Exhibit 2
SHINHAN FINANCIAL GROUP CO., LTD
Consolidated Financial Statements
December 31, 2003 and 2002
(With Independent Auditors’ Report Thereon)
F-1
Independent Auditors’ Report
Based on a report originally issued in Korean
To the Board of Directors and Stockholders
Shinhan Financial Group Co., Ltd.:
We have audited the accompanying consolidated balance sheets of Shinhan Financial Group Co., Ltd. (the “Company”) and its subsidiaries as of December 31, 2003, and 2002, and the related statements of earnings, changes of 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. The financial statements of Chohung Bank, which were audited by other auditors, reflect 40.90% of the Company’s consolidated total assets as of and 22.03% of the Company’s consolidated operating revenue for the year ended December 31, 2003. In addition, the financial statements of Goodmorning Shinhan Securities Co., Ltd. and Jeju Bank, which were reviewed by other accountants and audited by other auditors, respectively, reflect 4.69% of the Company’s consolidated total assets as of and 7.79% of the Company’s consolidated operating revenue for the year ended December 31, 2002. Our opinion, in connection with the amounts included for these subsidiaries, is based solely on the reports of other accountants and auditors.
We conducted our audits in accordance with the Auditing Standards, as established by the Financial Supervisory Commission of the Republic of Korea. Those 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 and significant estimates used by management, as well as evaluating the overall financial statement presentation. We believe that our audits, reviews by other accountants and audits by other auditors provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2003 and 2002, and the results of its operations, the changes in its stockholders’ equity, and its cash flows for the years then ended in accordance with the Financial Accounting Standards, as established by the Financial Supervisory Commission of the Republic of Korea.
The accompanying consolidated financial statements as of and for the year ended December 31, 2003 and 2002 have been translated into United States dollars solely for the convenience of the reader and on the basis set forth in note 2(b) to the consolidated financial statements.
F-2
Without qualifying our opinion, we draw attention to the following:
As described in note 1(b) and 4 to the consolidated financial statements, on July 9, 2003, the Company made an agreement with the Korea Deposit Insurance Corporation (the “KDIC”) to acquire 80.04% (543,570,144 shares) of total outstanding shares in Chohung Bank. In accordance with the agreement, the Company purchased 266,349,371 shares in exchange for the Company’s shares on August 18, 2003 and 277,220,773 shares in cash on August 19, 2003. The acquisition of the shares was accounted for using the purchase method, and the acquisition cost of the shares and goodwill were W1,857,983 million and W840,244 million, respectively. Additionally, pursuant to the acquisition agreement, the Company would be required to pay contingent consideration to the KDIC at the maximum amount of W652,284 million related to Asset Indemnity Payment, W166,516 million related to General Indemnity Payment and additional Earn Out Payment based on earnings of Chohung Bank in future periods. These contingent considerations are not included in the acquisition cost on the date of acquisition, for the amount is not determinable. On December 30, 2003, its percentage of ownership subsequently increased to 81.15% through additional equity acquisition at W200,000 million. In addition, on June 18, 2003, the Company sold 49% (294,000 shares) of total outstanding shares in Shinhan Credit Information Co., Ltd. to LSH Holdings LLC.
As described in note 1(a) to the consolidated financial statements, the Company’s American depository shares were listed on the New York Stock Exchange on September 16, 2003.
As described in note 1(b) to the consolidated financial statements, on March 3, 2004, Shinhan Bank sold 10.2% (29,873,295 shares) of total outstanding shares in the Company at W627,339 million (W21,000 per share), through after-hour block trading.
As discussed in note 2(a) to the consolidated financial statements, accounting principles and auditing standards and their application in practice vary among countries. The accompanying consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those knowledgeable about Korean accounting procedures and auditing standards and their application in practice.
As described in note 2(a) to the consolidated financial statements, the Company adopted Statements of Korea Accounting Standards (“SKAS”) No. 2 through No. 9, effective from the first fiscal year beginning after December 31, 2002, while, SKAS No. 6, “Events Occurring after the Balance Sheet Date” has been adopted since the year ended December 31, 2002 with encouraged earlier application.
As described in note 29(h) to the consolidated financial statements, Shinhan Bank and Chohung Bank are holding loans (including guarantees and acceptances) provided to and securities issued by SK Networks Co., Ltd. (formerly SK Global Co., Ltd.), amounting to W396,058 million and W303,011 million, respectively. As regards to those loans and securities, Shinhan Bank provides W110,982 million of allowance for loan losses and recorded W1,178 million of impairment loss on available-for-sale securities, and Chohung Bank provides W93,784 million of allowance for loan losses, as of December 31, 2003. Actual losses on those loans and securities may differ materially from the management’s assessments and the accompanying consolidated financial statements do not reflect the impact of the uncertainty on the financial position of the Company and its subsidiaries.
F-3
As described in note 29(h) to the consolidated financial statements, Shinhan Bank, Chohung Bank and Goodmorning Shinhan Securities Co., Ltd. are holding loans provided to and securities issued by LG Card Co., Ltd., which has been controlled by creditor banks due to its liquidity crisis, amounting to W189.3 billion, W172.9 billion and W22.6 billion, respectively. Actual losses on those loans and securities may differ materially from the management’s assessments and the accompanying consolidated financial statements do not reflect the impact of the uncertainty on the financial position of the Company and its subsidiaries. Additionally, Shinhan Bank and Chohung Bank have agreed with creditor banks to provide additional capital, amounting to W81.3 billion and W73.4 billion, respectively.
KPMG Samjong Accounting Corp.
Seoul, Korea
January 30, 2004
This report is effective as of January 30, 2004, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.
F-4
Shinhan Financial Group Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars, except share data)
Won | U.S. dollars (note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Assets | ||||||||||||||||
Cash and due from bank (notes 5, 17, 18 and 19) | 6,418,280 | 2,847,134 | $ | 5,358,390 | 2,376,969 | |||||||||||
Securities (notes 6, 17 and 19) | 28,003,660 | 15,454,214 | 23,379,245 | 12,902,165 | ||||||||||||
Loans (notes 7 and 19) | 94,921,179 | 45,244,361 | 79,246,267 | 37,772,885 | ||||||||||||
Fixed assets (notes 8, 17 and 18) | 2,853,680 | 1,093,844 | 2,382,435 | 913,211 | ||||||||||||
Other assets (notes 9, 10, 19 and 28) | 7,012,593 | 2,128,042 | 5,854,561 | 1,776,626 | ||||||||||||
139,209,392 | 66,767,595 | $ | 116,220,898 | 55,741,856 | ||||||||||||
Liabilities and Stockholders’ equity | ||||||||||||||||
Liabilities: | ||||||||||||||||
Deposits (notes 11 and 19) | 87,592,605 | 38,722,333 | $ | 73,127,905 | 32,327,878 | |||||||||||
Borrowings (notes 12 and 19) | 17,209,576 | 11,351,814 | 14,367,654 | 9,477,221 | ||||||||||||
Debentures (notes 13 and 19) | 17,747,879 | 8,395,403 | 14,817,063 | 7,009,018 | ||||||||||||
Retirement and severance benefits (note 14) | 205,951 | 159,519 | 171,941 | 133,176 | ||||||||||||
Other liabilities (notes 15, 19 and 28) | 10,345,750 | 4,177,159 | 8,637,294 | 3,487,361 | ||||||||||||
Total liabilities | 133,101,761 | 62,806,228 | 111,121,857 | 52,434,654 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Capital stock of | ||||||||||||||||
Common stock | 1,472,007 | 1,461,806 | 1,228,926 | 1,220,409 | ||||||||||||
Authorized - 1,000,000,000 shares | ||||||||||||||||
Issued - 294,401,300 shares in 2003 292,361,125 shares in 2002 | ||||||||||||||||
Preferred stock | 486,523 | — | 406,180 | — | ||||||||||||
Issued - 097,304,564 shares in 2003 | ||||||||||||||||
Consolidated capital surplus | 3,200,805 | 1,887,708 | 2,672,237 | 1,575,979 | ||||||||||||
Consolidated retained earnings | 872,053 | 670,763 | 728,046 | 559,996 | ||||||||||||
Consolidated capital adjustments (notes 21 and 22) | (519,362 | ) | (379,797 | ) | (433,597 | ) | (317,079 | ) | ||||||||
Minority interest in consolidated subsidiaries | 595,605 | 320,887 | 497,249 | 267,897 | ||||||||||||
Total stockholders’ equity | 6,107,631 | 3,961,367 | 5,099,041 | 3,307,202 | ||||||||||||
Commitments and contingencies (note 29) | ||||||||||||||||
139,209,392 | 66,767,595 | $ | 116,220,898 | 55,741,856 | ||||||||||||
See accompanying notes to consolidated financial statements.
F-5
Shinhan Financial Group Co., Ltd. and Subsidiaries
Consolidated Statements of Earnings
For the years ended December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
Won | U.S. dollars (note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Operating revenue: | ||||||||||||||||
Interest income: | ||||||||||||||||
Interest on due from banks | 56,845 | 50,342 | $ | 47,458 | 42,029 | |||||||||||
Interest on securities | 1,122,893 | 976,851 | 937,463 | 815,538 | ||||||||||||
Interest on loans | 3,779,897 | 2,598,517 | 3,155,700 | 2,169,408 | ||||||||||||
Other | 36,319 | 20,655 | 30,321 | 17,244 | ||||||||||||
4,995,954 | 3,646,365 | 4,170,942 | 3,044,219 | |||||||||||||
Fees and commission income | 1,355,949 | 842,973 | 1,132,033 | 703,768 | ||||||||||||
Insurance income | 42,934 | — | 35,844 | — | ||||||||||||
Other operating income: | ||||||||||||||||
Dividends on securities | 8,496 | 16,090 | 7,093 | 13,433 | ||||||||||||
Realized gain from sale of trading securities | 133,377 | 89,965 | 111,352 | 75,109 | ||||||||||||
Unrealized gain on trading securities | 32,063 | 4,238 | 26,768 | 3,538 | ||||||||||||
Gain on foreign currency transactions | 256,046 | 214,869 | 213,764 | 179,386 | ||||||||||||
Gain on derivatives | 1,043,246 | 1,043,567 | 870,968 | 871,236 | ||||||||||||
Other | 204,012 | 71,350 | 170,322 | 59,568 | ||||||||||||
1,677,240 | 1,440,079 | 1,400,267 | 1,202,270 | |||||||||||||
8,072,077 | 5,929,417 | 6,739,086 | 4,950,257 | |||||||||||||
Operating expenses: | ||||||||||||||||
Interest expense: | ||||||||||||||||
Interest on deposits | 1,865,645 | 1,497,088 | 1,557,560 | 1,249,865 | ||||||||||||
Interest on borrowings | 473,069 | 441,794 | 394,948 | 368,838 | ||||||||||||
Interest on debentures | 630,406 | 392,526 | 526,303 | 327,706 | ||||||||||||
Other | 27,776 | 20,732 | 23,189 | 17,308 | ||||||||||||
2,996,896 | 2,352,140 | 2,502,000 | 1,963,717 | |||||||||||||
Fees and commission expense | 195,099 | 160,115 | 162,881 | 133,674 | ||||||||||||
Insurance expense | 47,618 | — | 39,754 | — | ||||||||||||
Other operating expenses: | ||||||||||||||||
Realized loss from sale of trading securities | 111,004 | 69,901 | 92,673 | 58,358 | ||||||||||||
Unrealized loss on trading securities | 53,776 | 16,280 | 44,896 | 13,592 | ||||||||||||
Bad debt expense | 1,150,491 | 192,690 | 960,503 | 160,870 | ||||||||||||
Loss on derivatives | 989,540 | 981,550 | 826,131 | 819,460 | ||||||||||||
Loss on foreign currency transactions | 135,622 | 129,305 | 113,226 | 107,952 | ||||||||||||
General and administrative expenses (note 23) | 1,348,139 | 941,757 | 1,125,513 | 786,239 | ||||||||||||
Other | 258,106 | 146,662 | 215,484 | 122,443 | ||||||||||||
4,046,678 | 2,478,145 | 3,378,426 | 2,068,914 | |||||||||||||
7,286,291 | 4,990,400 | 6,083,061 | 4,166,305 | |||||||||||||
Operating income | 785,786 | 939,017 | 656,025 | 783,952 |
F-6
Shinhan Financial Group Co., Ltd. and Subsidiaries
Consolidated Statements of Earnings, Continued
For the years ended December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars, except earnings per share)
Won | U.S. dollars (note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Non-operating income (expense): | ||||||||||||||||
Realized gain (loss) from sale of available-for-sale securities, net | 56,641 | (16,616 | ) | 47,287 | (13,872 | ) | ||||||||||
Reversal of impairment loss on available-for-sale securities | 15,562 | 14,192 | 12,992 | 11,848 | ||||||||||||
Impairment loss on available-for-sale securities | (103,110 | ) | (109,279 | ) | (86,083 | ) | (91,233 | ) | ||||||||
Gain (loss) on sale of loans | (166,102 | ) | 3,821 | (138,672 | ) | 3,190 | ||||||||||
Other, net | 42,202 | 21,181 | 35,233 | 17,683 | ||||||||||||
(154,807 | ) | (86,701 | ) | (129,243 | ) | (72,384 | ) | |||||||||
Ordinary income | 630,979 | 852,316 | 526,782 | 711,568 | ||||||||||||
Extraordinary gain (loss) | — | — | — | — | ||||||||||||
Earnings before income taxes | 630,979 | 852,316 | 526,782 | 711,568 | ||||||||||||
Income taxes (note 24) | 253,947 | 254,572 | 212,011 | 212,533 | ||||||||||||
Net earnings before minority interest | 377,032 | 597,744 | 314,771 | 499,035 | ||||||||||||
Net income (loss) in minority interest | 14,044 | (4,419 | ) | 11,725 | (3,689 | ) | ||||||||||
Consolidated net earnings | 362,988 | 602,163 | $ | 303,046 | 502,724 | |||||||||||
Earnings per share in Won and U.S. dollars (note 25): | ||||||||||||||||
Ordinary income and net earnings per share | 1,063 | 2,294 | $ | 0.89 | 1.92 | |||||||||||
Diluted ordinary income and net earnings per share | 1,022 | 2,294 | $ | 0.85 | 1.92 | |||||||||||
See accompanying notes to consolidated financial statements.
F-7
Shinhan Financial Group Co., Ltd. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
Won | U.S. dollars (note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Capital stock: | ||||||||||||||||
Balance at beginning of year | 1,461,806 | 1,461,721 | $ | 1,220,409 | 1,220,338 | |||||||||||
Stock issuance | 496,724 | 85 | 414,697 | 71 | ||||||||||||
Balance at end of year | 1,958,530 | 1,461,806 | 1,635,106 | 1,220,409 | ||||||||||||
Consolidated capital surplus: | ||||||||||||||||
Balance at beginning of year | 1,887,708 | 1,976,650 | 1,575,979 | 1,650,234 | ||||||||||||
Stock issuance by the Company | 1,339,756 | (25 | ) | 1,118,514 | (21 | ) | ||||||||||
Stock issuance by subsidiaries | — | 730 | — | 609 | ||||||||||||
Acquisition of treasury stock by subsidiaries | — | (62,939 | ) | — | (52,546 | ) | ||||||||||
Merger between subsidiaries | — | (40,110 | ) | — | (33,486 | ) | ||||||||||
Other | (26,659 | ) | 13,402 | (22,256 | ) | 11,189 | ||||||||||
Balance at end of year | 3,200,805 | 1,887,708 | 2,672,237 | 1,575,979 | ||||||||||||
Consolidated retained earnings: | ||||||||||||||||
Balance at beginning of year | 670,763 | 219,923 | 559,996 | 183,606 | ||||||||||||
Net earnings | 362,988 | 602,163 | 303,046 | 502,724 | ||||||||||||
Dividends paid | (157,493 | ) | (150,812 | ) | (131,485 | ) | (125,907 | ) | ||||||||
Change in retained earnings of subsidiaries | (4,205 | ) | (511 | ) | (3,511 | ) | (427 | ) | ||||||||
Balance at end of year | 872,053 | 670,763 | 728,046 | 559,996 | ||||||||||||
Consolidated capital adjustments: | ||||||||||||||||
Balance at beginning of year | (379,797 | ) | (394,810 | ) | (317,079 | ) | (329,613 | ) | ||||||||
Other | (139,565 | ) | 15,013 | (116,518 | ) | 12,534 | ||||||||||
Balance at end of year | (519,362 | ) | (379,797 | ) | (433,597 | ) | (317,079 | ) | ||||||||
Minority interest in consolidated subsidiaries: | ||||||||||||||||
Balance at beginning of year | 320,887 | — | 267,897 | — | ||||||||||||
Net income (loss) for year | 14,044 | (4,419 | ) | 11,725 | (3,689 | ) | ||||||||||
Other | 260,674 | 325,306 | 217,627 | 271,586 | ||||||||||||
Balance at end of year | 595,605 | 320,887 | 497,249 | 267,897 | ||||||||||||
Total Stockholders’ equity | 6,107,631 | 3,961,367 | $ | 5,099,041 | 3,307,202 | |||||||||||
See accompanying notes to consolidated financial statements.
