
same business entity after the enforcement of the Act, and choose to be subject to the pension
mechanism under the Act, their service year before the enforcement if this Act will be
retained.

a. Net pension costs in 2006 and 2005 are summarized below:

                                                           2006                    2005

   Service cost                                       $     627,120           $      689,556
   Interest cost                                            136,181                  137,588
   Expected return on plan assets                           (95,614)                (102,543)
   Amortization                                              41,778                   33,533

   Net pension cost                                   $     709,465           $      758,134




                                          - 38 -
   b. The reconciliations of the fund status of the plan and accrued pension cost as of December
      31, 2006 and 2005 are as follows:

                                                            2006                    2005

      Benefit obligation
        Vested benefit obligation                      $    2,872,073         $    2,424,376
        Non-vested benefit obligation                       1,757,007              1,643,162
        Accumulated benefit obligation                      4,629,080              4,067,538
        Additional benefits based on future
           salaries                                         1,676,372              1,433,171
      Projected benefit obligation                          6,305,452              5,500,709
      Fair value of plan assets                            (4,134,228)            (3,725,473)
      Fund status                                           2,171,224              1,775,236
      Unrecognized prior service cost                           4,000                  5,407
      Unrecognized net transition obligation                  (46,494)               (51,316)
      Unrecognized pension loss                            (1,328,372)            (1,212,317)
      Additional pension liabilities                            3,091                  7,029

      Accrued pension cost                             $      803,449         $      524,039

                                                            2006                    2005

   c. Vested benefits of pension plan                  $    3,469,705         $    2,949,386

   d. Actuarial assumptions

                                                            2006                    2005

      Discount rate used in determining present
        values                                          2.50%~3.50%            2.50%~3.50%
      Future salary increase rate                       2.00%~2.75%            2.00%~3.75%
      Expected rate of return on plan assets            2.50%~2.75%            2.50%~3.50%

   e. The changes in the pension fund contributed to Central Trust of China under the defined
      benefit pension plan are summarized below:

                                                            2006                    2005

      Balance, January 1                               $    3,725,473         $    3,413,910
      Contributions                                           422,494                476,703
      Interest income                                          95,324                 50,911
      Benefits paid                                          (109,063)              (216,051)

      Balance, December 31                             $    4,134,228         $    3,725,473

      Pension contribution of defined pension contribution in 2006 was $131,095 thousand.


29. STOCKHOLDER’S EQUITY

   a. Capital Stock

      In the June 10, 2005 stockholders’ meeting, shareholders of HNFH resolved to use
      earning and capital surplus of $3,905,744 thousand as stock dividends of 390,575
      thousand shares, and the paid-in capital of HNFHC increased from $55,796,342 thousand
      to $59,702,086 thousand.




                                            - 39 -
b. Capital Surplus

   Under the Company Act, capital surplus from the issuance of shares in excess of par value
   may be appropriated to common stock with the approval of stockholders.

   Capital surplus from long-term equity investments using the equity method may not be
   distributed for any purpose.

c. Distribution of earnings and dividend policy

   HNFH takes residual dividend policy in order to expand its scale and enhance its abilities
   to make profit. When HNFH appropriates its earnings, legal reserve should be appropriate
   from the annual net income less any accumulated deficit until the reserve equals the
   Company’s paid-in capital. A special reserve based on business needs may then be
   appropriated. Any remainder should be appropriated as follows:

   i   1% as remuneration to directors and supervisors.

   ii 0.02% to 0.16% as bonuses to employees. Shareholders can also resolve to distribute
      all or part of the bonus with dividends. Dividend bonus can also distribute to
      subsidiaries’ employees, and the methods should be made by the board of directors.

   iii Shareholders’ dividends appropriated should be resolved by shareholders, and
       unappropriated earnings in prior years could be included. Stock or cash dividends
       were appropriated based on the Company’s operating plan, and the cash dividends
       should be more than 10% of total dividends. Cash dividend would not be
       appropriated if it is less than $0.1 per share.

Stockholders’ meeting should be held in the next year, and the distribution of earnings would
be recognized and reflect in the financial statements in that year.

Under the Company Act, legal reserve mentioned above should be appropriated until the
reserve equals the Company’s paid-in capital. Legal reserve could be used to offset deficits:
when the reserve equals half of the Company’s paid-in capital, half of the reserve may be
appropriated to common stock.

Under the regulations issued by the Securities and Futures Bureau, a special reserve should be
appropriated from the balance of the retained earnings at an amount that is equal to the debit
balance of accounts in the stockholders’ equity section. The balance of the special reserve is
adjusted to reflect any changes in the debit balance of the related accounts.

The appropriation of the 2005 earnings approved by the BOD in June 2006 was as follows:

Legal reserve                                                               $      952,686
Remuneration to directors and supervisors                                           85,742
Bonus to employees                                                                  13,719
Cash dividend (1.40 per share)                                                   8,358,292

                                                                            $    9,410,439

If bonus to employees and remuneration to directors and supervisors mentioned above had
been recognized as expenses (bonus to employees are stated at par value), the basic earnings
per share (after income tax) for 2005 would have been decreased from $1.60 to $1.58.




                                         - 40 -
   As of January 30, 2007, the date of accompanying auditor’s report, the board of directors had
   not resolved the appropriation of the 2006 earnings. Information on the appropriation of
   earnings can be accessed through the Web site of the Taiwan Stock Exchange
   (http://emops.tse.com.tw ).


30. OPERATING EXPENSES

                                                              2006                   2005

   Personnel expenses
     Salaries and wages                                 $    7,245,785          $    7,090,330
     Labor insurance and national health
        insurance expenses                                     429,063                 415,712
     Pension                                                   847,567                 831,454
     Others                                                  2,315,230               2,150,170
   Amortization                                                161,047                 221,784
   Depreciation                                              1,026,478                 937,448
   Others                                                    5,951,069               5,949,822

                                                        $ 17,976,239            $ 17,596,720


31. INCOME TAX

   Under Article 49 of the Financial Holding Company Law and Article 40 of Business Mergers
   and Acquisition Act, financial holding company (FHC) can elect to file consolidated income
   tax returns for the regular corporate income tax as well as the 10% income tax on
   undistributed earnings for FHC and its domestic subsidiaries if the FHC held more than 90%
   of the subsidiaries’ outstanding shares for the entire tax year. HNFH is qualified in these
   regulations.

   The principle adopted by the Company, Hua Nan Commercial Bank (HNCB), Hua Nan
   Securities Corp. (HNSC), South China Insurance Co., Ltd. (SCIC), Hua Nan Investment Trust
   Corporation (HNIT), Hua Nan Venture Capital Co., Ltd. (HNVC), and Hua Nan Asset
   Management Corp. (HNAMC) (collectively, the “Group”) under the linked-tax system is to
   reduce the income tax liabilities of the Group and to consider the fairness of the tax borne by
   all the companies in order to maximize the synergy of the Group.

   The Basic Income Tax Act (BITA) took effect since January 1, 2006. The BITA defines
   basic income as the sum of the taxable income calculated in accordance with the Income Tax
   Act and income exempt from taxes under the Income Tax Act and other related laws. The
   basic tax is calculated as basic income multiplied by the tax rate prescribed by the Executive
   Yuan. Under the BITA, the tax payable of the current year is the higher of the basic income
   tax or the income tax payable calculated in accordance with the Income Tax Act. In
   determining its tax liabilities, the Company took into account the effect of BITA.




                                             - 41 -
a. Tax on pretax income at statutory rate and current income tax expense are reconciled as
   follows:

                                                        2006                  2005

   Tax on pretax income at statutory rate
     (25%)                                         $   2,346,300         $    2,796,756
   Income tax on cumulative effect of changes
     in accounting principle                              321,402                     -
   Permanent differences                                   47,914              (626,057)
   Temporary differences                               (1,314,823)              (72,227)
   Income tax payable, current                          1,400,793             2,098,472
   Loss carry-forward and deferred income tax             252,526              (926,345)
   Tax on unappropriated earnings (10%)                   113,478               282,018
   Separate tax                                           309,382               122,050
   Adjustment of Income tax of prior years                214,041                (1,056)
   Income tax benefit - linked tax system                       -              (281,456)
   Income tax of overseas branches                        412,008               365,279
   Others                                                  13,099                     -

   Income tax expense                              $   2,715,327         $    1,658,962

b. Deferred income tax assets (liabilities) on December 31 2006 and 2005 are summarized
   below:

                                                        2006                  2005

   Deferred income tax assets (liabilities)
   Loss carry-forward                              $   5,092,853         $    6,284,061
   Provision for bad debts and losses on
     guarantees                                           584,265               398,229
   Reserve for contract-breaking loss                      19,092                19,092
   Others                                                 167,013               255,511
                                                        5,863,223             6,956,893
   Allowance for deferred income tax assets            (2,074,341)           (1,365,374)
                                                        3,788,882             5,591,519
   Effect of the adoption of the linked tax
     system                                             (229,329)              (227,672)

                                                   $   3,559,553         $    5,363,847

c. Information about imputation system of HNFH and its subsidiaries are summarized
   below:

                                                        2006                  2005

   Balance of the Imputation Credit Account
     HNFH                                          $      42,049         $      46,210
     HNCB                                          $     303,450         $     194,251
     HNSC                                          $       6,089         $      38,031
     HNBF                                          $     116,842         $     121,890
     SCIC                                          $      18,819         $       9,194
     HNFC                                          $      14,537         $      14,686
     HNIT                                          $       2,556         $       2,052
     HNMC                                          $         523         $         640
     HNCB Insurance Agency                         $       6,087         $      15,759
     HNMF                                          $         223         $         223
     HNIM                                          $         814         $       2,072
     HNAMC                                         $         318         $          84


                                          - 42 -
                                                          2005                    2004

   Tax Creditable Ratio
     HNFH                                                    1.71%                  2.00%
     HNCB                                                    2.55%                  1.27%
     HNSC                                                    4.07%                  1.69%
     HNBF                                                   42.93%                 33.72%
     SCIC                                                    4.92%                 28.01%
     HNFC                                                   33.33%                 33.33%
     HNIT                                                         -                18.70%
     HNMC                                                   32.27%                 32.27%
     HNCB Insurance Agency                                  33.33%                 33.33%
     HNMF                                                         -                      -
     HNIM                                                   36.05%                 42.64%
     HNAMC                                                        -                      -

As of December 31 2006, Investment tax credits can be used until 2010.

Calculation of the imputation credit accounts of the Company and its subsidiaries are based on
the balance of the imputation account on the dividend distribution date.

The tax credits allocated to stockholders are based on the ICA balance on the dividend
distribution date. Thus, the projected creditable tax ratio may differ from the actual ratio.

The Company’s foreign stockholders are not entitled to the tax credit described in the
preceding paragraph, except those related to 10% taxes on unappropriated earnings actually
paid by the Company. These taxes can be used to reduce the final withholding taxes on
dividends paid to these foreign stockholders.

$1 thousand of un-appropriated earnings of HNFH is generated before January 1, 1998.

$79 thousand of un-appropriated earnings of HNFH is generated after January 1, 1998.

As of December 31, 2006, income tax returns through 2002 had been examined by the tax
authorities and the interest expense and operating expenses were adjusted to decrease
$114,204 thousand. HNFH was not satisfied with the examination, and HNFH had proposed
the administrative remedies. As of December 31, 2006, the case was still under the process.

As of December 31, 2006, income tax returns through 2001 of HNCB had been examined and
cleared by the tax authorities.

As of December 31, 2006, income tax returns through 2002 of HNSC had been examined by
the tax authorities. For the year of 1999, 2000, 2001 and 2002, the tax authorities disagree
with the way of interest expense allocation and the tax limitation calculation of the dealing
department of HNSC. Therefore, the taxable income was adjusted to increase $385,380
thousand. HNSC had recognized the adjustment but still had proposed the administrative
remedies. As of December 31, 2006, the case of year 1999, 2000, 2001 and 2002 were still
under the process.

As of December 31, 2006, income tax returns through 2004 of HNBF had been examined by
the tax authorities. HNBF had recognized the examination difference in the financial
statements already.

As of December 31, 2006, income tax returns through 2003 of SCIC had been examined and
cleared by the tax authorities.



                                         - 43 -
   As of December 31, 2006, income tax returns through 2004 of HNFC had been examined and
   cleared by the tax authorities.

   As of December 31, 2006, income tax returns through 2003 of HNIT had been examined and
   cleared by the tax authorities.

   As of December 31, 2006, income tax returns through 2004 of HNIM had been examined and
   cleared by the tax authorities.

   As of December 31, 2006, income tax returns through 2004 of HNCB Insurance Agency had
   been examined and cleared by the tax authorities.

   As of December 31, 2006, income tax returns through 2004 of HNVC had been examined and
   cleared by the tax authorities.

   As of December 31, 2006, income tax returns through 2004 of HNMF had been examined and
   cleared by the tax authorities.


32. EARNINGS PER SHARE

   Earnings per share of 2004 had been adjusted because of the earning of 2004 was used as
   stock dividend of 390,575 thousand shares.

                                                                                         Earnings Per Share
                                         Amount (Numerator)                  Shares          (In Dollar)
                                                                          (Denominator    Before      After
                                       Before Tax        After Tax        in Thousand)     Tax        Tax
   2006

   Basic earnings per share
   Operating income belong to
     HNFH’s shareholders               $ 9,384,070      $ 6,669,081         5,970,209    $ 1.57     $ 1.12
   Cumulated effects of changes in
     accounting principles belong to
     HNFH’s shareholders                 1,285,448            1,281,995                     0.22      0.21

   Income belong to HNFH’s
     shareholders                      $10,669,358      $ 7,951,076                      $ 1.79     $ 1.33

   2005

   Basic earnings per share
   Operating income belong to
     HNFH’s shareholders               $11,185,605      $ 9,526,859         5,970,209    $ 1.87     $ 1.60
   Cumulated effects of changes in
     accounting principles belong to
     HNFH’s shareholders                         -                    -                        -         -

   Income belong to HNFH’s
     shareholders                      $11,185,605      $ 9,526,859                      $ 1.87     $ 1.60



33. RELATED PARTY TRANSACTIONS

   Related party transactions and important related party transactions over a hundred million
   were summarized below, and the transactions wrote-off were disclosed in note 14.




                                                     - 44 -
a. Name and relationship with related parties are as follows:

                   Related Party                                Relationship with the Company

   Bank of Taiwan Co., Ltd. (BOT)                      Major shareholder of HNFH
   Yung-Da Real Estate & Construction Co.,             Its chairperson is the wife of the HNCB’s
     Ltd. (“Yung-Da Real Estate &                         chairman
     Construction”)
   Yuan-ding Investment Co., Ltd.                      Its chairperson is a close relative of the
     (Yuan-ding Investment)                               chairperson of HNSC
   Yuan-Hsian Investment Co., Ltd.                     Its chairperson is a close relative of the
     (Yuan- Hsian Investment)                             chairperson of HNSC
   Hsu Bo-Wei                                          The chairperson of HNSC
   Hsu Chen-An-Lan                                     A director of HNSC
   Gu Cing-Nan                                         A director of HNSC
   Wan Jhao-Lin                                        Supervisor of HNSC
   Ding Siou-Yu                                        A Chief directly under the general manager
                                                          of HNSC
   Jhou Deng-Ying                                      A close relative of a director of HNSC
   Li Wun-Fong                                         A close relative of a director of HNSC
   Others                                              Directors, supervisors, managers, their
                                                          relatives, companies under their control,
                                                          and other related parties in substance

b. Substantial transactions with related parties are as follows:

   1) Due from other banks

                                                      2006                            2005
                                                 Amount            %             Amount          %

       BOT                                   $    235,771           14       $      166,135          4

   2) Due to other banks

                                                      2006                            2005
                                                 Amount            %             Amount          %

       BOT                                   $     33,901           11       $        6,457          -

   3) Call loans to other banks

                                                                  2006
                                   Highest            Ending             Interest       Interest Rate
                                   Balance            Balance            Income              (%)

       BOT                     $18,980,604         $ 4,022,100       $ 148,539           0.03~5.52

                                                                  2005
                                   Highest            Ending             Interest       Interest Rate
                                   Balance            Balance            Income              (%)

       BOT                     $13,080,036         $ 3,258,002       $     64,091        1.20~4.63




                                             - 45 -
4) Call loans from other banks

                                                           2006
                           Highest             Ending                Interest          Interest Rate
                           Balance             Balance               Expense                (%)

   BOT                   $22,317,715       $ 1,867,200           $     56,567           0.33~6.12

                                                           2005
                           Highest             Ending                Interest          Interest Rate
                           Balance             Balance               Expense                (%)

   BOT                   $ 8,600,400       $ 1,971,600           $     51,785           1.19~4.37

5) Loans and advances

                                                           2006
                           Highest             Ending                Interest          Interest Rate
                           Balance             Balance               Expense                (%)

   Others                $ 2,750,643       $ 1,673,954           $     34,140           1.60~5.15

                                                           2005
                           Highest             Ending                Interest          Interest Rate
                           Balance             Balance               Expense                (%)

   Others                $ 2,315,481       $ 1,675,373           $     29,249           1.50~5.32

   Under the Banking Law, except for consumer loans and government loans, credits
   extends by HNCB to any related parties should be 100% secured and the terms
   extends to related parties should be similar to those for third parties.

6) Deposits

                                  2006                                           2005
                                      Interest Rate                                  Interest Rate
                           Amount          (%)                       Amount               (%)

   Others                $ 6,918,081           0~13.00           $11,642,579             0~13.00

7) Open-end fund

   Related Party                                          2006                            2005

   Fund under HNIT                                 $            71,470            $         67,032

8) Bonds and bills sold under repurchase agreements

                                                                  2006
                                     Ending                                               Interest
   Related Party                     Balance       Interest %          Interest Paid      Payable

   Fund under HNIT
   Yung Choung Fund              $      36,160           1.60          $         176 $                 3
   Kirin Fund                           78,379           1.63                    877                   7
   Phoenix Bond Fund                         -             -                      72                   -
   Vision Tech Fund                          -             -                     109                   -

                                 $     114,539                         $        1,234 $              10


                                      - 46 -
                                                              2005
                                    Ending                                           Interest
   Related Party                    Balance       Interest %      Interest Paid      Payable

   Fund under HNIT
   Phoenix Bond Fund            $             -       -           $        1,179 $                  -
   Flamingo Balance Fund                      -       -                       11                    -
   Kirin Fund                                 -       -                      332                    -

                                $             -                   $        1,522 $                  -

9) Fee revenue

                                                      2006                           2005

   Fund under HNIT                                $       1,969               $           235
   Yuan-Hsian Investment                                    190                           258
   Ding Siou-Yu                                             145                           108
   Hsu Bo-Wei                                                47                             7
   Gu Cing-Nan                                               41                             -
   Wan Jhao-Lin                                              38                             -
   Hsu Chen-An-Lan                                           30                            17
   Others                                                   406                         1,297

                                                  $       2,866               $         1,922

10) Lease

   HNCB rented office space to Yung-Da Real Estate & Construction, with refundable
   deposits of $158,400 thousand applied to rentals, under an operating lease agreement
   that ended in November 2006. Rentals received in 2006 and 2005 amounted to $3,041
   thousand each year

   Yuan-ding Investment rents out office space to HNSC, with rentals payable monthly
   under an operating lease agreement. Guarantee deposits received amounted to
   $3,000 thousand, and rentals received amounted to $8,386 thousand in 2006 and 2005.

   Jhou Deng-Ying rents out office space to HNSC, with rentals payable monthly under
   an operating lease agreement. Guarantee deposits received amounted to $900
   thousand, and rentals received amounted to $1,800 thousand in 2006 and 1,852 in
   2005.

11) Cash and cash equivalent

   Checking deposit and savings deposits (foreign currency included)

                                             2006                              2005
                                        Amount            %               Amount            %

   BOT                              $     53,732              -       $     65,502              -




                                     - 47 -
          Time deposit

                                                     2006                        2005
                                                Amount         %            Amount             %

          BOT                               $         4,900        -    $      4,900               -

   c. Information of related party transactions of subsidiaries over a hundred million

      All subsidiaries were included in consolidated financial report, and the transactions
      between subsidiaries were wrote-off and disclosed in Note 14.


34. COMMITMENTS AND CONTINGENT LIABILITIES

   a. The Company and HNCB rented office space to the Company, under an operating lease
      agreement that ended in September 2008. Rentals payable in the future are as follows:

      Year                                                                            Amount

      2007                                                                        $      2,888
      2008                                                                               2,166

   b. Commitment and contingent liabilities

      1) HNCB and its subsidiaries

          i.   HNCB use of certain office spaces is covered by operating lease agreements. As of
               December 31, 2006, total rental deposits amounted to $602,117 thousand,
               including $580,100 thousand refundable deposits in lieu of rentals. Minimum
               rentals payable in the next five years are as follows:

               Year                                                                   Amount

               2007                                                               $ 387,877
               2008                                                                 297,815
               2009                                                                 204,260
               2010                                                                 157,174
               2011                                                                  93,510

               Rentals for the years beyond 2011 amount to $154,185 thousand, the present value
               of which is about $145,973 thousand as discounted at 2.23%, HNCB one-year
               time deposit interest rate as of December 31, 2006.

          ii. A depositor sued HNCB to recover his $222,267 thousand deposit, which was
              allegedly embezzled by the depositor’s employee. Believing the depositor’s claim
              is without merit. HNCB retained an attorney in August 1996 to handle the case.
              As of December 31, 2006, the case was being reviewed by the Supreme Court, and
              the final outcome of this case was uncertain.

          iii. HNCB took over land, buildings and shares from Farmer’s Association of
               Guanyin of Taoyuan county, Hsin Feng of Hsin Chu County, Siaogang of
               Kaohsiung city, Zhutian of Pingdong county and Jiadong of Pingdong county. In
               September 2001, according to the thirty-sixth meeting resolution of Financial
               Restructuring Fund, the Council of Agriculture’s letter of Nong-So-Jin No.
               0945070440 and the Nong-Jin-two No. 0945070476, HNCB should return the


                                             - 48 -
   controversial assets to the Farmer’s Association. On August 1, 2005, the Council
   of Agriculture paid HNCB for the assets which included $87,492 thousand of land,
   $22,392 thousand of buildings, and $91,169 thousand of shares or a total of
   $201,053 thousand.

iv. The balance sheet and trust property of trust accounts were as follows:

                              Balance Sheet of Trust Accounts
                                    December 31, 2006
                           (In Thousands of New Taiwan Dollars)

   Trust Assets                      Amount       Trust Liabilities                   Amount

   Bank deposits                 $    1,398,447   Trust liabilities               $          187
   Investment in bonds               17,935,691   Trust capital
   Investment in stocks              27,704,319     Monetary trust                    117,858,154
   Investment in mutual funds        97,782,619     Securities trust                   26,876,987
   Uncompleted mutual fund                4,453     Real estate trust                   3,555,824
   Bills or investments under             7,044     Credit right trust                    246,000
      repurchase agreement                          Collective investment trust
   Credit right receivable              246,000        fund account net
   Real estate                        3,064,427        liability                        4,737,351
   Collective investment trust                    Retained earnings                    (1,702,953)
      fund account net assets         4,737,351   Net income                            1,308,801

                                 $ 152,880,351                                    $ 152,880,351

   Note: Trust account included foreign currency mutual funds invested in foreign
         securities, transactions of OBU, totaled $1,153,685 thousand.