F-8
Shinhan Financial Group Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
Won | U.S. dollars (note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net earnings | 362,988 | 602,163 | $ | 303,046 | 502,724 | |||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 139,486 | 89,064 | 116,452 | 74,356 | ||||||||||||
Amortization | 43,269 | 12,328 | 36,124 | 10,292 | ||||||||||||
Bad debt | 1,150,491 | 192,690 | 960,503 | 160,870 | ||||||||||||
Provision for retirement and severance benefits | 46,003 | 73,657 | 38,406 | 61,494 | ||||||||||||
Realized gain from sale of securities, net | (78,848 | ) | (3,448 | ) | (65,827 | ) | (2,879 | ) | ||||||||
Unrealized loss on securities, net | 19,303 | 3,843 | 16,116 | 3,209 | ||||||||||||
Impairment loss on securities | 103,110 | 109,279 | 86,083 | 91,233 | ||||||||||||
Reversal of impairment loss on securities | (15,562 | ) | (14,192 | ) | (12,992 | ) | (11,848 | ) | ||||||||
Loss (gain) from sale of loans | 166,102 | (3,821 | ) | 138,672 | (3,190 | ) | ||||||||||
Gain on foreign currency transactions, net | (118,494 | ) | — | (98,927 | ) | — | ||||||||||
Gain on derivatives, net | (22,099 | ) | (303 | ) | (18,450 | ) | (253 | ) | ||||||||
Stock compensation costs | 10,911 | 3,718 | 9,109 | 3,104 | ||||||||||||
Retirement and severance benefits paid | (29,114 | ) | (60,720 | ) | (24,306 | ) | (50,693 | ) | ||||||||
Decrease in National Pension Fund | (27,292 | ) | (12,492 | ) | (22,785 | ) | (10,429 | ) | ||||||||
Decrease in deposit for severance benefit insurance | 551 | 2,125 | 460 | 1,774 | ||||||||||||
Net earnings (loss) in minority interest | 14,044 | (4,419 | ) | 11,725 | (3,689 | ) | ||||||||||
Decrease in trading securities | 5,494 | 414,614 | 4,587 | 346,146 | ||||||||||||
Decrease (increase) in other assets | 985,671 | 1,177,734 | 822,901 | 983,249 | ||||||||||||
Increase (decrease) in other liabilities | (1,534,901 | ) | (1,084,775 | ) | (1,281,434 | ) | (905,639 | ) | ||||||||
Other, net | 276,523 | 46,987 | 230,859 | 39,226 | ||||||||||||
Net cash provided by operating activities | 1,497,636 | 1,544,032 | 1,250,322 | 1,289,057 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Cash provided by investing activities: | ||||||||||||||||
Decrease in securities | 18,472,028 | 1,390,229 | 15,421,630 | 1,160,652 | ||||||||||||
Decrease in loans | 3,867,654 | 1,516,256 | 3,228,965 | 1,265,867 | ||||||||||||
Disposition of fixed assets | 611,770 | 83,145 | 510,745 | 69,415 | ||||||||||||
Decrease in other assets | 1,059,380 | 69,593 | 884,438 | 58,101 | ||||||||||||
Increase in other liabilities | — | 8,316 | — | 6,943 | ||||||||||||
24,010,832 | 3,067,539 | 20,045,778 | 2,560,978 | |||||||||||||
Cash used in investing activities: | ||||||||||||||||
Increase in securities | (20,427,161 | ) | (1,974,920 | ) | (17,053,899 | ) | (1,648,790 | ) | ||||||||
Increase in loans | (7,539,166 | ) | (10,380,665 | ) | (6,294,178 | ) | (8,666,442 | ) | ||||||||
Purchases of fixed assets | (734,215 | ) | (211,601 | ) | (612,970 | ) | (176,658 | ) | ||||||||
Increase in other assets | (1,193,799 | ) | (403,670 | ) | (996,660 | ) | (337,010 | ) | ||||||||
Decrease in other liabilities | (589,041 | ) | — | (491,769 | ) | — | ||||||||||
(30,483,382 | ) | (12,970,856 | ) | (25,449,476 | ) | (10,828,900 | ) | |||||||||
Net cash used in investing activities | (6,472,550 | ) | (9,903,317 | ) | (5,403,698 | ) | (8,267,922 | ) | ||||||||
F-9
Shinhan Financial Group Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
Won | U.S. dollars (note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Cash provided by financing activities: | ||||||||||||||||
Increase in deposits | 4,080,882 | 2,721,369 | 3,406,981 | 2,271,973 | ||||||||||||
Increase in borrowings | 27,548,192 | 21,128,580 | 22,998,991 | 17,639,489 | ||||||||||||
Increase in debentures | 7,454,802 | 6,832,428 | 6,223,745 | 5,704,148 | ||||||||||||
Increase in other liabilities | 1,121,237 | 4,303,744 | 936,081 | 3,593,040 | ||||||||||||
Disposition of treasury stock | 1 | 3,176 | 1 | 2,652 | ||||||||||||
Disposition of subsidiaries’ stock | — | 23,668 | — | 19,760 | ||||||||||||
Issuance of common stock | 27,648 | 2,007 | 23,082 | 1,676 | ||||||||||||
Issuance of preferred stock | 900,000 | — | 751,378 | — | ||||||||||||
41,132,762 | 35,014,972 | 34,340,259 | 29,232,738 | |||||||||||||
Cash used in financing activities: | ||||||||||||||||
Decrease in deposits | — | (93,561 | ) | — | (78,111 | ) | ||||||||||
Decrease in borrowings | (28,671,851 | ) | (19,968,792 | ) | (23,937,093 | ) | (16,671,224 | ) | ||||||||
Decrease in debentures | (5,755,268 | ) | (2,313,112 | ) | (4,804,866 | ) | (1,931,134 | ) | ||||||||
Payments of issuance cost on debentures | (9,541 | ) | — | (7,965 | ) | — | ||||||||||
Decrease in other liabilities | (320,538 | ) | (3,969,262 | ) | (267,606 | ) | (3,313,794 | ) | ||||||||
Dividends paid | (159,616 | ) | (150,359 | ) | (133,258 | ) | (125,529 | ) | ||||||||
Payments of stock issuance costs | (21,608 | ) | — | (18,040 | ) | — | ||||||||||
Stock exchange | — | (26 | ) | — | (22 | ) | ||||||||||
Acquisition of treasury stock | (26 | ) | (373,180 | ) | (22 | ) | (311,555 | ) | ||||||||
(34,938,448 | ) | (26,868,292 | ) | (29,168,850 | ) | (22,431,369 | ) | |||||||||
Net cash provided by financing activities | 6,194,314 | 8,146,680 | 5,171,409 | 6,801,369 | ||||||||||||
Increase in cash and cash equivalents due to changes in consolidation scope | 2,351,746 | 703,594 | 1,963,388 | 587,405 | ||||||||||||
Net increase in cash and cash equivalents | 1,219,400 | 490,989 | 1,018,033 | 409,909 | ||||||||||||
Cash and cash equivalents at beginning of year | 2,847,134 | 2,356,145 | 2,376,969 | 1,967,060 | ||||||||||||
Cash and cash equivalents at end of year | 6,418,280 | 2,847,134 | $ | 5,358,390 | 2,376,969 | |||||||||||
See accompanying notes to consolidated financial statements.
F-10
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(1) | General Description on Consolidated Companies | |||
Shinhan Financial Group Co., Ltd., the controlling company, and its subsidiaries included in consolidation or accounted for by the equity method are summarized as follows: |
(a) | Controlling Company | |||
Shinhan Financial Group Co., Ltd. (the “Company”), was incorporated on September 1, 2001 by way of the transfer of all issued shares owned by shareholders of Shinhan Bank, Shinhan Securities Co., Ltd., Shinhan Capital Co., Ltd. and Shinhan BNP Paribas Investment Trust Management Co., Ltd. (formerly Shinhan Investment Trust Management Co., Ltd.) to the Company. The Company was formed for the purpose of providing management services and financing to subsidiaries with | ||||
As of December 31, 2003, the Company has 23 subsidiaries, which are consolidated or accounted for by the equity method, and its capital stock amounts to | ||||
In addition, on September 16, 2003, the Company’s American depository shares were listed on the New York Stock Exchange. | ||||
(b) | Subsidiaries included in Consolidation |
a. | Shinhan Bank | |||
Shinhan Bank was established on September 15, 1981 under the bank act of the Republic of Korea to engage in commercial banking, trust and foreign exchange business and other related operations as permitted under the bank act and other relevant laws and regulations in the Republic of Korea. Its capital stock as of December 31, 2003 amounts to | ||||
b. | Chohung Bank | |||
Chohung Bank was established on October 1, 1943 under the General Banking Act of the Republic of Korea through the merger of Han Sung Bank, which was established on February 19, 1897, and Dong Il Bank, which was established on August 8, 1906, to engage in commercial banking and trust operations. The shares of Chohung Bank were listed on the Korea Stock Exchange on June 3, 1956, and Chohung Bank operates through 470 domestic branches, 87 depositary offices and 6 overseas branches and its capital stock amounts to | ||||
On July 9, 2003, the Company made an agreement with the Korea Deposit Insurance Corporation (the “KDIC”) to acquire 80.04% (543,570,144 shares) of total outstanding shares in Chohung Bank. In accordance with the agreement, the Company purchased 266,349,371 shares in exchange for the Company’s shares on August 18, 2003 and 277,220,773 shares in cash on August 19, 2003. | ||||
Additionally, the Company’s percentage of ownership increased to 81.15% through additional equity acquisition at W200,000 million on December 30, 2003. |
F-11
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(1) | General Description on Consolidated Companies, Continued |
c. | Goodmorning Shinhan Securities Co., Ltd. | |||
Goodmorning Shinhan Securities Co., Ltd. (“Goodmorning Shinhan Securities”) was incorporated on April 2, 1973 to engage in securities trading, underwriting and brokerage services. Its shares were listed on the Korea Stock Exchange on December 19, 1986. On June 18, 2002, the Company acquired a 29% share of Good Morning Securities Co., Ltd. from its largest shareholders and on July 31, 2002, Good Morning Securities Co., Ltd. was merged with Shinhan Securities Co., Ltd., which was one of subsidiaries of the Company, and renamed to Goodmorning Shinhan Securities. As of December 31, 2003, it operates through 83 branches and its capital stock amounts to | ||||
d. | Shinhan Card Co., Ltd. | |||
Shinhan Card Co., Ltd. (“Shinhan Card”) was established on June 1, 2002 under the Credit Specialty Finance Law through the spin-off of the credit card division of Shinhan Bank. Shinhan Card is engaged principally in credit card services, factoring, consumer loan and installment financing. As of December 31, 2003, Shinhan Card holds 2.11 million of franchise accounts and 2.77 million of credit card holders, and its capital stock amounts to | ||||
e. | Shinhan Capital Co., Ltd. | |||
Shinhan Capital Co., Ltd. (“Shinhan Capital”) was incorporated on April 19, 1991 to engage in the leasing and rental business and it changed its name on May 27, 1999 from Shinhan Leasing Co., Ltd. to Shinhan Capital. Its capital stock as of December 31, 2003 amounts to | ||||
f. | Shinhan BNP Paribas Investment Trust Management Co., Ltd. | |||
On August 1, 1996, Shinhan BNP Paribas Investment Trust Management Co., Ltd. (“Shinhan BNP Paribas ITMC”) was established and obtained a license to engage in the business of investment and trust of securities and advisory services under the Investment and Trust of Securities Law. Additionally, on October 24, 2002, the Company sold 3,999,999 shares (50% of total outstanding shares — 1 share) of Shinhan Investment Trust Management Co., Ltd., which has been renamed to Shinhan BNP Paribas ITMC, to BNP Paribas Asset Management Group. Its capital stock as of December 31, 2003 amounts to | ||||
g. | Jeju Bank | |||
Jeju Bank was incorporated on March 18, 1969 under the General Banking Act of the Republic of Korea to engage in the commercial banking and trust business and listed its shares on the Korea Stock Exchange on December 28, 1972. On April 4, 2002, Jeju Bank became one of subsidiaries of the Company through acquiring a 51% share from the KDIC. Additionally, the Company’s percentage of ownership increased to 62% with the acquisition of additional common shares at |
F-12
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(1) | General Description on Consolidated Companies, Continued |
h. | SH&C Life Insurance Co., Ltd. | |||
SH&C Life Insurance Co., Ltd. (“SH&C Life Insurance”) was established in October 1, 2002 to engage in insurance business and other related business. Its capital stock as of December 31, 2003 amounts to | ||||
i. | Trust accounts of Shinhan, Chohung and Jeju Bank | |||
Trust accounts in which Shinhan, Chohung and Jeju Bank guarantees repayment of principal and, in certain cases, minimum interest earnings are included in consolidation. | ||||
j. | Shinhan Finance Ltd. | |||
Shinhan Finance Ltd. (“Shinhan Finance”) was incorporated in November 1990 in Hong Kong as a wholesale bank and its capital stock as of December 31, 2003 amounts to US$ 55.6 million. | ||||
k. | Chohung Investment Trust Management Co., Ltd. | |||
Chohung Investment Trust Management Co., Ltd. (“Chohung ITMC) was established in 1988 and engages in securities management services and conducts surveys of the economic and capital markets. Its capital stock as of December 31, 2003 amounts to | ||||
l. | Chohung Finance Ltd. | |||
Chohung Finance Ltd. (“Chohung Finance”) engages in merchant banking activities in Hong Kong. Its capital stock as of December 31, 2003 amounts to US$15,000 thousand. | ||||
m. | Chohung Bank of America | |||
Chohung Bank of America (“Chohung America”) was established on March 24, 2003 through the merger of Chohung Bank of New York and California Chohung Bank. Its capital stock as of December 31, 2003 amounts to US$14,000 thousand. | ||||
n. | Chohung Bank (Deutschland) GmbH | |||
Chohung Bank (Deutschland) GmbH (“Chohung Deutschland”) was established in 1994 and its capital stock as of December 31, 2003 amounts to EUR 15,339 thousand. | ||||
o. | Good Morning Securities Europe Ltd. | |||
Good Morning Securities Europe Ltd. (“Good Morning Europe”) was established in 1991 and has been providing securities trading, underwriting and derivative brokerage services in Europe under the Securities and Futures Authority (SFA) of UK. Its capital stock as of December 31, 2003 amounts to GBP 5,000 thousand. |
F-13
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(1) General Description on Consolidated Companies, Continued
p. | Good Morning Securities USA Inc. |
Good Morning Securities USA Inc. (“Good Morning USA”) was established in 1993 and has been providing securities trading, underwriting and derivative brokerage services under the Federal Securities Act of USA. Its capital stock as of December 31, 2003 amounts to US$4,200 thousand. |
Ownerships between the Company and its subsidiaries included in consolidation as of December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||||||||||||
Number of | Ownership | Number of | Ownership | |||||||||||||||
Investor | Investee | shares | (%) | shares | (%) | |||||||||||||
The Company | Shinhan Bank | 244,806,782 | 100.0 | 244,630,672 | 100.0 | |||||||||||||
” | Chohung Bank | 583,570,144 | 81.2 | — | — | |||||||||||||
” | Goodmorning Shinhan | 94,084,384 | (*) | 59.4 | 94,084,384 | (*) | 59.4 | |||||||||||
Securities | ||||||||||||||||||
” | Shinhan Card | 30,569,400 | 100.0 | 30,569,400 | 100.0 | |||||||||||||
” | Shinhan Capital | 16,000,000 | 100.0 | 16,000,000 | 100.0 | |||||||||||||
” | Shinhan BNPP ITMC | 4,000,001 | 50.0 | 4,000,001 | 50.0 | |||||||||||||
” | Jeju Bank | 9,692,369 | 62.4 | 9,692,369 | 62.4 | |||||||||||||
” | SH&C Life Insurance | 3,000,001 | 50.0 | 3,000,001 | 50.0 | |||||||||||||
Shinhan Bank | The Company | 29,873,359 | (**) | 10.2 | 29,873,674 | 10.2 | ||||||||||||
” | Shinhan Finance | 55,600 | 100.0 | 55,600 | 100.0 | |||||||||||||
Chohung Bank | Chohung ITMC | 7,179,678 | 79.8 | — | — | |||||||||||||
” | Chohung Finance | 149,999 | 100.0 | — | — | |||||||||||||
” | Chohung America | 400,000 | 100.0 | — | — | |||||||||||||
” | Chohung Deutschland | — | 100.0 | — | — | |||||||||||||
Goodmorning Shinhan Securities | Good Morning Europe | 5,000,000 | 100.0 | 5,000,000 | 100.0 | |||||||||||||
” | Good Morning USA | 15,000 | 100.0 | 15,000 | 100.0 |
(*) | 1,047,213 shares of treasury stock were considered. | |
(**) | Preferred stocks were excluded and 10.2% (29,873,295 shares) of shares in the Company were sold at |
F-14
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(1) General Description on Consolidated Companies, Continued
(c) | Subsidiaries accounted for by the Equity Method |
a. | e-Shinhan Inc. | |||
e-Shinhan Inc. (“e-Shinhan”) was incorporated on February 21, 2001 to engage in the business of internet brokerage service and comprehensive management services on customer accounts. Its capital stock as of December 31, 2003 amounts to | ||||
b. | Shinhan Macquarie Financial Advisory Co., Ltd. | |||
Shinhan Macquarie Financial Advisory Co., Ltd. (“Shinhan Macquarie”) was incorporated on August 1, 2001 to engage in the business of financial advisory services and cross border leasing. Its capital stock as of December 31, 2003 amounts to | ||||
c. | Shinhan Credit Information Co., Ltd. | |||
Shinhan Credit Information Co., Ltd. (“Shinhan Credit Information”) was established on July 8, 2002 as wholly owned subsidiary of the Company to engage in the business of debt collection services and credit research. Its capital stock as of December 31, 2003 amounts to | ||||
In addition, on June 18, 2003, the Company sold 49% (294,000 shares) of total outstanding shares in Shinhan Credit Information to LSH Holdings LLC. | ||||
d. | Shinhan Data System Co., Ltd. (Formerly Shinhan System Co. Ltd.) | |||
Shinhan Data System Co., Ltd. (“Shinhan Data System”) was incorporated in May 1991 to engage in computer services and its capital stock as of December 31, 2003 amounts to | ||||
e. | Chohung Vina Bank | |||