                              Trust Property of Trust Accounts
                                     December 31, 2006
                           (In Thousands of New Taiwan Dollars)

   Investment Portfolio                                                           Amount

   Bank deposits
     Saving account                                                          $       460,388
     Time deposit                                                                    938,059
   Investments in bonds                                                           17,935,691
   Investments in stocks
     Common stocks                                                                27,704,319
   Investment in mutual funds
     Domestic mutual funds                                                        38,188,903
     Overseas mutual funds                                                        59,593,716
   Uncompleted mutual fund                                                             4,453
   Bills or investments under repurchase agreement                                     7,044
   Credit right receivable                                                           246,000
   Real estate, net
     Land                                                                          2,875,855
     Building                                                                         14,156
     Construction in progress                                                        174,416
   Collective investment trust fund account net assets                             4,737,351

                                                                             $ 152,880,351




                                     - 49 -
                           Balance Sheet of Trust Accounts
                                 December 31, 2005
                        (In Thousands of New Taiwan Dollars)

Trust Assets                      Amount       Trust Liabilities                     Amount

Bank deposits                 $    1,612,666   Trust liabilities                 $         186
Investment in bonds               16,033,412   Trust capital
Investment in stocks              38,774,515     Monetary trust                      79,227,791
Investment in mutual funds        60,644,719     Securities trust                    37,828,081
Uncompleted mutual fund                  470     Real estate trust                    3,240,333
Credit right receivable              260,000     Credit right trust                     262,160
Real estate                        2,872,631     Collective investment trust
Collective investment trust
   fund account net assets         1,874,948        fund account net liability        1,874,948
                                               Retained earnings                       (360,138)

                              $ 122,073,361                                      $ 122,073,361

Note: Trust account included foreign currency mutual funds invested in foreign
      securities, transactions of OBU, totaled $967,286 thousand.


                           Trust Property of Trust Accounts
                                  December 31, 2005
                        (In Thousands of New Taiwan Dollars)

Investment Portfolio                                                             Amount

Bank deposits
  Saving account                                                           $        797,799
  Time deposit                                                                      814,867
Investments in bonds                                                             16,033,412
Investments in stocks
  Common stocks                                                                  38,774,515
Investment in mutual funds
  Domestic mutual funds                                                          29,205,371
  Overseas mutual funds                                                          31,439,348
Uncompleted mutual fund                                                                 470
Credit right receivable                                                             260,000
Real estate, net
  Land                                                                            2,467,316
  Building                                                                            7,242
  Construction in progress                                                          398,073
Collective investment trust fund account net assets                               1,874,948

                                                                           $ 122,073,361




                                  - 50 -
v. HNCB insurance agency engaged insurance agent contract with insurance
   companies, and the content of the contracts are as follow:

       Insurance         Engagement        Calculation of
       Company              Date            Commission                 Period

   Sing Kong Life      2001.03.16         Based on           The period of the contract is
     Insurance         (The contract        regulations of     the calendar year. A
                         expand             the contract       month before the
                         automatically)                        expiration date without
                                                               disagreements between
                                                               both sides, the contract
                                                               expands a year
                                                               automatically.
   Allianz Insurance   2001.07.10         Based on           Effective date is the
                       (The contract        regulations of     engagement date, one
                         expand             the contract       year period. A month
                         automatically)                        before the expiration date
                                                               without disagreements
                                                               between both sides, the
                                                               contract expands a year
                                                               automatically.
   Taiwan Life         2002.03.26         Based on           Effective date is the
     Insurance         (The contract        regulations of     engagement date, one
                         expand             the contract       year period. 30 days
                         automatically)                        before the expiration date
                                                               without disagreements
                                                               between both sides, the
                                                               contract expands a year
                                                               automatically.
   Cathay Life         2002.04.12         Based on           Effective date is
     Insurance         (The contract        regulations of     2002.04.15, one year
                         expand             the contract       period. 30 days before
                         automatically)                        the expiration date
                                                               without disagreements
                                                               between both sides, the
                                                               contract expands a year
                                                               automatically.
   Pao Cheng Life      2002.06.24         Based on           Effective date is the
     Insurance         (The contract        regulations of     engagement date, one
                         expand             the contract       year period. 30 days
                         automatically)                        before the expiration date
                                                               without disagreements
                                                               between both sides, the
                                                               contract expands a year
                                                               automatically.
   Hon Tai Life        2002.10.24         Based on           Effective date is the
     Insurance         (The contract        regulations of     engagement date, one
                         expand             the contract       year period. 30 days
                         automatically)                        before the expiration date
                                                               without disagreements
                                                               between both sides, the
                                                               contract expands a year
                                                               automatically.
   Sinon Life          2002.11.25         Based on           Effective date is the
     Insurance         (The contract        regulations of     engagement date, one
                         expand             the contract       year period. 30 days
                         automatically)                        before the expiration date
                                                               without disagreements
                                                               between both sides, the
                                                               contract expands a year
                                                               automatically.
   Zurich Financial    2003.01.15         Based on           Effective date is the
     Service Group     (The contract        regulations of     engagement date, one


                                 - 51 -
        Insurance        Engagement          Calculation of
        Company             Date              Commission                 Period

                          expand              the contract       year period. 30 days
                          automatically)                         before the expiration date
                                                                 without disagreements
                                                                 between both sides, the
                                                                 contract expands a year
                                                                 automatically.
   Fubon Life          2004.07.27           Based on           Effective date is the
     Insurance         (The contract          regulations of     engagement date, one
                         expand               the contract       year period. 30 days
                         automatically)                          before the expiration date
                                                                 without disagreements
                                                                 between both sides, the
                                                                 contract expands a year
                                                                 automatically.
   AEGON Life          2005.03.21           Based on           Effective date is the
                                              regulations of     engagement date, one
                                              the contract       year period. 30 days
                                                                 before the expiration date
                                                                 without disagreements
                                                                 between both sides, the
                                                                 contract expands a year
                                                                 automatically.
   Cardif Life        2006.09.25            Based on           Effective date is the
     Insurance Taiwan                         regulations of     engagement date, one
     Branch                                   the contract       year period. 30 days
                                                                 before the expiration date
                                                                 without disagreements
                                                                 between both sides, the
                                                                 contract expands a year
                                                                 automatically.

vi. HNCB insurance agent authorizes HNCB and HNSC to collect insurance fee of
    life insurance HNCB insurance agent acted for, and HNCB insurance agent
    contracted in an agreement of revenue allocation of authorizing to collect
    insurance fee with HNCB and HNSC. The commission and special bonus are
    paid based on the contract and are recognized as operating expense and consulting
    fee. The contents of the contract are as follow:

                        Engagement           Way of the
   Company                 Date            Commission Paid               Period

   HNCB                  2002.12.27    1. 80% of the         Effective date is the
                                          rewards (less        engagement date, one
                                          business tax) is     year period. Two
                                          paid to HNCB.        months before the
                                                               expiration date without
                                                               disagreements between
                                                               both sides, the contract
                                                               expands a year
                                                               automatically.
   HNSC                   2002.12      1. 60% of the         Effective date is the
                                          rewards collected    engagement date, one
                                          from other           year period. Without
                                          insurance            disagreements between
                                          companies is paid    both sides, the contract
                                          to HNSC.             expands a year
                                       2. 5% of business tax   automatically.
                                          is included in the
                                          commission.


                                  - 52 -
   vii. HNCB rents out office space to HNCB insurance agent, with rentals payable
        monthly under an operating lease agreement expiring in February 2009. Rentals
        payable in the future are as follow:

       Year                                                                  Amount

       2007                                                              $     2,498
       2008                                                                    2,498
       2009                                                                      417
                                                                         $     5,413

2) HNBF

   As of December 31 2006, the commitments and contingent liabilities of HNBF are as
   follow:

   Bonds and bills sold under repurchase agreements                    $ 38,997,270
   Guarantee commercial paper                                            15,387,000
   Guarantee deposits received                                           11,032,172
   Commit Guarantee Notes                                                   450,146
   Collection for others (notes)                                            626,260

3) HNSC and its subsidiaries

   As of December 31 2006, the commitment for prepayment of equipment of HNSC is
   $22,183 thousand.

   HBSC and its subsidiaries use of certain office spaces is covered by operating lease
   agreements. As of December 31, 2006, total rental deposits amounted to $110,214
   thousand. Minimum rentals payable in the next five years are as follows:

   Year                                                                      Amount

   2007                                                                  $    78,408
   2008                                                                       50,915
   2009                                                                       27,313
   2010                                                                       15,894
   2011                                                                        6,399

                                                                         $ 178,929

   The accuser Wei claimed TWD 20,000,000 with 5% interest rate on Ms. Hwang,
   former operator of HNSC and Her friend Ms. Tu in Taipei district court due to their
   treachery on selling her stocks without permission. HNSC was also claimed for
   compensation, but it is difficult to judge that it has anything to do with HNSC as Ms.
   Wei deputed the transmission of trading to Ms. Hwang in long-term period, according
   to the statement of consultant in HNSC. As of December 31 2006, Ms. Huang and Mr.
   Tu were not under arrestment, that this legal case had not been adjusted. HNSC
   cannot certainly know the result of the legal case and did not estimate any possible
   loss either.




                                    - 53 -
4) HNSC was accused of the tort of the employee, Ms. Hsu and the joint indemnity of
   not discharging the debt by Mr. Tsai and others, and they claimed for compensation of
   $252,174 thousand and 5% of interest. According to the statement of consultant in
   HNSC, Ms. Hsu purchased stocks in private for them, so it’s not in the limited of her
   function. HNSC did not have to be in charge of the joint indemnity. Now the case
   is judged by Taiwan Banciao District Court. Not knowing the result, HNSC did not
   estimate any loss.

5) HNSC was accused of the tort of the employee, Mr. Hsu and the joint indemnity of not
   discharging the debt by Mr. Jiang, and they claimed for compensation of $13,895
   thousand and 5% of interest. According to the statement of consultant in HNSC, Ms.
   Hsu purchased stocks in private for them, so it’s not in the limited of her function.
   HNSC did not have to be in charge of the joint indemnity. Now the case is judged by
   Taiwan BanciaoDistrict Court. Not knowing the result, HNSC did not estimate any
   loss.

6) Summit Computer Technology Co., Ltd. (SCTC) was suspected to disclose misstated
   financial statements in order to issue ECB, and violated the Securities Trading Law.
   HNSC, two traders, two accountant agencies and SCTC were accused of joint
   indemnity by Securities and Futures Investors Protection Center (SFIPC) and are
   claimed for $364,469 thousand and 5% of interest. According to the statement of
   consultant in HNSC, HNSC was not the ECB trader overseas of SCTC in 2003 and
   not the domestic security trader of the issuance either. Although Hua Nan Securities
   (HK) Limited, subsidiary of HNSC, was entrusted as the ECB trader overseas of
   SCTC in 2003, it was valuated by itself. HNCB is the parent company of Hua Nan
   Securities (HK) Limited, but the duty of parent company is the authority and
   responsibility about the shares of the subsidiary except for the tort of its subsidiary.
   It does not have anything to do with HNSC, but the final result should be judged by
   the court. As of December, the case is under negotiation with SFIPC, and HNSC had
   estimate loss of $4,500 thousand.

7) Accusers Ms. Tsen and Ms. Yu claimed 12,000 thousand and 5% of interest on the tort
   of Mr. Chen and Ms. Chen of HNVC in 2000. Under the judgement of Taiwan High
   Court, HNVC and Mr. Chen should pay $12,000 thousand and the interest to the
   accusers,but HNCV appealed to a higher court. The judgement (Tai-Shan 2059) of
   Supreme Court overturned the former judgement and it would be rejudged by Taiwan
   High Court. According to the statement of consultant in HNVC, the case is about the
   private event between Mr. Chen, Ms. Chen and Mr. Yu and it does not have anything
   to do with HNVC.

8) Accusers Mr. Liu and Ms. Liu claimed on Mr. Pon, employee of HNVM, for violating
   the agreement to buy or sell their futures deliberately and Future Trading Law to
   guarantee profit to them. The case leads to $3,800 thousand of loss to the accusers,
   and they claimed that HNVM should be in charged of joint indemnity under the
   Article 188 Civil Law and article 21 of its entrusted agreement. The case is now
   coordinated by the Arbitration Association of the Republic of China.




                                      - 54 -
35. CAPITAL ADEQUACY
                                                        (In Thousands of New Taiwan Dollars; %)
                                                                                 The Group’s
                                                        The Group’s Net
                                                                               Statutory Capital
                                                        Eligible Capital
                                                                                 Requirement
   Financial Holding Co., Ltd.                            $   95,374,246        $     94,975,139
   Commercial Bank Ltd.                                      106,776,764              69,663,721
   Bills Finance Corp.                                         3,573,860               2,579,348
   Security Corp.                                              5,999,383               2,430,515
   Insurance Corp.                                             2,796,003                 708,604
   Investment Trust Corp.                                        513,004                 269,704
   Venture Capital Corp.                                         974,230                 486,432
   Others                                                      1,009,104               1,045,801
   Deduction                                                 129,685,161              94,649,531
   Total                                                 (A) 87,331,433         (B)   77,509,733
   Group Capital Adequacy Ratio(C) (A) (B)
                                     =     ÷                                            112.67%


36. OTHERS

   SCIC was asked to correct reserve for operations in accordance with No. Jin-Kuan-Bao-(I)-Zi
   095020783 by Financial Supervisory Commission, Executive Yuan on August 1, 2006 as
   SCIC didn’t comply with Regulations Governing the Setting Aside of Various Reserves by
   Insurance Enterprises to be approved to change the provision’s method of unearned premium
   reserve of “long-term fire insurance” by Financial Supervisory Commission, Executive Yuan
   in 2005. As a result of the preceding transgression, SCIC raised the unearned premium
   reserve by $74,714 thousand, reduced the special reserve and reserve for claims by $16,125
   thousand and $747 thousand respectively on January 1, 2006. Therefore, SCIC reduced prior
   period adjustments before tax by $57,842 thousand and prior period adjustments after tax by
   $43,381 thousand including the effect of income tax benefit $14,461 thousand.

   SCIC’s provisions for special reserve of risk change of hull insurance, foreign reinsurance
   assumed cargo insurance, bond, credit insurance, injury insurance were not enough to cover
   the gap between the actual claim and anticipated claim. The preceding gap of hull insurance,
   foreign reinsurance assumed cargo insurance, bond insurance, credit insurance, injury
   insurance was $179 thousand, $1,145 thousand, $8,939 thousand, $134,947 thousand and
   $7,276 thousand, respectively.        On January 30, 2007, in accordance with No.
   Jin-Kuan-Bao-(I)-Zi 09602007050, SCIC was approved by Financial Supervisory
   Commission, Executive Yuan to use the provisions for special reserve of risk change of cargo
   transportation insurance and personal auto property loss insurance, which are $1,323 thousand
   and $151,163 thousand respectively, to cover the gap mentioned before.

   In order to match up group policy, process the transformation of bond fund and cope with it’s
   structured products and long-term bond investments to ensure the interests of fund’s
   beneficiaries, HNIT’s board of directors decided to acquire long-term bond investments
   recognized as available-for-sale financial assets in fourth quarter of 2005 and first quarter of
   2006 continually. Subsequently, HNIT’s board of directors decided to dispose all
   available-for-sale financial assets in second quarter of 2006, and assumed the loss of disposal
   of structured products and long-term bond investments. As a result of the preceding
   disposal, HNIT realized other general and administrative expenses as follow:

                                                                                      2006

   Loss on disposal of available-for-sale financial assets                       $      310,211
   Loss on disposal of structured products and long-term bond
     investments                                                                      1,129,235

                                                                                 $    1,439,446


                                               - 55 -
37. DISCLOSURE REQUIRED UNDER ARTICLE 46 OF THE FINANCIAL HOLDING
    COMPANY LAW

   Please see Table 15.


38. DISCLOSURES OF FINANCIAL INSTRUMENTS INFORMATION

   a. HNCB and its subsidiaries

      1) Information of Fair Value is listed as follows:

                                                             2006                                2005
                                                Carrying Value    Fair Value        Carrying Value    Fair Value

          Financial assets

          Cash and cash equivalents             $    31,348,639   $    31,348,639   $    34,462,360   $    34,462,360
          Due from the Central Bank and
            other banks                             147,516,871       147,516,871       145,054,012       145,054,012
          Financial assets at fair value
            through profit or loss                   25,415,233        25,415,233        35,586,474        35,586,474
          Bonds and bills purchased
            under resale agreements                    547,981          547,981             344,404           344,404
          Receivables                               27,195,542       27,195,542          30,318,719        30,318,719
          Discounts and loans                    1,020,168,771    1,020,168,771         944,733,824       944,733,824
          Available-for-sale financial
            assets                                  121,293,368       121,293,368       105,038,999       105,038,999
          Held-to-maturity financial
            assets                                  165,248,218       165,248,218       238,133,095       238,133,095
          Investments accounted for using
            equity method                             1,806,877         1,806,877         1,784,489         1,784,489
          Cash and cash equivalents                   8,845,485         8,845,485        10,262,809        10,262,809

          Financial liabilities

          Due to the Central Bank and
            other banks                              85,352,930        85,352,930       121,664,360       121,664,360
          Financial liabilities at fair value
            through profit or loss                   35,051,906        35,051,906        35,033,000        35,033,000
          Bonds and bills sold under
            repurchase agreement                    19,885,627       19,885,627         19,487,465       19,487,465
          Payables                                  46,808,216       46,808,216         54,138,395       54,138,395
          Deposits and remittances               1,282,157,253    1,282,157,253      1,249,267,478    1,249,267,478
          Bank debentures payable                   34,950,000       34,950,000         28,000,000       28,000,000
          Other financial liabilities                  822,743          822,743            506,953          506,953


          HNCB and its subsidiaries adopted SFAS No. 34 “Accounting for Financial
          Instruments” since January 1, 2006. These new accounting principles were issued in
          2006, thus derivative financial instruments were not recognized in the financial
          statements for 2005. Consolidated cumulative effects of changes in accounting
          principle and equity adjustments from application of new accounting principles are
          disclosed in Note 3.

      2) HNCB and its subsidiaries adopt the following methods and assumptions to determine
         the fair values of financial instruments:

          The fair value of the short-term financial instruments is determined at their carrying
          values on the balance sheet dates because of the short maturities of these instruments.
          The method applies to cash and cash equivalents, due from the Central Bank and other
          banks, bonds and bills purchased under resale agreements, receivables, due to the
          Central Bank and other banks, payables, remittances, and bonds and bills sold under
          repurchase agreements.


                                                        - 56 -
If market price is available, the fair value of financial instruments at fair value through
profit or loss, available-for-sale financial assets, and held-to-maturity financial assets
is measured at quoted active market prices for these instruments. If market price is
not available, the fair value is determined in accordance with valuation technique.
The estimates and assumptions used by HNCB and its subsidiaries for fair market
value are consistent with those used by market participants that formulate the pricing
for financial instruments. The necessary information of those estimates and
assumptions is available to HNCB and its subsidiaries.

The fair value of debt investments not actively traded in market is determined at their
expected future cash flow, the frequency of interest payments, the remaining contract
period, the creditworthiness of borrowers and the discount rate, which is determined at
the yield rate of the equivalent instruments in the market. The discount rates adopted
by HNCB and its subsidiaries are between 1.3% and 3.5%.

The fair value of debt investments not actively traded in market, which are recorded
under other financial assets, is determined by the same techniques described above.

Loans and deposits are interest-bearing financial assets and liabilities and their
carrying values approach to their fair values. The carrying amount of delinquent
loans is the estimated collectible amount which is the book value less allowance for
bad debt. Therefore, the fair value of loans and receivables is determined at their
carrying value.

Financial assets carried at cost are stocks not traded in the Securities Exchange and
Gretai market and derivatives linked with and settled by those stocks. Stocks
classified as financial assets carried at cost have no significant influence in the
investee. The fair value of these instruments is determined at their cost in conformity
with Guidelines Governing the Preparation of Financial Reports by Public Banks.

The fair value of bank debenture payables and preferred stock liabilities are
determined at their expected future cash flow discounted at interest rate of debt
instruments with equivalent term. The discount rates adopted by the Company are
between 1.7% and 2.2%.

In case of no active market price for derivatives, the fair value of forward and interest
swap contracts are determined at discounted cash flow, option contracts determined at
Black-Scholes model, binomial model, Monte Carlo Method.

The fair value of each individual forward contract is determined at the foreign
exchange rate for the remaining contract term quoted by the Reuters or Associated
Press. HNCB and its subsidiaries estimate the fair value of individual IRS or CCS
contract using the quotations from the Bloomberg Information System.




                                   - 57 -
3) The fair values of financial assets and liabilities determined by using quoted active
   market price and valuation technique were as follows:

                                             Use of Quoted Price in Active           Use of Valuation Technique
                                                 Market Determined                           Estimated
                                               2006               2005                 2006              2005

   Financial assets

   Cash and cash equivalents             $              -    $               -   $    31,348,639    $    34,462,360
   Due from the Central Bank and
     other banks                                        -                    -       147,516,871        145,054,012
   Financial assets at fair value
     through profit or loss                    25,415,233         35,586,474                   -                  -
   Bonds and bills purchased
     under resale agreements                            -                    -         547,981              344,404
   Receivables                                          -                    -      27,186,398           30,318,719
   Discounts and loans                                  -                    -   1,020,168,771          944,733,824
   Available-for-sale financial
     assets                                   121,293,368        105,038,999
   Held-to-maturity financial
     assets                                             -                            165,248,218        238,133,095
   Investments accounted for using
     equity method                                      -                              1,806,877          1,784,489
   Other financial assets                               -                    -         8,845,485         10,262,809

   Financial liabilities

   Due to the Central Bank and
     other banks                                        -                    -        85,352,930        121,664,360
   Financial liabilities at fair value
     through profit or loss                             -                    -        35,051,906         35,033,000
   Bonds and bills sold under
     repurchase agreement                               -                    -      19,885,627          19,487,465
   Payables                                             -                    -      46,808,216          54,138,395
   Deposits and remittances                             -                    -   1,282,157,253       1,249,267,478
   Bank debentures payable                              -                    -      34,950,000          28,000,000
   Other financial liabilities                          -                    -         822,743             506,953

4) Financial risk information

   i.   Market risk

        Definition

        Market risk is the risk of potential decrease in values due to changes in interest
        rate, foreign exchange rate, equity securities or commodities as a result of
        movements in price or fluctuations in the market risk factor.

        Management structure and plan of market risk

        To manage the market risk of the financial instrument transactions, HNCB and its
        subsidiaries process the measurement, analysis, reporting and disclosure of the
        exposure amounts of the market risk factors faced by HNCB and its subsidiaries’
        financial instrument transactions, besides the identification of market risk, fair
        value measurement, risk monitoring and disclosures in reports.

        Market risk management

        A. For the financial instruments sensitive to interest rate, including bonds and
           derivatives hedged, HNCB and its subsidiaries process the interest rate
           sensitivity analysis for the change in market value of the financial instruments
           resulting from the change in market interest rate. As market interest rate rises
           by one bp (1%), sensitivity analysis of different currencies is as follows:


                                                  - 58 -
                                                Balance sheet date: December 31, 2006
                                                  In thousands of New Taiwan Dollars

                                    Interest Rate Sensitivity
       TWD                         (22,787)     AUD                              (83)
       USD                          (1,118)     HKD                              (91)
       JPY                             (11)     SGD                               (6)
       EUR                             (75)
       Total                                               (24,171)

   B. HNCB and its subsidiaries adopt the standard method to calculate equity
      capital for market risk and continuously amends related policies to conform to
      the rules of the competent authority and New Basel Capital Accord. To
      enhance the ability for market risk management and utility of capital, HNCB
      and its subsidiaries have taken into account internal measurement approach to
      calculate equity capital and planned to establish the market risk value system.
      HNCB and its subsidiaries expect to measure the extent of market risk
      exposure dynamically and enhance the market risk management by
      undertaking the steps prescribed in the preceding paragraph.

ii. Credit risk

   The financial instruments acquired or issued by HNCB and its subsidiaries are
   subject to risk of financial loss resulting from the failure of a customer or
   counterparty to settle their contractual obligations as and when they fall due.
   Therefore, strict credit assessment is conducted when HNCB and its subsidiaries
   issue loan commitments, financial guarantees and letter of credits. HNCB and its
   subsidiaries’ practice is to require appropriate collaterals as necessary before
   granting of loans depending on the credit assessment. The ratio of secured loans
   to total outstanding loans granted is approximately 50%. The aggregate
   guarantees and letter of credit issued were secured from 0% to 50% and the
   average ratio is 20%. Most of the collaterals provided for loans, financial
   guarantees and letter of credits are cash, inventories, marketable securities or other
   properties. In the event of customer defaults, HNCB and its subsidiaries can
   forcibly execute its rights on the collaterals or rights on other guarantees to protect
   creditor’s right and reduce its credit risk. However, HNCB and its subsidiaries
   disclose the maximum credit exposure without consideration of collateral fair
   value. As of December 31, 2006 and 2005, the credit risk exposures of HNCB
   and its subsidiaries were $1,134,025,716 thousand and $1,050,781,624 thousand,
   respectively, (included the maximum credit exposure of the bonds investments
   designated as at fair value through profit or loss of $7,705,642 thousand and $0)
   which were evaluated only for those contracts with positive market value as of
   balance sheet date.

   The maximum credit risk exposures (without consideration of collateral fair value)
   of various financial instruments held by HNCB and its subsidiaries is analyzed as
   follows:




                                  - 59 -
                                                                      December 31
                                                     2006                                    2005
                                                            Maximum                                 Maximum
                                                            Credit Risk                             Credit Risk
                                                             Exposure                                Exposure
Financial Instrument Type             Carrying Value         Amount           Carrying Value         Amount

Financial assets held for trading
  Investment in bill                   $       293,850      $       293,850    $       443,267      $       443,267
  Bank debentures                            6,638,170            6,638,170         14,694,187           14,694,187
  Corporate bond                             2,175,088            2,175,088         10,805,681           10,805,681
  Listed stock                               1,734,175                    -          5,647,565                    -
  Beneficiary certificate                    2,217,995                    -          2,352,000                    -
  Government bond                              387,957                    -          1,643,774                    -
  Stock Index Futures                           63,082                    -                  -                    -
  Options                                       97,558               97,558                  -                    -
                                            13,607,875            9,204,666         35,586,474           25,943,135
Financial assets designated as at
  fair value
  Corporate bond                             3,316,650            3,316,650                  -                    -
  Bank debentures                            3,735,992            3,735,992                  -                    -
  Government bond                              653,000              653,000                  -                    -
                                             7,705,642            7,705,642                  -                    -
Available-for-sale financial
  assets
  Government bond                           43,108,053                    -         46,056,271                    -
  Corporate bond                            30,822,151           30,822,151         30,622,932           30,622,932
  Bank debentures                           42,831,536           42,831,536         27,186,979           27,186,979
  Investment in bill                         1,701,231            1,701,231            296,394              296,394
  Listed stock                                 518,140                    -            876,423                    -
  Beneficiary certificate                      845,756                    -
                                           119,826,867           75,354,918        105,038,999           58,106,305
Held-to-maturity financial assets
  Certificate of deposit
     purchased                             160,895,134                    -        233,816,886                    -
  Commercial paper                           1,258,171                    -          1,814,726                    -
  Bank debentures                            2,115,641            2,115,641          2,128,059            2,128,059
  Government bond                              977,986                    -            373,424                    -
  Treasury bills                                 1,286                    -                  -                    -
                                           165,248,218            2,115,641        238,133,095            2,128,059
Other financial assets
  Financial assets carried at cost           4,107,436            4,107,436          4,417,484            4,417,484
  Remittance purchased                          36,851               36,851             75,862               75,862
  Delinquent loans transferred
     from accounts other than
     loans                                    565,303              565,303            705,942              705,942
  Derivative financial assets for
     hedging                                   38,969               38,969                   -                    -
  Bonds not actively traded in
     market                                  4,392,104            4,392,104          5,164,591            5,164,591
                                             9,140,663            9,140,663         10,363,879           10,363,879
Discounts and loans
  Unsecured short-term loans
     and unsecured overdraft               303,950,016          303,950,016        296,274,111          296,274,111
  Secured short-term loans and
     secured overdraft                     123,639,144          123,639,144        116,722,207          116,722,207
  Unsecured medium-term loans              132,631,809          132,631,809        133,391,221          133,391,221
  Secured medium-term loans                 96,599,193           96,599,193         84,613,594           84,613,594
  Unsecured long-term loans                 30,794,013           30,794,013         28,916,201           28,916,201
  Secured long-term loans                  307,644,087          307,644,087        260,432,741          260,432,741
  Bills discounted and import
     and outward bills                    13,223,004           13,223,004           14,921,729           14,921,729
  Receivables financing                      493,432              493,432                    -                    -
  Delinquent loans                        21,529,488           21,529,488           18,968,441           18,968,441
                                       1,030,504,186        1,030,504,186          954,240,245          954,240,245
Financial liabilities held for
  trading
  Options                                      (97,558)                   -                  -                    -
Financial liabilities designated as
  at fair value
  Bank debentures                          (34,520,000)                   -        (35,033,000)                   -
Bank debenture payable                     (34,950,000)                   -        (28,000,000)                   -




                                            - 60 -
    The above credit risk exposure was evaluated on contracts, off-balance-sheet
    commitments and guarantees with positive market value as at balance sheet date.
    Concentration of credit risk exists when the counterparties to financial instrument
    transactions are individuals or groups engaged in similar activities with similar
    economic characteristics, which would cause their ability to meet contractual
    obligations to be similarly affected by changes in economic or other conditions
    and include the nature of business activities engaged by debtors. HNCB and its
    subsidiaries do not have concentrations of credit risk on an individual counterparty,
    region or industry (no particular industry accounts for at least 10% of the
    outstanding loans). However, the parties accounting for at least 10% of the loans
    discounts, remittance purchased and receivable financing are summarized as
    follows:

                                                      December 31
                                       2006                               2005
                                              Maximum                            Maximum
                                              Credit Risk                        Credit Risk
                                               Exposure                           Exposure
                          Carrying Value       Amount        Carrying Value       Amount

    Private enterprises    $ 520,403,218    $ 520,403,218     $ 480,710,669     $ 480,710,669
    Natural persons          323,290,701      323,290,701       292,668,752       292,668,752
    Government                65,786,804                -        75,990,332                 -

                           $ 909,480,723    $ 843,693,919     $ 849,369,753     $ 773,379,421

    HNCB and its subsidiaries have commitments to extend loans and issue credit
    cards. HNCB and its subsidiaries also provided guarantees and letters of credit to
    ensure customers’ compliance with contract. The terms of these guarantees and
    letters of credit are usually one year, and their maturity dates are not concentrated
    in one period.

    The amounts of financial contracts with off-balance-sheet credit risks as of
    December 31, 2006 and 2005 were as follows:

                                                            2006                  2005

    Guarantees and issuance of letters of credit      $ 102,606,095           $ 106,799,780
    Credit commitments for credit cards                  98,020,414              91,025,723
    Unused loan commitments                              16,512,727              25,909,042

    Since most of the commitments are expected to expire without being fully used,
    the total commitment amounts do not necessarily represent future cash
    requirements. The total potential loss on counterparties’ default is equal to the
    above contractual amounts, if fully used, without considering the value of any
    collateral.

iii. Liquidity risk

    Since the capital and working capital are sufficient to perform all the contracted
    obligations during 2006 and 2005, there will be no liquidity risk in this regard.
    HNCB and its subsidiaries’ derivatives, except for IRS with leveraging effects,
    have very little probabilities of failing to be sold with reasonable prices in the
    market, and this have very low liquidity risks.

    Basic management policies adopted by HNCB and its subsidiaries for financial
    instruments are to match maturity and interest rate of financial assets and liabilities
    and to control unmatched gap. Maturity and interest rate of financial assets and


                                   - 61 -
liabilities always can not match perfectly because of uncertainty of transaction
terms and different kinds, and this kind of gap may cause potential gain or loss.
HNCB and its subsidiaries do the maturity analysis of financial assets and
liabilities according to their characteristic in order to analyze their liquidity. The
maturity analysis is as follows:
                                                                                          (In million of New Taiwan Dollars)

                                                               December 31, 2006
                                  One Month        Three
                    Less Than      to Three     Months to         Six Months      One Year to    Over Two
                    One Month       Months      Six Months       to One Year      Two Years       Years              Total

Assets

Cash and cash
  equivalents       $    31,349   $         -   $          -      $          -     $        -    $         -     $     31,349
Due from the
  Central Bank
  and other
  banks                  60,665        49,964         36,888                 -              -              -          147,517
Financial assets
  at fair value
  through
  profit or
  loss-net                7,938           39            431             1,488           1,297         14,222           25,415
Bonds and bills
  purchased
  under resale
  agreements               199           349               -                 -              -              -              548
Discounts and
  Loans
  (excluding
  accounts
  receivable
  financing and
  delinquent
  loans)                144,175       121,815        144,932           88,160          33,931        475,468         1,008,481
Available-for-s
  ale financial
  assets-net              3,995         8,150          2,143           30,495           5,690         70,820          121,293
Held-to-maturit
  y financial
  assets                134,891         6,080          8,656           13,504               -          2,117          165,248
Other financial
  assets
  (excluding
  delinquent
  loans
  transferred
  from
  accounts
  other than
  loans)                    69          1,803              -                 -          4,111          2,592            8,575

Total assets        $ 383,281     $ 188,200     $ 193,050         $ 133,647        $   45,029    $ 565,219       $ 1,508,426

Liabilities

Due to banks
  and the
  Central Bank      $    85,353   $         -   $          -      $          -     $        -    $         -     $     85,353
Financial
  liabilities at
  fair value
  through
  profit or loss           414           451            150                39           8,548         25,450           35,052
Bonds and bills
  sold under
  repurchase
  agreements              8,456         7,548          2,848            1,034               -              -           19,886
Deposits
  (excluding
  checking and
  remittances)          150,772       126,706        739,299          180,739          12,637         20,756         1,230,909
Bank
  debentures
  payable                     -             -          7,500                 -          3,800         23,650           34,950
Other financial
  liabilities              737             2               -                1              7              76              823

Total liabilities   $ 245,732     $ 134,707     $ 749,797         $ 181,813        $   24,992    $    69,932     $ 1,406,973

Gap                 $ 137,549     $    53,493   $ (556,747 )      $   (48,166 )    $   20,037    $ 495,287       $ 101,453




                                            - 62 -
                                                                             December 31, 2005
                                               Less Than One
                                                    Year                       Over One Year                              Total

        Assets

        Cash and cash equivalents              $       34,462,360              $                      -       $           34,462,360
        Due from the Central Bank
          and other banks                             145,054,012                                -                   145,054,012
        Securities Purchased                          312,483,546                       10,129,845                   322,613,391
        Receivables                                    26,791,586                                -                    26,791,586
        Remittance purchased,
          Discounts and loans                         437,759,100                      507,655,458                   945,414,558

                                               $      956,550,604              $       517,785,303            $ 1,474,335,907

        Liabilities

        Due to banks and the
          Central Bank                         $       80,540,499              $                      -       $           80,540,499
        Bonds and bills sold under
          repurchase agreements                        19,487,465                                -                    19,487,465
        Payables                                       49,040,609                                -                    49,040,609
        Deposits and remittances                    1,242,428,700                       49,662,722                 1,292,091,422
        Bank debentures payable                         1,563,000                       61,470,000                    63,033,000

                                               $ 1,393,060,273                 $       111,132,722            $ 1,504,192,995

4) Cash flow risk and fair value from change in interest rates

   HNCB and its subsidiaries’ cash flow risks as a result of change in interest rates refer
   to cash flow fluctuations in the future from its assets with floating rates and liabilities
   with floating rates. HNCB and its subsidiaries evaluate interest rates risks in trends
   of interest rate and engages in trading of interest rates swaps in accordance with risk
   levels and operational needs to reduce cash flow risks as a result of change in interest
   rates.

   Expected revaluation date and expected settlement date

   As of December 31, 2006, expected revaluation date and expected settlement date is
   not affected by settlement date designated in the contract. Interest risks on the carrying
   amounts of financial assets and liabilities by revaluation date and settlement date are
   presented in the following table.
                                                                                                 (In million of New Taiwan Dollars)

                                                                      December 31, 2006
                                       One Month         Three
                          Less Than     to Three      Months to          Six Months     One Year to       Over Two
                          One Month      Months       Six Months        to One Year     Two Years          Years                Total

   Assets

   Cash and cash
     equivalents          $     149    $        -     $           -      $         -      $       -       $           -     $       149
   Due from the
     Central Bank and
     other banks              49,661       45,717            36,888                -              -                   -         132,266
   Financial assets at
     fair value through
     profit or loss-net        9,318        4,436             1,586           1,202           1,121               7,752           25,415
   Bonds and bills
     purchased under
     resale agreements          199          349                  -                -              -                   -             548




                                                    - 63 -
                                                                             December 31, 2006
                                             One Month          Three
                             Less Than        to Three       Months to          Six Months      One Year to    Over Two
                             One Month         Months        Six Months        to One Year      Two Years       Years               Total

     Discounts and Loans
       (excluding
       accounts
       receivable
       financing and
       delinquent loans)         750,677         141,486            47,431          48,543             2,498        17,846          1,008,481
     Available-for-sale
       financial
       assets-net                 14,301          26,562             3,298          18,536             4,259        54,337           121,293
     Held-to-maturity
       financial assets          134,891           6,080             8,656          13,504                 -         2,117           165,248
     Other financial
       assets(excluding
       delinquent loans
       transferred from
       accounts other
       than loans)                    71           1,804                 -                 -           4,110         2,590             8,575

     Total assets            $ 959,267       $ 226,434       $      97,859      $   81,785       $    11,988   $    84,642      $ 1,461,975

     Liabilities

     Due to banks and the
       Central Bank          $    37,414     $    41,714     $       5,617      $          -     $         -   $          -     $     84,745
     Financial liabilities
       at fair value
       through profit or
       loss                        1,339          11,618            12,159               39             203          9,694            35,052
     Bonds and bills sold
       under repurchase
       agreements                  8,456           7,548             2,848            1,034                -              -           19,886
     Deposits(excluding
       checking and
       remittances)              981,100          74,443            60,935          96,869             5,785        11,972          1,231,104
     Bank debentures
       payable                     2,800          13,000             7,200                 -           3,800         8,150            34,950
     Other financial
       liabilities                   765             41                14                  -               -            3                823

     Total liabilities       $ 1,031,874     $ 148,364       $      88,773      $   97,942       $     9,788   $    29,819      $ 1,406,560

     Gap                     $   (72,607 )   $    78,070     $       9,086      $   (16,157 )    $     2,200   $    54,823      $     55,415


b. HNBF

  1) Information of fair value is listed as follows:

                                                                    2006                                           2005
                                                  Carrying                      Fair                  Carrying                 Fair
                                                   Value                        Value                  Value                   Value

     Financial assets

     Financial assets - with fair
       value approximating
       carrying amounts                          $ 12,800,534            $ 12,800,534                $ 9,594,951        $ 9,594,951
     Financial assets at fair value
       through profit or loss                      30,386,794                 30,386,794              44,911,394              44,995,771
     Available-for-sale financial
       assets, net                                  8,801,526                  8,801,526                 900,000                903,307

     Financial liabilities

     Financial liabilities - with
       fair value approximating
       carrying
     amounts                                       48,919,610                 48,919,610              52,387,986              52,387,986
     Financial liabilities at fair
       value through profit or
       loss                                                89,836                   89,836                 63,448               129,546


                                                           - 64 -
   HNBF adopted SFAS No. 34 “Accounting for Financial Instruments” since January 1,
   2006. These new accounting principles were issued in 2006, thus derivative financial
   instruments were not recognized in the financial statements for 2005. Cumulative
   effects of changes in accounting principle and equity adjustments from application of
   new accounting principles are disclosed in Note 3.

2) HNBF adopts the following methods and assumptions to determine the fair values of
   financial instruments:

   The fair value of the short-term financial instruments is determined at their carrying
   values on the balance sheet dates because of the short maturities of these instruments.
   The method applies to cash and cash equivalents, due from the other banks, bonds and
   bills purchased under resale agreements, receivables, delinquent loans, other financial
   assets including time deposits with maturity within one year and restricted deposit,
   due to the Central Bank and other banks, commercial paper payable, bonds and bills
   sold under repurchase agreements and payables.

   If market price is available, the fair value of financial instruments at fair value through
   profit or loss and available-for-sale financial assets is measured at quoted active
   market prices for these instruments. If market price is not available, the fair value is
   determined in accordance with valuation technique. The estimates and assumptions
   used by HNBF for fair market value are consistent with those used by market
   participants that formulate the pricing for financial instruments. The necessary
   information of those estimates and assumptions is available to HNBF.

   The fair value of debt investments not actively traded in market is determined at their
   expected future cash flow, the frequency of interest payments, the remaining contract
   period, the creditworthiness of borrowers and the discount rate, which is determined at
   the yield rate of the equivalent instruments in the market.

   In case of no active market price for derivatives, the fair value of forward and interest
   swap contracts are determined at discounted cash flow, option contracts determined at
   Black-Scholes model, binomial model, Monte Carlo Method.

3) The fair values of financial assets and liabilities determined by using quoted active
   market price and valuation technique were as follows:

                                    Use of Quoted Price in Active     Use of Valuation Technique
                                        Market Determined                     Estimated
                                        2006            2005             2006            2005

   Financial assets

   Financial assets at fair value
     through profit or loss, net    $ 4,615,685        $ 21,749,099   $ 25,771,109   $ 23,246,672
   Available-for-sale financial
     assets, net                       8,068,890                  -       732,636        903,307

   Financial liabilities

   Financial liabilities at fair
     value through profit or
     loss, net                                     -              -        89,836        129,546




                                          - 65 -
4) Financial risk information:

   i.   Market risk

        As market risk is the risk of potential decrease in values due to changes in market
        situation, HNBF adopts “dollar value of 1 basic point” to manage the market risk
        of all kind interest related financial instruments. As market situation changes,
        “dollar value of 1 basic point” stands for the change of market value derived from
        one basic point change in interest rate. In general, the longer the remaining
        maturity of the interest related financial instruments or the lower the market
        interest rate, the higher the dollar value of 1 basic point. Higher dollar value of 1
        basic point symbolizes higher sensitivity of the market value of the interest related
        financial instruments to the change of the interest rate and higher market risk.
        Information of dollar value of basic point of 2006 and 2005 were as follows:
                                                                        2006
                                         One Month       Three
                            Less Than     to Three    Months to     Six Months One Year to    Over Seven
                            One Month      Months     Six Months   to One Year Seven Years      Years           Total

        New Taiwan Dollar    $    142     $     76     $     144    $      623    $   4,719   $        80   $     5,784

                                                                        2005
                                         One Month       Three
                            Less Than     to Three    Months to     Six Months One Year to    Over Seven
                            One Month      Months     Six Months   to One Year Seven Years      Years           Total

        New Taiwan Dollar    $    127     $     46     $     138    $      676    $   8,373   $       614   $     9,974


   ii. Credit risk

        The financial instruments acquired by HNBF are subject to risk of financial loss
        resulting from the failure of a customer or counterparty to settle their contractual
        obligations as and when they fall due. Therefore, strict credit assessment is
        conducted when HNBF issues financial guarantees. The guarantees were secured
        from 0% to 100% and the average ratio is 41%. Most of the collaterals provided
        for financial guarantees are marketable securities or other properties. In the event
        of customer defaults, HNBF can forcibly execute its rights on the collaterals or
        rights on other guarantees to protect creditor’s right and reduce its credit risk.
        However, HNBF discloses the maximum credit exposure without consideration of
        collateral fair value. As of December 31, 2006 and 2005, the credit risk
        exposures of HNBF were $61,801,272 thousand and $65,705,471 thousand,
        respectively, which were evaluated only for those contracts with positive market
        value as of balance sheet date.

        The maximum credit risk exposures (without consideration of collateral fair value)
        of various financial instruments held by HNBF is analyzed as follows:

                                                                    December 31
                                                     2006                                      2005
                                                            Maximum                                    Maximum
                                                            Credit Risk                                Credit Risk
        Financial Instrument            Carrying             Exposure              Carrying             Exposure
               Type                      Value               Amount                 Value               Amount

        Financial assets held
          for trading
        Investment in bill         $ 22,508,638            $ 22,508,638          $ 20,048,241       $ 20,048,241
        Beneficiary certificate         123,684                 123,684               505,000            505,000
        Government bond               1,962,449               1,962,449             8,292,294          8,292,294
        Bank debentures               1,489,716               1,489,716             5,629,966          5,629,966
        Corporate bond                1,925,082               1,925,082             5,454,612          5,454,612
        Listed stock                     91,856                  91,856                     -                  -



                                              - 66 -
                                                      December 31
                                       2006                                  2005
                                              Maximum                               Maximum
                                              Credit Risk                           Credit Risk
Financial Instrument        Carrying           Exposure           Carrying           Exposure
       Type                  Value             Amount              Value             Amount

Gretai Stock                    12,185             12,185                    -                    -
Derivative financial
  instruments                   59,854             59,854                    -                    -
Financial assets
  designated as at fair
  value
Convertible bond/
  Bank debentures
  asset swap                 1,330,685           1,330,685          1,483,500          1,483,500
Structured deposit             882,645             882,645          1,700,000          1,700,000
Restricted bills and
  bonds                                -                    -       1,797,781          1,797,781
Bonds and bills
  purchased under
  resale agreements          3,592,298           3,592,298          1,616,572          1,616,572
Receivables, net               473,956             473,956            535,019            535,019
delinquent loans, net          509,709             509,709            557,555            557,555
Available-for-sale
  financial assets, net
Government bond              3,458,018           3,458,018                 -                  -
Bank debentures              2,017,678           2,017,678                 -                  -
Corporate bond               2,113,255           2,113,255                 -                  -
Restricted bonds               611,614             611,614                 -                  -
Structured deposit             600,961             600,961           900,000            900,000
Other financial assets,
  net                        2,649,989           2,649,989          1,549,431          1,549,431
Off-balance-sheet
  commitments and
  guarantees
Credit balances                        -        15,387,000                   -        15,635,500

                          $ 46,414,272     $ 61,801,272         $ 50,069,971     $ 65,705,471

HNBF adopts SFAS No. 34 “Accounting for Financial Instruments” since January
1, 2006. Accordingly, the derivatives were not included in the 2005 financial
statements. Please refer to Note 3 for the related information of the consolidated
cumulative effects of the changes in accounting principles and the adjustments of
the stockholder’s equity.

The above credit risk exposure was evaluated on contracts, off-balance-sheet
commitments and guarantees with positive market value as at balance sheet date.
Concentration of credit risk exists when the counterparties to financial instrument
transactions are individuals or groups engaged in similar activities with similar
economic characteristics, which would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other conditions
and include the nature of business activities engaged by debtors. HNBF does not
have concentrations of credit risk on an individual counterparty, but similar parties
and industries.

The amounts of financial contracts with off-balance-sheet credit risks, which
consists of concentration of credit risk, are as follows:




                                  - 67 -
                                                                                       December 31
                                                                  2006                                                       2005
                                                                             Maximum                                                 Maximum
                                                                             Credit Risk                                             Credit Risk
                                           Off-Balance-                       Exposure                 Off-Balance-                   Exposure
                                           Sheet Value                        Amount                   Sheet Value                    Amount

    Private enterprises                    $ 15,387,000                  $ 15,387,000              $ 15,635,500                  $ 15,635,500

    Financial insurance
      real estate lease
      enterprises                          $         9,302,000           $       9,302,000         $          9,348,300          $        9,348,300
    Manufacturing
      enterprises                                    3,584,000                   3,584,000                    3,319,200                   3,319,200
    Wholesale and retail
      enterprises                                    1,266,000                   1,266,000                    1,292,000                   1,292,000
    Construction
      enterprises                                       644,500                    644,500                    1,061,500                   1,061,500
    Others                                              590,500                    590,500                      614,500                     614,500

                                           $ 15,387,000                  $ 15,387,000              $         15,635,500         $        15,635,500

iii. Liquidity risk

    HNBF established “Guidance for liquidity risk management and response to
    emergent financial crisis” to manage liquidity risk and respond to tight market
    capital and surge of the short-term interest rate resulted from emergent change of
    financial environment.