Chohung Vina Bank (“Chohung Vina”) engages in banking activities in Vietnam. Its capital stock as of December 31, 2003 amounts to US$20,000 thousand, in which Chohung Bank owns 50 percent. |
Ownerships in subsidiaries accounted for by the equity method of accounting as of December 31, 2003 and 2002 is as follows: |
2003 | 2002 | Reason for | ||||||||||||||||||
exclusion from | ||||||||||||||||||||
Investee | Number of | Ownership | Number of | Ownership | the scope of | |||||||||||||||
Investor | (equity method) | shares | (%) | shares | (%) | consolidation | ||||||||||||||
The Company | e-Shinhan | 415,495 | 73.7 | 415,495 | 73.7 | Asset under | ||||||||||||||
” | Shinhan Macquarie | 102,000 | 51.0 | 102,000 | 51.0 | " | ||||||||||||||
” | Shinhan Credit Information | 306,000 | 51.0 | 600,000 | 100.0 | " | ||||||||||||||
Shinhan Bank | Shinhan Data System | 200,000 | 100.0 | 200,000 | 100.0 | " | ||||||||||||||
Chohung Bank | Chohung Vina | — | 50.0 | — | — | Absence of control |
F-15
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies
(a) | Basis of Financial Statements Presentation | |||
The Company maintains its accounting records in Korean Won and prepares statutory consolidated financial statements in the Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these consolidated financial statements are intended for use only by those who are informed about Korean accounting principles and practices. The accompanying consolidated financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. | ||||
The Company adopted Statements of Korea Accounting Standards (SKAS) No. 2 through No. 9, effective from the first fiscal year beginning after December 31, 2002, while SKAS No. 6, “Events Occurring after the Balance Sheet Date”, has been adopted since the year ended December 31, 2002 with encouraged earlier application. Certain accounts of prior year’s consolidated financial statements were reclassified to conform to the current year’s presentation. | ||||
(b) | Basis of Financial Statements Translation | |||
The consolidated financial statements are expressed in Korean Won and, solely for the convenience of the reader, have been translated into U.S. dollars at the rate of | ||||
(c) | Investments in Securities | |||
Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards (“SKAS”) No. 8, “Investments in Securities.” In accordance with SKAS No. 8, certain debt and equity securities should be classified into one of the three categories of held-to-maturity, available-for-sale, or trading securities at the time of acquisition and such determination should be reassessed at each balance sheet date. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) are classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used to generate profit on short-term differences in price. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities. | ||||
Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. Investments in equity that do not have readily determinable fair values are stated at cost. Declines in value judged to be other-than-temporary on available-for-sale securities are charged to current results of operations. Investments in debt securities that are classified into held-to-maturity are reported at amortized cost at the balance sheet date and such amortization is included in interest income. | ||||
Marketable securities are at the quoted market prices as of the period end. Non-marketable debt securities are recorded at the fair values derived from the discounted cash flows by using an interest rate deemed to approximate the market interest rate. The market interest rate is determined by the issuers’ credit rate announced by the accredited credit rating agencies in Korea. Money market funds are recorded at the fair value determined by the investment management companies. |
F-16
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued
(d) | Investment Securities accounted for by the Equity Method | |||
Investments in affiliated companies with the Company’s ownership of 20% or more or over which the Company has significant management control are stated at an amount as determined using the equity method. | ||||
Under the equity method of accounting, the Company’s initial investment is recorded at cost and is subsequently increased to reflect the Company’s share of the investee income and reduced to reflect the Company’s share of the investee losses or dividends received. Any excess in the Company’s acquisition cost over the Company’s share of the investee’s identifiable net assets is generally recorded as goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. Goodwill (negative goodwill) is amortized over a reasonable period, generally less than 20 years. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews goodwill for any impairment. | ||||
Under the equity method of accounting, the Company does not record its share of losses of affiliate companies when such losses would make the Company’s investment in such entity less than zero. | ||||
In case of translating financial statements denominated in foreign currencies, where the balances are determined by the equity method, assets and liabilities are translated at current rate as of the balance sheet date and capital accounts at historical rate. Any differences resulting from such foreign currency translation are accounted for as valuation gains (losses) under the equity method, a component of capital adjustments in the stockholder’s equity. | ||||
(e) | Allowance for Loan Losses | |||
The Company establishes the credit risk-rating model, which considers the borrowers’ capacity to repay and credit risk (“Forward Looking Criteria: FLC”) in classifying its corporate loans and making provisions for loan losses, while household loans and credit card loans are classified by considering current financial status including delinquency period, bankruptcies and collaterals value. | ||||
(f) | Troubled Loans Restructuring | |||
Restructured loans which are related to companies involved in bankruptcy proceedings, composition proceedings or workout programs with creditors are stated at present value of expected future cash flows, and the difference between carrying amount and the present value of expected future cash flows is presented as a present value discount, and amortized and credited to operations as interest income using the effective interest rate method. In addition, an allowance for the present value on restructured loans is made depending on the credit conditions of borrowers. | ||||
(g) | Fixed Assets |
i) | Tangible Assets | |||
Tangible assets are stated at cost, except for the case of revaluation made in accordance with the Asset Revaluation Law. Significant additions or improvements extending value or useful lives of assets are capitalized, while normal maintenance and repairs are charged to expense when incurred. | ||||
Depreciation is computed using the declining-balance method, except straight-line method for building and leasehold improvement, over estimated useful lives of the related assets |
F-17
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued
ii) | Intangible Assets | |||
Intangible assets are stated at acquisition cost less amortization computed using the straight-line method over useful lives of related intangible assets. |
(h) | Discount on Debentures | |||
Discount on debenture issued, which represents the difference between the face value and issuance price of debentures, is amortized using the effective interest method over the life of the debentures. The amount amortized is included in interest expense. | ||||
(i) | Retirement and Severance Benefits | |||
Employees who have been with the Company for more than one year are entitled to lump-sum payments based on current rates of pay and length of service when they leave the Company. The Company’s estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying balance sheets. A portion of the liability is covered by an employees’ severance pay insurance where the employees have a vested interest in the deposit with the insurance companies. The deposits for retirement insurance is, therefore, reflected in the accompanying balance sheet as a deduction from the liability for retirement and severance benefits. | ||||
Under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances of employees to the National Pension Fund. The amount transferred will reduce the retirement and severance benefit amount to be payable to the employees when they leave the Company and is accordingly reflected in the accompanying financial statements as a reduction from the retirement and severance benefit liability. |
(j) | Allowance for Guarantees and Acceptances |
The Company provides an allowance for losses on guarantees and acceptances, which are classified as substandard, doubtful and estimated loss using the same method as that used to provide for losses on its corporate loans. | ||||
(k) | Income Taxes | |||
Income tax on the earnings or loss for the year comprises current and deferred tax. Income tax is recognized in the statement of earnings except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity. | ||||
Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. | ||||
A deferred tax asset is recognized only to the extent that it is probable that future taxable earnings will be available against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. |
F-18
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(2) Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued
(l) | Translation of Foreign Currency Denominated Assets and Liabilities | |||
Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the balance sheet date, with the resulting gains and losses recognized in current results of operations. Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at | ||||
(m) | Derivatives | |||
Derivative instruments are presented as assets or liabilities valued principally at the fair value of rights or obligations associated with the derivative contracts. The unrealized gain or loss from derivative transactions is recognized in current operations. | ||||
However, for derivative instruments for the purpose of hedging the exposure to the variability of cash flows of a forecasted transaction, the hedge-effective portion of the derivative’s gain or loss is deferred as a capital adjustment, a component of stockholder’s equity. The ineffective portion of the gain or loss is charged or credited to current results of operations. | ||||
(n) | Stock Options | |||
The stock option program allows the Company’s employees to acquire shares of the Company or to be compensated for the market price difference. In case of stock grant type, the Company values stock options based upon an option pricing model under the fair value method and recognizes this value as an expense and a capital adjustment over the period in which the options vest. In case of price compensation type, the Company recognizes the compensation expense as an expense and a liability over the period in which the options vest. | ||||
(o) | Accounting for Leases and Rentals | |||
The Company accounts for and classifies its lease transactions as either the operating or capital lease, depending on the terms of the lease under the Korean Lease Accounting Standards. | ||||
If a lease is substantially noncancellable and meets one or more of the criteria listed below, the present value of future minimum lease payments is reflected as an obligation under capital lease. Otherwise, it is classified as an operating lease with lease payments expensed as incurred. |
- | Ownership of the leased property shall be transferred to the lessee at the end of the lease term without additional payment or for a contract price. | |||
- | The lease has a bargain purchase option. | |||
- | The lease term is equal to 75% or more of the estimated economic useful life of the leased property. | |||
- | The present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90% of the fair value of the leased property. |
F-19
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(2) | Basis of Financial Statements Presentation and Summary of Significant Accounting Policies, Continued | ||||
In case of capital leases, the portion originated from principal is accounted for as collections of outstanding receivables and the remaining interest income is accounted for as revenue in the current period. Revenue from operating leases is recognized on a straight-line basis over the lease term. | |||||
All costs and charges incurred in connection with acquiring lease assets by inception date of the lease are recorded as advance payments on operating lease assets or capital lease receivables. | |||||
Additionally, depreciation of assets for operating leases is computed using the straight-line method over the economic useful lives (or lease terms if contracted before April 1, 1998). | |||||
(p) | Interest Income Recognition | ||||
Interest income on loans is recognized on the accrual basis, except for interest income on loans having overdue interest and principal and loans to customers who are bankrupt. | |||||
(q) | Contingent Liabilities | ||||
Contingent losses are generally recognized as a liability when probable and reasonably estimable. | |||||
(r) | Use of Estimates | ||||
The preparation of financial statements in accordance with accounting principles generally accepted in the Republic of Korea requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. Actual results could differ from those estimates. |
(3) | Standards applied for Preparing Consolidated Financial Statements | |||
(a) | The investment account of the Controlling Company is offset against the stockholders’ equity account of each subsidiary as of the date of acquisition. | |||
(b) | The Company records differences between the cost of investment accounts and the corresponding fair value of subsidiaries’ net assets at the time of acquisition as goodwill (negative goodwill) and those are amortized over certain periods, which are less than 20 years. | |||
(c) | All significant inter-company transactions and account balances among the consolidated companies have been fully eliminated in consolidation. | |||
(d) | With respect to same borrowers’ loans with same credit risk, allowance for loan losses accounts are maintained on the same with subsidiaries in consolidation. As results, additional allowance for loan losses of Chohung and Jeju Bank, amounts to |
F-20
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(4) Acquisition of Chohung Bank
On July 9, 2003, the Company made an agreement with the KDIC to acquire 80.04% (543,570,144 shares) of total outstanding shares of Chohung Bank. In accordance with the agreement, the Company purchased 266,349,371 shares in exchange for the Company’s shares on August 18, 2003 and 277,220,773 shares in cash on August 19, 2003. | ||||
As regards to the acquisition, the Company recognized identifiable assets and liabilities of Chohung Bank as fair value on the date of acquisition using the purchase method. | ||||
Condensed consolidated balance sheets as of December 31, 2002 and August 31, 2003 and consolidated statements of earnings for the year ended December 31, 2002 and the eight months ended August 31, 2003 of Chohung Bank are as follows: |
August 31, 2003 | ||||||||
December 31, 2002 | (Acquisition date) | |||||||
Condensed consolidated balance sheets: | ||||||||
Total assets | 67,270,429 | 67,395,133 | ||||||
Total liabilities | 64,949,848 | 65,240,936 | ||||||
Total stockholders’ equity | 2,320,581 | 2,154,197 | ||||||
Condensed consolidated statements of earnings: | ||||||||
Operating revenue | 5,466,883 | 3,779,757 | ||||||
Operating expense | 5,570,049 | 4,446,657 | ||||||
Operating income (losses) | (103,166 | ) | (666,900 | ) | ||||
Ordinary income (losses) | (601,127 | ) | (691,610 | ) | ||||
Minority interest in consolidated subsidiaries | (1,910 | ) | (200 | ) | ||||
Net earnings (losses) | (586,468 | ) | (718,901 | ) | ||||
Goodwill incurred in relation to the acquisition of Chohung Bank is as follows: | ||||||||
Acquisition cost | 1,857,983 | |||||||
Net asset value (fair value) | 1,017,739 | |||||||
Goodwill | 840,244 | |||||||
F-21
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(4) Acquisition of Chohung Bank, Continued
Additionally, the Company would be required to pay contingent consideration to the KDIC in relation to the earnings in the future and changes in fair value of assets and liabilities of Chohung Bank and the details are as follows: |
§ | Asset Indemnity Payment | |||||
Amount | : | |||||
Payment date | : | earlier of 60 days after the date asset indemnity is determined as of June 30, 2005 or the date as agreed on | ||||
Interest | : | 4.3% per annum | ||||
§ | General Indemnity Payment | |||||
Amount | : | |||||
Payment date | : | the second anniversary date of cash portion closing date | ||||
Interest | : | 4.3% per annum | ||||
§ | Earn Out Payment | |||||
Amount | : | 20% of the total excess amount, which means net earnings of Chohung Bank for fiscal years of 2004, 2005 and 2006 in excess of | ||||