    Since the capital and working capital are sufficient to perform all the contracted
    obligations during 2006 and 2005, there will be no liquidity risk in this regard.
    HNBF’s derivatives, except for structured deposit, assets swap and IRS with
    leveraging effects, have very little probabilities of failing to be sold with
    reasonable prices in the market, and this have very low liquidity risks.

    Basic management policies adopted by HNBF for financial instruments are to
    match maturity and interest rate of financial assets and liabilities and to control
    unmatched gap. Maturity and interest rate of financial assets and liabilities
    always can not match perfectly because of uncertainty of transaction terms and
    different kinds, and this kind of gap may cause potential gain or loss. HNBF does
    the maturity analysis of financial assets and liabilities according to their
    characteristic in order to analyze their liquidity. The maturity analysis is as
    follows:
                                                                                                                (In thousand of New Taiwan Dollars)

                                                                                 December 31, 2006
                          Less Than        One Month to         Three Months       Six Months to   One Year to          Over Seven
                          One Month        Three Months         to Six Months        One Year      Seven Years            Years               Total

    Assets

    Cash and cash
      equivalents         $     534,717        $     442,765     $    300,000       $ 4,297,100        $            -    $           -     $ 5,574,582
    Financial assets at
      fair value
      through profit
      or loss                  5,851,965           10,981,054        6,217,643         3,753,163            2,940,826         642,143        30,386,794
    Bonds and bills
      purchased under
      resale
      agreements               3,592,298                   -                -                 -                    -                 -        3,592,298
    Receivables, net              54,108              71,010           64,975            73,829              210,034                 -          473,956
    Available-for-sale
      financial
      assets-net                       -                    -          50,183          1,404,267            7,001,782         345,294         8,801,526
    Other financial
      assets, net                  6,335              406,335        2,200,000                 -               37,319               -         2,649,989
    Total assets              10,039,423           11,901,164        8,832,801         9,528,359           10,189,961         987,437        51,479,145

    Liabilities



                                                            - 68 -
                                                                                    December 31, 2006
                                Less Than         One Month to      Three Months      Six Months to   One Year to      Over Seven
                                One Month         Three Months      to Six Months       One Year      Seven Years        Years         Total

        Due to banks and
          the Central
          Bank                       9,650,000                  -               -                 -                -             -     9,650,000
        Commercial paper
          payables, net               259,840                   -               -                 -                -             -       259,840
        Financial
          liabilities at fair
          value through
          profit or loss                  123                   -            159               166           89,388              -        89,836
        Bonds and bills
          sold under
          repurchase
          agreements                34,639,926          3,541,517        774,867                 -                -              -    38,956,310
        Payables                        33,000             19,647            813                 -                -              -        53,460
        Total liabilities           44,582,889          3,561,164        775,839               166           89,388              -    49,009,446

        Gap                     $ (34,543,466 )    $ 8,340,000       $ 8,056,962       $ 9,528,193    $ 10,100,573     $   987,437   $ 2,469,699

                                                                                  December 31, 2005
                                Less Than         One Month to      Three Months Six Months to      One Year to        Over Seven
                                One Month         Three Months      to Six Months     One Year      Seven Years          Years         Total

        Assets

        Cash and cash
          equivalents           $     827,030      $     798,444     $ 1,293,200       $ 2,217,700    $            -   $         -   $ 5,136,374
        Due from the
          Central Bank
          and other banks             200,000                   -               -                 -                -             -       200,000
        Financial assets at
          fair value
          through profit
          or loss                    6,793,259          9,182,016       2,849,299         5,617,264       20,469,556             -    44,911,394
        Bonds and bills
          purchased under
          resale
          agreements                 1,048,617                 -               -           567,955                -              -     1,616,572
        Receivables, net                82,678           122,614          57,003           128,181          144,543              -       535,019
        Available-for-sale
          financial
          assets-net                         -                  -               -                 -         900,000              -       900,000
        Other financial
          assets, net                 501,056             11,056        1,000,000                 -          37,319              -     1,549,431

        Total assets                 9,452,640         10,114,130       5,199,502         8,531,100       21,551,418             -    54,848,790

        Liabilities

        Due to banks and
          the Central
          Bank                       9,530,000          1,080,000               -                 -                -             -    10,610,000
        Commercial paper
          payables, net               989,711                   -               -                 -                -             -       989,711
        Financial
          liabilities at fair
          value through
          profit or loss                     -                  -               -                 -          63,448              -        63,448
        Bonds and bills
          sold under
          repurchase
          agreements                38,376,049          1,742,035              -           608,573                -              -    40,726,657
        Payables                        30,951             27,451             80             3,034              102              -        61,618
        Total liabilities           48,926,711          2,849,486             80           611,607           63,550              -    52,451,434

        Gap                     $ (39,474,071 )    $ 7,264,644       $ 5,199,422       $ 7,919,493    $ 21,487,868     $         -   $ 2,397,356



        HNBF established guidance for management of liquidity risk to measure
        unmatched gap effectively, avoid liquidity risk properly, uplift efficiency of
        capital management, enhance management of unmatched gap. With this guidance,
        HNBF is capable of managing unmatched gap effectively and maintaining proper
        liquidity to ensure the ability of fulfilling contracts.

4) Cash flow risk and fair value from change in interest rates

   HNBF’s cash flow risks as a result of change in interest rates and unmatched expected
   revaluation and expected settlement date refer to cash flow fluctuations in the future
   from its assets with floating rates and liabilities with floating rates

   i.   Expected revaluation date and expected settlement date

        As of December 31, 2006, expected revaluation date and expected settlement date
        is not affected by settlement date designated in the contract. Interest risks on the
        carrying amounts of financial assets and liabilities by revaluation date and

                                                                - 69 -
       settlement date are presented in the following table.
                                                                                                               (In thousand of New Taiwan Dollars)

                                                                                        December 31, 2006
                                       Less Than       One Month to     Three Months      Six Months to   One Year to   Over Seven
                                       One Month       Three Months     to Six Months       One Year      Seven Years     Years            Total

       Assets

       Financial assets at fair
          value through profit or
          loss                         $    307,688     $    803,033     $   300,052       $         -    $         -   $            -   $ 1,410,773
       Available-for-sale
          financial assets-net              300,616           500,346         30,592                 -              -                -       831,554
       Total assets                         608,304         1,303,379        330,644                 -              -                -     2,242,327

       Liabilities

       Financial liabilities at fair
          value through profit or
          loss                               31,103           58,733               -                 -              -                -        89,836

       Gap                             $    577,201     $ 1,244,646      $   330,644       $         -    $         -   $            -   $ 2,152,491

                                                                                      December 31, 2005
                                       Less Than       One Month to     Three Months Six Months to      One Year to     Over Seven
                                       One Month       Three Months     to Six Months     One Year      Seven Years       Years            Total

       Assets

       Financial assets at fair
         value through profit or
         loss                          $    800,000     $ 1,464,150      $   299,015       $         -    $         -   $            -   $ 2,563,165
       Available-for-sale
         financial assets-net                300,000          600,000              -                 -              -                -       900,000
       Total assets                        1,100,000        2,064,150        299,015                 -              -                -     3,463,165

       Liabilities

       Financial liabilities at fair
         value through profit or
         loss                                26,208           37,240               -                 -              -                -        63,448

       Gap                             $ 1,073,792      $ 2,026,910      $   299,015       $         -    $         -   $            -   $ 3,399,717



   ii. Effective interest rate

       Average amount and average interest rate of interest-earning assets and
       interest-bearing liabilities are disclosed as follows:

                                                                                                                        Average Interest
                                                                                  Average Value                             Rate %

       Assets

       Financial assets at fair value through
         profit or loss                                                           $ 46,825,753                                  1.8406
       Bonds and bills purchased under
         resale agreements                                                                  2,107,439                           1.2668
       Available-for-sale financial assets                                                  6,983,635                           2.1985


       Liabilities

       Deposits from the other banks                                                      10,082,945                            1.5784
       Commercial paper payables, net                                                        777,260                            1.4218
       Financial liabilities at fair value
         through profit or loss                                                                 35,771                          1.9580
       Bonds and bills sold under
         repurchase agreements                                                            39,051,095                            1.4886

5) Risk management policy and hedge strategy

   HNBF has established documentation of risk management policy, such as guidance for
   management of interest rate risk, credit risk and derivative financial instruments


                                                               - 70 -
       transactions, to minimize detrimental effect against HNBF. Establishment and
       amendment of preceding policy are subject to be approved by board of directs.

       HNBF sets up Internal Audit Department and Operation and Risk Management
       Department to perform risk management by establishing authorized limit amounts
       standards. Monthly risk management report will be submitted to board of directors
       for monitoring all kinds of risks.

c. HNSC and its subsidiaries

   1) Information of Fair Value is listed as follows:

                                                            2006                            2005
            Non-derivative Financial             Carrying          Fair          Carrying          Fair
                 Instruments                      Value            Value          Value            Value

       Financial assets
       Financial assets - with fair value
         approximating carrying
         amounts                          $ 17,418,415 $ 17,418,415 $ 17,530,962 $ 17,530,962
       Financial assets at fair value
         through profit or loss              3,140,419    3,140,419    2,848,592    2,848,592
       Available-for-sale financial
         assets                                493,556      493,556      106,596      106,596

       Financial liabilities

       Financial liabilities- with fair
         value approximating carrying
         amounts                                 11,831,414        11,831,414    12,255,003        12,255,003

       Financial liabilities at fair value
         through profit or loss                       6,142            6,142                -                -

                                                            2006                            2005
              Derivative Financial               Carrying          Fair          Carrying
                  Instruments                     Value            Value          Value         Fair Value

       Assets

       Financial assets at fair value
         through profit or loss              $       11,896 $         11,896 $       41,602 $         41,602

       Liabilities

       Financial liabilities at fair value
         through profit or loss                      14,288           14,288         52,507           52,507

       HNSC and its subsidiaries adopted SFAS No. 34 “Accounting for Financial
       Instruments” since January 1, 2006. Consolidated cumulative effects of changes in
       accounting principle and equity adjustments from application of new accounting
       principles are disclosed in Note 3.

   2) HNSC and its subsidiaries adopt the following methods and assumptions to determine
      the fair values of financial instruments:

       i.   The fair value of the short-term financial instruments is determined at their
            carrying values on the balance sheet dates because of the short maturities of these
            instruments. The method applies to cash and cash equivalents, bonds and bills


                                                 - 71 -
       purchased under resale agreements, receivable amount for margin loans,
       refinancing margin, refinancing deposit receivable, customer guarantee deposit,
       receivable amount for futures trading margin, note receivables and account
       receivables, other receivables, restricted assets - current, short-term borrowings,
       net commercial paper payables, bonds and bills sold under repurchase agreements,
       securities financing guarantee deposit-in, deposit payable for securities financing,
       futures traders' equity, note payables and account payables and other payables.

   ii. If market price is available, the fair value of financial instruments at fair value
       through profit or loss and available-for-sale financial assets is measured at quoted
       active market prices for these instruments. The fair value of futures trading
       margin - self owned funds is measured at its book value as its future settlement
       amounts approximate book value. The fair value of the TIGER stocks carried by
       Dealing Department is measured at original cost. If market price is not available,
       the fair value is determined in accordance with valuation technique. The
       estimates and assumptions used by HNSC and its subsidiaries for fair market value
       are consistent with those used by market participants that formulate the pricing for
       financial instruments. The necessary information of those estimates and
       assumptions is available to HNSC and its subsidiaries.

   iii. Operating bonds, clearing and settlement fund, refundable deposits and guarantee
        deposits are measured with book value.

   iv. If market price is available, the fair value of derivative financial instruments is
       measured at quoted active market prices for these instruments. If market price is
       not available, the fair value is determined in accordance with valuation technique.
       The estimates and assumptions used by HNSC and its subsidiaries for fair market
       value are consistent with those used by market participants that formulate the
       pricing for financial instruments. The necessary information of those estimates
       and assumptions is available to HNSC and its subsidiaries.

3) The fair values of financial assets and liabilities determined by using quoted active
   market price and valuation technique were as follows:

                                           Use of Quoted Price in         Use of Valuation
      Non-derivative Financial           Active Market Determined       Technique Estimated
           Instruments                      2006          2005           2006          2005

   Financial assets

   Financial assets at fair value
     through profit or loss - current $     3,129,858 $   2,771,720 $      10,561 $     76,872
   Available-for-sale financial
     assets                                         -            -        493,556      106,596

   Financial liabilities

   Financial liabilities at fair value
     through profit or loss - current           6,142            -              -             -
   Derivative financial instruments




                                           - 72 -
                                           Use of Quoted Price in                Use of Valuation
         Derivative Financial            Active Market Determined              Technique Estimated
             Instruments                    2006          2005                  2006          2005

   Financial assets

   Financial assets at fair value
     through profit or loss - current $                - $              - $        11,896 $           41,602

   Financial liabilities

   Financial liabilities at fair value
     through profit or loss - current                  -                -          14,288             52,507


4) Financial risk information

   i.   Market risk

        HNSC and its subsidiaries adopt Variance-Covariance to calculate VaR. VaR
        represents, under the certain confidence level, the measurement of the maximum
        amount of loss of certain assets portfolio or position during the specific holding
        period, which resulted from unfavorable change in market situation. HNSC and
        its subsidiaries choose the VaR with 95% confidence interval and one day holding
        period to measure the market risk of all positions. Risk Management Department
        Risk Management Department daily monitors the change of market position, gains
        and loss and VaR. Periodic report of estimate of market risk prepared by Risk
        Management Department will be provided for operational department and
        management to manage market risk effectively.

        VaR of financial instruments under the condition of 95% confidence level and one
        day holding period is exhibited in the following table. Average amount of the
        year is the average amount of daily VaR of the year and highest and lowest
        amount stands for maximum amount and minimum amount of the year.

                                              2006                                      2005
                              Average                                Average
                             Amount of       Highest       Lowest   Amount of          Highest       Lowest
                              the Year       Amount        Amount    the Year          Amount        Amount

        Overall VaR          $    30,044 $      62,710 $     14,839 $       29,256 $      40,318 $     19,685


        As of December 31, 2006 and 2005, HNSC and its subsidiaries’ overall VaR is
        $30,044 thousand and $29,256 thousand, which is 0.28% and 0.30% of the net
        equity respectively.

        Market risks of derivative financial instruments carried by HNSC and its
        subsidiaries are illustrated as follows:

        Future and option

        Market risk of future and option derives from market price fluctuation. HNSC and
        its subsidiaries monitor instantaneously the change of holding position and market
        price and set up related risk management mechanism.




                                           - 73 -
   Call warrant

   Market risk of call warrant derives from market price fluctuation of the underlying
   security. Market risk can be hedged by adjusting hedge position of call warrant
   and the underlying security. As of December 31, 2006, HNSC and its
   subsidiaries had issued Entrust 27 (FETL), Entrust 28 (Cathay Holdings), Entrust
   29 (DELTA), Entrust30 (PPt), Entrust P1 (TICP). As of December 31, 2006 and
   2005, the VaR of the call warrant is $821 thousand and $0 thousand respectively.

   Convertible bond asset swap

   Market risk of convertible bond asset swap derives from the change of market
   price of the underlying security and market interest rate. Market risk can be
   hedged by adjustment of position after separation of convertible bond into
   corporate bond and embedded option. As of December 31, 2006 and 2005,
   HNSC and its subsidiaries’ market risk equivalent is $2,355 thousand and $2,769
   thousand respectively, in accordance with capital adequacy ratio.

   Interest rate swap

   Market risk of interest rate swap derives from market price fluctuation on account
   of the change of interest rate. HNSC and its subsidiaries only participates in
   simple interest rate swap with limited risk.

   Structured products

   Market risk of structured products derives from market price fluctuation of the
   underlying assets. Market risk can be hedged by option hedge model. As of
   December 31, 2006 and 2005, HNSC and its subsidiaries had not issued any
   structured products.

ii. Credit risk

   The financial instruments acquired or issued by HNSC and its subsidiaries are
   subject to potential effects resulting from the failure of a customer or counterparty
   to settle their contractual obligations as and when they fall due. Potential effects
   include concentration of credit risk, forming parts and contract amounts of
   financial instruments in which HNSC and its subsidiaries engaged and other
   receivables. Amounts of credit risk exposure of financial instruments are
   evaluated on contracts with positive market value as at balance sheet date.
   Amounts of credit risk exposure of financial instruments, in which HNSC and its
   subsidiaries engaged, are equal to carrying values, except the following financial
   instruments.

                                              2006                            2005
                                                    Risk                            Risk
                                   Carrying      Equivalent of     Carrying      Equivalent of
                                    Value        Counterparty       Value        Counterparty


   Financial assets held for
     trading
     Convertible bond asset
        swap - contract
        amounts of IRS         $        2,284 $             79 $          454 $           231
     Convertible bond asset
        swap - option                   7,354               16         23,507             537



                                   - 74 -
    Credit risk management is mainly based on credit rating. Besides, for each kind of
    transaction, HNSC and its subsidiaries established operation guidance and
    processing procedures, including limits of overall contracts amounts, single
    position or counterparties’ contracts amounts and credit risk and internal audit
    procedures.

    Concentration of credit risk exists when the counterparties to financial instrument
    transactions are individuals or groups engaged in similar activities with similar
    economic characteristics, which would cause their ability to meet contractual
    obligations to be similarly affected by changes in economic or other conditions
    and include the nature of business activities engaged by debtors. HNSC and its
    subsidiaries do not have concentrations of credit risk on an individual counterparty,
    industry or overseas region.

iii. Liquidity risk

    Since the capital and working capital are sufficient to perform all the contracted
    obligations during 2006 and 2005, there will be no liquidity risk in this regard.

    Except for unlisted stocks held by HNSC and its subsidiaries, other non-derivative
    equity and debt investments, traded in active markets, are expected to be sold
    quickly with price approaching fair value. For preceding reason, HNSC and its
    subsidiaries have no serious liquidity risks.

    Liquidity risks of derivative instruments in which HNSC and its subsidiaries
    engage are described as follows:

    Future and option

    Margins of future and option contracts have been paid while engagements. Only
    when amount of the margin is below maintenance margin because of market price
    fluctuation, HNSC and its subsidiaries have to replenish the margin. Since
    HNSC and its subsidiaries have sufficient working capital to replenish the margin
    under the preceding situation, there will be low liquidity risk in this regard.

    Call warrant

    Premiums of call warrants issued have be received in advance and additional
    capital has been put to set up hedge position. Underlying securities, on account
    of conformity with regulations for shares price and decentralization ruled by
    competent authorities, have little probabilities to be sold with reasonable prices.
    Under the premise of good market liquidity, there is little liquidity risk in call
    warrant but capital need induced by adjustments of call warrants and hedge
    position, which adjustments derived from market prices fluctuation of underlying
    securities.

    Convertible bond asset swap

    Underlying security of asset swap is convertible bond acquired by underwriting or
    held for dealing purpose. HNSC and its subsidiaries sell the underlying security
    to counterparty with receipt of amounts of transaction price and swap counterparty
    dealing interest remuneration for interest income and interest payable refund of the
    convertible bond during the maturity period. HNSC and its subsidiaries have the
    right to redeem the convertible bond from counterparty. With the preceding
    reason, there will be low liquidity risk and no additional cash needs in this regard.



                                   - 75 -
          Structured products

          To offer investors flexibility of cancellation of contract ahead of maturity date,
          HNSC and its subsidiaries have taken account of liquidity risk when buying
          fixed-income instruments comprised in structured products. With the preceding
          reason, there will be low liquidity risk and no additional cash needs in this regard.
          As of December 31, 2006 and 2005, HNSC and its subsidiaries had not issued any
          structured products.

  5) Specific risk belongs to futures brokerage

     HNFC is engaged in brokerage of futures and options on futures. HNFC should
     receive margins or premiums of future contracts when accepting an order to engage in
     future trading. Significant off-balance-sheet financing risk arises from short of
     margins or premiums to cover the losses. To manage the preceding risk, HNFC
     monitors the maintenance margin of individual customer daily and ask customers to
     replenish margins or diminish contracts amounts when necessary.

  6) Specific risk belongs to managed future business

     HNMF is mainly engaged in accepting consignments from specified persons for
     discretionary futures trading, including futures, TAIEX options and stock options.
     Prior to accepting a principal's consignment for discretionary futures trading, HNMF
     shall provide the detailed explanation, a mandate contract for discretionary futures
     trading and a trading risk disclosure statement, and apprise the principal of the nature
     of futures trading and the possible risks before signing the mandate contract for
     discretionary futures trading. HNMF has established internal control to manage
     possible trading risk and credit risk.

d. SCIC

  1) Fair value of financial instruments

                                                        2006                            2005
          Non-derivative Financial           Carrying          Fair          Carrying          Fair
                Instruments                   Value            Value          Value            Value

     Assets

     Cash and cash equivalents           $    3,140,605 $      3,140,605 $    2,907,025 $      2,907,025
     Financial assets at fair value
        through profit or loss - current        876,153         876,153       1,219,560        1,219,560
     Notes receivable, net                      203,581         203,581         198,579          198,579
     Premiums receivables, net                  313,043         313,043         328,381          328,381
     Compensation and payments
        recoverable from reinsurer,
        net                                     223,127         223,127         274,574         274,574
     Intercompany reinsurance
        receivables, net                        211,115         211,115         246,602         246,602
     Other receivables                          108,823         108,823          79,082          79,082
     Loans                                      117,071         117,071         114,949         114,949
     Available-for-sale financial
        assets - non-current                    363,119         363,119         272,554         272,554
     Held-to-maturity financial assets
        - non-current                    $      742,774 $       724,440 $       575,878 $       580,692
     Financial assets carried at cost -
        non-current                             313,059         351,565         389,392         398,637
     Refundable deposits                        362,664         362,664         361,037         361,037


                                             - 76 -
                                                2006                           2005
     Non-derivative Financial        Carrying          Fair         Carrying          Fair
           Instruments                Value            Value         Value            Value

Reinsurance liability reserve
  Contributed                               608             608            609             609
Delinquent loans, net                   260,936         260,936        146,555         146,555

Liabilities

Commissions payable                             -              -        33,380          33,380
Reinsurance indemnity payable,
  net                                    21,492          21,492         23,947          23,947
Funds payable on reinsurance
  transactions                          356,634         356,634        445,064         445,064
Accrued expenses                         98,450          98,450         87,195          87,195
Deposits received                         6,613           6,613          3,930           3,930

                                                2006                           2005
       Derivative Financial          Carrying          Fair         Carrying          Fair
            Instruments               Value            Value         Value            Value

Liabilities

Forward contracts                $        2,093 $         2,093 $              - $            -

SCIC adopts the following methods and assumptions to determine the fair values of
financial instruments:

i.   The fair value of the short-term financial instruments is determined at their
     carrying values on the balance sheet dates because of the short maturities of these
     instruments. The method applies to cash and cash equivalents, net notes
     receivables, net premiums receivables, net compensation and payments
     recoverable from reinsurer, other receivables, net delinquent loans, commissions
     payable, net reinsurance compensation and payments payable, funds payable on
     reinsurance transactions, accrued expenses, refundable deposits, deposits received
     and reinsurance liability reserve contributed.

ii. If market price is available, the fair value of financial instruments at fair value
    through profit or loss, available-for-sale financial assets, and held-to-maturity
    financial assets is measured at quoted active market prices for these instruments.
    If market price is not available, the fair value is determined in accordance with
    valuation technique. The estimates and assumptions used by SCIC for fair
    market value are consistent with those used by market participants that formulate
    the pricing for financial instruments. The necessary information of those
    estimates and assumptions is available to SCIC.

iii. Fair value of other financial assets and liabilities, which approximates carrying
     value, is measured at expected future cash receipts or payments, except that of
     guarantee deposits paid in insurer, for litigation and others, as which government
     bond investments transferred out, is measured as financial assets at fair value
     through profit or loss - current.

iv. If market price is available, the fair value of derivative financial instruments is
    measured at quoted active market prices for these instruments. If market price is
    not available, the fair value is determined in accordance with valuation technique.
    The estimates and assumptions used by SCIC for fair market value are consistent
    with those used by market participants that formulate the pricing for financial


                                     - 77 -
        instruments. The necessary information of those estimates and assumptions is
        available to SCIC.