Payment date | : | within 30 days after the date excess amount is determined for the fiscal year of 2006 |
These contingent considerations are not included in the acquisition cost on the date of acquisition, for the amount is not determinable. |
F-22
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(5) | Cash and Due from Banks | |
(a) Cash and due from banks as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Cash on hand in Won | 1,742,777 | 903,183 | $ | 1,454,982 | 754,035 | |||||||||||
Cash on hand in foreign currencies | 165,006 | 55,994 | 137,757 | 46,747 | ||||||||||||
1,907,783 | 959,177 | 1,592,739 | 800,782 | |||||||||||||
Due from banks in Won | 4,119,983 | 1,745,695 | 3,439,625 | 1,457,418 | ||||||||||||
Due from banks in foreign currencies | 390,514 | 142,262 | 326,026 | 118,769 | ||||||||||||
4,510,497 | 1,887,957 | 3,765,651 | 1,576,187 | |||||||||||||
6,418,280 | 2,847,134 | $ | 5,358,390 | 2,376,969 | ||||||||||||
(b) | Restricted due from banks as of December 31, 2003 and 2002 are as follows: |
2003 | 2002 | Restrictions | ||||||||
Due from banks in Won: | ||||||||||
Reserve deposits in the Bank of Korea | 2,407,044 | 749,928 | General banking act | |||||||
Due from banks for customers’ accounts | 1,038,745 | 495,500 | Reserve for customers’ deposits | |||||||
Other | 157,037 | 129,639 | Deposit for severance benefit insurance and other | |||||||
Due from banks in foreign currencies | 72,833 | 74,976 | Pledged for contract performance | |||||||
3,675,659 | 1,450,043 | |||||||||
(c) | The maturities of the due from banks by remaining period as of December 31, 2003 and 2002 are as follows: |
Due from banks | Due from banks in | |||||||||||
At December 31, 2003 | in Won | foreign currencies | Total | |||||||||
Due in 3 months or less | 1,482,708 | 366,364 | 1,849,072 | |||||||||
Due after 3 months through 6 months | 40,254 | 11,990 | 52,244 | |||||||||
Due in 12 months | 38,335 | 3,371 | 41,706 | |||||||||
Due in 3 years | — | — | — | |||||||||
Thereafter | 2,558,686 | 8,789 | 2,567,475 | |||||||||
4,119,983 | 390,514 | 4,510,497 | ||||||||||
Due from banks | Due from banks in | |||||||||||
At December 31, 2002 | in Won | foreign currencies | Total | |||||||||
Due in 3 months or less | 716,579 | 131,569 | 848,148 | |||||||||
Due after 3 months through 6 months | 35,531 | 6,002 | 41,533 | |||||||||
Due in 12 months | 98,354 | — | 98,354 | |||||||||
Due in 3 years | 43,406 | — | 43,406 | |||||||||
Thereafter | 851,825 | 4,691 | 856,516 | |||||||||
1,745,695 | 142,262 | 1,887,957 | ||||||||||
F-23
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(6) Securities
Securities as of December 31, 2003 and 2002 consist of the following:
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Trading securities | 4,876,614 | 2,014,293 | $ | 4,071,309 | 1,681,660 | |||||||||||
Available-for-sale securities | 19,443,355 | 9,146,301 | 16,232,555 | 7,635,917 | ||||||||||||
Held-to-maturity securities | 3,664,060 | 4,284,183 | 3,058,992 | 3,576,709 | ||||||||||||
Investment securities accounted for by the equity method | 19,631 | 9,437 | 16,389 | 7,879 | ||||||||||||
28,003,660 | 15,454,214 | $ | 23,379,245 | 12,902,165 | ||||||||||||
(a) Trading securities
i) Trading securities as of December 31, 2003 and 2002 consist of the following:
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Stocks | 188,922 | 76,934 | $ | 157,724 | 64,229 | |||||||||||
Government bonds | 1,712,070 | 411,403 | 1,429,345 | 343,466 | ||||||||||||
Finance debentures | 1,656,756 | 636,852 | 1,383,166 | 531,685 | ||||||||||||
Corporate bonds | 996,699 | 742,440 | 832,109 | 619,836 | ||||||||||||
Beneficiary certificates | 57,446 | 97,870 | 47,960 | 81,708 | ||||||||||||
Commercial paper | 59,579 | 48,794 | 49,740 | 40,736 | ||||||||||||
Securities in foreign currencies | 1,330 | — | 1,110 | — | ||||||||||||
Other | 203,812 | — | 170,155 | — | ||||||||||||
4,876,614 | 2,014,293 | $ | 4,071,309 | 1,681,660 | ||||||||||||
ii) Details of debt securities classified as trading securities as of December 31, 2003 and 2002 are as follows:
2003 | ||||||||||||||||
Face value | Acquisition cost | Fair value (*) | Book value (**) | |||||||||||||
Government bonds | 1,730,282 | 1,716,317 | 1,723,726 | 1,712,070 | ||||||||||||
Finance debentures | 1,696,152 | 1,671,623 | 1,677,283 | 1,656,756 | ||||||||||||
Corporate bonds | 991,446 | 1,005,953 | 999,576 | 996,699 | ||||||||||||
4,417,880 | 4,393,893 | 4,400,585 | 4,365,525 | |||||||||||||
2002 | ||||||||||||||||
Face value | Acquisition cost | Fair value (*) | Book value (**) | |||||||||||||
Government bonds | 408,214 | 411,901 | 412,703 | 411,403 | ||||||||||||
Finance debentures | 657,650 | 635,289 | 638,807 | 636,852 | ||||||||||||
Corporate bonds | 733,596 | 744,186 | 743,218 | 742,441 | ||||||||||||
1,799,460 | 1,791,376 | 1,794,728 | 1,790,696 | |||||||||||||
(*) Debt securities are recorded at fair value using the market yield of bonds provided by the bond credit rating and pricing associations. | ||||
(**) The difference between fair value and book value is recorded as accrued income. |
F-24
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(6) Securities, Continued
(b) Available-for-sale securities
i) Available-for-sale securities as of December 31, 2003 and 2002 consist of the following:
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Stocks | 1,123,476 | 224,488 | $ | 937,949 | 187,417 | |||||||||||
Investment in special fund | 64,489 | 9,371 | 53,840 | 7,824 | ||||||||||||
Government bonds | 2,575,282 | 556,279 | 2,150,010 | 464,417 | ||||||||||||
Finance debentures | 4,625,283 | 1,919,808 | 3,861,482 | 1,602,778 | ||||||||||||
Corporate bonds | 6,481,937 | 3,203,031 | 5,411,535 | 2,674,095 | ||||||||||||
Beneficiary certificates | 2,525,018 | 2,432,095 | 2,108,046 | 2,030,469 | ||||||||||||
Securities in foreign currencies | 1,415,713 | 801,229 | 1,181,928 | 668,917 | ||||||||||||
Other | 632,157 | — | 527,765 | — | ||||||||||||
19,443,355 | 9,146,301 | $ | 16,232,555 | 7,635,917 | ||||||||||||
ii) Details of debt securities classified as available-for-sale securities as of December 31, 2003 and 2002 are as follows:
2003 | ||||||||||||||||
Face value | Acquisition cost | Fair value(*) | Book value(**) | |||||||||||||
Government bonds | 2,540,013 | 2,532,025 | 2,622,940 | 2,575,282 | ||||||||||||
Finance debentures | 4,704,000 | 4,614,120 | 4,697,923 | 4,625,283 | ||||||||||||
Corporate bonds | 6,673,214 | 6,471,921 | 6,521,275 | 6,481,937 | ||||||||||||
13,917,227 | 13,618,066 | 13,842,138 | 13,682,502 | |||||||||||||
2002 | ||||||||||||||||
Face value | Acquisition cost | Fair value(*) | Book value(**) | |||||||||||||
Government bonds | 547,446 | 541,301 | 586,886 | 556,279 | ||||||||||||
Finance debentures | 1,956,000 | 1,923,275 | 1,952,046 | 1,919,808 | ||||||||||||
Corporate bonds | 3,179,063 | 3,224,382 | 3,277,389 | 3,203,031 | ||||||||||||
5,682,509 | 5,688,958 | 5,816,321 | 5,679,118 | |||||||||||||
(*) Debt securities are recorded at fair value using the market yield of bonds provided by the bond credit rating and pricing associations. | ||||
(**) The difference between fair value and book value is recorded as accrued income. |
F-25
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(6) Securities, Continued
iii) Equity securities classified as available-for-sale securities as of December 31, 2003 and 2002 are as follows:
2003 | ||||||||||||||||
Ownership | Acquisition | Net asset | Book | |||||||||||||
(%) | cost | or fair value | value | |||||||||||||
Stock: | ||||||||||||||||
Hynix Semiconductor Inc. | 10.24 | 175,398 | 254,346 | 254,346 | ||||||||||||
Ssang Yong Motors Co., Ltd. | 10.31 | 68,506 | 128,292 | 129,292 | ||||||||||||
Ssang Yong Cement Industrial Co., Ltd. | 10.16 | 54,096 | 54,096 | 54,096 | ||||||||||||
Ssang Yong Corporation | 45.22 | 30,589 | 30,589 | 30,589 | ||||||||||||
Hyundai Engineering and Construction Co., Ltd. | 5.07 | 54,514 | 29,413 | 29,413 | ||||||||||||
Daewoo Engineering and Construction Co., Ltd. | 2.82 | 11,487 | 24,609 | 24,609 | ||||||||||||
Korea Securities Finance Corporation | 6.35 | 21,633 | 25,597 | 21,633 | ||||||||||||
SK Telecom Co., Ltd. | 0.12 | 17,106 | 20,478 | 20,478 | ||||||||||||
Handsome Co., Ltd. | 1.43 | 3,533 | 3,288 | 3,288 | ||||||||||||
Ssangyong Engineering and Construction Co., Ltd. | 5.37 | 6,080 | 3,248 | 3,248 | ||||||||||||
NamSun Co., Ltd. | 4.87 | 3,195 | 1,639 | 1,639 | ||||||||||||
Feel Max Co., Ltd. | 12.00 | 3,000 | 3,000 | 3,000 | ||||||||||||
Other | — | 609,366 | 554,972 | 547,845 | ||||||||||||
1,058,503 | 1,133,567 | 1,123,476 | ||||||||||||||
Investment in special fund: | ||||||||||||||||
Stock Market Stabilization Fund | 21,438 | 48,039 | 48,039 | |||||||||||||
Korea Stock Exchange | 2,612 | 21,134 | 2,612 | |||||||||||||
Good KDB 2nd Securitization Specialty Co., Ltd. | 3,000 | 3,088 | 3,000 | |||||||||||||
Other | 6,012 | 6,092 | 10,838 | |||||||||||||
33,062 | 78,353 | 64,489 | ||||||||||||||
1,091,565 | 1,211,920 | 1,187,965 | ||||||||||||||
2002 | ||||||||||||||||
Ownership | Acquisition | Net asset | Book | |||||||||||||
(%) | cost | or fair value | value | |||||||||||||
Stock: | ||||||||||||||||
Saehan Industries Inc. | 2.45 | 2,248 | 2,144 | 2,144 | ||||||||||||
Korea Securities Finance Co. | 3.39 | 11,573 | 14,645 | 11,573 | ||||||||||||
Hanwha Investment Trust Management Co., Ltd. | 4.50 | 1,350 | 1,419 | 1,419 | ||||||||||||
Korea ECN Securities Co., Ltd. | 6.25 | 1,600 | 1,468 | 1,600 | ||||||||||||
ShinDongBang Co., Ltd. | 2.74 | 1,987 | 928 | 928 | ||||||||||||
Shinwon Co., Ltd. | 3.29 | 7,260 | 2,578 | 2,578 | ||||||||||||
Handsome Co., Ltd. | 1.48 | 3,533 | 2,269 | 2,269 | ||||||||||||
Hyundai Engineering and Construction Co., Ltd. | 2.69 | 65,364 | 20,982 | 20,982 | ||||||||||||
SK Telecom Co., Ltd | 0.04 | 4,822 | 7,718 | 7,718 | ||||||||||||
INTEC Telecom Co., Ltd. | 4.03 | 2,438 | 768 | 2,438 | ||||||||||||
Hyundai Petrochemical Co., Ltd. | 5.34 | 9,244 | 41,313 | 9,244 | ||||||||||||
Other | 2.45 | 205,017 | 182,477 | 161,595 | ||||||||||||
316,436 | 278,709 | 224,488 | ||||||||||||||
Investment in special fund: | ||||||||||||||||
Stock Market Stabilization Fund | 4,835 | 5,936 | 5,936 | |||||||||||||
Other | 3,435 | 3,562 | 3,435 | |||||||||||||
8,270 | 9,498 | 9,371 | ||||||||||||||
324,706 | 288,207 | 233,859 | ||||||||||||||
F-26
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(6) Securities, Continued
iv) The maturity of available-for-sale securities by remaining period as of December 31, 2003 are as follows:
Government | Finance | Corporate | ||||||||||||||
bonds | debentures | bonds | Total | |||||||||||||
Due in 3 months or less | 103,419 | 1,128,796 | 178,732 | 1,410,947 | ||||||||||||
Due after 3 months through 6 months | 95,735 | 799,242 | 448,949 | 1,343,926 | ||||||||||||
Due in 12 months | 168,840 | 1,262,752 | 630,835 | 2,062,427 | ||||||||||||
Due in 3 years | 1,252,751 | 1,385,682 | 4,161,545 | 6,799,978 | ||||||||||||
Thereafter | 954,537 | 48,811 | 1,061,876 | 2,065,224 | ||||||||||||
2,575,282 | 4,625,283 | 6,481,937 | 13,682,502 | |||||||||||||
v) Available-for-sale securities denominated in foreign currencies classified by issuing country as of December 31, 2003 and 2002 are
as follows:
2003 | 2002 | |||||||||||||||||||||||
Equivalent | Ratio | Equivalent | Ratio | |||||||||||||||||||||
U.S. dollar | Won | (%) | U.S. dollar | Won | (%) | |||||||||||||||||||
Korea | $ | 731,852 | 876,612 | 61.92 | $ | 460,564 | 552,883 | 69.00 | ||||||||||||||||
U.S.A. | 317,771 | 380,626 | 26.89 | 97,772 | 117,366 | 14.66 | ||||||||||||||||||
Malaysia | 11,703 | 14,018 | 0.99 | 11,640 | 13,973 | 1.75 | ||||||||||||||||||
Indonesia | — | — | — | 300 | 360 | 0.04 | ||||||||||||||||||
Philippines | 588 | 704 | 0.05 | 6,365 | 7,640 | 0.95 | ||||||||||||||||||
Germany | 14,037 | 16,814 | 1.19 | 12,562 | 15,079 | 1.88 | ||||||||||||||||||
Japan | 5,029 | 6,023 | 0.43 | 3,190 | 3,829 | 0.48 | ||||||||||||||||||
Other | 100,948 | 120,916 | 8.53 | 75,057 | 90,099 | 11.24 | ||||||||||||||||||
$ | 1,181,928 | 1,415,713 | 100.00 | $ | 667,450 | 801,229 | 100.00 | |||||||||||||||||
(c) Held-to-maturity securities
i) Held-to-maturity securities as of December 31, 2003 and 2002 consist of the following:
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Government bonds | 558,336 | 539,505 | $ | 466,135 | 450,413 | |||||||||||
Finance debentures | 543,791 | 402,768 | 453,991 | 336,256 | ||||||||||||
Corporate bonds | 2,389,916 | 3,213,403 | 1,995,255 | 2,682,755 | ||||||||||||
Securities in foreign currencies | 172,017 | 128,504 | 143,611 | 107,283 | ||||||||||||
Other | — | 3 | — | 2 | ||||||||||||
3,664,060 | 4,284,183 | $ | 3,058,992 | 3,576,709 | ||||||||||||
F-27
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(6) Securities, Continued
ii) Details of debt securities classified as held-to-maturity securities as of December 31, 2003 and 2002 consist of the following:
2003 | ||||||||||||||||
Face value | Acquisition cost | Fair value (*) | Book value | |||||||||||||
Government bonds | 550,292 | 553,294 | 632,545 | 558,336 | ||||||||||||
Finance debentures | 551,144 | 544,773 | 569,935 | 543,791 | ||||||||||||
Corporate bonds | 2,380,892 | 2,398,606 | 2,461,181 | 2,389,916 | ||||||||||||
3,482,328 | 3,496,673 | 3,663,661 | 3,492,043 | |||||||||||||
2002 | ||||||||||||||||
Face value | Acquisition cost | Fair value (*) | Book value | |||||||||||||
Government bonds | 543,903 | 532,735 | 622,457 | 539,505 | ||||||||||||
Finance debentures | 408,462 | 404,785 | 445,557 | 402,768 | ||||||||||||
Corporate bonds | 3,210,405 | 3,223,072 | 3,382,375 | 3,213,403 | ||||||||||||
4,162,770 | 4,160,592 | 4,450,389 | 4,155,676 | |||||||||||||
(*) Debt securities are recorded at fair value using the market yield of bonds provided by the bond credit rating and pricing associations. |
iii) The maturity of held-to-maturity securities by remaining period as of December 31, 2003 and 2002 are as follows:
Government | Finance | Corporate | ||||||||||||||
At December 31, 2003 | bonds | debentures | bonds | Total | ||||||||||||
Due in 3 months or less | 45,739 | 67,592 | 149,675 | 263,006 | ||||||||||||
Due after 3 months through 6 months | 17,479 | 38,282 | 159,114 | 214,875 | ||||||||||||
Due in 12 months | 141,231 | 125,037 | 723,190 | 989,458 | ||||||||||||
Due in 3 years | 231,214 | 213,027 | 482,760 | 927,001 | ||||||||||||
Thereafter | 122,673 | 99,853 | 875,177 | 1,097,703 | ||||||||||||
558,336 | 543,791 | 2,389,916 | 3,492,043 | |||||||||||||
Government | Finance | Corporate | ||||||||||||||
At December 31, 2002 | bonds | debentures | bonds | Total | ||||||||||||
Due in 3 months or less | 354 | 82,160 | 45,005 | 127,519 | ||||||||||||
Due after 3 months through 6 months | 476 | 66,650 | 91,340 | 158,466 | ||||||||||||
Due in 12 months | 65,171 | 57,672 | 1,301,399 | 1,424,242 | ||||||||||||
Due in 3 years | 301,321 | 146,381 | 1,119,998 | 1,567,700 | ||||||||||||
Thereafter | 172,183 | 49,905 | 655,661 | 877,749 | ||||||||||||
539,505 | 402,768 | 3,213,403 | 4,155,676 | |||||||||||||
F-28
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(6) Securities, Continued
iv) Held-to-maturity securities denominated in foreign currencies classified by issuing country as of December 31, 2003 and 2002 are as
follows:
2003 | 2002 | |||||||||||||||||||||||
Equivalent | Equivalent | |||||||||||||||||||||||
U.S. dollar | Won | Ratio (%) | U.S. dollar | Won | Ratio (%) | |||||||||||||||||||
Korea | $ | 127,308 | 152,489 | 88.65 | $ | 91,721 | 110,103 | 85.68 | ||||||||||||||||
U.S.A. | 1,965 | 2,354 | 1.37 | 1,940 | 2,329 | 1.81 | ||||||||||||||||||
Indonesia | 3,449 | 4,131 | 2.40 | 2,500 | 3,001 | 2.34 | ||||||||||||||||||
Other | 10,889 | 13,043 | 7.58 | 10,890 | 13,071 | 10.17 | ||||||||||||||||||
$ | 143,611 | 172,017 | 100.00 | $ | 107,051 | 128,504 | 100.00 | |||||||||||||||||
(d) Investment securities accounted for by the equity method
i) Details of investment securities accounted for by the equity method as of December 31, 2003 and 2002 are as follows:
2003 | ||||||||||||||||||||||||
` | Investment | Equity | ||||||||||||||||||||||
Beginning | and | method | Retained | Capital | Ending | |||||||||||||||||||
Subsidiaries | balance | sale, net | gain (loss) | earnings | adjustments | balance | ||||||||||||||||||
e-Shinhan | 3,892 | — | (1,166 | ) | (1 | ) | — | 2,725 | ||||||||||||||||
Shinhan Macquarie | 423 | — | 1,446 | (26 | ) | — | 1,843 | |||||||||||||||||
Shinhan Credit Information | 3,121 | (1,695 | ) | 544 | — | — | 1,970 | |||||||||||||||||
Shinhan Data System | 2,001 | — | 152 | — | — | 2,153 | ||||||||||||||||||
Chohung Vina | — | 9,166 | 1,434 | — | 340 | 10,940 | ||||||||||||||||||
9,437 | 7,471 | 2,410 | (27 | ) | 340 | 19,631 | ||||||||||||||||||
2002 | ||||||||||||||||||||||||
` | ` | Investment | Equity | |||||||||||||||||||||
Beginning | and | method | Retained | Capital | Ending | |||||||||||||||||||
Subsidiaries | balance | sale, net | gain (loss) | earnings | adjustments | balance | ||||||||||||||||||