2) The fair values of financial assets and liabilities determined by using quoted active
   market price and valuation technique were as follows:

                                            Use of Quoted Price in           Use of Valuation
        Non-derivative Financial          Active Market Determined         Technique Estimated
             Instruments                     2006          2005             2006          2005

   Assets

   Cash and cash equivalents              $            - $           - $   3,140,605 $   2,907,025
   Financial assets at fair value through
      profit or loss - current                  876,153      1,219,560             -            -
   Notes receivable, net                              -              -       203,581      198,579
   Premiums receivables, net                          -              -       313,043      328,381
   Compensation and payments
      recoverable from reinsurer, net                  -             -       223,127      274,574
   Intercompany reinsurance
      receivables, net                                 -             -       211,115      246,602
   Other receivables                                   -             -       108,823       79,082
   Loans                                               -             -       117,071      114,949
   Available-for-sale financial assets
       - non-current                            363,119       272,554              -             -
   Held-to-maturity financial assets
        - non-current                                  -             -       742,774      575,878
   Financial assets carried at cost -
      non-current                                      -             -       313,059      389,392
   Refundable deposits                                 -             -       362,664      361,037
   Reinsurance liability reserve
      Contributed                                      -             -           608          609
   Delinquent loans, net                               -             -       260,936      146,555

   Liabilities

   Commissions payable                                 -             -             -       33,380
   Reinsurance indemnity payable, net                  -             -        21,492       23,947
   Funds payable on reinsurance
     transactions                                      -             -       356,634      445,064
   Accrued expenses                                    -             -        98,450       87,195
   Deposits received                                   -             -         6,613        3,930

                                            Use of Quoted Price in           Use of Valuation
          Derivative Financial            Active Market Determined         Technique Estimated
              Instruments                    2006          2005             2006          2005

   Liabilities

   Forward contracts                     $         2,093 $           - $           - $           -

3) Financial risk information

   i.   Market risk
        Market risk is the risk derived from market interest fluctuation. SCIC evaluates
        periodically market price of contracts by the risk management system and actuarial
        informations addressed by opposite banks. In addition, SCIC set up control
        mechanism in authorization to lower the market risk to a sustainable level.




                                              - 78 -
     ii. Credit risk

          The financial instruments acquired or issued by SCIC are subject to risk of
          financial loss resulting from the failure of a customer or counterparty to settle their
          contractual obligations as and when they fall due. Procedures of credit
          evaluation are necessary before investments in financial instruments and
          diversification of risk is also attained by dealing with many financial institutions
          renowned for remarkable credit. With the preceding reasons, there is low
          probabilities of defaults of counterparties and credit risk is considered sustainable.

     iii. Liquidity risk

          Since the capital and working capital are sufficient to perform all the contracted
          obligations during 2006 and 2005, there will be no liquidity risk in this regard.

e. HNIT

  1) Information of Fair Value is listed as follows:

                                                       2006                           2005
          Non-derivative Financial          Carrying          Fair         Carrying          Fair
                Instruments                  Value            Value         Value            Value

     Financial assets

     Financial assets - with fair value
       approximating carrying
       amounts                          $      361,867 $       361,867 $      214,864 $       214,864
     Financial assets at fair value
       through profit or loss - current         30,345          30,345        101,852         101,852
     Available-for-sale financial
       assets - noncurrent                             -              -     3,140,660        3,140,660
     Financial assets carried at cost -
       noncurrent                                7,000          19,376          7,000          17,465

     Financial liabilities

     Financial assets - with fair value
       approximating carrying
       amounts                                  24,357          24,357      3,158,316        3,158,316

     HNIT adopted SFAS No. 34 “Accounting for Financial Instruments” since January 1,
     2006. Consolidated cumulative effects of changes in accounting principle and equity
     adjustments from application of new accounting principles are disclosed in Note 3.

  2) HNIT adopts the following methods and assumptions to determine the fair values of
     financial instruments:

     i.   The fair value of the short-term financial instruments is determined at their
          carrying values on the balance sheet dates because of the short maturities of these
          instruments. The method applies to cash and cash equivalents, receivables,
          payables and refundable deposits composed of the time deposit with maturity
          within one year.

     ii. If market price is available, the fair value of financial instruments at fair value
         through profit or loss is measured at quoted active market prices for these
         instruments. If market price is not available, the fair value is determined in
         accordance with valuation technique. The estimates and assumptions used by

                                            - 79 -
        HNIT for fair market value are consistent with those used by market participants
        that formulate the pricing for financial instruments. The necessary information
        of those estimates and assumptions is available to HNIT.

   iii. The fair value of financial assets carried at cost is measured at net worth of
        investee which is available lately.

3) The fair values of financial assets and liabilities determined by using quoted active
   market price and valuation technique were as follows:

                                      Use of Quoted Price in         Use of Valuation
         Derivative Financial       Active Market Determined       Technique Estimated
             Instruments               2006          2005           2006          2005

   Financial assets

   Financial assets at fair value
     through profit or loss - current $ 30,345,298 $ 101,852,038 $          - $          -
   Financial assets carried at cost -
     noncurrent                                  -             -   19,376,000   17,465,000

4) Financial risk information

   i.   Market risk

        HNIT is engaged in investments of beneficiary certificates. Unit net worth of
        beneficiary certificates will be affected by the fluctuation of fair value of equity
        and debt investments included in assets portfolio, which derived from the change
        of market price and market interest rate.

   ii. Credit risk

        The financial instruments acquired or issued by HNIT are subject to potential
        effects resulting from the failure of a customer or counterparty to settle their
        contractual obligations as and when they fall due. Potential effects include
        concentration of credit risk, forming parts and contract amounts of financial
        instruments in which HNIT engaged and other receivables. The credit risk
        exposures of financial instruments approximated carrying values, which were
        evaluated only for those contracts with positive market value as of balance sheet
        date.

   iii. Liquidity risk

        Since the capital and working capital are sufficient to perform all the contracted
        obligations during 2006 and 2005, there will be no liquidity risk in this regard.

        Beneficiary certificates held by HBIT are open mutual funds and liquidity risk of
        those mutual fund is depended on liquidity of its own assets portfolio. HNIT
        may ask for redemption with net assets worth, i.e. fair value, in demand of capital.
        Investment in Taiwan Futures Exchange, accounted as financial assets carried at
        cost, has higher liquidity risk for not being traded in the active market.




                                      - 80 -
39. FAIR VALUE HEDGE

   The investment in foreign bonds could bear the risk of the changes in interest rate as a result
   of movements or fluctuations in the fair value. HNCB and its subsidiaries assessed the risk
   could be significant and therefore signed interest rate swap contracts designated as a fair value
   hedge.

                                                                           Designated as a Hedge Tool
                                                                  Financial Instruments       Fair Value
                                                                  Designated as a Hedge
   The Hedged Item                                                        Tool             December 31, 2006

   Investment in Foreign Bonds                                    IRS SWAP Contracts         $        (179,921)


40. SYNERGY AGREEMENTS WITH AND WITHIN SUBSIDIARIES

   Subsidiaries, including HNCB, HNSC, SCIC, HNBF and HNIT entered into a synergy
   agreement to share with their workplaces, manpower, and business information. The period
   of the agreement was from June 2006 to June 2007.

   In addition, HNCB also entered into a commission agreement with HNCB Insurance Agency
   Co., Ltd. and SCIC.

   HNCB entered into a synergy agreement with the Company, HNSC, SCIC, HNBF, HNIT,
   HNVC, HNAMC and HNMC to share with their system infrastructures, planning and
   construction, and business information in July 2005.

   Total revenues and expenses from synergy agreements of HNCB, HNSC and its subsidiaries,
   SCIC and HNIT are $49,582 thousand and $40,532 thousand in 2006 and 2005 respectively.


41. SEGMENT INFORMATION

                                                                       2006
                                  Bank           Securities          Insurance        Other
                                 Division         Division            Division       Division        Consolidation

   Interest income, net      $    22,853,671 $       719,744 $            78,807 $      231,186 $       23,883,408
   Net income (loss)
     excluding interest
     income                        9,913,852        2,323,990           1,239,360     (1,313,270)       12,163,932

   Gross income (loss)            32,767,523        3,043,734           1,318,167     (1,082,084)       36,047,340
   Bad-debt expenses from
     loans                        (8,670,214)                 -               (21)               -       (8,670,235)
   Provision for
     insurance liabilities                 -                -             (15,628)             -            (15,628)
   Operating expenses            (14,115,175)      (1,858,630)           (915,757)    (1,086,677)       (17,976,239)

   Income (loss) before
     income tax from
     continuing operations         9,982,134        1,185,104            386,761      (2,168,761)         9,385,238
   Income tax expense             (2,279,333)        (255,803)           (72,438)       (107,753)        (2,715,327)
   Cumulative effects of
     changes in accounting
     principles                    1,173,089          18,598                1,906        88,562          1,282,155

   Net income (loss) from
     continuing operations   $     8,875,890 $       947,899 $           316,229 $    (2,187,952) $      7,952,066



                                                    - 81 -
42. HUA NAN FINANCIAL HOLDINGS CO., LTD. AND SUBSIDIARIES’ FINANCIAL
    STATEMENT

                                           Hua Nan Financial Holdings Co., Ltd.
                                                     Balance Sheets
                                               December 31, 2006 and 2005
                                                                                                          (In Thousands of New Taiwan Dollars)

                                          2006             2005                                                 2006                 2005

   Cash and cash equivalents         $    5,952,640   $    6,057,564    Payables                           $      408,291       $      182,696
   Receivables, net                         874,364          660,741    Bank debentures payable                10,700,000            6,000,000
   Investments accounted for using                                      Accrued pension liability                  22,841               17,719
     equity method                       94,649,531       88,628,041    Other liabilities                             280                  280
   Other financial assets, net              312,314          354,000        Total Liabilities                  11,131,412            6,200,695
   Property and equipment, net                8,231            9,699
   Other assets, net                         21,998           57,028    Stockholders' Equity
                                                                        Capital stock                          59,702,086           59,702,086
                                                                        Capital surplus                        12,408,866           12,408,866
                                                                        Legal reserve                           3,100,052            2,147,366
                                                                        Special reserve                           111,017              111,017
                                                                        Unappropriated earnings                10,358,277           11,861,021
                                                                        Reserve for asset revaluation
                                                                          increment                             3,403,045            3,403,045
                                                                        Cumulative translation
                                                                          adjustments                             (62,903 )            (67,023 )
                                                                        Unrealized gains or losses on
                                                                          valuation of financial assets         1,667,226                    -
                                                                            Total stockholders’ equity         90,687,666           89,566,378

   TOTAL                             $ 101,819,078    $ 95,767,073      TOTAL                              $ 101,819,078        $ 95,767,073




                                Hua Nan Financial Holdings Co., Ltd.
                                       Statements of Income
                              Years Ended December 31, 2006 and 2005
               (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)

                                                                                         2006                                 2005

   REVENUES AND GAINS
     Interest income                                                            $            68,798                 $           38,887
     Income (losses) from investments accounted
        for using equity method                                                         8,325,825                             9,442,051
     Other non-interest income                                                             11,020                                 1,754

   EXPENSES AND LOSSES
     Interest expense                                                                     (248,258)                           (180,000)
     Operating expenses
        Personnel                                                                         (111,666)                           (101,067)
        Depreciation and amortization                                                       (6,693)                             (5,978)
        Other general and administrative expenses                                          (70,277)                            (80,953)

   INCOME BEFORE INCOME TAX FROM
     CONTINUING OPERATIONS                                                              7,968,749                             9,114,694

   INCOME TAX EXPENSE                                                                       (17,673)                           412,165

   NET INCOME                                                                   $       7,951,076                   $         9,526,859

                                                                            Pretax            After-tax          Pretax             After-tax

   BASIC EARNINGS PER SHARE                                                 $ 1.33              $ 1.33           $ 1.53              $ 1.60




                                                               - 82 -
                                                                                                   Hua Nan Financial Holdings Co., Ltd.
                                                                                              Statements of Changes in Stockholder's Equity
                                                                                                Years Ended December 31, 2006 and 2005
                                                                                                                                                                                                            (In Thousands of New Taiwan Dollars)

                                                                               Capital Surplus                                             Retained Earnings                                  Equity Adjustments
                                                                                                                                                                                                                    Unrealized
                                                        Additional                            Donated                                                                         Revaluation                          Gain (Loss)
                                          Common         Paid-in           Treasury            Assets                                           Special       Unappropriated Increments on       Cumulative        on Financial
                                           Stock         Capita             Stock             Received       Other Reserve Legal Reserve        Reserve          Earnings        Assets          Adjustments       Instruments        Total

BALANCE, JANUARY 1, 2005                 $ 55,796,342   $ 12,352,244   $      52,361      $       2,936      $     2,076     $ 1,070,177    $       9,494     $ 11,435,643    $      4,184       $   (111,016)     $           -   $ 80,614,441

Appropriation of 2004 earnings
  Legal reserve                                     -              -                  -                  -             -       1,077,189                -       (1,077,189)               -                 -                  -              -
  Special reserve                                   -              -                  -                  -             -               -          101,523         (101,523)               -                 -                  -              -
  Remuneration to directors and
    supervisors                                    -               -                  -                  -             -               -                  -        (95,932)               -                 -                  -        (95,932)
  Bonuses to employees - cash                      -               -                  -                  -             -               -                  -        (15,349)               -                 -                  -        (15,349)
  Cash dividends                                   -               -                  -                  -             -               -                  -     (3,905,744)               -                 -                  -     (3,905,744)
  Stock dividends                          3,905,744               -                  -                  -             -               -                  -     (3,905,744)               -                 -                  -              -

Translation adjustments on investments
  accounted for using equity method                 -              -                  -                  -          (751)              -                  -              -        3,398,861           43,993                   -     3,442,103

Net income in the year ended December
  31, 2005                                          -              -                  -                  -             -               -                  -      9,526,859                -                 -                  -     9,526,859

BALANCE, DECEMBER 31, 2005                59,702,086     12,352,244           52,361              2,936            1,325       2,147,366          111,017       11,861,021        3,403,045           (67,023)                 -    89,566,378

Appropriation of 2005 earnings
  Legal reserve                                     -              -                  -                  -             -         952,686                  -       (952,686)               -                 -                  -              -
  Special reserve                                   -              -                  -                  -             -               -                  -              -                -                 -                  -              -
  Remuneration to directors and
    supervisors                                     -              -                  -                  -             -               -                  -        (85,742)               -                 -                  -        (85,742)
  Bonuses to employees - cash                       -              -                  -                  -             -               -                  -        (13,719)               -                 -                  -        (13,719)
  Cash dividends                                    -              -                  -                  -             -               -                  -     (8,358,292)               -                 -                  -     (8,358,292)

Translation adjustments on investments
  accounted for using equity method                 -              -                  -                  -             -               -                  -        (43,381)               -             4,120          1,667,226     1,627,965

Net income in the year ended December
  31, 2006                                          -              -                  -                  -             -               -                  -      7,951,076                -                 -                  -     7,951,076

BALANCE, DECEMBER 31, 2006               $ 59,702,086   $ 12,352,244   $      52,361      $       2,936      $     1,325     $ 3,100,052    $     111,017     $ 10,358,277    $ 3,403,045        $    (62,903)     $ 1,667,226     $ 90,687,666




                                                                                                                    - 83 -
                              Hua Nan Financial Holdings Co., Ltd.
                                   Statements of Cash Flows
                           Years Ended December 31, 2006 and 2005

                                                            (In Thousands of New Taiwan Dollars)

                                                               2006                  2005

CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                             $     7,951,076         $   9,526,859
 Adjustments to reconcile net income to net cash
   provided by operating activities
   Depreciation and amortization                                  6,693                 5,978
   Income from investments accounted for using
      equity method                                          (8,325,825)            (9,442,051)
   Cash dividends and remuneration to directors
      and supervisors received from investments
      accounted for using equity method                       5,482,300             6,579,404
   Net changes in operating assets and liabilities
      Receivables                                              (213,623)             (137,308)
      Deferred tax asset decrease                                46,263                89,248
      Payables                                                  225,595              (160,276)
      Increase in accrued pension liability                       5,122                 5,405

       Net cash provided by operating activities              5,177,601             6,467,259

CASH FLOWS FROM INVESTING ACTIVITIES
 Increase in investments accounted for using equity
   method                                                    (1,550,000)            (1,000,000)
 Decrease in other financial assets                              41,686                      -
 Acquisition of properties                                       (1,395)                (1,117)
 Decrease (increase) in other assets                            (15,063)                 7,076

       Net cash used in investing activities                 (1,524,772)             (994,041)

CASH FLOWS FROM FINANCING ACTIVITIES
 Increase in bonds payable                                    4,700,000                      -
 Remuneration to director and supervisors                       (85,742)               (95,932)
 Bonuses paid to employees                                      (13,719)               (15,349)
 Cash dividends paid                                         (8,358,292)            (3,905,744)
 Decrease in other liabilities                                        -                    (65)

       Net cash used in financing activities                 (3,757,753)            (4,017,090)

(DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                                  (104,924)            1,456,128

CASH AND CASH EQUIVALENTS, BEGINNING
 OF YEAR                                                      6,057,564             4,601,436

CASH AND CASH EQUIVALENTS, END OF
 YEAR                                                   $     5,952,640         $   6,057,564

                                                                                     (Continued)



                                               - 84 -
                              Hua Nan Financial Holdings Co., Ltd.
                                   Statements of Cash Flows
                           Years Ended December 31, 2006 and 2005

                                                           (In Thousands of New Taiwan Dollars)

                                                              2006                 2005

SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION
  Interest paid                                        $       180,000         $     180,000
  Income tax paid                                      $         6,769         $       3,861

NONCASH INVESTING ACTIVITIES
 Effect on changes in subsidiaries’ capital surplus    $              -        $   3,398,110

                                                                                   (Concluded)




                                              - 85 -
43. SUBSIDIARIES’ CONDENSED BALANCE SHEETS

   a. Condensed balance sheets

                                                Hua Nan Commercial Bank, Ltd.
                                                  Condensed Balance Sheets
                                                 December 31, 2006 and 2005
                                                                                                               (In Thousands of New Taiwan Dollars)

                                             2006              2005                                                   2006                2005

    ASSETS                                                                  LIABILITIES
     Cash and cash equivalents        $     31,348,639    $    34,462,360     Due to the Central Bank and
     Due from the Central Bank
       and                                                                      other banks                    $     85,352,930    $    121,664,360
       other banks                         147,516,871        145,054,012     Financial liabilities at fair
     Financial assets at fair value                                             value through profit or loss         35,051,906          35,033,000
       through profit or loss, net          25,415,233         35,586,474     Bonds and bills sold under
     Bonds and bills purchased                                                  repurchase agreement                  19,885,627          19,487,465
       under resale agreements                  547,981           344,404     Payables                                46,687,752          52,506,753
     Receivables, net                        27,186,398        30,257,729     Deposits and remittances             1,282,352,410       1,250,967,560
     Discounts and loans, net             1,020,168,771       944,733,824     Bank debentures payable                 34,950,000          28,000,000
     Available-for-sale financial                                             Accrued pension liability                  695,832             424,022
       assets, net                         121,293,368        105,038,999     Other financial liabilities                822,743             506,953
     Held-to-maturity financial                                               Other liabilities                        7,425,060           7,586,111
       assets, net                         165,248,218        238,133,095       Total Liabilities                  1,513,224,260       1,516,176,224
     Investments accounted for
       using equity method                   1,898,071          1,921,943   Stockholders' Equity
     Other financial assets, net             8,845,485         10,262,809     Capital stock                          37,091,000          37,091,000
     Property and equipment, net            22,481,262         21,830,684     Capital surplus                        12,618,086          12,618,086
     Intangible assets                         528,459            395,701     Retained Earnings                      19,356,216          15,945,900
     Other assets, net                      17,246,049         19,889,361     Equity Adjustments                      7,435,243           6,080,185
                                                                                Total stockholders’ equity           76,500,545          71,735,171

    TOTAL                             $ 1,589,724,805     $ 1,587,911,395   TOTAL                              $ 1,589,724,805     $ 1,587,911,395




                                                                   - 86 -
                                       Hua Nan Bills Finance Corporation
                                          Condensed Balance Sheets
                                         December 31, 2006 and 2005
                                                                                                    (In Thousands of New Taiwan Dollars)

                                      2006           2005                                                2006               2005

ASSETS                                                           LIABILITIES
 Cash and cash equivalents        $ 5,574,582    $ 5,136,374       Due to the Central Bank and
 Due from the Central Bank                                           other banks                    $ 9,650,000        $ 10,610,000
   and other banks                           -       200,000       Commercial paper payable,
 Financial assets at fair value                                      net                                  259,840            989,711
   through profit or loss, net     30,386,794     44,911,394       Financial liabilities at fair
  Bonds and bills purchased                                          value through profit or loss          89,836             63,448
    under resale agreements         3,592,298      1,616,572       Bonds and bills sold under
  Receivables, net                    473,956        535,019         repurchase agreement             38,956,310         40,726,657
  Overdue receivables, net            509,709        557,555       Payables                               53,460             61,618
  Available-for-sale financial                                     Other liabilities                     171,602            185,357
    assets, net                     8,801,526        900,000         Total Liabilities                49,181,048         52,636,791
  Other financial assets, net       2,649,989      1,549,431
  Property and equipment, net         313,080        316,108     STOCKHOLDERS' EQUITY
  Other assets, net                   921,231        931,510       Capital stock                        4,001,000          4,001,000
                                                                   Retained Earnings                       21,214             16,172
                                                                   Equity Adjustments                      19,903                  -
                                                                     Total stockholders’ equity         4,042,117          4,017,172

TOTAL                             $ 53,223,165   $ 56,653,963    TOTAL                              $ 53,223,165       $ 56,653,963



                                              Hua Nan Securities Corp.
                                              Condensed Balance Sheets
                                             December 31, 2006 and 2005
                                                                                                    (In Thousands of New Taiwan Dollars)

                                      2006           2005                                                2006               2005

ASSETS                                                           LIABILITIES
 Current assets                   $ 16,704,169   $ 16,472,685      Current liabilities              $ 10,538,421       $ 10,747,642
 Funds and investments               1,765,111      1,451,472      Other liabilities                     621,572            739,407
 Property and equipment, net         1,762,927      1,762,342      Securities brokerage
 Intangible assets                      41,065         61,034       credit account, net                   79,174             68,324
 Other assets, net                   1,841,452      1,706,957        Total Liabilities                11,239,167         11,555,373

                                                                 STOCKHOLDERS' EQUITY
                                                                   Capital stock                       8,111,743           8,111,743
                                                                   Capital surplus                       466,438             466,438
                                                                   Retained Earnings                   2,009,316           1,306,880
                                                                   Equity Adjustments                    288,060              14,056
                                                                     Total stockholders’ equity       10,875,557           9,899,117