e-Shinhan | 4,673 | — | (806 | ) | (1 | ) | 26 | 3,892 | ||||||||||||||||
Shinhan Macquarie | 776 | (484 | ) | 134 | (3 | ) | — | 423 | ||||||||||||||||
Shinhan Credit Information | — | 3,000 | 121 | — | — | 3,121 | ||||||||||||||||||
Shinhan System | 1,864 | — | 137 | — | — | 2,001 | ||||||||||||||||||
Shinhan Research | 158 | (158 | ) | — | — | — | — | |||||||||||||||||
7,471 | 2,358 | (414 | ) | (4 | ) | 26 | 9,437 | |||||||||||||||||
F-29
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(7) | Loans |
(a) | Loans outstanding as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Loans in Won | 72,853,369 | 32,616,614 | $ | 60,822,649 | 27,230,434 | |||||||||||
Loans in foreign currencies | 6,779,634 | 3,489,504 | 5,660,072 | 2,913,261 | ||||||||||||
Domestic import usance bills | 2,714,909 | 1,154,569 | 2,266,579 | 963,908 | ||||||||||||
Call loans | 1,438,737 | 610,606 | 1,201,150 | 509,773 | ||||||||||||
Korean Won bills bought | 1,058,981 | 833,721 | 884,105 | 696,044 | ||||||||||||
Foreign currency bills bought | 3,610,006 | 2,263,872 | 3,013,864 | 1,890,026 | ||||||||||||
Payments on guarantees and acceptances | 107,743 | 89,657 | 89,951 | 74,851 | ||||||||||||
Credit card loans | 4,931,496 | 2,795,865 | 4,117,128 | 2,334,167 | ||||||||||||
Bonds purchased with resale agreements | 470,300 | — | 392,636 | — | ||||||||||||
Privately placed bonds | 2,416,843 | 1,484,356 | 2,017,735 | 1,239,235 | ||||||||||||
Factoring receivables | 174,955 | 63,627 | 146,064 | 53,120 | ||||||||||||
Loans convertible into equity securities | 80,933 | 6,504 | 67,568 | 5,430 | ||||||||||||
Financing lease receivables | 807,396 | 621,427 | 674,066 | 518,807 | ||||||||||||
Cash management account | 186,369 | — | 155,592 | — | ||||||||||||
Other | 17,390 | 17,706 | 14,518 | 14,782 | ||||||||||||
97,649,061 | 46,048,028 | 81,523,677 | 38,443,838 | |||||||||||||
Less: allowance for loan losses | (2,808,118 | ) | (785,773 | ) | (2,344,396 | ) | (656,014 | ) | ||||||||
present value premiums (discounts) | 80,236 | (17,894 | ) | 66,986 | (14,939 | ) | ||||||||||
94,921,179 | 45,244,361 | $ | 79,246,267 | 37,772,885 | ||||||||||||
(b) | The maturities of loans by remaining period as of December 31, 2003 and 2002 are as follows: |
Loans in foreign | ||||||||||||||||
At December 31, 2003 | Loans in Won | currencies | Other | Total | ||||||||||||
Due in 3 months or less | 15,160,538 | 885,099 | 8,318,745 | 24,364,382 | ||||||||||||
Due after 3 months through 6 months | 13,263,016 | 1,451,347 | 1,324,392 | 16,038,755 | ||||||||||||
Due in 12 months | 21,080,434 | 2,039,158 | 1,552,614 | 24,672,206 | ||||||||||||
Due in 3 years | 16,806,243 | 1,156,538 | 3,868,644 | 21,831,425 | ||||||||||||
Thereafter | 6,543,138 | 1,247,492 | 2,951,663 | 10,742,293 | ||||||||||||
72,853,369 | 6,779,634 | 18,016,058 | 97,649,061 | |||||||||||||
Loans in foreign | ||||||||||||||||
At December 31, 2002 | Loans in Won | currencies | Other | Total | ||||||||||||
Due in 3 months or less | 4,971,684 | 393,060 | 6,373,742 | 11,738,486 | ||||||||||||
Due after 3 months through 6 months | 4,393,858 | 699,390 | 811,375 | 5,904,623 | ||||||||||||
Due in 12 months | 8,379,063 | 1,332,252 | 878,332 | 10,589,647 | ||||||||||||
Due in 3 years | 11,489,933 | 452,397 | 1,383,218 | 13,325,548 | ||||||||||||
Thereafter | 3,382,076 | 612,405 | 495,243 | 4,489,724 | ||||||||||||
32,616,614 | 3,489,504 | 9,941,910 | 46,048,028 | |||||||||||||
F-30
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(7) | Loans, Continued |
(c) | Loan classified by country as of December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||||||
Loans in foreign | ||||||||||||||||||||
Loans in Won | currencies | Other loans | Total | Ratio (%) | ||||||||||||||||
Korea | 72,853,369 | 4,426,217 | 17,910,007 | 95,189,593 | 97.48 | |||||||||||||||
U.S.A. | — | 803,204 | 678 | 803,882 | 0.82 | |||||||||||||||
U.K. | — | 63,047 | 19,182 | 82,229 | 0.09 | |||||||||||||||
Japan | — | 936,055 | 1,105 | 937,160 | 0.96 | |||||||||||||||
Germany | — | 1,165 | — | 1,165 | — | |||||||||||||||
Ireland | — | — | 62,168 | 62,168 | 0.07 | |||||||||||||||
Indonesia | — | 31,605 | — | 31,605 | 0.03 | |||||||||||||||
Thailand | — | 599 | — | 599 | — | |||||||||||||||
Vietnam | — | 52,456 | 2,403 | 54,859 | 0.06 | |||||||||||||||
Panama | — | 78,414 | — | 78,414 | 0.08 | |||||||||||||||
Russia | — | 2,096 | — | 2,096 | — | |||||||||||||||
Hong Kong | — | 63,486 | 14,578 | 78,064 | 0.08 | |||||||||||||||
China | — | 192,572 | 5,937 | 198,509 | 0.20 | |||||||||||||||
Other | — | 128,718 | — | 128,718 | 0.13 | |||||||||||||||
72,853,369 | 6,779,634 | 18,016,058 | 97,649,061 | 100.00 | ||||||||||||||||
2002 | ||||||||||||||||||||
Loans in foreign | ||||||||||||||||||||
Loans in Won | currencies | Other loans | Total | Ratio (%) | ||||||||||||||||
Korea | 32,616,614 | 2,820,291 | 9,696,621 | 45,133,526 | 98.01 | |||||||||||||||
U.S.A. | — | 7,124 | 30,010 | 37,134 | 0.08 | |||||||||||||||
U.K. | — | — | 1,059 | 1,059 | 0.00 | |||||||||||||||
Japan | — | 628,671 | — | 628,671 | 1.37 | |||||||||||||||
Germany | — | 12,004 | 60,020 | 72,024 | 0.16 | |||||||||||||||
Italy | — | — | 60,020 | 60,020 | 0.13 | |||||||||||||||
Canada | — | — | 7,923 | 7,923 | 0.02 | |||||||||||||||
Austria | — | — | 42,014 | 42,014 | 0.09 | |||||||||||||||
Ireland | — | — | 24,008 | 24,008 | 0.05 | |||||||||||||||
Indonesia | — | 16,148 | — | 16,148 | 0.04 | |||||||||||||||
Thailand | — | 3,204 | — | 3,204 | 0.01 | |||||||||||||||
Vietnam | — | 1,041 | — | 1,041 | 0.00 | |||||||||||||||
Hong Kong | — | — | 20,235 | 20,235 | 0.04 | |||||||||||||||
Singapore | — | 1,021 | — | 1,021 | 0.00 | |||||||||||||||
32,616,614 | 3,489,504 | 9,941,910 | 46,048,028 | 100.00 | ||||||||||||||||
F-31
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(7) | Loans, Continued |
(d) | Loans classified by consumer as of December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||||||
Loans in foreign | ||||||||||||||||||||
Loans in Won | currencies | Other | Total | Ratio (%) | ||||||||||||||||
Corporate | 37,321,076 | 6,134,976 | 12,729,866 | 56,185,918 | 57.53 | |||||||||||||||
Household | 34,527,896 | 97,993 | 5,113,230 | 39,739,119 | 40.70 | |||||||||||||||
Public and other | 1,004,397 | 546,665 | 172,962 | 1,724,024 | 1.77 | |||||||||||||||
72,853,369 | 6,779,634 | 18,016,058 | 97,649,061 | 100.00 | ||||||||||||||||
2002 | ||||||||||||||||||||
Loans in foreign | ||||||||||||||||||||
Loans in Won | currencies | Other | Total | Ratio (%) | ||||||||||||||||
Corporate | 15,945,863 | 3,427,197 | 7,410,253 | 26,783,313 | 58.16 | |||||||||||||||
Household | 16,538,978 | 45,938 | 2,225,690 | 18,810,606 | 40.85 | |||||||||||||||
Public and other | 131,773 | 16,369 | 305,967 | 454,109 | 0.99 | |||||||||||||||
32,616,614 | 3,489,504 | 9,941,910 | 46,048,028 | 100.00 | ||||||||||||||||
(e) | Restructured loans due to commencement of bankruptcy proceedings, composition proceedings or workout programs during the years ended December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||||||
Workout | ||||||||||||||||||||
Corporate | Individuals | |||||||||||||||||||
Composition | Bankruptcy | loans | loans | Total | ||||||||||||||||
Loans for equity conversion | — | 29,083 | 410,140 | — | 439,223 | |||||||||||||||
Loans converted into convertible bonds | — | 2,159 | 38,545 | 40,704 | ||||||||||||||||
Reduction in interest rate | — | 149,903 | 164,223 | 1,539 | 315,665 | |||||||||||||||
Loan balance before restructuring | — | 181,145 | 612,908 | 1,539 | 795,592 | |||||||||||||||
Loan balance after restructuring | — | 160,019 | 501,076 | 1,242 | 662,337 | |||||||||||||||
Loss resulting from restructuring | — | 21,126 | 111,832 | 297 | 133,255 | |||||||||||||||
2002 | ||||||||||||||||||||
Workout | ||||||||||||||||||||
Corporate | Individuals | |||||||||||||||||||
Composition | Bankruptcy | loans | loans | Total | ||||||||||||||||
Loan for equity conversion | 6,793 | 1,905 | 668 | — | 9,366 | |||||||||||||||
Loans converted into convertible bonds | — | — | 493 | — | 493 | |||||||||||||||
Reduction in interest rate | 3,436 | 2,094 | 14,779 | — | 20,309 | |||||||||||||||
Loan balance before restructuring | 10,229 | 3,999 | 15,940 | — | 30,168 | |||||||||||||||
Loan balance after restructuring | 3,550 | 1,151 | 13,284 | — | 17,985 | |||||||||||||||
Loss resulting from restructuring | 6,679 | 2,848 | 2,656 | — | 12,183 | |||||||||||||||
F-32
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(7) | Loans, Continued |
(f) | Changes in allowance for losses on loans, accounts receivable and accrued income for the years ended December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||
Beginning | Increase | Ending | ||||||||||
balance (*) | (Decrease) (**) | balance (***) | ||||||||||
The Company | 3,846 | (3,846 | ) | — | ||||||||
Shinhan Bank | 565,844 | 300,584 | 866,428 | |||||||||
Shinhan Bank (Trust account) | 24,023 | (5,687 | ) | 18,336 | ||||||||
Shinhan Finance | 3,266 | 609 | 3,875 | |||||||||
Chohung Bank | — | 1,705,719 | 1,705,719 | |||||||||
Chohung Bank (Trust account) | — | 23,359 | 23,359 | |||||||||
Chohung ITMC | — | 11 | 11 | |||||||||
Chohung Finance | — | 4,549 | 4,549 | |||||||||
Chohung America | — | 4,252 | 4,252 | |||||||||
Chohung Deutschland | — | 2,696 | 2,696 | |||||||||
Goodmorning Shinhan Securities | 49,333 | (13,989 | ) | 35,344 | ||||||||
Shinhan Card | 96,104 | 22,506 | 118,610 | |||||||||
Shinhan Capital | 33,787 | (15,886 | ) | 17,901 | ||||||||
Shinhan BNPP ITMC | 10 | 4 | 14 | |||||||||
Jeju Bank | 29,318 | 5,952 | 35,270 | |||||||||
Jeju Bank (Trust account) | 142 | (142 | ) | — | ||||||||
Total | 805,673 | 2,030,691 | 2,836,364 | |||||||||
(*) | Additional allowance for loan losses of Goodmorning Shinhan Securities, Shinhan Capital and Jeju Bank, amounting to | |
(**) | Allowance for loan losses of Chohung Bank, amounting to | |
(***) | Additional allowance for loan losses of Chohung and Jeju Bank, amounting to | |
(****) | Allowance for losses on other assets and disposition of operating lease assets is included. |
F-33
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(7) | Loans, Continued |
2002 | ||||||||||||
Beginning | Increase | Ending | ||||||||||
balance (*) | (Decrease) | balance (*) | ||||||||||
The Company | 1,472 | 2,374 | 3,846 | |||||||||
Shinhan Bank | 567,344 | (1,500 | ) | 565,844 | ||||||||
Shinhan Bank (Trust account) | 30,225 | (6,202 | ) | 24,023 | ||||||||
Shinhan Finance | 3,949 | (683 | ) | 3,266 | ||||||||
Goodmorning Shinhan Securities | 48,854 | 479 | 49,333 | |||||||||
Shinhan Card | — | 96,104 | 96,104 | |||||||||
Shinhan Capital | 102,454 | (68,667 | ) | 33,787 | ||||||||
Shinhan BNPP ITMC | 25 | (15 | ) | 10 | ||||||||
Jeju Bank | 26,952 | 2,366 | 29,318 | |||||||||
Jeju Bank (Trust account) | 153 | (11 | ) | 142 | ||||||||
Total | 781,428 | 24,245 | 805,673 | |||||||||
(*) | Additional allowance for loan losses of Goodmorning Shinhan Securities, Shinhan Capital and Jeju Bank, amounting to | |
(**) | Allowance for loan losses of Shinhan Securities Co., Ltd. before to merger is considered. | |
(***) | Allowance for losses on other assets is included. |
(8) | Fixed Assets | |||
Fixed assets as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Tangible assets: | ||||||||||||||||
Land | 995,168 | 346,538 | $ | 830,830 | 289,312 | |||||||||||
Buildings | 729,315 | 465,484 | 608,879 | 388,616 | ||||||||||||
Other | 1,129,104 | 571,048 | 942,648 | 476,747 | ||||||||||||
2,853,587 | 1,383,070 | 2,382,357 | 1,154,675 | |||||||||||||
Less: accumulated depreciation | (974,792 | ) | (455,839 | ) | (813,819 | ) | (380,563 | ) | ||||||||
1,878,795 | 927,231 | 1,568,538 | 774,112 | |||||||||||||
Intangible assets: | ||||||||||||||||
Goodwill | 964,788 | 161,542 | 805,467 | 134,866 | ||||||||||||
Negative goodwill | (5,655 | ) | (6,340 | ) | (4,721 | ) | (5,293 | ) | ||||||||
Other | 15,440 | 11,365 | 12,890 | 9,488 | ||||||||||||
974,573 | 166,567 | 813,636 | 139,061 | |||||||||||||
Other fixed assets | 312 | 46 | 261 | 38 | ||||||||||||
2,853,680 | 1,093,844 | $ | 2,382,435 | 913,211 | ||||||||||||
F-34
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(8) | Fixed assets, Continued | |||
The officially declared value of land used in domestic branches at December 31, 2003 and 2002, as announced by the Minister of Construction and Transportation, is as follows: |
Book value | Declared value | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Land (Domestic only) | 991,993 | 345,832 | 975,097 | 261,145 |
The officially declared value, which is used for government purposes, does not represent the fair value. | ||||
(9) | Other Assets | |||
Other assets as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Accounts receivable | 1,570,819 | 572,367 | $ | 1,311,420 | 477,849 | |||||||||||
Advance payments | 42,827 | 11,623 | 35,755 | 9,704 | ||||||||||||
Prepaid expenses | 29,146 | 24,863 | 24,333 | 20,757 | ||||||||||||
Prepaid income taxes | 13,988 | 3,268 | 11,678 | 2,728 | ||||||||||||
Accrued income | 696,940 | 465,144 | 581,850 | 388,332 | ||||||||||||
Operating lease assets | 405,794 | 177,678 | 338,783 | 148,337 | ||||||||||||
Less: accumulated depreciation | (182,375 | ) | (79,247 | ) | (152,258 | ) | (66,160 | ) | ||||||||
allowance for losses on disposition | (2,210 | ) | (147 | ) | (1,845 | ) | (123 | ) | ||||||||
Guarantee deposits paid | 956,596 | 454,956 | 798,627 | 379,826 | ||||||||||||
Deferred tax assets | 78,135 | 102,052 | 65,232 | 85,200 | ||||||||||||
Derivative assets | 518,836 | 120,443 | 433,157 | 100,554 | ||||||||||||
Other | 2,910,279 | 295,409 | 2,429,687 | 246,626 | ||||||||||||
7,038,775 | 2,148,409 | 5,876,419 | 1,793,630 | |||||||||||||
Less: allowance for losses | (26,036 | ) | (19,753 | ) | (21,736 | ) | (16,491 | ) | ||||||||
present value discounts | (146 | ) | (614 | ) | (122 | ) | (513 | ) | ||||||||
7,012,593 | 2,128,042 | $ | 5,854,561 | 1,776,626 | ||||||||||||
F-35
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(10) | Operating Lease Assets |
(a) | Operating lease assets classified by industry as of December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||
Mining | 4,343 | 7,603 | ||||||
Manufacturing: | ||||||||
Food and beverages | 485 | 14,678 | ||||||
Clothing and fabrics | 3,429 | 5,580 | ||||||
Paper and publishing | 14,617 | 25,654 | ||||||
Chemicals | 19,230 | 21,296 | ||||||
Mining | 241 | 1,236 | ||||||
Metal | 138 | 214 | ||||||
Electrical components and equipment | 38,815 | 7,658 | ||||||
Other manufacturing | 36,309 | 8,317 | ||||||
113,264 | 84,633 | |||||||
Energy and gas | 6,569 | 14,302 | ||||||
Construction | 6,962 | 2,637 | ||||||
Retail / wholesale and lodging | 8,669 | 6,236 | ||||||
Transportation and containers | 212,728 | 20,507 | ||||||
Banking, insurance and other financing | 681 | 77 | ||||||
Medical | 15,748 | 14,266 | ||||||
Public and consumer services | 36,830 | 27,417 | ||||||
405,794 | 177,678 | |||||||
Less: accumulated depreciation | (182,375 | ) | (79,247 | ) | ||||
allowance for losses on disposition of lease assets | (2,211 | ) | (147 | ) | ||||
221,208 | 98,284 | |||||||
(b) | The collection schedule of future lease receivables as of December 31, 2003, is as follows: |
Operating | Financing | |||||||||||
lease | lease | Total | ||||||||||
January 1, 2004 ~ December 31, 2004 | 63,056 | 334,267 | 397,323 | |||||||||
January 1, 2005 ~ December 31, 2005 | 44,637 | 257,899 | 302,536 | |||||||||
January 1, 2006 ~ December 31, 2006 | 31,035 | 181,296 | 212,331 | |||||||||
January 1, 2007 ~ December 31, 2007 | 20,503 | 78,126 | 98,629 | |||||||||
Thereafter | 125,078 | 55,090 | 180,168 | |||||||||
284,309 | 906,678 | 1,190,987 | ||||||||||
Unrealized interest income on financing lease | — | (99,282 | ) | (99,282 | ) | |||||||
284,309 | 807,396 | 1,091,705 | ||||||||||
F-36
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(11) | Deposits |
(a) | Deposits as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Korean Won deposits | 75,496,450 | 33,851,353 | $ | 63,029,262 | 28,261,273 | |||||||||||
Foreign currency deposits | 4,932,403 | 2,094,331 | 4,117,885 | 1,748,481 | ||||||||||||
Negotiable certificates of deposits | 7,118,586 | 2,776,649 | 5,943,051 | 2,318,124 | ||||||||||||
87,547,439 | 38,722,333 | 73,090,198 | 32,327,878 | |||||||||||||
Add: present value premium | 45,166 | — | 37,707 | — | ||||||||||||
87,592,605 | 38,722,333 | $ | 73,127,905 | 32,327,878 | ||||||||||||
(b) | The maturities of deposits by remaining period as of December 31, 2003 and 2002 are as follows: |
Foreign | Negotiable | |||||||||||||||
Korean Won | currency | certificates | ||||||||||||||
At December 31, 2003 | deposits | deposits | of deposits | Total | ||||||||||||
Due in 3 months or less | 22,326,297 | 3,267,799 | 3,563,065 | 29,157,161 | ||||||||||||
Due after 3 months through 6 months | 6,003,790 | 357,334 | 1,759,652 | 8,120,776 | ||||||||||||
Due in 12 months | 19,203,989 | 710,832 | 1,674,109 | 21,588,930 | ||||||||||||