TOTAL                             $ 22,114,724   $ 21,454,490    TOTAL                              $ 22,114,724       $ 21,454,490




                                                        - 87 -
                                        South China Insurance Co., Ltd.
                                           Condensed Balance Sheets
                                          December 31, 2006 and 2005
                                                                                                    (In Thousands of New Taiwan Dollars)

                                     2006             2005                                                   2006                2005

ASSETS                                                             LIABILITIES
 Current assets                $ 5,146,200      $ 5,281,553          Current liabilities            $         591,074   $         678,400
 Loans                             117,071          114,949          Long - term liabilities                   63,074              58,013
 Funds and investments           1,542,680        1,362,384          Reserve for operations                 5,119,456           5,026,998
 Property and equipment, net       752,105          759,032            and liabilities
 Intangible assets                       -            2,583          Miscellaneous liabilities                  6,613               3,930
 Other assets, net                 675,616          560,230            Total Liabilities                    5,780,217           5,767,341

                                                                   STOCKHOLDERS' EQUITY
                                                                     Capital stock                          2,001,386           2,001,386
                                                                     Capital surplus                           15,341              15,341
                                                                     Retained Earnings                        399,907             283,117
                                                                     Equity Adjustments                        36,821              13,546
                                                                       Total stockholders’ equity           2,453,455           2,313,390

TOTAL                          $ 8,233,672      $ 8,080,731        TOTAL                            $ 8,233,672         $ 8,080,731



                                    Hua Nan Investment Trust Corporation
                                          Condensed Balance Sheets
                                         December 31, 2006 and 2005
                                                                                                    (In Thousands of New Taiwan Dollars)

                                     2006             2005                                                   2006                2005

ASSETS                                                             LIABILITIES
 Current assets                $      322,738   $       267,970      Current liabilities            $          24,700   $       3,225,812
 Funds and investments                  7,000         3,147,660      Other liabilities                          1,703               1,934
 Property and equipment, net          138,966           145,111        Total Liabilities                       26,403           3,227,746
 Other assets, net                     70,703            50,766
                                                                   STOCKHOLDERS' EQUITY
                                                                     Capital stock                            402,009             300,000
                                                                     Retained Earnings                        110,995              83,761
                                                                       Total stockholders’ equity             513,004             383,761

TOTAL                          $      539,407   $     3,611,507    TOTAL                            $         539,407   $       3,611,507




                                       Hua Nan Venture Capital Co., Ltd.
                                          Condensed Balance Sheets
                                         December 31, 2006 and 2005
                                                                                                    (In Thousands of New Taiwan Dollars)

                                     2006             2005                                                   2006                2005

ASSETS                                                             LIABILITIES
 Current assets                    $ 500,798        $ 683,284        Current liabilities                $       107         $           90
 Funds and investments               473,539          300,919         Total Liabilities                         107                     90

                                                                   STOCKHOLDERS' EQUITY
                                                                     Capital stock                      1,000,000           1,000,000
                                                                     Retained Earnings                    (30,813)            (13,364)
                                                                     Equity Adjustments                     5,043              (2,523)
                                                                       Total stockholders’ equity         974,230             984,113

TOTAL                              $ 974,337        $ 984,203      TOTAL                                $ 974,337           $ 984,203




                                                          - 88 -
                               Hua Nan Management & Consulting Co., Ltd.
                                       Condensed Balance Sheets
                                      December 31, 2006 and 2005
                                                                                             (In Thousands of New Taiwan Dollars)

                                   2006         2005                                               2006                2005

ASSETS                                                      LIABILITIES
 Current assets                 $ 15,173      $ 14,577        Current liabilities              $    2,673         $     2,690
 Property and equipment, net         701         1,311        Other liabilities                     1,227                 894
 Intangible assets                   690           894          Total Liabilities                   3,900               3,584
 Other assets, net                   301           302
                                                            STOCKHOLDERS' EQUITY
                                                              Capital stock                        10,000              10,000
                                                              Retained Earnings                     2,965               3,500
                                                                Total stockholders’ equity         12,965              13,500

TOTAL                           $ 16,865      $ 17,084      TOTAL                              $ 16,865           $ 17,084


                                     Hua Nan Asset Management Corp.
                                        Condensed Balance Sheets
                                       December 31, 2006 and 2005
                                                                                             (In Thousands of New Taiwan Dollars)

                                   2006         2005                                               2006                2005

ASSETS                                                      LIABILITIES
 Current assets                 $ 1,969,821   $ 992,647       Current liabilities             $ 1,079,665        $       1,399
 Long - term investments             61,955           -       Other liabilities                     1,145                  252
 Property and equipment, net          5,741       3,844         Total Liabilities               1,080,810                1,651
 Intangible assets                      273         252
 Other assets, net                   44,345           -     STOCKHOLDERS' EQUITY
                                                              Capital stock                     1,000,000            1,000,000
                                                              Retained Earnings                     1,325               (4,908)
                                                                Total stockholders’ equity      1,001,325              995,092

TOTAL                           $ 2,082,135   $ 996,743     TOTAL                             $ 2,082,135        $ 996,743




                                                   - 89 -
b. Condensed income statements

                         Hua Nan Commercial Bank, Ltd.
                          Condensed Income Statements
                     Years Ended December 31, 2006 and 2005
         (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                    2006                   2005

 INTEREST INCOME, NET                         $ 22,811,202         $ 20,850,592

 NET INCOME (LOSS) EXCLUDING
  INTEREST INCOME                                 10,140,608           12,833,739

 GROSS INCOME                                     32,951,810           33,684,331

 BAD-DEBT EXPENSES FROM LOANS                      (8,670,214)          (7,828,764)

 OPERATING EXPENSES                               (14,201,386)         (13,949,258)

 INCOME BEFORE INCOME TAX                         10,080,210           11,906,309

 CUMULATIVE EFFECT OF CHANGES IN
  ACCOUNTING PRINCIPLES                            1,173,089                         -

 NET INCOME                                   $    8,973,966       $    9,402,773

 EARNINGS PER SHARE - Pretax                  $            3.03    $              3.21

 EARNINGS PER SHARE - After-tax               $            2.42    $              2.54


                         Hua Nan Bills Finance Corporation
                           Condensed Income Statements
                     Years Ended December 31, 2006 and 2005
          (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                    2006                   2005

 INTEREST INCOME, NET                         $      405,847       $        374,915

 NET INCOME (LOSS) EXCLUDING
  INTEREST INCOME                                   (170,535)               264,624

 GROSS INCOME                                        235,312                639,539

 PROVISIONS                                           (93,869)          (1,270,239)

 OPERATING EXPENSES                                 (138,343)              (154,106)

 INCOME (LOSS) BEFORE INCOME TAX                       3,100               (784,806)

 CUMULATIVE EFFECT OF CHANGES IN
  ACCOUNTING PRINCIPLES                               78,910                         -

 NET INCOME (LOSS)                            $        5,042       $          4,459

 EARNINGS (LOSS) PER SHARE - Pretax           $            0.21    $          (1.96)

 EARNINGS PER SHARE - After-tax               $            0.01    $              0.01


                                    - 90 -
                           Hua Nan Securities Corp.
                         Condensed Income Statements
                   Years Ended December 31, 2006 and 2005
        (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                 2006                 2005

REVENUE                                     $   3,370,950        $   2,758,458

EXPENSE                                         (2,137,289)          (2,084,142)

INCOME BEFORE INCOME TAX                        1,233,661                 674,316

CUMULATIVE EFFECT OF CHANGES IN
 ACCOUNTING PRINCIPLES                             10,936                       -

NET INCOME                                  $   1,001,115        $        426,686

EARNINGS PER SHARE - Pretax                 $           1.53     $           0.83

EARNINGS PER SHARE - After-tax              $           1.23     $           0.53


                        South China Insurance Co., Ltd.
                         Condensed Income Statements
                   Years Ended December 31, 2006 and 2005
        (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                 2006                 2005

OPERATING INCOME                            $   9,862,871        $   9,749,880

OPERATING COST                                  (8,567,984)          (8,651,877)

GROSS INCOME FROM OPERATIONS                    1,294,887            1,098,003

OPERATING EXPENSES                               (918,736)            (841,676)

NET OPERATING INCOME                              376,151                 256,327

NON-OPERATING REVENUE                               7,906                   8,329

NON-OPERATING EXPENSE AND LOSS                      (1,139)                (1,416)

INCOME BEFORE INCOME TAX                          382,918                 263,240

CUMULATIVE EFFECT OF CHANGES IN
 ACCOUNTING PRINCIPLES                              1,906                       -

NET INCOME                                  $     312,386        $        217,328

EARNINGS PER SHARE - Pretax                 $           1.92     $           1.32

EARNINGS PER SHARE - After-tax              $           1.56     $           1.09




                                  - 91 -
                    Hua Nan Investment Trust Corporation
                         Condensed Income Statements
                   Years Ended December 31, 2006 and 2005
        (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                      2006                    2005

OPERATING INCOME                               $          130,976        $     250,474

OPERATING EXPENSES                                    (131,772)                (145,916)

NET OPERATING INCOME (LOSS)                                  (796)             104,558

NON-OPERATING REVENUE                                      55,399                   8,883

NON-OPERATING EXPENSE AND LOSS                       (1,479,186)                (95,801)

INCOME (LOSS) BEFORE INCOME TAX                      (1,424,583)                17,640

CUMULATIVE EFFECT OF CHANGES IN
 ACCOUNTING PRINCIPLES                                      9,652                         -

NET INCOME (LOSS)                              $     (1,420,756)         $      (20,767)

(LOSS) EARNINGS PER SHARE - Pretax             $           (20.73)       $           0.59

(LOSS) EARNINGS PER SHARE - After-tax          $           (20.81)       $          (0.69)


                       Hua Nan Venture Capital Co., Ltd.
                         Condensed Income Statements
                   Years Ended December 31, 2006 and 2005
        (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                   2006                      2005

OPERATING INCOME                           $          7,547          $          5,907

OPERATING EXPENSES                                  (20,700)                  (20,605)

NET OPERATING LOSS (INCOME)                         (13,153)                  (14,698)

NON-OPERATING REVENUE                                11,562                     6,427

NON-OPERATING EXPENSE AND
 LOSS                                               (15,858)                          -

(LOSS) INCOME BEFORE INCOME
  TAX                                               (17,449)                   (8,271)

NET (LOSS) INCOME                          $        (17,449)         $         (4,810)

(LOSS) EARNINGS PER SHARE -
  Pretax                                   $          (0.17)         $          (0.08)

(LOSS) EARNINGS PER SHARE -
  After-tax                                $          (0.17)         $          (0.05)



                                  - 92 -
                   Hua Nan Management & Consulting Co., Ltd.
                          Condensed Income Statements
                    Years Ended December 31, 2006 and 2005
         (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                 2006                 2005

OPERATING INCOME                             $      19,292        $        19,263

OPERATING EXPENSES                                 (16,093)                (15,150)

NET OPERATING INCOME                                 3,199                  4,113

NON-OPERATING REVENUE                                      -                     -

NON-OPERATING EXPENSE AND LOSS                             -                     -

INCOME BEFORE INCOME TAX                             3,199                  4,113

NET INCOME                                   $       2,262        $         3,109

EARNINGS PER SHARE - Pretax                  $          3.20      $           4.11

EARNINGS PER SHARE - After-tax               $          2.26      $           3.11


                        Hua Nan Asset Management Corp.
                          Condensed Income Statements
                    Years Ended December 31, 2006 and 2005
         (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

                                                 2006                 2005

REVENUE                                      $      76,701        $              -

EXPENSE                                            (62,174)                (11,578)

INCOME                                              14,527                 (11,578)

NON-OPERATING REVENUE                                1,129                  6,944

NON-OPERATING EXPENSE AND LOSS                      (8,432)                  (190)

INCOME (LOSS) BEFORE INCOME TAX                      7,224                  (4,824)

NET INCOME (LOSS)                            $       6,232        $         (4,908)

EARNINGS PER SHARE - Pretax                  $          0.07      $          (0.05)

EARNINGS PER SHARE - After-tax               $          0.06      $          (0.05)




                                   - 93 -
44. SUBSIDIARIES’ PROFITABILITY, ASSET QUALITY, LOANS TO PARTIES AND
    CONCENTRATION OF CREDIT EXTENSIONS, ANALYSIS OF DUE DATES OF
    ASSETS AND LIABILITIES and MARKET RISK SENSITIVITY

   a. Profitability

      1) Hua Nan Commercial Bank, Ltd.
                                                                        Unit: %
                          Item                        2006       2005
          Return on total    Pretax                     0.71      0.77
            assets           After Tax                  0.56      0.61
          Return on net      Pretax                    15.18     17.41
            worth            After Tax                 12.11     13.75
          Profit margin                                27.23     27.91

      2) Hua Nan Bills Finance Corporation
                                                                        Unit: %
                          Item                        2006       2005
          Return on total    Pretax                     0.15      (1.45)
            assets           After Tax                     -          -
          Return on net      Pretax                     2.11     (19.55)
            worth            After Tax                  0.13       0.11
          Profit margin                                 2.14       0.70

      3) Hua Nan Securities Corp.
                                                                        Unit: %
                          Item                        2006       2005
          Return on total    Pretax                     5.71      3.04
            assets           After Tax                  4.60      1.93
          Return on net      Pretax                    11.98      6.72
            worth            After Tax                  9.64      4.26
          Profit margin                                31.47     16.40

      4) South China Insurance Co., Ltd.
                                                                        Unit: %
                          Item                        2006       2005
          Return on total    Pretax                     4.73      3.36
            assets           After Tax                  3.83      2.77
          Return on net      Pretax                    16.17     11.38
            worth            After Tax                 13.11      9.40
          Profit margin                                 3.17      2.23

      5) Hua Nan Investment Trust Corporation
                                                                        Unit: %
                          Item                        2006       2005
          Return on total    Pretax                    (66.41)     1.05
            assets           After Tax                 (67.13)    (0.83)
          Return on net      Pretax                   (315.56)     3.93
            worth            After Tax                (316.86)    (4.63)
          Profit margin                             (1,084.74)    (8.29)




                                           - 94 -
   6) Hua Nan Venture Capital Co., Ltd.
                                                                                          Unit: %
                       Item                           2006                         2005
       Return on total    Pretax                       (1.78)                       (0.84)
         assets           After Tax                    (1.78)                       (0.49)
       Return on net      Pretax                       (1.78)                       (0.84)
         worth            After Tax                    (1.78)                       (0.49)
       Profit margin                                 (231.20)                      (81.43)

   7) Hua Nan Management & Consulting Co., Ltd.
                                                                                          Unit: %
                       Item                           2006                         2005
       Return on total    Pretax                       18.85                       24.11
         assets           After Tax                    13.33                       18.22
       Return on net      Pretax                       24.18                       30.01
         worth            After Tax                    17.10                       22.68
       Profit margin                                   11.73                       16.14

   8) Hua Nan Asset Management Corp.
                                                                                          Unit: %
                       Item                           2006                         2005
       Return on total    Pretax                           0.99                     (0.46)
         assets           After Tax                        0.80                     (0.48)
       Return on net      Pretax                           0.72                     (0.48)
         worth            After Tax                        0.62                     (0.49)
       Profit margin                                       8.13                         -

b. Asset quality

   1) Hua Nan Commercial Bank, Ltd.
                                                      (In Thousands of New Taiwan Dollars, %)
                                    December 31, 2006               December 31, 2005
                Item
                                  Amount      NPL Ratio          Amount        NPL Ratio
       Series A nonperforming
                                  18,540,490        1.80          18,244,580              1.91
         loans
       Series B nonperforming
                                   2,003,877        0.19           1,981,651              0.21
         loans
       Total nonperforming
                                  20,544,367        1.99          20,226,231              2.12
         loans
       Nonperforming loans
         that are exempted
         from being reported              933,796                              -
         as past-due items
         after negotiations
       Accounts receivable that
         are exempted from
         being reported as                386,617                              -
         past-due items after
         negotiations

       Note a: Nonperforming loans are in accordance with the Regulations of the
               Procedures for Banking Institutions to Evaluate Assets and Deal with
               Past-Due/Non-performing Loans and Bad Debts issued by the MOF.
       Note b: Series A and Series B nonperforming loans are defined in the Letter issued
               by the Banking Bureau on April 19, 2005 (Ref. No. IN-GI (1) 0941000251).
       Note c: NPL ratio = NPLs ÷ Loans
       Note d: The amounts of bad debts written off were cumulative from January 1
               to December 31 of 2006 and 2005.
       Note e: Non-performing loan balance excluded from regulatory reporting and
               account receivable balance excluded from regulatory reporting as a result of


                                         - 95 -
                 debt negotiations and related performance are disclosed to comply with the
                 Letter issued by Financial Supervisory Commission, Executive Yuan on
                 April 25, 2006 (ref. No. Tai-Tsai-Yin 09510001270).

   2) Hua Nan Bills Finance Corporation
                                                             (In Thousands of New Taiwan Dollars, %)
                           Item                         December 31, 2006      December 31, 2005
       Guarantees and endorsed credit
         amount not exceeding payment                              33,800                            -
         date three months
       Nonperforming loans (NPLs,
         including delinquent loans but                         1,024,678                 1,820,286
         except advance payment)
       Surveillance loans                                         426,000                   961,000
       Delinquent loans (not including
                                                                1,024,678                 1,820,286
         advance payment)
       NPL ratio                                                   6.23%                     10.43%
       NPL ratio plus surveillance loan ratio                      8.82%                     15.93%
       Allowance for bad debts and
                                                                  685,588                 1,356,031
         guarantees depended on rules
       Allowance for bad debts and
                                                                  699,991                 1,451,053
         guarantees in actual

c. Loans to parties and concentration of credit extensions

   1) Hua Nan Commercial Bank, Ltd.
                                                                    (In Thousands of New Taiwan Dollars, %)
                                             December 31, 2006                   December 31, 2005
       Loans to parties with common
                                                     52,775,638                         54,591,512
         interests
       Percentage of loans to parties
                                                           4.85                               5.41
         with common interests
       Percentage of loans secured
                                                           1.05                               1.63
         by stocks
                                             Industry             %             Industry             %
                                     Private parties              29.73 Private parties              29.02
       Approved credit concentration
        (Top 3)                      Manufacturing                25.41 Manufacturing                24.82
                                     Wholesale, retailing and           Wholesale, retailing and
                                                                  10.58                                  9.74
                                       restaurant                         restaurant

       Note a: Loans include bills purchased, loans and bills discounted, acceptances,
               delinquent loans, guarantees, and prepaid accounts receivable.
       Note b: Percentage of loans to parties with common interests = Loans to parties with
               common interest ÷ Total loans
       Note c: Percentage of loans secured by stocks = Loans secured by stocks ÷ Total
               loans
       Note d: Loans to parties with common interests is defined by the Banking Law.

   2) Hua Nan Bills Finance Corporation
                                                                    (In Thousands of New Taiwan Dollars, %)
                                             December 31, 2006                   December 31, 2005
       Loans to parties with common
                                                        200,000                            200,000
         interests
       Percentage of loans to parties
                                                         1.30%                              1.28%
         with common interests
       Percentage of loans secured
                                                        24.34%                             27.08%
         by stocks
                                             Industry             %             Industry             %
                                     Manufacturing                23.29 Manufacturing                21.23
       Approved credit concentration Wholesale, retailing and           Wholesale, retailing and
        (Top 3)                                                    8.23                                  8.26
                                       restaurant                         restaurant
                                     Finance, insurance and             Finance, insurance and
                                                                  60.45                              59.79
                                       real estate                        real estate




                                               - 96 -
d. Analysis of due dates of assets and liabilities

   1) Hua Nan Commercial Bank, Ltd.
                                                                              (In Thousands of New Taiwan Dollars)
                                                                     December 31, 2006
                                                       Period Remaining until Due Date and Amount Due
                                Total
                                                                                         181 Days~    More Than
                                             1~30 Days    31~90 Days    91~180 Days
                                                                                           1 Year      1 year
       Major maturity cash
                             1,297,674,000    336,480,000     126,383,000    147,876,000      118,435,000      568,500,000
        inflow
       Major maturity cash
                             1,335,323,000    179,150,000     215,724,000    203,353,000      321,699,000      415,397,000
        outflow
       Gap                    (37,649,000)    157,330,000     (89,341,000)   (55,477,000)     (203,264,000)    153,103,000


       Note: The amounts listed above include accounts in NT dollars only (i.e., excluding
             foreign currency) for both head office and domestic branches.

                                                                                          (In Thousands of U.S. Dollars)
                                                                     December 31, 2006
                                                       Period Remaining until Due Date and Amount Due
                                Total
                                                                                         181 Days~    More Than
                                             1~30 Days    31~90 Days    91~180 Days
                                                                                           1 Year      1 year
       Major maturity cash
                                9,605,429       3,676,329       1,331,094      1,563,117          191,137        2,843,752
        inflow
       Major maturity cash
                                9,590,620       4,186,846       1,250,173       918,111           544,406        2,691,084
        outflow
       Gap                         14,809        (510,517)        80,921        645,006          (353,269)        152,668


       Note: The amounts listed above include accounts in U.S. dollars for head office,
             domestic branches, and OBU.

   2) Hua Nan Bills Finance Corporation

       Analysis of maturities of assets and liabilities as of June 30, 2006:

                                                                               (In Millions of New Taiwan Dollars)

                                                                             91~180          181 Days~        More Than
           Item                              1~30 Days       31~90 Days
                                                                              Days             1 Year          1 Year
                    Bills                       22,509               -              -                 -               -
                    Bonds                        5,377               -             50             1,104           7,047
                    Deposits                       541             849          2,500             4,297               -
                    Call loans to banks              -               -              -                 -               -
       Cash used in
                    R.S (Note)                   3,592               -              -                 -               -
                    Other maturity cash
                                                     54              81           124               103           1,185
                      inflow
                    Total                       32,073             930          2,674             5,504           8,232
                    Call loans from
                                                 9,910                -               -                -               -
                      banks
       Cash         R.P (Note)                  34,640           3,542            775                  -              -
         provided Self-owned capital                 -               -              -                  -          4,042
         by         Other maturity cash
                                                     42              13               1                -               -
                      outflow
                    Total                       44,592           3,555            776                 -           4,042
       Net flow                                (12,519)         (2,625)         1,898             5,504           4,190
       Accumulated
                                               (12,519)        (15,144)       (13,246)           (7,742)         (3,552)
         net flow

       Note: R.S means Bonds and securities purchased under resell agreements, R.P Bonds
             and securities sold under repurchase agreements.




                                                 - 97 -
   e. Market risk sensitivity

      Hua Nan Commercial Bank, Ltd.