Due in 3 years | 5,373,674 | 595,357 | 120,675 | 6,089,706 | ||||||||||||
Thereafter | 22,588,700 | 1,081 | 1,085 | 22,590,866 | ||||||||||||
75,496,450 | 4,932,403 | 7,118,586 | 87,547,439 | |||||||||||||
Foreign | Negotiable | |||||||||||||||
Korean Won | currency | certificates | ||||||||||||||
At December 31, 2002 | deposits (*) | deposits | of deposits | Total | ||||||||||||
Due in 3 months or less | 10,113,071 | 1,101,437 | 1,719,391 | 12,933,899 | ||||||||||||
Due after 3 months through 6 months | 3,781,970 | 333,393 | 883,531 | 4,998,894 | ||||||||||||
Due in 12 months | 9,132,488 | 304,313 | 115,654 | 9,552,455 | ||||||||||||
Due in 3 years | 2,084,954 | 355,188 | 58,073 | 2,498,215 | ||||||||||||
Thereafter | 8,723,824 | — | — | 8,723,824 | ||||||||||||
33,836,307 | 2,094,331 | 2,776,649 | 38,707,287 | |||||||||||||
(*) |
F-37
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(12) | Borrowings |
(a) | Borrowings as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Borrowings in Won | 4,401,380 | 1,900,616 | $ | 3,674,553 | 1,586,756 | |||||||||||
Borrowings in foreign currencies | 7,193,596 | 4,670,846 | 6,005,674 | 3,899,521 | ||||||||||||
Bonds sold with repurchase agreements | 4,427,073 | 4,300,609 | 3,696,004 | 3,590,423 | ||||||||||||
Bills sold | 705,954 | 206,965 | 589,376 | 172,788 | ||||||||||||
Due to the Bank of Korea in foreign currencies | 64,051 | 75,285 | 53,473 | 62,853 | ||||||||||||
Call money | 417,522 | 197,493 | 348,574 | 164,880 | ||||||||||||
17,209,576 | 11,351,814 | $ | 14,367,654 | 9,477,221 | ||||||||||||
(b) | Details of subordinated borrowings as of December 31, 2003 and 2002 are as follows: |
Interest | ||||||||||||||||
Lender | Period of contract | rate (%) | 2003 | 2002 | ||||||||||||
Hungkuk Life Insurance | December 31, 1997 ~ December 31, 2007 | 7.0 | 40,000 | 40,000 | ||||||||||||
Kyobo Life Insurance | June 30, 1998 ~ June 30, 2008 | 5.5 | 30,000 | 30,000 | ||||||||||||
70,000 | 70,000 | |||||||||||||||
(c) | The maturities of borrowings as of December 31, 2003 and 2002 are as follows: |
Borrowings | ||||||||||||||||
Borrowings | in foreign | |||||||||||||||
At December 31, 2003 | in Won | currencies | Other | Total | ||||||||||||
Due in 3 months or less | 2,309,091 | 3,855,897 | 2,871,796 | 9,036,784 | ||||||||||||
Due after 3 months through 6 months | 288,131 | 1,689,287 | 1,478,867 | 3,456,285 | ||||||||||||
Due in 12 months | 191,984 | 1,162,733 | 1,110,451 | 2,465,168 | ||||||||||||
Due in 3 years | 399,962 | 387,229 | 153,179 | 940,370 | ||||||||||||
Thereafter | 1,212,212 | 98,450 | 307 | 1,310,969 | ||||||||||||
4,401,380 | 7,193,596 | 5,614,600 | 17,209,576 | |||||||||||||
Borrowings | ||||||||||||||||
Borrowings | in foreign | |||||||||||||||
At December 31, 2002 | in Won | currencies | Other | Total | ||||||||||||
Due in 3 months or less | 808,083 | 2,000,221 | 2,347,348 | 5,155,652 | ||||||||||||
Due after 3 months through 6 months | 41,731 | 1,029,718 | 1,223,431 | 2,294,880 | ||||||||||||
Due in 12 months | 89,700 | 1,004,765 | 799,335 | 1,893,800 | ||||||||||||
Due in 3 years | 283,406 | 610,921 | 406,991 | 1,301,318 | ||||||||||||
Thereafter | 677,696 | 25,221 | 3,247 | 706,164 | ||||||||||||
1,900,616 | 4,670,846 | 4,780,352 | 11,351,814 | |||||||||||||
F-38
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(13) | Debentures |
(a) | Debentures as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Korean Won debentures | 16,177,484 | 8,331,629 | $ | 13,505,998 | 6,955,776 | |||||||||||
Foreign currency debentures | 1,591,121 | 469,236 | 1,328,369 | 391,748 | ||||||||||||
17,768,605 | 8,800,865 | 14,834,367 | 7,347,524 | |||||||||||||
Less: present value discounts | (156,171 | ) | (405,462 | ) | (130,382 | ) | (338,506 | ) | ||||||||
Add: present value premiums | 135,445 | — | 113,078 | — | ||||||||||||
17,747,879 | 8,395,403 | $ | 14,817,063 | 7,009,018 | ||||||||||||
(b) | Details of Korean Won debentures as of December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||||||
Interest rate | Interest rate | |||||||||||
Face value | (%) | Face value | (%) | |||||||||
Discounted debentures | 6,436,500 | 3.93~6.91 | 3,910,000 | 4.01~6.00 | ||||||||
Coupon debenture | 6,554,434 | 0.24~7.47 | 2,674,425 | 5.25~8.20 | ||||||||
Debentures with stock warrants | — | — | 299,064 | 15.00 | ||||||||
Subordinated debenture | 2,910,292 | 5.58~18.00 | 1,432,172 | 6.23~15.13 | ||||||||
Hybrid securities (*) | 272,564 | 7.80 | — | — | ||||||||
16,173,790 | 8,315,661 | |||||||||||
Add: loss on fair value hedge | 3,694 | 15,968 | ||||||||||
16,177,484 | 8,331,629 | |||||||||||
(*) | Hybrid securities issued by Chohung Bank |
Redemption | : | Redeemable 5 years after issuance date | ||||
Interest rate | : | 7.80% for 10 years after issuance date Thereafter — 50% of the difference between 7.80% and 5 year maturity government bonds rate is added. | ||||
Thereafter — 50% of the difference between 7.80% and 5 year maturity government bonds rate is added. | ||||||
Interest payment | : | Quarterly paid | ||||
Maturity date | : | 30 years after issuance date (renewable by Chohung Bank) |
F-39
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(13) | Debentures, Continued |
(c) | Details of foreign currency debentures as of December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||||||||||||||
Equivalent | Interest rate | Equivalent | Interest rate | |||||||||||||||||
U.S. dollars | Won | (%) | U.S. dollars | Won | (%) | |||||||||||||||
MTN (*) | $ | 800,000 | 967,791 | 1.59~6.25 | $ | 354,000 | 433,224 | 4/L+0.2 | ||||||||||||
Non-guaranteed debentures | 30,000 | 35,934 | L+0.85 | 30,000 | 36,012 | L+0.85 | ||||||||||||||
Subordinated debentures | 490,396 | 587,396 | 11.50~11.88 | — | — | |||||||||||||||
$ | 1,320,396 | 1,591,121 | $ | 384,000 | 469,236 | |||||||||||||||
(*) | Shinhan Bank established two programs with Merrill Lynch International Limited and other four financial institutions to issue Euro Medium Term Note (EMTN) on November 9, 1995 and Global Medium Term Note (GMTN) on August 20, 1999. Details of the programs are as follows: |
Total amount which can be issued | : | US$ 2,000,000 | ||||
Place of trading | : | London Stock Exchange | ||||
Issue price | : | Face value or discounted value | ||||
Maturity date and interest date | : | Various depending on date of issuance | ||||
Redemption | : | Maturity date | ||||
Additionally, valuation gain (loss) on derivatives is included in equivalent Won amount. |
(d) | The maturities of debentures by remaining period as of December 31, 2003 and 2002 are as follows: |
Korean Won | Foreign currency | |||||||||||
At December 31, 2003 | debentures | debentures | Total | |||||||||
Due in 3 months or less | 2,460,384 | — | 2,460,384 | |||||||||
Due after 3 months through 6 months | 2,735,660 | — | 2,735,660 | |||||||||
Due in 12 months | 3,144,010 | 179,670 | 3,323,680 | |||||||||
Due in 3 years | 4,537,860 | 388,560 | 4,926,420 | |||||||||
Thereafter | 3,299,570 | 1,022,891 | 4,322,461 | |||||||||
16,177,484 | 1,591,121 | 17,768,605 | ||||||||||
Korean Won | Foreign currency | |||||||||||
At December 31, 2002 | debentures | debentures | Total | |||||||||
Due in 3 months or less | 1,514,887 | — | 1,514,887 | |||||||||
Due after 3 months through 6 months | 536,807 | — | 536,807 | |||||||||
Due in 12 months | 2,138,065 | 193,144 | 2,331,209 | |||||||||
Due in 3 years | 2,042,179 | 276,092 | 2,318,271 | |||||||||
Thereafter | 2,099,691 | — | 2,099,691 | |||||||||
8,331,629 | 469,236 | 8,800,865 | ||||||||||
F-40
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(14) | Retirement and Severance Benefits | |||
Changes in retirement and severance benefits for the years ended December 31, 2003 and 2002 are as follows: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Beginning balance | 225,188 | 192,465 | $ | 188,001 | 160,682 | |||||||||||
Changes in consolidation scope | 105,794 | 15,838 | 88,324 | 13,223 | ||||||||||||
Adjustment due to foreign exchange rate | 42 | (7 | ) | 35 | (6 | ) | ||||||||||
Payment | (29,114 | ) | (56,765 | ) | (24,306 | ) | (47,391 | ) | ||||||||
Provision | 46,003 | 73,657 | 38,406 | 61,494 | ||||||||||||
Ending balance | 347,913 | 225,188 | 290,460 | 188,001 | ||||||||||||
Less: contribution to National Pension Fund | (133,645 | ) | (56,802 | ) | (111,575 | ) | (47,422 | ) | ||||||||
deposit for severance benefit insurance | (8,317 | ) | (8,867 | ) | (6,944 | ) | (7,403 | ) | ||||||||
205,951 | 159,519 | $ | 171,941 | 133,176 | ||||||||||||
(15) | Other Liabilities | |||
Other liabilities as of December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Allowance for losses on guarantees and acceptances (note 16) | 57,398 | 3,659 | $ | 47,920 | 3,055 | |||||||||||
Other allowances | 68,025 | 30,716 | 56,792 | 25,644 | ||||||||||||
Borrowings from trust accounts | 665,158 | 278,578 | 555,316 | 232,575 | ||||||||||||
Foreign exchange remittances pending | 159,954 | 158,937 | 133,540 | 132,691 | ||||||||||||
Securities sold | 353,732 | — | 295,318 | — | ||||||||||||
Accounts payable | 1,397,803 | 539,108 | 1,166,975 | 450,082 | ||||||||||||
Accrued expenses | 1,742,597 | 1,108,373 | 1,454,831 | 925,341 | ||||||||||||
Income tax payable | 103,873 | 172,343 | 86,720 | 143,883 | ||||||||||||
Dividend payable | 1,645 | 2,629 | 1,373 | 2,195 | ||||||||||||
Advance receipts | 95,116 | 6,056 | 79,409 | 5,056 | ||||||||||||
Unearned revenues | 163,650 | 87,414 | 136,626 | 72,979 | ||||||||||||
Taxes withheld | 78,271 | 76,096 | 65,346 | 63,530 | ||||||||||||
Guarantee deposits received | 270,766 | 149,729 | 226,053 | 125,003 | ||||||||||||
Derivatives liabilities | 471,442 | 112,677 | 393,590 | 94,070 | ||||||||||||
Deferred tax liabilities | 34 | 262 | 28 | 219 | ||||||||||||
Guarantee deposits for stock subscriptions | 19,090 | 4,945 | 15,938 | 4,128 | ||||||||||||
Miscellaneous | 4,697,196 | 1,445,637 | 3,921,519 | 1,206,910 | ||||||||||||
10,345,750 | 4,177,159 | $ | 8,637,294 | 3,487,361 | ||||||||||||
F-41
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(16) | Guarantees and Acceptances |
(a) | The guarantees and acceptances as of December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||
Guarantees and acceptances outstanding | ||||||||
Guarantees and acceptances in Won: | ||||||||
Guarantees for contract performance | $ | 122,759 | 99,936 | |||||
Guarantees on loan collaterals | 118,261 | 54,660 | ||||||
Guarantees on debentures | 32,331 | 15,900 | ||||||
Other | 765,517 | 273,656 | ||||||
1,038,868 | 444,152 | |||||||
Guarantees and acceptances in foreign currencies: | ||||||||
Acceptances on letters of credit | 422,945 | 408,397 | ||||||
Acceptances for letters of guarantee for importers | 161,993 | 101,381 | ||||||
Other | 651,416 | 390,264 | ||||||
1,236,354 | 900,042 | |||||||
Contingent guarantees and acceptances | ||||||||
Letters of credit | 2,611,654 | 1,939,913 | ||||||
Other | 550,917 | 271,163 | ||||||
3,162,571 | 2,211,076 | |||||||
5,437,793 | 3,555,270 | |||||||
(b) | Outstanding commitments as of December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||
Commitments for loans in Won | 3,383,264 | 2,213,114 | ||||||
Commitments for loans in foreign currencies | 237,610 | 153,891 | ||||||
Other commitments in foreign currencies | 42,890 | 72,098 | ||||||
3,663,764 | 2,439,103 | |||||||
(c) | The guarantees and acceptances provided by country as of December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||||||||||
Guarantees and acceptances outstanding in | Contingent guarantees and | |||||||||||||||||||||||
Won | Foreign currencies | acceptances | ||||||||||||||||||||||
Balance | Ratio (%) | Balance | Ratio (%) | Balance | Ratio (%) | |||||||||||||||||||
Korea | 1,038,868 | 100.00 | 1,160,272 | 93.84 | 3,017,786 | 95.42 | ||||||||||||||||||
U.S.A. | — | — | 51,740 | 4.18 | 92,943 | 2.94 | ||||||||||||||||||
Japan | — | — | 19,474 | 1.58 | 24,972 | 0.79 | ||||||||||||||||||
U.K. | — | — | 2,134 | 0.17 | 9,582 | 0.30 | ||||||||||||||||||
China | — | — | 1,222 | 0.10 | 3,569 | 0.11 | ||||||||||||||||||
Vietnam | — | — | 445 | 0.04 | 12,867 | 0.41 | ||||||||||||||||||
Other | — | — | 1,067 | 0.09 | 852 | 0.03 | ||||||||||||||||||
1,038,868 | 100.00 | 1,236,354 | 100.00 | 3,162,571 | 100.00 | |||||||||||||||||||
F-42
s
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(16) | Guarantees and Acceptances, Continued |
2002 | ||||||||||||||||||||||||
Guarantees and acceptances outstanding in | Contingent guarantees and | |||||||||||||||||||||||
Won | Foreign currencies | acceptances | ||||||||||||||||||||||
Balance | Ratio (%) | Balance | Ratio (%) | Balance | Ratio (%) | |||||||||||||||||||
Korea | 444,152 | 100.00 | 859,427 | 95.49 | 2,073,762 | 93.79 | ||||||||||||||||||
U.S.A. | — | — | 193 | 0.02 | 102,108 | 4.62 | ||||||||||||||||||
Japan | — | — | 36,844 | 4.09 | 23,105 | 1.04 | ||||||||||||||||||
U.K. | — | — | 1,926 | 0.21 | 28 | 0.00 | ||||||||||||||||||
China | — | — | 666 | 0.07 | 1,158 | 0.05 | ||||||||||||||||||
Vietnam | — | — | 685 | 0.08 | 9,176 | 0.42 | ||||||||||||||||||
Australia | — | — | 140 | 0.02 | 758 | 0.03 | ||||||||||||||||||
German | — | — | 16 | 0.00 | 661 | 0.03 | ||||||||||||||||||
Other | — | — | 145 | 0.02 | 320 | 0.01 | ||||||||||||||||||
444,152 | 100.00 | 900,042 | 100.00 | 2,211,076 | 100.00 | |||||||||||||||||||
(d) | The guarantees and acceptances provided by consumer as of December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||||||||||
Guarantees and acceptances outstanding in | Contingent guarantees and | |||||||||||||||||||||||
Won | Foreign currencies | acceptances | ||||||||||||||||||||||
Balance | Ratio (%) | Balance | Ratio (%) | Balance | Ratio (%) | |||||||||||||||||||
Corporate | 983,361 | 94.65 | 1,232,823 | 99.71 | 3,081,786 | 97.45 | ||||||||||||||||||
Household | 1,410 | 0.14 | 1,575 | 0.13 | 78,339 | 2.48 | ||||||||||||||||||
Public and other | 54,097 | 5.21 | 1,956 | 0.16 | 2,446 | 0.08 | ||||||||||||||||||
1,038,868 | 100.00 | 1,236,354 | 100.00 | 3,162,571 | 100.00 | |||||||||||||||||||
2002 | ||||||||||||||||||||||||
Guarantees and acceptances outstanding in | Contingent guarantees and | |||||||||||||||||||||||
Won | Foreign currencies | acceptances | ||||||||||||||||||||||
Balance | Ratio (%) | Balance | Ratio (%) | Balance | Ratio (%) | |||||||||||||||||||
Corporate | 443,121 | 99.77 | 899,765 | 99.97 | 2,109,180 | 95.39 | ||||||||||||||||||
Household | 959 | 0.22 | 235 | 0.03 | 540 | 0.02 | ||||||||||||||||||
Public and other | 72 | 0.02 | 42 | — | 101,356 | 4.59 | ||||||||||||||||||
444,152 | 100.00 | 900,042 | 100.00 | 2,211,076 | 100.00 | |||||||||||||||||||
F-43
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(16) Guarantees and acceptances, Continued
(e) | The allowances for losses on guarantees and acceptances provided according to the same credit risk classifications on loans as of December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||||||||||
Estimated | ||||||||||||||||||||||||
Normal | Precautionary | Substandard | Doubtful | Loss | Total | |||||||||||||||||||
Guarantees and acceptances in Won | ||||||||||||||||||||||||
Balance | 890,423 | 5,722 | 140,591 | 1,901 | 231 | 1,038,868 | ||||||||||||||||||
Allowances | — | — | 32,039 | 1,000 | 231 | 33,270 | ||||||||||||||||||
Ratio (%) | �� | — | — | 20.00 | 50.00 | 100.00 | 3.20 | |||||||||||||||||
Guarantees and acceptances in foreign currencies | ||||||||||||||||||||||||
Balance | 1,159,864 | 56,471 | 17,779 | 144 | 2,096 | 1,236,354 | ||||||||||||||||||
Allowances | — | 18,338 | 3,556 | 138 | 2,096 | 24,128 | ||||||||||||||||||
Ratio (%) | — | 42.82 | 35.72 | 100.00 | 100.00 | 1.95 | ||||||||||||||||||
Total guarantees and acceptances | ||||||||||||||||||||||||
Balance | 2,050,287 | 62,193 | 158,370 | 2,045 | 2,327 | 2,275,222 | ||||||||||||||||||
Allowances | — | 18,338 | 35,595 | 1,138 | 2,327 | 57,398 | ||||||||||||||||||
Ratio (%) | — | — | 20.00 | 50.00 | 100.00 | 2.52 | ||||||||||||||||||
2002 | ||||||||||||||||||||||||
Estimated | ||||||||||||||||||||||||
Normal | Precautionary | Substandard | Doubtful | Loss | Total | |||||||||||||||||||
Guarantees and acceptances in Won | ||||||||||||||||||||||||
Balance | 435,180 | 7,349 | 1,274 | 208 | 141 | 444,152 | ||||||||||||||||||
Allowances | — | — | 255 | 199 | 141 | 594 | ||||||||||||||||||
Ratio (%) | — | — | 20.00 | 95.00 | 100.00 | 0.13 | ||||||||||||||||||
Guarantees and acceptances in foreign currencies | ||||||||||||||||||||||||
Balance | 874,397 | 15,150 | 9,211 | 1,257 | 27 | 900,042 | ||||||||||||||||||
Allowances | — | — | 1,842 | 1,195 | 27 | 3,064 | ||||||||||||||||||
Ratio (%) | — | — | 20.00 | 95.00 | 100.00 | 0.34 | ||||||||||||||||||
Total guarantees and acceptances | ||||||||||||||||||||||||
Balance | 1,309,577 | 22,499 | 10,485 | 1,465 | 168 | 1,344,194 | ||||||||||||||||||
Allowances | — | — | 2,097 | 1,394 | 168 | 3,659 | ||||||||||||||||||
— | — | 20.00 | 95.00 | 100.00 | 0.27 | |||||||||||||||||||
F-44
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(17) Pledged assets
Assets pledged as collateral as of December 31, 2003 and 2002 are as follows: |
Accounts | 2003 | 2002 | Related transactions for | |||||||
Cash and due from banks | 9,254 | 9,465 | Credit card loans and beneficiary certificates | |||||||
Securities | 6,884,465 | 1,515,725 | Borrowings, derivatives and settlements | |||||||
Land and buildings | 121,823 | — | Collaterals | |||||||
7,015,542 | 1,525,190 | |||||||||
(18) Insured assets
Details of Insured assets as of December 31, 2003 and 2002 are as follows: |
Assets insured | 2003 | 2002 | ||||||
Cash | 16,288 | 12,350 | ||||||
Tangible assets used in operations | 1,195,239 | 544,195 | ||||||
Tangible assets held for non-operating uses | — | 19,097 | ||||||
Other tangible assets | 27,748 | 30,470 | ||||||
1,239,275 | 606,112 | |||||||
In addition, the Company maintains fire insurance for its assets, key employees’ indemnity insurance, worker’s compensation insurance for its employees and other insurance policies covering loss and liability arising from accidents. |
(19) Foreign Currency Denominated Assets and Liabilities
Assets and liabilities denominated in foreign currency as of December 31, 2003 and 2002 are as follows: |
Foreign currency | Equivalent Won | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Assets: | ||||||||||||||||
Cash and due from banks | $ | 463,782 | 165,158 | 555,520 | 198,256 | |||||||||||
Securities | 1,326,649 | 774,519 | 1,589,060 | 929,733 | ||||||||||||
Loans | 12,018,177 | 6,139,577 | 14,395,371 | 7,369,949 | ||||||||||||
Other assets | 123,287 | 43,554 | 147,673 | 52,283 | ||||||||||||
$ | 13,931,895 | 7,122,808 | 16,687,624 | 8,550,221 | ||||||||||||
Liabilities: | ||||||||||||||||
Deposits | $ | 4,117,885 | 1,744,693 | 4,932,403 | 2,094,331 | |||||||||||
Borrowings | 7,308,075 | 4,147,803 | 8,753,612 | 4,979,021 | ||||||||||||
Debentures | 1,328,370 | 389,900 | 1,591,121 | 469,236 | ||||||||||||
Other liabilities | 177,590 | 151,299 | 212,719 | 181,618 | ||||||||||||
$ | 12,931,920 | 6,433,695 | 15,489,855 | 7,724,206 | ||||||||||||
F-45
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(20) Capital Stock
(a) | The Company issued new preferred stock for the years ended December 31, 2003 the details are as follows: |
Predetermined | ||||||||||
Number of | dividend | |||||||||
shares | rate (%) | Redeemable period | ||||||||
Redeemable preferred stock: | ||||||||||
Series 1 | 9,316,792 | 4.04 | August 19, 2004 ~ August 18, 2006 | |||||||
Series 2 | 9,316,792 | 4.04 | August 19, 2005 ~ August 18, 2007 | |||||||
Series 3 | 9,316,792 | 4.04 | August 19, 2006 ~ August 18, 2008 | |||||||
Series 4 | 9,316,792 | 4.04 | August 19, 2007 ~ August 18, 2009 | |||||||
Series 5 | 9,316,793 | 4.04 | August 19, 2008 ~ August 18, 2010 | |||||||
Series 6 | 3,500,000 | 7.00 | July 19, 2006 ~ August 18, 2006 | |||||||
Series 7 | 2,433,334 | 7.46 | July 19, 2008 ~ August 18, 2008 | |||||||
Series 8 | 66,666 | 7.86 | July 19, 2010 ~ August 18, 2010 | |||||||
52,583,961 | ||||||||||
Redeemable convertible preferred stock: | ||||||||||
Series 9 (*) | 44,720,603 | 2.02 | August 19, 2006 ~ August 18, 2008 | |||||||
97,304,564 | ||||||||||
(*) | Convertible period | : August 19, 2004 ~ August 18, 2007 | ||||
Conversion ratio | : 1 common share to 1 preferred share | |||||
Conversion price in Won | : |
(b) | Details of changes in capital stock for the years ended December 31, 2003 and 2002 are as follows: |
2003 | ||||||||
Number of shares | Capital stock | |||||||
Balance at beginning of the year | 292,361,125 | 1,461,806 | ||||||
Redeemable preferred stock issued: | ||||||||
Series 1 to 5 | 46,583,961 | 232,920 | ||||||
Series 6 to 8 | 6,000,000 | 30,000 | ||||||
Redeemable convertible preferred stock issued: | ||||||||
Series 9 | 44,720,603 | 223,603 | ||||||
Common stock issued | 1,864,065 | 9,320 | ||||||
Stock exchange | 176,110 | 881 | ||||||
Balance at end of the year | 391,705,864 | 1,958,530 | ||||||
2002 | ||||||||
Number of shares | Capital stock | |||||||
Balance at beginning of the year | 292,344,192 | 1,461,721 | ||||||
Stock exchange | 16,933 | 85 | ||||||
Balance at end of the year | 292,361,125 | 1,461,806 | ||||||
F-46
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(21) Consolidated Capital Adjustments
Consolidated capital adjustments as of December 31, 2003 and 2002 consist of the following:
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Treasury stock | (391,300 | ) | (391,300 | ) | $ | (326,682 | ) | (326,682 | ) | |||||||
Unrealized gain (loss) on securities: | ||||||||||||||||
Available-for-sale securities | (153,786 | ) | 6,065 | (128,390 | ) | 5,063 | ||||||||||
Investment securities accounted for by the equity method | 137 | 26 | 114 | 22 | ||||||||||||
Stock options: (note 22) | ||||||||||||||||
Options granted by the Company | 9,626 | 3,004 | 8,036 | 2,508 | ||||||||||||
Options granted by the subsidiaries | 926 | (99 | ) | 773 | (83 | ) | ||||||||||
Cumulative effects on foreign currency translation adjustments | 15,035 | 2,507 | 12,552 | 2,093 | ||||||||||||
(519,362 | ) | (379,797 | ) | $ | (433,597 | ) | (317,079 | ) | ||||||||
The treasury stocks held by Shinhan Bank is 29,873,295 shares as of December 31, 2003 and 2002. On March 3, 2004, Shinhan Bank sold those treasury stocks at |
(22) Stock Options
The stock options consist of the Company’s stock options, which were granted to the personnel of the Company and its subsidiaries, and the subsidiaries’ stock options which were granted to the personnel of the subsidiaries. As of December 31, 2003, details of the stock options granted by the Company under a resolution at the Board of Directors’ meeting are as follows: | ||||
(a) Details of the Company’s stock options |
Grant date | May 22, 2002 | May 15, 2003 | ||
Shares granted | 1,004,200 shares | 1,156,300 shares | ||
Share expired to date | 40,081 shares | 8,055 shares | ||
Shares outstanding | 964,119 shares | 1,148,245 shares | ||
Type of stock options | Stock grant or price compensation | Stock grant or price compensation | ||
Exercise price (Won) | ||||
Exercise period | Within 4 years after 2 years | Within 4 years after 2 years | ||
from grant date | from grant date | |||
Forfeited period | after 6 years from grant date | after 6 years from grant date |
F-47
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(22) Stock Options, Continued
(b) | The Company calculated stock compensation costs using the fair value method for stock grant and details are as follows: |
Grant date | May 22, 2002 | May 15, 2003 | ||
Risk-free interest rate (%) | 6.43 | 4.25 | ||
Expected exercise period | 4 years | 4 years | ||
Expected stock price volatility (%) | 27.13 | 22.11 | ||
Expected dividend yield (%) | — | — | ||
Expected ratios of no-exercise (%) | — | — | ||
Weighted average fair value in Won |
(c) | Changes in stock compensation costs for the years ended December 31, 2003 and 2002 are as follows: |
Personnel of | Personnel of | |||||||||||||
Grant date | Stock compensation costs | the Company | subsidiaries | Total | ||||||||||
May 22, 2002 | Recorded at beginning of the year | 643 | 2,361 | 3,004 | ||||||||||
Incurred during the year | 938 | 3,752 | 4,690 | |||||||||||
To be recorded in subsequent years | 347 | 1,337 | 1,684 | |||||||||||
May 15, 2003 | Recorded at beginning of the year | — | — | — | ||||||||||
Incurred during the year | 443 | 1,489 | 1,932 | |||||||||||
To be recorded in subsequent years | 958 | 3,187 | 4,145 |
(23) General and Administrative Expenses
General and administrative expenses for the years ended December 31, 2003 and 2002 consist of the following: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Salaries and wages | 514,793 | 345,682 | $ | 429,782 | 288,597 | |||||||||||
Provision for retirement and severance benefits | 46,003 | 73,657 | 38,406 | 61,494 | ||||||||||||
Other employees benefits | 179,065 | 144,229 | 149,495 | 120,412 | ||||||||||||
Rent | 47,598 | 30,073 | 39,738 | 25,107 | ||||||||||||
Entertainment | 13,665 | 8,720 | 11,408 | 7,280 | ||||||||||||
Depreciation | 139,486 | 89,064 | 116,452 | 74,356 | ||||||||||||
Amortization | 43,269 | 12,328 | 36,124 | 10,292 | ||||||||||||
Tax and dues | 53,816 | 36,394 | 44,929 | 30,384 | ||||||||||||
Advertising | 42,922 | 52,736 | 35,834 | 44,027 | ||||||||||||
Other | 267,522 | 148,874 | 223,345 | 124,290 | ||||||||||||
1,348,139 | 941,757 | $ | 1,125,513 | 786,239 | ||||||||||||
F-48
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(24) Income Taxes
(a) | The Company is subject to income taxes based on taxable earnings, which result in the normal tax rate of 29.7%. The components of income taxes for the years ended December 31, 2003 and 2002 are as follows: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Current income taxes | 230,259 | 338,042 | $ | 192,235 | 282,219 | |||||||||||
Changes in deferred taxes: | ||||||||||||||||
Temporary differences | (3,100 | ) | (83,994 | ) | (2,588 | ) | (70,123 | ) | ||||||||
Tax loss carryforwards | 26,788 | 524 | 22,364 | 437 | ||||||||||||
253,947 | 254,572 | $ | 212,011 | 212,533 | ||||||||||||
(b) | Deferred income tax adjusted by temporary differences in retained earnings for the years ended December 31, 2003 and 2002 are as follows |
Temporary difference | Permanent difference | |||||||||||||||
Description | 2003 | 2002 | 2003 | 2002 | ||||||||||||
Addition | 1,198,264 | — | 1,634,692 | 23,046 | ||||||||||||
Deduction | 1,485,397 | 238,742 | 1,296,128 | 668,961 | ||||||||||||
(287,133 | ) | (238,742 | ) | 338,564 | (645,915 | ) | ||||||||||
(c) | Effective tax rates for the years ended December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||
Earnings before income taxes | 253,947 | 254,572 | ||||||
Income taxes | 630,979 | 852,316 | ||||||
Effective income tax rate (%) | 40.25 | 29.87 | ||||||
F-49
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(24) | Income Taxes, Continued |
(d) | Changes in significant accumulated temporary differences and tax effects for the years ended December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
balance | Increase | Decrease | balance | |||||||||||||
Deductible temporary differences: | ||||||||||||||||
Securities | 252,422 | 185,135 | 5,566 | 431,991 | ||||||||||||
Impairment loss on securities | 278,886 | 514,251 | — | 793,137 | ||||||||||||
Unrealized loss on securities | 19,897 | 15,096 | — | 34,993 | ||||||||||||
Retirement and severance benefits | 68,295 | 25,361 | — | 93,656 | ||||||||||||
Bad debts | 160,954 | 306,449 | — | 467,403 | ||||||||||||
Stock compensation costs | 2,347 | 4,977 | — | 7,324 | ||||||||||||
Restructured loans | 8,244 | 254,600 | — | 262,844 | ||||||||||||
Allowance for losses on guarantees and acceptances | 35,359 | 32,923 | — | 68,282 | ||||||||||||
Other | 35,296 | 251,729 | 11,061 | 275,964 | ||||||||||||
861,700 | 1,590,521 | 16,627 | 2,435,594 | |||||||||||||
Taxable temporary differences: | ||||||||||||||||
Securities | 25,470 | — | 3,189 | 22,281 | ||||||||||||
Unrealized loan on securities | 450,866 | 394,584 | — | 845,450 | ||||||||||||
Accrued income | 219,612 | 113,540 | — | 333,152 | ||||||||||||
Group retirement and severance benefits | 59,749 | 29,823 | — | 89,572 | ||||||||||||
Other | 16,326 | 70,586 | 2,617 | 84,295 | ||||||||||||
772,023 | 608,533 | 5,806 | 1,374,750 | |||||||||||||
Net (*) | 89,677 | 981,988 | 10,821 | 1,060,844 | ||||||||||||
Addition/Deduction: | ||||||||||||||||
Unrealized gain from valuation by the equity method (**) | 206,689 | 386,200 | ||||||||||||||
Tax effects on subsidiaries (***) | (47,534 | ) | (1,193,691 | ) | ||||||||||||
Realizable temporary differences | 248,832 | 253,353 | ||||||||||||||
Tax effect of cumulative temporary difference | 73,903 | 71,165 | ||||||||||||||
Tax effect of cumulative temporary differences in overseas subsidiaries | — | 5,745 | ||||||||||||||
Donation in excess of deductible limit | — | 93 | ||||||||||||||
Tax effects of tax loss carryforwards | 27,886 | 1,098 | ||||||||||||||
Net deferred tax assets (****) | 101,789 | 78,101 | ||||||||||||||
(*) | ||
(**) | Tax effects on valuation gain under the equity method are not recognized due to uncertainty of realization of deferred income taxes for each subsidiary. | |
(***) | Tax effects of | |
(****) | The amount consists of deferred tax asset of | |
(*****) | Shinhan Bank has an asset revaluation gain on land amounting to |
F-50
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(24) | Income Taxes, Continued |
2002 | ||||||||||||||||
Beginning | Ending | |||||||||||||||
balance | Increase | Decrease | balance | |||||||||||||
Deductible temporary differences: | ||||||||||||||||
Securities | 199,724 | 52,699 | — | 252,422 | ||||||||||||
Impairment loss on securities | 162,392 | 116,494 | — | 278,886 | ||||||||||||
Unrealized loss securities | 19,737 | 161 | — | 19,898 | ||||||||||||
Retirement and severance benefits | 679 | 67,616 | — | 68,295 | ||||||||||||
Bad debt expense | 108,674 | 52,280 | — | 160,954 | ||||||||||||
Stock compensation expense | 1,998 | 349 | — | 2,347 | ||||||||||||
Allowance for losses on guarantees and acceptances | 15,397 | 19,962 | — | 35,359 | ||||||||||||
Restructured loans | 11,609 | — | 3,365 | 8,244 | ||||||||||||
Other | 57,684 | 5,725 | 28,113 | 35,296 | ||||||||||||
577,894 | 315,285 | 31,478 | 861,701 | |||||||||||||
Taxable temporary differences: | ||||||||||||||||
Securities | 17,074 | 277 | 12,008 | 5,343 | ||||||||||||
Unrealized gain on securities | 489,255 | — | 38,388 | 450,867 | ||||||||||||
Accrued income | 333,979 | — | 114,367 | 219,612 | ||||||||||||
Group retirement and severance benefits | 106 | 59,643 | — | 59,749 | ||||||||||||
Other | 42,393 | 26,061 | 32,001 | 36,453 | ||||||||||||
882,807 | 85,981 | 196,764 | 772,024 | |||||||||||||
Net (*) | (304,913 | ) | 229,304 | (165,286 | ) | 89,677 | ||||||||||
Addition/Deduction | ||||||||||||||||
Tax effects on Jeju Bank (**) | — | (47,783 | ) | |||||||||||||
Tax effects on SH&C Life Insurance (**) | — | 249 | ||||||||||||||
Unrealized gain from valuation by the equity method (***) | 225,795 | 206,689 | ||||||||||||||
Realizable temporary differences | (79,118 | ) | 248,832 | |||||||||||||
Tax effect of cumulative temporary difference | (23,498 | ) | 73,903 | |||||||||||||
Tax effects of tax loss carryforwards (****) | 7,877 | 27,886 | ||||||||||||||
Net deferred tax assets (liabilities) (*****) | (15,621 | ) | 101,789 | |||||||||||||
(*) | Temporary differences arising from the acquisition of Jeju Bank and Goodmorning Shinhan Securities amounting to | |
(**) | Tax effects are not recognized due to uncertainty of realization in the near future. | |
(***) | ||
(****) | Tax effects of tax loss carryforwards arising from the acquisition of Goodmorning Shinhan Securities amounting to | |
(*****) | The amount consists of deferred tax asset of |
F-51
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars, except earnings per share)
(25) | Earnings Per Share |
(a) | Basic earnings per share | |||
Earnings per common share are calculated by dividing net earnings by the weighted average number of shares of common stock outstanding. Earnings per share for the years ended December 31, 2003 and 2002 are computed as follows: |
Won | U.S. dollars (Note 2) | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Net earnings for year | 362,988 | 602,163 | $ | 303,046 | 502,724 | |||||||||||
Plus: extraordinary loss (gain) | — | — | — | — | ||||||||||||
Less: income taxes on extraordinary loss (gain) | — | — | — | — | ||||||||||||
dividends on preferred stock | 83,397 | — | 69,625 | — | ||||||||||||
Ordinary available for common stock | 279,591 | 602,163 | 233,421 | 502,724 | ||||||||||||
Weighted average number of shares outstanding (in million shares) | 263 | 262 | 263 | 262 | ||||||||||||
Ordinary income per share in Won and U.S. dollars | 1,063 | 2,294 | 0.89 | 1.92 | ||||||||||||
Net earnings per share in Won and U.S. dollars | 1,063 | 2,294 | 0.89 | 1.92 | ||||||||||||
(b) | Diluted earnings per share | |||
For the year ended December 31, 2003, if convertible preferred stock and stock options exercised, 46,832,967 shares of common stocks would be issued, and if preferred stock converted into common stock on issue date, weighted average number of common shares outstanding is 279,523,704. | ||||
Details of diluted ordinary / net earnings per share due to dilutive effect for the year ended December 31, 2003 are as follows: |
U.S. dollars | ||||||||
Won | (Note 2) | |||||||
Ordinary income available for common stock | 279,591 | 233,421 | ||||||
Plus: dividends on preferred stock | 6,043 | 5,045 | ||||||
stock compensation costs | — | — | ||||||
Diluted ordinary income and net earnings | 285,634 | 238,466 | ||||||
Weighted average number of common shares outstanding (million shares) | 279 | 279 | ||||||
Diluted ordinary income per share in Won | 1,022 | 0.85 | ||||||
Diluted net earnings per share in Won | 1,022 | 0.85 | ||||||
Diluted income and earnings per share for the year ended December 31, 2002 are not computed because stock options have no dilutive effect.