      Market risk sensitivity as of December 31, 2006 was as follows:
                                                                                    (In Thousands of New Taiwan Dollars)
                                                                           181 Days~         More Than
      Item                            1~90 Days         91~180 Days                                                Total
                                                                             1 Year            1 Year
      Interest-sensitive assets      1,056,241,000          83,392,000       87,280,000       109,473,000       1,336,386,000
      Interest-sensitive
                                     1,048,118,000          82,703,000       86,651,000         65,409,000      1,282,881,000
         liabilities
      Interest sensitivity gap            8,123,000            689,000          629,000         44,064,000         53,505,000
      Net worth                                                                                                    67,527,000
      Ratio of interest-sensitive assets to liabilities (%)                                                            104.17
      Ratio of interest sensitivity gap to net assets (%)                                                               79.23

      Note a: The amounts listed above include accounts in NT dollars only (i.e., excluding foreign currency) for both
              head office and domestic branches.
      Note b: Interest-sensitive assets and liabilities are interest-earning assets and interest-bearing liabilities with
              income or cost affected by interest rate fluctuations.
      Note c: Interest sensitivity gap = Interest-sensitive assets - Interest-sensitive liabilities
      Note d: Ratio of interest-sensitive assets to interest-sensitive liabilities =                Interest-sensitive assets
              (NT dollars only)                                                                   Interest-sensitive liabilities

                                                                                             (In Thousands of U.S. Dollars)
                                                                           181 Days~         More Than
      Item                            1~90 Days         91~180 Days                                                Total
                                                                             1 Year           1 Year
      Interest-sensitive assets           8,595,699            1,627,744        199,422          509,568           10,932,433
      Interest-sensitive
                                          8,686,618              915,255        628,875            439,207         10,669,955
         liabilities
      Interest sensitivity gap              (90,919)             712,489       (429,453)            70,361            262,478
      Net worth                                                                                                        73,664
      Ratio of interest-sensitive assets to liabilities (%)                                                            102.46
      Ratio of interest sensitivity gap to net assets (%)                                                              356.32

      Note a: The amounts listed above include accounts in U.S. dollars only for domestic branches, OBU, and overseas
              branches, excluding contingent assets and contingent liabilities.
      Note b: Interest-sensitive assets and liabilities are interest-earning assets and interest-bearing liabilities with
              income or cost affected by interest rate fluctuations.
      Note c: Interest sensitivity gap = Interest-sensitive assets - Interest-sensitive liabilities
      Note d: Ratio of interest-sensitive assets to interest-sensitive liabilities =                Interest-sensitive assets
              (U.S. dollars only)                                                                 Interest-sensitive liabilities


45. DISCLOSURES UNDER STATUTORY REQUIREMENTS

   a. Material transactions are summarized as follows:

         No.                                                  Item                                         Explanation
                 Accumulated purchases and sales balance of specific investees’
          1        marketable security over NT$300 million or 10% of paid-in                                  Table 3
                   capital
                 Acquisition of real estate over NT$300 million or 10% of                                       None
          2
                   paid-in capital
                 Disposal of real estate over NT$300 million or 10% of paid-in                                  None
          3
                   capital
                 Discount on fees income from related parties over NT$5                                         None
          4
                   million
                 Receivables from related parties over NT$300 million or 10%                                    None
          5
                   of paid-in capital
          6      Subsidiaries’ sale of NPL over NT$5 billion                                                    None
                 Subsidiaries’ securitized instruments and related assets                                       None
                   approved by competent authorities are in accordance with
          7
                   the Statute for Financial Assets Securitization and the
                   Statute for Real Estate Securitization
                 Other significant transactions which may affect decisions of the                               None
          8
                   users of the financial statements


                                                              - 98 -
b. Information on Hua Nan Financial Holdings Co., Ltd.’s investees

     No.                                Item                                  Explanation
      1    Information on investees                                            Table 1
      2    Financing provided to other entities                                 None
      3    Endorsement/guarantee provided to other entities                     None
      4    Marketable securities held                                          Table 2
           Accumulated purchases and sales balance of specific
      5    marketable security over NT$300 million or 10% of paid-in           Table 3
           capital
           Acquisition of real estate over NT$300 million or 10% of             None
      6
           paid-in capital
           Disposal of real estate over NT$300 million or 10% of paid-in        None
      7
           capital
           Discount on fees income from related parties over NT$5
      8                                                                        Table 4
           million
           Receivables from related parties over NT$300 million or 10%
      9                                                                         None
           of outstanding capital
     10    Derivative instrument                                               Note 38
     11    Sale of NPL over NT$5 billion                                        None
           Authorities securitized instruments and related assets which are
     12       in accordance with the Statute for Financial Assets               None
              Securitization and the Statute for Real Estate Securitization
           Other significant transactions which may affect decisions of the
     13                                                                         None
              users of the financial statements

   Note: None, or not required to disclose if the investee is a bank, insurance or security
         company don’t need to disclose.

c. Information of Investment in Mainland China: None.

d. Business relationship and significant transactions among the parent company and
   subsidiaries: Table 14

e. The Company’s stocks held by subsidiaries: None.




                                         - 99 -
Table 1 Information on investees

                                                                                                                                                                                        (In Thousands of New Taiwan Dollars/ U.S. Dollars)
                                                                                                           Investment Amount                           Ending Balance                      Net         Recognized       Investment
                                                                                                                                                                                         Income          Income         Percentage
                                                                                                         End of
      Investor        Investees’ Names          Investees’ Location     The major item of business                       End of                          Ownership                      (Loss) of       (Loss) of      of the Group    Note
                                                                                                         Current                         Shares                         Book Value
                                                                                                                       Last Period                      Interest (%)                    Current         Current        and Related
                                                                                                         Period
                                                                                                                                                                                         Period          Period            Parties
Hua Nan Financial    Hua Nan Commercial Taipei                          Banking                         $ 79,513,393    $ 79,513,393   3,709,100,000       100.00       $ 76,500,545   $ 8,973,966     $ 8,447,411                     Note
  Holdings Co., Ltd.   Bank, Ltd.


                     Hua Nan Securities      Taipei                     Security                          8,566,192       8,566,192     811,174,346        100.00        10,875,557      1,001,115         995,141                     Note
                       Corp.
                     Hua Nan Bills           Taipei                     Bills and bonds business          2,300,000       2,300,000     230,000,000         57.49         2,323,636          5,042           2,899       42.42%        Note
                       Finance
                       Corporation
                     South China             Taipei                     Insurance                         2,210,534       2,210,534     200,138,625        100.00         2,453,455        312,386         311,328                     Note
                       Insurance Co., Ltd.
                     Hua Nan Investment      Taipei                     Securities issuance and            605,700         503,690       40,200,959        100.00           513,004     (1,420,756 )    (1,420,756 )                   Note
                       Trust Corporation                                  investment
                     Hua Nan Venture         Taipei                     Venture capital investments       1,000,000       1,000,000     100,000,000        100.00           974,230        (17,449 )       (17,449 )                   Note
                       Capital Co., Ltd.
                     Hua Nan                 Taipei                     Enterprise operation                  6,000           6,000         600,000        100.00             7,779          2,262           1,019        0.80%        Note
                       Management &                                       management consulting
                       Consulting Co.,
                       Ltd.
                     Hua Nan Asset           Taipei                     Acquisition of delinquent         1,000,000       1,000,000     100,000,000        100.00         1,001,325          6,232           6,232                     Note
                       Management Corp.                                   loans, evaluation, auction,
                                                                          and management
Hua Nan Commercial Hua Nan Bills             10F, No.188, Nanjing E.    Bills and bonds business          1,696,843       1,696,843     169,684,282         42.41         1,714,262          5,042           2,138       57.50%        Note
  Bank., Ltd.        Finance                   Rd. Sec.5, Taipei,
                     Corporation               Taiwan, R.O.C.
                   HNCB Insurance            2F, No. 96, Yanping N.     Insurance agency                     49,940          49,940       4,994,000        100.00            91,194         16,103          15,529                     Note
                     Agency Co., Ltd.          Rd., Sec. 2, Taipei,
                                               Taiwan, R.O.C.
                     Chung-Hua Real          12F, No.396, Jilung Rd.,Construction plan review                19,264          19,264       7,670,160         30.00            92,615         17,348          11,810                     Note
                       Estate                  Sec.1, Taipei, Taiwan,  and consulting, evaluating
                       Management Co.          R.O.C.                  real estate, reviewing
                                                                       construction and
                                                                       managing construction
Chung-Hua Real       Feng Hua             12F., No. 396, Jilung Rd., Real estate construction and            93,735          93,735       8,910,000         45.00           167,431         81,959          34,325                     Note
  Estate               Development Corp. Sec. 1, Taipei, Taiwan,       sales
  Management Co.                            R.O.C.
Hua Nan Securities   Hua Nan Investment   Taipei                     Investment consultant                 129,950         129,950       13,713,800         99.95           146,551          6,232           6,196       0.005%        Note
  Corp.                Management Co.,
                       Ltd.
                     Hua Nan Futures Co., Taipei                     Futures brokering                     499,000         499,000       53,393,000         99.80           621,237         39,066          38,376        0.08%        Note
                       Ltd.
                     Hua Nan Managed      Taipei                     Management of futures                 200,000         200,000       20,000,000        100.00           191,867         (1,388 )        (1,388 )                   Note
                       Future Co., Ltd.                                transactions
                     Hua Nan Holdings     British Virgin Island      Holding company business              352,126         352,126       11,150,000        100.00           733,749          7,430           7,430                     Note
                       Corp.


                                                                                                                                                                                                                                      (Continued)




                                                                                                                       - 100 -
Table 1 Information on investees

                                                                                                                                                                           (In Thousands of New Taiwan Dollars/ U.S. Dollars)
                                                                                                  Investment Amount                      Ending Balance                       Net         Recognized     Investment
                                                                                                                                                                            Income          Income       Percentage
                                                                                             End of
     Investor       Investees’ Names     Investees’ Location   The major item of business                     End of                       Ownership                       (Loss) of       (Loss) of    of the Group    Note
                                                                                             Current                        Shares                        Book Value
                                                                                                            Last Period                   Interest (%)                     Current         Current      and Related
                                                                                             Period
                                                                                                                                                                            Period          Period          Parties
Hua Nan Holdings   Hua Nan Securities Hong Kong                Security                     USD 10,233      USD 10,233      79,975,000       100.00       USD 20,590    ( USD      75 ) ( USD      75 )                 Note
  Corp.              (HK) Limited
                   Hua Nan            Cayman Island            Consulting business          USD      500    USD       500     500,000        100.00       USD    479     USD       9     USD       9                    Note
                     International
                     Limited
                   Hua Nan Asset      Cayman Island            Consulting business          USD      150    USD       150     150,000        100.00       USD   1,192    USD     290     USD     290                    Note
                     Management Corp.




                                                                                                                                                                                                                       (Concluded)

Note: The investment gains (losses) recognized by the Company in 2006 were based on audited financial statements as of and for the year ended December 31, 2006.




                                                                                                            - 101 -
Table 2 Investees’ marketable securities held

                                                                                                                                                          (In Thousands of New Taiwan Dollars/ U.S. Dollars)
                                                                                                                                          December 31, 2006
   Held Company             Type and Name of               Issuer’s Relationship to
                                                                                          Accounts Recorded                                             Percentage of     Market Value or        Note
       Name                Marketable Security                   the Owner                                          Shares (Units)    Carrying Value
                                                                                                                                                         Ownership          Net Equity
Hua Nan Financial      Stocks
  Holdings Co., Ltd.
                       Hua Nan Commercial Bank,        The Company’s subsidiary         Investments accounted         3,709,100,000   $   76,500,545          100.00      $    76,500,545       Note 1
                         Ltd.                                                             for using equity
                                                                                          method
                       Hua Nan Securities Corp.        The Company’s subsidiary         Investments accounted           811,174,346       10,875,557          100.00           10,875,557       Note 1
                                                                                          for using equity
                                                                                          method
                       Hua Nan Bills Finance           The Company’s subsidiary         Investments accounted           230,000,000        2,323,636           57.49            2,323,636       Note 1
                         Corporation                                                      for using equity
                                                                                          method
                       South China Insurance Co.,      The Company’s subsidiary         Investments accounted           200,138,625        2,453,455          100.00            2,453,455       Note 1
                         Ltd.                                                             for using equity
                                                                                          method
                       Hua Nan Investment Trust        The Company’s subsidiary         Investments accounted            40,200,959          513,004          100.00              513,004       Note 1
                         Corporation                                                      for using equity
                                                                                          method
                       Hua Nan Venture Capital Co., The Company’s subsidiary            Investments accounted           100,000,000          974,230          100.00              974,230       Note 1
                         Ltd.                                                             for using equity
                                                                                          method
                       Hua Nan Management &            The Company’s subsidiary         Investments accounted               600,000            7,779           60.00                7,779       Note 1
                         Consulting Co., Ltd.                                             for using equity
                                                                                          method
                       Hua Nan Asset Management        The Company’s subsidiary         Investments accounted           100,000,000        1,001,325          100.00            1,001,325       Note 1
                         Corp.                                                            for using equity
                                                                                          method
                       Taiwan Depository and            Investees estimated at cost     Financial assets carried            706,512           18,314            0.25               18,314       Note 2
                         Clearing Corp.                                                   at cost
                       Taipei Financial Center Corp.    Investees estimated at cost     Financial assets carried         49,000,000          294,000            2.00              294,000       Note 2
                                                                                          at cost
HNCB Insurance         Bonds
  Agency
Co., Ltd.              Government Construction                          -               Guarantee deposits                    7,500            8,458                -              11,051       Note 2
                         Bond 89-7
Hua Nan Investment     Funds
  Trust Corporation    Yung Chong Fund                 The funds managed by Hua Nan     Financial assets at fair          1,825,558           17,105                -              17,105       Note 2
                                                         Investment Trust Corporation     value through profit or
                                                                                          loss
                       Long-Win Balanced Fund          The funds managed by Hua Nan     Financial assets at fair          1,184,125           13,240                -              13,240       Note 2
                                                         Investment Trust Corporation     value through profit or
                                                                                          loss

                                                                                                                                                                                                 (Continued)




                                                                                                        - 102 -
Table 2 Investees’ marketable securities held

                                                                                                                                                        (In Thousands of New Taiwan Dollars/ U.S. Dollars)
                                                                                                                                        December 31, 2006
   Held Company            Type and Name of                Issuer’s Relationship to
                                                                                        Accounts Recorded                                             Percentage of     Market Value or        Note
       Name               Marketable Security                    the Owner                                        Shares (Units)    Carrying Value
                                                                                                                                                       Ownership          Net Equity
                      Stocks
                      Taiwan Futures Exchange           Investees estimated at cost   Financial assets carried            700,000   $        7,000            0.35      $         7,000       Note 2
                                                                                        at cost
Hua Nan Venture       Capital Safe Income                               -             Financial assets at fair          2,055,664           30,609                -              30,609       Note 2
  Capital Co., Ltd.                                                                     value through profit or
                                                                                        loss
                      Capital Cash Reserves                             -             Financial assets at fair          1,280,115           15,003                -              15,003       Note 2
                                                                                        value through profit or
                                                                                        loss
                      Inotera Memories, Inc.                            -             Financial assets at fair            335,000           13,099            0.01               13,099       Note 2
                                                                                        value through profit or
                                                                                        loss
                      Taiwan High-Tech Corporation The Company’s ambassador of        Financial assets carried          3,288,600           30,000            9.37               30,000       Note 2
                                                     director of a legal person and     at cost
                                                     that company’s is the same
                      AGON-Tech Corporation                          -                Financial assets carried            649,000           14,337            4.76               14,337       Note 2
                                                                                        at cost
                      Nano Amp Solutions, Inc.                          -             Financial assets carried            200,000           26,992            0.59               26,992       Note 2
                                                                                        at cost
                      Genesis Photonics Inc.                            -             Financial assets carried          1,965,700           25,214            3.93               25,214       Note 2
                                                                                        at cost
                      Applied Wireless Identification                   -             Financial assets carried          1,200,000           40,644            4.49               40,644       Note 2
                        Group                                                           at cost
                      Groundhog Technologies, Inc.                      -             Financial assets carried          1,666,667           32,202            5.40               32,202       Note 2
                                                                                        at cost
                      Therion Biologics Corporation                     -             Financial assets carried            227,272                 -           0.25                    -    Note 2, Note 3
                                                                                        at cost
                      PacificTech Microelectronics                      -             Financial assets carried          1,066,666           26,659            6.67               26,659       Note 2
                        Co., Ltd.                                                       at cost
                      ProbeLeader Co., Ltd.                             -             Financial assets carried          1,000,000           25,000            7.04               25,000       Note 2
                                                                                        at cost
                      Applied Photonics Inc.                            -             Financial assets carried            642,425           23,537            6.96               23,537       Note 2
                                                                                        at cost
                      Essence Technology Solution,                      -             Financial assets carried            660,000           11,880            2.35               11,880       Note 2
                        Inc.                                                            at cost
                      Mechanic Net Group, Inc.                          -             Financial assets carried            200,000            9,597            1.18                9,597       Note 2
                                                                                        at cost
                      Altea Therapeutics Corporation                    -             Financial assets carried            344,827           31,995            1.67               31,995       Note 2
                                                                                        at cost
                      Nanopolymer Composites                            -             Financial assets carried          3,300,000           33,000            8.15               33,000       Note 2
                        Corporation                                                     at cost
                      Viking Tech Corporation                           -             Financial assets carried          1,000,000           22,978            1.83               22,978       Note 2
                                                                                        at cost

                                                                                                                                                                                               (Continued)


                                                                                                      - 103 -
Table 2 Investees’ marketable securities held

                                                                                                                                                             (In Thousands of New Taiwan Dollars/ U.S. Dollars)
                                                                                                                                             December 31, 2006
   Held Company            Type and Name of                  Issuer’s Relationship to
                                                                                          Accounts Recorded                                                Percentage of     Market Value or        Note
       Name               Marketable Security                      the Owner                                        Shares (Units)       Carrying Value
                                                                                                                                                            Ownership          Net Equity
                      Feature Integration Technology                    -               Financial assets carried          1,500,000      $       33,000            5.23      $       33,000        Note 2
                        Inc.                                                              at cost
                      SuperAlloy Industrial Co., Ltd.                   -               Financial assets carried            800,000              36,000             2.20              36,000       Note 2
                                                                                          at cost
                      Kionix, Inc.                                      -               Financial assets carried          2,308,238              26,504             1.04              26,504       Note 2
                                                                                          at cost
                      Ultra-Pak Industries Co., Ltd.                    -               Financial assets carried          1,000,000              24,000             3.70              24,000       Note 2
                                                                                          at cost
                      Inotera Memories, Inc.                            -                  Available-for-sale               500,000              19,550             0.02              19,550       Note 2
                                                                                              financial assets
                      Microcosm Technology Co.,                         -                  Available-for-sale               455,400              13,890             0.65              13,890       Note 2
                        Ltd.                                                                  financial assets
                      Innolux Display Co., Ltd.                         -                  Available-for-sale               800,000              47,280             0.03              47,280       Note 2
                                                                                              financial assets
Hua Nan Futures Co., Bonds and bills sold under
  Ltd.                 repurchase agreement
                     Government Construction                            -               Cash and cash                                -            5,600                -               5,600   Has been
                       Bond 97-1                                                          equivalents                                                                                            eliminated
                     Commercial paper                                   -               Cash and cash                                -            5,025                -               5,025
                                                                                          equivalents
Hua Nan Futures Co., Stocks
  Ltd                Taiwan Futures Exchange                            -               Financial assets carried          2,875,000              28,750             1.44              28,750
                                                                                          at cost
                      Funds
                      Hua Nan Global Luxury Goods Substantial related                   Financial assets at fair          2,000,000              20,420                -              20,420
                        Fund                                                              value through profit or
                                                                                          loss
Hau Nan Holdings      Hua Nan Securities (HK)           Held indirect                   Investments accounted             7,997,500      USD     20,590          100.00      USD      20,590
  Corp.                 Limited                                                           for using equity
                                                                                          method
                      Hua Nan International Limited Held indirect                       Investments accounted               500,000      USD        480          100.00      USD         480
                                                                                          for using equity
                                                                                          method
                      Hua Nan Asset Management          Held indirect                   Investments accounted               150,000      USD      1,192          100.00      USD       1,192
                        Corporation                                                       for using equity
                                                                                          method
Hua Nan Asset         Treasury bonds with 10 years                      -               Financial assets at fair          2,000,000      USD      1,998                -     USD       2,003
  Management            maturity                                                          value through profit or
  Corporation                                                                             loss
                      Chi Mei ECB                                       -               Financial assets at fair            250,000      USD        250                -     USD         259
                                                                                          value through profit or
                                                                                          loss


                                                                                                                                                                                                   (Concluded)


                                                                                                        - 104 -
Note 1: Net Equity were based on the latest audited financial statements.
Note 2: The market value of fund was based on the net asset value as of December 31, 2006. The market values of bonds are based on the reference prices of the over-the-counter securities exchange as
        of December 31, 2006.Market value of the listed stocks was based on the closing price as of December 31, 2006.Net Equity of unlisted company was based on book value.
Note 3: Financial assets carried at cost has recognized as loss $15,858 thousand and based on the Statement of Financial Accounting Standards No.35, “Impairment of Assets”




                                                                                               - 105 -
Table 3 Accumulated purchases and sales balance of specific investees’ marketable security over NT$300 million or 10% of paid-in capital
                                                                                                                                                                                                    (In Thousands of New Taiwan Dollars)
                                                                           Issuer’s     Beginning of the Period             Purchases                                         Sales                                   End of the Period
                    Type and Name of                                     Relationship
                                          Accounts
 Buyer or Seller      Marketable                        Counter Party       to the      Shares                        Shares                      Shares            Selling           Carrying        Disposal      Shares
                                          Recorded                                                     Amount                        Amount                                                                                       Amount
                        Security                                          Buyer or      (Units)                       (Units)                     (Units)            Price             Value         Gain (Loss)    (Units)
                                                                            Seller
Hua Nan Financial Hua Nan Investment Investments     capital increase/         -         30,000,000   $ 383,761       155,000,000   $ 1,550,000   144,799,041   $             -       $ 1,447,990     $        -    40,200,959    $ 513,004
  Holdings Co.,     Trust Corporation   accounted      decrease                                        (Note)                                                                                                                      (Note)
  Ltd.                                  for using
                                        equity
                                        method
Hua Nan           Taiwan business     Available-for- Public Market            -          78,480,124      558,968                -             -    78,480,124        553,756             558,968          (5,212)             -            -
  Commercial        bank, Ltd.          sale
  Bank, Ltd.                            financial
                                        assets




Note: The amount at beginning and End of the Period was based on the Company recognized income (loss) of current period.




                                                                                                                  - 106 -
Table 4 Discount on fees income from related parties over NT$5 million

                                                                                                                                 (In Thousands of New Taiwan Dollars)
                                                                                                                   Conditions and Reasons of
                                                                      Relationship
    Securities Trader               Counter Party                                                Trading amount   Different Trading Terms from          Note
                                                                                                                         Normal Trading

Hua Nan Securities Corp.   Hua Nan Commercial Bank, Ltd.   Both are the Company’s subsidiaries    $     17,142




                                                                              - 107 -
Table 5 Consolidated entities


                                                                                                                          Percentage of Ownership
              Investor Company                       Investees’ Names                Main Business and Products      December 31,        December 31,   Note
                                                                                                                         2006                2005
Hua Nan Financial Holdings Co., Ltd.   Hua Nan Commercial Bank, Ltd.                 Banking                          100.00%             100.00%        -
                                       Hua Nan Securities Corp.                      Security                         100.00%             100.00%        -
                                       Hua Nan Bills Finance Corporation             Bills and bonds business          57.49%              57.49%        -
                                       South China Insurance Co., Ltd.               Insurance                        100.00%             100.00%        -
                                       Hua Nan Investment Trust Corporation          Securities issuance and          100.00%             100.00%        -
                                                                                       investment
                                       Hua Nan Venture Capital Co., Ltd.             Venture capital investments      100.00%             100.00%        -
                                       Hua Nan Management & Consulting Co., Ltd.     Enterprise operation              60.00%              60.00%        -
                                                                                       management consulting
                                       Hua Nan Asset Management Corp.                Acquisition of delinquent        100.00%             100.00%        -
                                                                                       loans, evaluation, auction,
                                                                                       and management
Hua Nan Commercial Bank, Ltd.          Hua Nan Bills Finance Corporation             Bills and bonds business          42.41%              42.41%        -
                                       HNCB Insurance Agency Co., Ltd.               Insurance agency                 100.00%             100.00%        -
Hua Nan Securities Corp.               Hua Nan Investment Management Co., Ltd.       Investment consultant             99.95%              99.95%        -
                                       Hua Nan Futures Co., Ltd.                     Futures brokering                 99.80%              99.80%        -
                                       Hua Nan Managed Future Co., Ltd.              Management of futures            100.00%             100.00%        -
                                                                                       transactions
                                       Hua Nan Holdings Corp.                        Holding company business         100.00%             100.00%        -
Hua Nan Holdings Corp.                 Hua Nan Securities (HK) Limited               Security                         100.00%             100.00%        -
                                       Hua Nan International Limited                 Consulting business              100.00%             100.00%        -
                                       Hua Nan Asset Management Corp.                Consulting business              100.00%             100.00%        -




                                                                                 - 108 -
Table 6 Businesses operated in the foreign countries or regions without competent authorities governing securities businesses

                                                                                                                                                          (In U.S. Dollars)
                                                   Engagement in the                       Revenue from
                                Securities Held by                                                           The Major Item of
      Company’s Name                                  Derivatives     Cash Provided by        Assets             Business        Litigation Event    Financial Position
                                   Businesses
                                                     Instruments                           Management
Hua Nan Holdings Corp.               Table 7               -         Hua Nan Securities   $            -   Holding company              -           Table 8, Table 9
                                                                       Corp.                                 business
Hua Nan International Limited          〃                   -         Hua Nan Holdings               241    Consulting business          -           Table 10, Table 11
                                                                       Corp.
Hua Nan Asset Management               〃                   -         Hua Nan Holdings                  -   Consulting business          -           Table 12, Table 13
  Corp.                                                                Corp.




                                                                               - 109 -
Table 7 Marketable securities held by the entity set up in the countries or areas with no securities authorities

                                                                                                                                                        (In U.S. Dollars except Shares /Units)
                                                                                                                              December 31, 2006
  Held Company          Type and Name of           Issuer’s Relationship
                                                                            Accounts Recorded                                           Percentage of      Market Value or          Note
      Name              Marketable Security            to the Owner                                   Shares (Units)   Carrying Value
                                                                                                                                         Ownership           Net Equity
Hau Nan Holdings   Hua Nan Securities (HK)             Held indirect       Investments accounted         7,997,500     $    20,589,694      100.00         $    20,589,694
  Corp.             Limited                                                  for using equity
                                                                             method
                   Hua Nan International Limited       Held indirect                 〃                     500,000             479,634      100.00                   479,634
                   Hua Nan Asset Management            Held indirect                 〃                     150,000           1,191,694      100.00                 1,191,694
                    Corporation
                                                                                                                                                            $     22,261,022
Hua Nan Asset      Treasury bonds with 10 years              -             Financial assets at fair      2,000,000           1,997,813        -             $      2,002,813
 Management          maturity                                                value through profit
 Corporation                                                                 or loss
                   Chi Mei ECB                               -                       〃                     250,000            250,000         -                      259,375
                                                                                                                                                            $      2,262,188




                                                                                          - 110 -
Table 8

                              HUA NAN HOLDINGS CORPORATION
                                      BALANCE SHEETS
                                 DECEMBER 31, 2006 AND 2005
                                                                                    (In U.S. Dollars)

                                                          2006                       2005
                                                      Amount         %           Amount         %

Current assets
  Cash and cash equivalents                       $       252,483        1   $     247,523          2
  Overdue receivables                                          60        -               -          -

       Total current assets                               252,543        1         247,523          2

Investments accounted for using equity
  method                                              22,261,022      99         13,522,614       98

Total Assets                                      $ 22,513,565       100     $ 13,770,137        100

Liabilities
  Accrued expenses                                $         2,149        -   $        1,038         -

       Total liabilities                                    2,149        -            1,038         -

Stockholders’ equity
  Capital stock                                       11,150,000      49         11,150,000       81
  Accumulated profit or loss                           2,640,495      12          2,870,618       21
  Net income (loss)                                      228,381       1           (230,123)      (2)
  Cumulative translation adjustments                     (64,977)      -            (21,396)       -
  Unrealized gains or losses on valuation of
    available-for-sale financial assets                  8,557,517    38                   -        -

       Total stockholders’ equity                     22,511,416     100         13,769,099      100

Total Liabilities and Stockholders’ Equity        $ 22,513,565       100     $ 13,770,137        100




                                               - 111 -
Table 9

                        HUA NAN HOLDINGS CORPORATION
                              STATEMENTS OF INCOME
                      YEARS ENDED DECEMBER 31, 2006 AND 2005
                                                                        (In U.S. Dollars)

                                                 2006                     2005
                                             Amount       %           Amount        %

REVENUE
  Investments revenue                    $      224,472    97     $           -        -
  Other revenue                                   7,543     3             2,976      100

      Total revenue                             232,015   100             2,976      100

EXPENSE
  Investments loss                                    -       -         229,562    7,714
  Operating expenses                              3,609       2           3,537      119
  Foreign exchange loss                              25       -               -        -

      Total expense                               3,634       2         233,099    7,833

NET INCOME (LOSS)                        $      228,381    98     $    (230,123) (7,733)




                                      - 112 -
Table 10

                           HUA NAN INTERNATIONAL LIMITED
                                    BALANCE SHEETS
                              DECEMBER 31, 2006 AND 2005
                                                                                (In U.S. Dollars)

                                                        2006                      2005
                                                    Amount        %           Amount        %

Current assets
  Cash and cash equivalents                     $      485,578    100     $     475,300      100
  Futures trading margin receivable                          -      -                 9        -
  Other current assets                                   2,278      -             2,057        -

Total Assets                                    $      487,856    100     $     477,366      100

Current liabilities
  Accrued expenses                              $        2,150        -   $       1,040         -
  Other payables                                         6,072        1           6,400         1

       Total liabilities                                 8,222        1           7,440         1

Stockholders’ equity
  Capital stock                                        500,000    103           500,000      105
  Accumulated loss                                     (30,074)    (6)          (14,655)      (3)
  Net income (loss)                                      9,708      2           (15,419)      (3)

       Total stockholders’ equity                      479,634     99           469,926       99

Total Liabilities and Stockholders’ Equity      $      487,856    100     $     477,366      100




                                             - 113 -
Table 11

                         HUA NAN INTERNATIONAL LIMITED
                               STATEMENTS OF INCOME
                       YEARS ENDED DECEMBER 31, 2006 AND 2005
                                                                      (In U.S. Dollars)

                                                  2006                  2005
                                              Amount      %         Amount        %

REVENUE
  Interest revenue                        $      13,972    97   $       5,568       88
  Commission revenue                                241     2             602       10
  Foreign exchange gain                             239     1             162        2

      Total revenue                              14,452   100           6,332      100

EXPENSE
  Service expense                                 2,149    15           1,105       18
  Operating expenses                              2,595    18          20,646      326

      Total expense                               4,744    33          21,751      344

NET INCOME (LOSS)                         $       9,708    67   $     (15,419)    (244)




                                       - 114 -
Table 12

                     HUA NAN ASSET MANAGEMENT CORPORATION
                                  BALANCE SHEETS
                             DECEMBER 31, 2006 AND 2005
                                                                                       (In U.S. Dollars)

                                                            2006                        2005
                                                        Amount          %           Amount         %

Current assets
  Cash and cash equivalents                          $ 10,835,318        79     $    1,092,548         8
  Financial assets at fair value through profit
    or loss - current                                       2,262,188    16          4,506,417       31
  Bonds and bills purchased under resale
    agreements                                               373,332        3                -        -
  Other receivables                                          247,125        2        8,716,788       61
  Prepayments                                                  2,162        -            2,059        -

Total Assets                                         $ 13,720,125       100     $ 14,317,812        100

Current liabilities
  Short - term debt                                  $ 11,107,737        81     $             -        -
  Bonds and bills sold under repurchase
    agreements                                                373,170       3        9,271,465       65
  Accrued expenses                                             36,533       -           41,105        -
  Other payables                                            1,010,991       7        4,103,373       29

       Total liabilities                                12,528,431       91         13,415,943       94

Stockholders’ equity
  Capital stock                                              150,000        1         150,000          1
  Accumulated profit                                         751,869        6         722,242          5
  Net income                                                 289,825        2          29,627          -

       Total stockholders’ equity                           1,191,694       9         901,869          6

Total Liabilities and Stockholders’ Equity           $ 13,720,125       100     $ 14,317,812        100




                                                  - 115 -
Table 13

                    HUA NAN ASSET MANAGEMENT CORPORATION
                              STATEMENTS OF INCOME
                     YEARS ENDED DECEMBER 31, 2006 AND 2005
                                                                             (In U.S. Dollars)

                                                      2006                     2005
                                                  Amount       %           Amount        %

REVENUE
  Gain from sale of operating securities      $      330,462    41     $     369,092       68
  Interest revenue                                   452,813    56           169,779       32
  Commission revenue                                  29,077     3                 -        -
  Foreign exchange gain                                  216     -                 -        -

       Total revenue                                 812,568   100           538,871      100

EXPENSE
  Interest expense                                   533,088    66           480,652       89
  Operating expenses                                   4,030     -            27,782        5
  Adjustments for change in value of
     operating securities                            221,708    27                 -         -
  Foreign exchange loss                                    -     -               810         -

       Total expense                                 758,826    93           509,244       94

INCOME BEFORE INCOME TAX                              53,742       7          29,627         6

CUMULATIVE EFFECTS OF CHANGES
 IN ACCOUNTING PRINCIPLES                            236,083    29                  -        -

NET INCOME                                    $      289,825    36     $      29,627         6




                                           - 116 -
Table 14 Business relationship and significant transactions among the parent company and subsidiaries

                                                                                                                                                            (In Thousands of New Taiwan Dollars)
                                                                                                                              Description of Transactions
                                                                              Nature of                                                                             Transaction Amount/Total
  No.
               Transaction Company                Counter-party              Relationship       Financial Statement                                                 Consolidated Net Revenue
(Note 1)                                                                                                                     Amounts          Trading Terms
                                                                               (Note 2)              Account                                                       or Total Consolidated Assets
                                                                                                                                                                           (%) (Note3)
           2006
   0       Hua Nan Financial Holdings      Hua Nan Commercial Bank,               a.        Cash and cash equivalents    $     5,952,640           Note 4                       0.36%
             Co., Ltd.                       Ltd. and Subsidiaries
   0       Hua Nan Financial Holdings      Hua Nan Commercial Bank,               a.        Payables                            229,329              〃                          0.01%
             Co., Ltd.                       Ltd. and Subsidiaries
   0       Hua Nan Financial Holdings      Hua Nan Securities Corp. and           a.        Receivables                         212,724              〃                          0.01%
             Co., Ltd.                       Subsidiaries
   1       Hua Nan Commercial Bank,        Hua Nan Financial Holdings             b.        Deposits and remittances           5,952,640             〃                          0.36%
             Ltd. and Subsidiaries           Co., Ltd.
   1       Hua Nan Commercial Bank,        Hua Nan Securities Corp. and           c.        Deposits and remittances           1,473,959             〃                          0.09%
             Ltd. and Subsidiaries           Subsidiaries
   1       Hua Nan Commercial Bank,        South China Insurance Co., Ltd.        c.        Deposits and remittances            148,653              〃                          0.01%
             Ltd. and Subsidiaries
   1       Hua Nan Commercial Bank,        Hua Nan Venture Capital Co.,           c.        Deposits and remittances            122,157              〃                          0.01%
             Ltd. and Subsidiaries           Ltd.
   1       Hua Nan Commercial Bank,        Hua Nan Financial Holdings             b.        Receivables                         229,329              〃                          0.01%
             Ltd. and Subsidiaries           Co., Ltd.
   2       Hua Nan Securities Corp. and Hua Nan Commercial Bank,                  c.        Cash and Other assets              1,473,959             〃                          0.09%
             Subsidiaries                    Ltd. and Subsidiaries
   2       Hua Nan Securities Corp. and Hua Nan Investment Trust                  c.        Bonds and bills sold under          266,157              〃                          0.02%
             Subsidiaries                    Corporation                                      repurchase agreement
   2       Hua Nan Securities Corp. and Hua Nan Financial Holdings                b.        Payables                            212,724              〃                          0.01%
             Subsidiaries                    Co., Ltd.
   3       Hua Nan Bills Finance           Hua Nan Asset Management               c.        Other financial assets              522,948            Note 4                       0.03%
             Corporation                     Corp.
   3       Hua Nan Bills Finance           South China Insurance Co., Ltd.        c.        Bonds and bills sold under          486,111              〃                          0.03%
             Corporation                                                                      repurchase agreement
   4       South China Insurance Co., Ltd. Hua Nan Commercial Bank,               c.        Cash and cash equivalents           148,653              〃                          0.01%
                                             Ltd. and Subsidiaries
   4       South China Insurance Co., Ltd. Hua Nan Bills Finance                  c.        Cash and cash equivalents           486,111              〃                          0.03%
                                             Corporation
   5       Hua Nan Investment Trust        Hua Nan Securities Corp. and           c.        Bonds and bills purchased           266,157              〃                          0.02%
             Corporation                     Subsidiaries                                     under resale agreements
   6       Hua Nan Venture Capital Ltd., Hua Nan Commercial Bank,                 c.        Cash and cash equivalents           122,157              〃                          0.01%
             Ltd.                            Ltd. and Subsidiaries

                                                                                                                                                                                    (Continued)



                                                                                                 - 117 -
Table 14 Business relationship and significant transactions among the parent company and subsidiaries


                                                                                                                                                          (In Thousands of New Taiwan Dollars)
                                                                                                                            Description of Transactions
                                                                             Nature of                                                                            Transaction Amount/Total
  No.
              Transaction Company                 Counter-party             Relationship       Financial Statement                                                Consolidated Net Revenue
(Note 1)                                                                                                                   Amounts          Trading Terms
                                                                              (Note 2)              Account                                                      or Total Consolidated Assets
                                                                                                                                                                         (%) (Note3)
   7       Hua Nan Asset Management       Hua Nan Bills Finance                  c.        Credit right receivable     $      522,948              〃                          0.03%
            Ltd.                           Corporation

           2005
   0       Hua Nan Financial Holdings     Hua Nan Commercial Bank,               a.        Cash and cash equivalents         6,057,564             〃                          0.36%
             Ltd., Ltd.                     Ltd. and Subsidiaries
   0       Hua Nan Financial Holdings     Hua Nan Commercial Bank,               a.        Payables                           114,298              〃                          0.01%
             Ltd., Ltd.                     Ltd. and Subsidiaries
   0       Hua Nan Financial Holdings     Hua Nan Securities Ltd. and            a.        Receivables                        229,047              〃                          0.01%
             Ltd., Ltd.                     Subsidiaries
   1       Hua Nan Commercial Bank,       Hua Nan Financial Holdings             b.        Deposits and remittances          6,057,564             〃                          0.36%
             Ltd. and Subsidiaries          Ltd., Ltd.
   1       Hua Nan Commercial Bank,       Hua Nan Securities Ltd. and            c.        Deposits and remittances          1,015,339             〃                          0.06%
             Ltd. and Subsidiaries          Subsidiaries
   1       Hua Nan Commercial Bank,       Hua Nan Bills Finance                  c.        Deposits and remittances           355,765              〃                          0.02%
             Ltd. and Subsidiaries          Corporation
   1       Hua Nan Commercial Bank,       Hua Nan Bills Finance                  c.        Bonds and bills purchased          148,095            Note 4                       0.01%
             Ltd. and Subsidiaries          Corporation                                      under resale agreements
   1       Hua Nan Commercial Bank,       South Ltd. Insurance Ltd., Ltd.        c.        Deposits and remittances           119,253              〃                          0.01%
             Ltd. and Subsidiaries
   1       Hua Nan Commercial Bank,       Hua Nan Venture Capital Ltd.,          c.        Deposits and remittances           220,027              〃                          0.01%
             Ltd. and Subsidiaries         Ltd.
   1       Hua Nan Commercial Bank,       Hua Nan Financial Holdings             b.        Receivables                        114,298              〃                          0.01%
             Ltd. and Subsidiaries         Ltd., Ltd.
   1       Hua Nan Commercial Bank,       Hua Nan Securities Ltd. and            c.        Other assets                       134,596              〃                          0.01%
             Ltd. and Subsidiaries         Subsidiaries
   1       Hua Nan Commercial Bank,       Hua Nan Investment Trust               c.        Loans                             2,930,000             〃                          0.17%
             Ltd. and Subsidiaries         Corporation
   2       Hua Nan Securities Ltd. and    Hua Nan Commercial Bank,               c.        Cash and Other assets             1,015,339             〃                          0.06%
             Subsidiaries                  Ltd. and Subsidiaries
   2       Hua Nan Securities Ltd. and    Hua Nan Commercial Bank,               c.        Payables                           134,596              〃                          0.01%
             Subsidiaries                  Ltd. and Subsidiaries
   2       Hua Nan Securities Corp. and   Hua Nan Financial Holdings             b.        Payables                           229,047              〃                          0.01%
             Subsidiaries                  Co., Ltd.

                                                                                                                                                                                  (Continued)



                                                                                                - 118 -
Table 14 Business relationship and significant transactions among the parent company and subsidiaries

                                                                                                                                                                (In Thousands of New Taiwan Dollars)
                                                                                                                                  Description of Transactions
                                                                              Nature of                                                                                 Transaction Amount/Total
  No.
               Transaction Company                Counter-party              Relationship       Financial Statement                                                     Consolidated Net Revenue
(Note 1)                                                                                                                         Amounts          Trading Terms
                                                                               (Note 2)              Account                                                           or Total Consolidated Assets
                                                                                                                                                                               (%) (Note3)
   3       Hua Nan Bills Finance           Hua Nan Commercial Bank,               c.        Cash and cash equivalents        $       55,765              〃                          -
             Corporation                     Ltd. and Subsidiaries
   3       Hua Nan Bills Finance           Hua Nan Commercial Bank,               c.        Financial assets at fair value          300,000              〃                          0.02%
             Corporation                     Ltd. and Subsidiaries                            through profit or loss
   3       Hua Nan Bills Finance           Hua Nan Asset Management               c.        Other financial assets                  820,205              〃                          0.05%
             Corporation                     Corp.
   3       Hua Nan Bills Finance           Hua Nan Commercial Bank,               c.        Bonds and bills sold under              148,095              〃                          0.01%
             Corporation                     Ltd. and Subsidiaries                            repurchase agreement
   3       Hua Nan Bills Finance           Hua Nan Asset Management               c.        Bonds and bills sold under              139,497            Note 4                       0.01%
             Corporation                     Corp.                                            repurchase agreement
   3       Hua Nan Bills Finance           South China Insurance Co., Ltd.        c.        Bonds and bills sold under              510,242              〃                          0.03%
             Corporation                                                                      repurchase agreement
   4       South China Insurance Co., Ltd. Hua Nan Commercial Bank,               c.        Cash and cash equivalents               119,253              〃                          0.01%
                                             Ltd. and Subsidiaries
   4       South China Insurance Co., Ltd. Hua Nan Bills Finance                  c.        Cash and cash equivalents               510,242              〃                          0.03%
                                             Corporation
   5       Hua Nan Investment Trust        Hua Nan Commercial Bank,               c.        Short-term debt                        2,930,000             〃                          0.17%
             Corporation                     Ltd. and Subsidiaries
   6       Hua Nan Venture Capital Co., Hua Nan Commercial Bank,                  c.        Cash and cash equivalents               220,027              〃                          0.01%
             Ltd.                            Ltd. and Subsidiaries
   7       Hua Nan Asset Management        Hua Nan Bills Finance                  c.        Credit right receivable                 820,205              〃                          0.05%
             Corp.                           Corporation
                                           Hua Nan Bills Finance                  c.        Bonds and bills purchased               139,497              〃                          0.01%
                                             Corporation                                      under resale agreements

Note 1: Transaction between parent company and subsidiaries should be distinguished as follows:
        a. Parent company: 0.
        b. Subsidiaries are numbered sequentially from 1.
Note 2: Three types of transactions with related parties were classified as follows:
        a. Parent company to subsidiaries.
        b. Subsidiaries to parent company.
        c. Subsidiaries to subsidiaries.
Note 3: For calculating the percentages, asset or liability account is divided by the total consolidated assets and revenue or expense account is divided by the total consolidated net
        revenue of the same year.
Note 4: The terms for the transactions between the Company and related parties are similar to those with unrelated parties.



                                                                                                 - 119 -
Table 15

                HUA NAN FINANCIAL HOLDINGS CO., LTD.
   DISCLOSURE REQUIRED UNDER ARTICLE 46 OF THE FINANCIAL HOLDING
                           COMPANY LAW
                          DECEMBER 31, 2006

                                                                 (In Millions of New Taiwan Dollars, %)

                                                               Total Amounts of
                                                                                        Percentage
                          Name                               Credits, Endorsement
                                                                                     Of HNFH’s Equity
                                                             or Other Transactions
1. With same person
   Central Bank of the Republic of China (Taiwan)               $      163,370             201.42%
   National Treasury Agency                                             86,650             106.83%
   Taiwan Power Company                                                 18,730              23.09%
   Bureau of National Health Insurance                                  17,500              21.58%
   AU Optronics Corporation                                             13,267              16.36%
   Taiwan High Speed Rail Corporation                                   12,679              15.63%
   Formosa Petrochemical Co.                                            11,816              14.57%
   CPC Corporation, Taiwan                                               9,666              11.92%
   Chi Mei Optoelectronics Corporation                                   9,554              11.78%
   EVA Airways Corp.                                                     7,192               8.87%
   China Airlines Corp.                                                  6,440               7.94%
   Shin Kong Financial Holding Co., Ltd.                                 5,719               7.05%
   Formosa Chemicals Fibre Corporation                                   4,999               6.16%
   Chunghwa Picture Tubes, Ltd.                                          4,891               6.03%
   Central Deposit Insurance Corporation                                 4,600               5.67%
   Nan Ya Plastics Corporation                                           4,228               5.21%
   Uni-President Corporation                                             4,040               4.98%
   Taipei Fubon Bank. Ltd.                                               4,030               4.97%
   Taoyuan County Government                                             4,000               4.93%
   Chailease Finance Co., Ltd.                                           3,924               4.84%
   Entie Commercial Bank, Ltd.                                           3,583               4.42%
   Mai-Liao Power Corporation                                            3,277               4.04%
   E.SUN Commercial Bank, Ltd.                                           3,213               3.96%
   Taipei County Government                                              3,000               3.70%
2. With same related parties
   Chong-Ren Huang with same related parties                             3,215               3.96%
3. With same affiliate
   Formosa Petrochemical Co. with same affiliate                        16,206              19.98%
   AU Optronics Corporation with same affiliate                         14,825              18.28%
   Chi Mei Optoelectronics Corporation with same affiliate              13,815              17.03%
   Evergreen Development Co., Ltd. with same affiliate                  12,344              15.22%
   Tatung Co. with same affiliate                                       10,253              12.64%
   Nan Ya Plastics Corporation with same affiliate                       8,002               9.87%
   Far Eastern Textile Ltd. with same affiliate                          7,566               9.33%
   Uni-President Corporation with same affiliate                         6,998               8.63%
   China Airlines Corp. with same affiliate                              6,440               7.94%
   E.SUN Financial Holding Company, Ltd. with same
     affiliate                                                           6,257               7.71%
   China Steel Corporation with same affiliate                           6,250               7.71%
   Shin Kong Financial Holding Co., Ltd. with same
     affiliate                                                           5,719               7.05%
   Formosa Chemicals Fibre Corporation with same
     affiliate                                                           5,114               6.31%
   Chailease Finance Co., Ltd. with same affiliate                       4,869               6.00%
   Yulon Motor Co., Ltd. with same affiliate                             4,596               5.67%
   Powerchip Semiconductor Corp. with same affiliate                     3,724               4.59%
   Taiwan Cement Corporation with same affiliate                         3,463               4.27%



                                                 - 120 -

				
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