(c) | Securities applicable to common shares |
Number of shares | ||||||||
Convertible (exercisable) period | to be issued | |||||||
Preferred convertible shares | August 19, 2004 ~ August 18, 2007 | 44,720,603 | ||||||
Stock options | May 22, 2004 ~ May 22, 2008 | 964,119 | ||||||
” | May 15, 2005 ~ June 15, 2009 | 1,148,245 | ||||||
46,832,967 | ||||||||
F-52
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars, except earnings per share and dividends)
(25) | Earnings Per Share, Continued |
(d) | Ordinary and net earnings per share for the quarters ended in 2003 are as follows: |
Quarter ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2003 | 2003 | 2003 | 2003 | |||||||||||||
Basic ordinary income and net earnings per share in Won | 215 | 175 | 492 | 181 | ||||||||||||
Diluted ordinary income and net earnings per share in Won | 215 | 175 | 464 | 168 |
(26) | Dividends |
(a) | Dividends for the years ended December 31, 2003 and 2002 are calculated as follow: |
2003 | 2002 | |||||||||||||||
Common | Preferred | Common | ||||||||||||||
shares | shares | Total | shares | |||||||||||||
Total number of share issued and outstanding (shares) | 294,401,300 | 97,304,564 | 391,705,864 | 292,361,125 | ||||||||||||
Shares excluded (shares) (*) | (29,873,359 | ) | — | (29,873,359 | ) | (29,873,674 | ) | |||||||||
264,527,941 | 97,304,564 | 361,832,505 | 262,487,451 | |||||||||||||
Face value per share in Won | 5,000 | 5,000 | 5,000 | 5,000 | ||||||||||||
Dividend per share in Won (**) | 600 | 857 | 669 | 600 | ||||||||||||
Dividend rate per share (%) | 12 | 17.14 | 13.38 | 12 | ||||||||||||
Dividends in Won | 158,717 | 83,397 | 242,114 | 157,492 | ||||||||||||
(*) | Dividends on shares held by subsidiaries as of December 31, 2003 and 2002 are not paid. | |
(**) | Dividends per share on preferred stock are weighted average amount and details are as follows: |
Number of | Dividend per | Dividend rate | ||||||||||||||
shares | share in Won | per share (%) | Dividends | |||||||||||||
Redeemable preferred stock: | ||||||||||||||||
Series 1 | 9,316,792 | 270 | 5.40 | 2,518 | ||||||||||||
Series 2 | 9,316,792 | 270 | 5.40 | 2,518 | ||||||||||||
Series 3 | 9,316,792 | 270 | 5.40 | 2,518 | ||||||||||||
Series 4 | 9,316,792 | 270 | 5.40 | 2,518 | ||||||||||||
Series 5 | 9,316,793 | 270 | 5.40 | 2,518 | ||||||||||||
Series 6 | 3,500,000 | 10,500 | 210.0 | 36,750 | ||||||||||||
Series 7 | 2,433,334 | 11,190 | 223.8 | 27,229 | ||||||||||||
Series 8 | 66,666 | 11,790 | 235.8 | 786 | ||||||||||||
52,583,961 | 77,355 | |||||||||||||||
Redeemable convertible preferred stock: | ||||||||||||||||
Series 9 | 44,720,603 | 135 | 2.70 | 6,042 | ||||||||||||
97,304,564 | 83,397 | |||||||||||||||
F-53
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars, except earnings per share and dividends)
(26) | Dividends, Continued |
(b) | Payout ratios for the years ended December 31, 2003 and 2002 are calculated as follows: |
2003 | 2002 | |||||||||||||||
Common | Preferred | Common | ||||||||||||||
shares | shares | Total | shares | |||||||||||||
Dividends in Won | 158,717 | 83,397 | 242,114 | 157,492 | ||||||||||||
Net earnings in Won (*) | 278,830 | 83,397 | 362,227 | 603,931 | ||||||||||||
Payout ratios (%) | 56.92 | 66.84 | 26.08 | |||||||||||||
(*) | Ordinary income available for common stock based on non-consolidated financial statements is considered. |
(c) | Dividend yields on common shares for the years ended December 31, 2003 and 2002 are calculated as follows: |
2003 | 2002 | |||||||
Dividends per share in Won | 600 | 600 | ||||||
Stock price in Won at the balance sheet date | 18,513 | 13,813 | ||||||
Dividends yields (%) | 3.24 | 4.34 | ||||||
(27) | Statements of Cash Flows |
(a) | Cash and cash equivalents as of December 31, 2003 and 2002 in statements of cash flows are equivalent to cash and due from banks on the balance sheets. |
(b) | Significant transactions not involving cash inflows or outflows for the years ended December 31, 2003 and 2002 are as follows: |
2003 | 2002 | |||||||
Acquisition of shares in subsidiaries through stock exchange | 929,559 | — | ||||||
Decrease in stockholders’ equity due to acquisition of treasury stock by subsidiaries | — | 62,939 | ||||||
Decrease in stockholders’ equity due to merger between subsidiaries | — | 40,110 | ||||||
Changes in unrealized gain on available-for-sale securities | 69,698 | 125,161 | ||||||
Reclassification of trading securities to available-for-sale securities | — | 214,006 | ||||||
Reclassification of loans to loans convertible into equity securities | 38,545 | 73,905 | ||||||
Reclassification of loans to available-for-sale securities | 127,907 | 192,756 | ||||||
Changes in consolidated retained earnings | 10,848 | 510 | ||||||
Reclassification of advance payments to financing leases | 250,847 | 7,227 | ||||||
Reclassification of advance payments to operating lease assets | 12,455 | 6,003 |
F-54
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won and thousands of U.S. dollars)
(28) Derivatives
(a) Details of unsettled derivative instruments as of December 31, 2003 and 2002 are as follows:
2003 | ||||||||||||||
Purpose of transactions | ||||||||||||||
Trading | Hedge | Total | ||||||||||||
Currency related | Forwards | 14,840,784 | 351,365 | 15,192,149 | ||||||||||
Futures | 47,550 | — | 47,550 | |||||||||||
Swap | 3,644,048 | 18,039 | 3,662,087 | |||||||||||
Call options | 271,465 | — | 271,465 | |||||||||||
Put options | 265,730 | — | 265,730 | |||||||||||
19,069,577 | 369,404 | 19,438,981 | ||||||||||||
Interest rate related | Futures | 212,670 | 7,785 | 220,455 | ||||||||||
Call options | 70,000 | — | 70,000 | |||||||||||
Put options | 75,700 | — | 75,700 | |||||||||||
Swap | 12,535,881 | 2,835,600 | 15,371,481 | |||||||||||
Government bonds | 50,189 | — | 50,189 | |||||||||||
12,944,440 | 2,843,385 | 15,787,825 | ||||||||||||
Stock price Index related | Futures | 220,022 | — | 220,022 | ||||||||||
Stock swap | 2 | — | 2 | |||||||||||
Call options | 981,590 | 111,231 | 1,092,821 | |||||||||||
Put options | 1,047,973 | — | 1,047,973 | |||||||||||
ELS | 21 | — | 21 | |||||||||||
Warrants | 367 | — | 367 | |||||||||||
2,249,975 | 111,231 | 2,361,206 | ||||||||||||
34,263,992 | 3,324,020 | 37,588,012 | ||||||||||||
2002 | ||||||||||||||
Purpose of transactions | ||||||||||||||
Trading | Hedge | Total | ||||||||||||
Currency related | Forwards | 3,732,439 | — | 3,732,439 | ||||||||||
Swap | 645,577 | 24,080 | 669,657 | |||||||||||
Call options | 18,006 | — | 18,006 | |||||||||||
Put options | 24,008 | — | 24,008 | |||||||||||
4,420,030 | 24,080 | 4,444,110 | ||||||||||||
Interest rate related | Futures | 378,499 | 4,308 | 382,807 | ||||||||||
Options | 20,000 | — | 20,000 | |||||||||||
Swap | 4,775,747 | 1,647,336 | 6,423,083 | |||||||||||
5,174,246 | 1,651,644 | 6,825,890 | ||||||||||||
Stock price Index related | Futures | 29,176 | 63,805 | 92,981 | ||||||||||
Options | 37,868 | — | 37,868 | |||||||||||
67,044 | 63,805 | 130,849 | ||||||||||||
9,661,320 | 1,739,529 | 11,400,849 | ||||||||||||
F-55
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(28) | Derivatives, Continued |
(b) | Valuation on trading and hedging derivative instruments as of December 31, 2003 and 2002 are as follows: |
2003 | ||||||||||||||||||||
Valuation gain (losses) | Fair value | |||||||||||||||||||
Trading | Hedge | Total | Assets | Liabilities | ||||||||||||||||
Currency related: | ||||||||||||||||||||
Forwards | (4,905 | ) | 1,826 | (3,079 | ) | 146,208 | 157,678 | |||||||||||||
Swap | (3,785 | ) | (1,769 | ) | (5,554 | ) | 63,834 | 51,769 | ||||||||||||
Call options | 924 | — | 924 | 5,128 | — | |||||||||||||||
Put options | (1,134 | ) | — | (1,134 | ) | — | 5,515 | |||||||||||||
(8,900 | ) | 57 | (8,843 | ) | 215,170 | 214,962 | ||||||||||||||
Interest rate related: | ||||||||||||||||||||
Call options | 763 | — | 763 | 1,225 | — | |||||||||||||||
Put options | (744 | ) | — | (744 | ) | — | 1,176 | |||||||||||||
Swap | (22,526 | ) | (18,583 | ) | (41,109 | ) | 166,253 | 138,678 | ||||||||||||
Government bonds | 57 | — | 57 | — | 6 | |||||||||||||||
(22,450 | ) | (18,583 | ) | (41,033 | ) | 167,478 | 139,860 | |||||||||||||
Stock price Index related: | ||||||||||||||||||||
Futures | (248 | ) | — | (248 | ) | — | 10,542 | |||||||||||||
Stock swap | 125 | — | 125 | — | 265 | |||||||||||||||
Call options | 59,271 | 10,667 | 69,938 | 106,119 | — | |||||||||||||||
Put options | (63,731 | ) | — | (63,731 | ) | — | 105,813 | |||||||||||||
ELS | 8,739 | — | 8,739 | 214 | — | |||||||||||||||
Warrants | (812 | ) | — | (812 | ) | 29,855 | — | |||||||||||||
3,344 | 10,667 | 14,011 | 136,188 | 116,620 | ||||||||||||||||
(28,006 | ) | (7,859 | ) | (35,865 | ) | 518,836 | 471,442 | |||||||||||||
2002 | ||||||||||||||||||||
Valuation gain (losses) | Fair value | |||||||||||||||||||
Trading | Hedge | Total | Assets | Liabilities | ||||||||||||||||
Currency related: | ||||||||||||||||||||
Forwards | 21,184 | — | 21,184 | 51,731 | 32,412 | |||||||||||||||
Swap | (2,457 | ) | (4,417 | ) | (6,874 | ) | 12,763 | 19,818 | ||||||||||||
Call options | 558 | — | 558 | 439 | — | |||||||||||||||
Put options | (775 | ) | — | (775 | ) | — | 743 | |||||||||||||
18,510 | (4,417 | ) | 14,093 | 64,933 | 52,973 | |||||||||||||||
Interest rate related: | ||||||||||||||||||||
Options | 12 | — | 12 | 146 | 146 | |||||||||||||||
Swap | (2,711 | ) | 11,797 | 9,086 | 54,915 | 57,538 | ||||||||||||||
(2,699 | ) | 11,797 | 9,098 | 55,061 | 57,684 | |||||||||||||||
Stock price Index related: | ||||||||||||||||||||
Futures | (1,233 | ) | — | (1,233 | ) | 449 | 1,648 | |||||||||||||
Options | 1,407 | — | 1,407 | — | 372 | |||||||||||||||
184 | — | 184 | 449 | 2,020 | ||||||||||||||||
15,995 | 7,380 | 23,375 | 120,443 | 112,677 | ||||||||||||||||
F-56
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(29) | Commitments and Contingencies |
(a) | Guarantees and acceptances | |||
Guarantees and acceptances and commitments as of December 31, 2003 are summarized as follows: |
Guarantees and acceptances outstanding | 2,275,222 | |||
Contingent guarantees and acceptances | 3,162,571 | |||
Commitments | 3,663,764 | |||
Endorsed bills | 7,045,629 |
(b) | The Company and its subsidiaries pledged its 10 blank notes, 2 blank checks and 5 notes amounting to | |||
(c) | Litigation | |||
As of December 31, 2003, the Company and its subsidiaries has 180 pending lawsuits as a defendant (total amount: | ||||
(d) | Loans and securities related to companies involved in bankruptcy proceedings, composition proceedings or workout programs with creditors | |||
As of December 31, 2003, the Company and its subsidiaries are holding loans (including guarantees) provided to and securities issued by companies involved in bankruptcy proceedings, composition proceedings or workout programs with creditors amounting to | ||||
(e) | Loans sold under repurchase agreements to Korea Asset Management Corporation | |||
As of December 31, 2003, the Company and its subsidiaries have outstanding loans, which were transferred to the Korea Asset Management Corporation (KAMCO) and are subject to be repurchased when certain conditions are met, amounting to | ||||
(f) | Securitization | |||
Prior to the year ended December 31, 2002, Shinhan and Chohung Bank sold loans through issuing asset backed securities and have provided |
F-57
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(29) | Commitments and Contingencies, Continued |
(g) | Subsidy for Trust accounts | |||
As of December 31, 2003, Shinhan, Chohung and Jeju Bank guarantees repayment of principal and, in certain cases, minimum interest earnings on trust account assets in total amount of | ||||
(h) | Loans related to Financially Troubled Companies | |||
As of December 31, 2003, Shinhan Bank and Chohung Bank are holding loans (including guarantees and acceptances) provided to and securities issued by SK Networks Co., Ltd. (formerly SK Global Co., Ltd.), amounting to | ||||
As of December 31, 2003, Shinhan Bank, Chohung Bank and Goodmorning Shinhan Securities Co., Ltd. are holding loans provided to and securities issued by LG Card Co., Ltd., which has been controlled by creditor banks due to its liquidity crisis, amounting to |
(30) | Significant Transactions among Consolidated Companies |
(a) | Significant transactions | |||
Significant transactions among consolidated companies for the years ended December 31, 2003 and 2002 are as follows: |
Revenue earned | Expense incurred | Account | 2003 | 2002 | ||||||||
Controlling company and subsidiaries included in consolidation: | ||||||||||||
The Company | Shinhan Bank | Interest income | 4,340 | 5,581 | ||||||||
” | Goodmorning Shinhan | |||||||||||
Securities | Interest income | 8,099 | 2,158 | |||||||||
” | Shinhan Card | Interest income | 54,006 | 925 | ||||||||
” | Shinhan Capital | Interest income | 29,714 | 15,006 | ||||||||
” | Jeju Bank | Interest income | 1,628 | 1,000 | ||||||||
Shinhan Bank | Chohung Bank | Gain on derivatives | 1,838 | — | ||||||||
” | Goodmorning Shinhan | |||||||||||
Securities | Interest income | 3,121 | 1,414 | |||||||||
” | ” | Rental income | 29 | 21 |
F-58
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(30) Siginificant Transactions among Consolidated Companies, Continued
Revenue earned | Expense incurred | Account | 2003 | 2002 | ||||||||
Shinhan Bank | Shinhan Card | Interest income | 4,445 | 786 | ||||||||
” | ” | Fees and commission income | 57,941 | 55,271 | ||||||||
” | ” | Rental income | 859 | 468 | ||||||||
Shinhan Bank | Shinhan Capital | Interest income | 3,136 | 6,055 | ||||||||
” | ” | Gain on derivatives | 361 | 64 | ||||||||
” | ” | Rental income | 309 | 271 | ||||||||
” | Jeju Bank | Interest income | 237 | 258 | ||||||||
” | SH&C Life Insurance | Fees and commission income | 2,723 | — | ||||||||
” | Shinhan Bank (Trust) | Trust management income | 51,695 | 82,270 | ||||||||
” | Shinhan Finance | Interest income | 3,136 | 6,055 | ||||||||
” | ” | Gain on derivatives | 1,261 | — | ||||||||
Shinhan Bank (Trust) | Shinhan Bank | Due from banking account | 2,022 | — | ||||||||
Shinhan Finance | Shinhan Bank | Interest income | 827 | 2,224 | ||||||||
” | ” | Gain on derivatives | 5 | — | ||||||||
Chohung Bank | Shinhan Bank | Interest income | 996 | — | ||||||||
” | ” | Gain on derivatives | 139 | — | ||||||||
” | Goodmorning Shinhan | |||||||||||
Securities | Interest income | 26 | — | |||||||||
” | SH&C Life Insurance | Fees and commission income | 744 | — | ||||||||
” | Chohung Bank (Trust) | Trust management income | 8,814 | — | ||||||||
” | ” | Interest income | 4,163 | — | ||||||||
” | Chohung ITMC | Interest income | 947 | — | ||||||||
” | Chohung Deutschland | Interest income | 3,000 | — | ||||||||
Chohung Bank (Trust) | Chohung Bank | Due from banking account | 2,554 | — | ||||||||
Chohung Finance | Chohung Bank | Interest income | 161 | — | ||||||||
Goodmorning Shinhan Securities | Shinhan Bank | Interest income | 1,391 | 257 | ||||||||
” | ” | Fees and commission income | 466 | — | ||||||||
” | Chohung Bank | Interest income | 136 | — | ||||||||
” | Shinhan Card | Rental income | 242 | 5 | ||||||||
” | Shinhan BNPP ITMC | Rental income | 201 | — | ||||||||
Goodmorning Shinhan | ||||||||||||
Good Morning USA | Securities | Fees and commission income | 4,113 | — | ||||||||
Good Morning Europe | ” | Fees and commission income | 2,230 | — | ||||||||
Shinhan Card | Shinhan Bank | Interest income | 7 | 491 | ||||||||
” | Shinhan Bank | Fees and commission income | 29 | — | ||||||||
Goodmorning Shinhan | ||||||||||||
” | Securities | Interest income | — | 106 | ||||||||
” | Jeju Bank | Fees and commission income | 81 | — | ||||||||
” | SH&C Life Insurance | Fees and commission income | 338 | — | ||||||||
Shinhan Capital | Shinhan Bank | Interest income | 437 | 150 | ||||||||
” | ” | Gain on derivatives | 1,111 | 2,468 | ||||||||
” | Chohung Bank | Interest income | 690 | — | ||||||||
Shinhan BNPP ITMC | Shinhan Bank | Interest income | 393 | 380 | ||||||||
” | ” | Fees and commission income | — | 41 |
F-59
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(30) | Significant Transactions among Consolidated Companies, Continued |
Revenue earned | Expense incurred | Account | 2003 | 2002 | ||||||||
Jeju Bank | Shinhan Bank | Interest income | 99 | 83 | ||||||||
” | Jeju Bank (Trust) | Trust management income | 927 | 1,322 | ||||||||
Jeju Bank (Trust) | Jeju Bank | Due from banking account | 296 | — | ||||||||
SH&C Life Insurance | Shinhan Bank | Interest income | 498 | 180 | ||||||||
” | ” | Insurance income | 514 | — | ||||||||
267,475 | 185,310 | |||||||||||
Subsidiaries accounted for by the equity method: | ||||||||||||
Shinhan Bank | Shinhan Macquarie | Rental income | — | 100 | ||||||||
” | Shinhan Data System | Rental income | 43 | — | ||||||||
e-Shinhan | Shinhan Bank | Interest income | 132 | — | ||||||||
” | Shinhan Card | Fees and commission income | 22 | — | ||||||||
” | The Company | Fees and commission income | 62 | — | ||||||||
Shinhan Macquarie | Shinhan Bank | Interest income | — | 15 | ||||||||
Shinhan Credit Information | Shinhan Bank | Fees and commission income | 2,614 | 772 | ||||||||
” | ” | Interest income | 35 | — | ||||||||
” | Goodmorning Shinhan | |||||||||||
Securities | Fees and commission income | 31 | — | |||||||||
” | Shinhan Card | Fees and commission income | 8,646 | 2,289 | ||||||||
” | Shinhan Capital | Fees and commission income | 61 | — | ||||||||
” | Jeju Bank | Fees and commission income | 623 | 42 | ||||||||
Shinhan Data System | Shinhan Bank | Interest income | 69 | 64 | ||||||||
” | ” | Other income | 3,526 | 3,162 | ||||||||
15,864 | 6,444 | |||||||||||
283,339 | 191,754 | |||||||||||
(b) | Account balances | |||
Significant account balances among consolidated companies as of December 31, 2003 and 2002 are as follows: |
Creditor | Debtor | Account | 2003 | 2002 | ||||||||
Controlling company and subsidiaries included in consolidation: | ||||||||||||
The Company | Shinhan Bank | Bank deposits | 5,327 | 10,613 | ||||||||
” | ” | Loans | 50,000 | 50,000 | ||||||||
” | ” | Other assets | 14,644 | 9,196 | ||||||||
” | Goodmorning Shinhan | Loans | 130,000 | 130,000 | ||||||||
Securities | ||||||||||||
” | ” | Other assets | 134 | 134 | ||||||||
” | Shinhan Card | Loans | 1,100,000 | 200,000 | ||||||||
” | ” | Other assets | 6,541 | 925 | ||||||||
” | Shinhan Capital | Loans | 644,905 | 369,127 | ||||||||
” | ” | Other assets | 5,066 | 3,155 |
F-60
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(30) Significant Transactions among Consolidated Companies, Continued
Creditor | Debtor | Account | 2003 | 2002 | ||||||||
The Company | Jeju Bank | Loans | 20,000 | 20,000 | ||||||||
” | ” | Other assets | 186 | 186 | ||||||||
Shinhan Bank | Chohung Bank | Securities | 132,708 | — | ||||||||
” | ” | Other assets | 797 | — | ||||||||
” | Goodmorning Shinhan Securities | Loans | 30,000 | 70,000 | ||||||||
” | ” | Other assets | 4,418 | 1,577 | ||||||||
” | Shinhan Card | Loans | 28,500 | 7,500 | ||||||||
” | ” | Other assets | 87 | — | ||||||||
” | Shinhan Capital | Loans | 75,933 | 37,959 | ||||||||
” | ” | Other assets | 233 | 133 | ||||||||
” | Jeju Bank | Loans | 3,140 | 3,140 | ||||||||
” | ” | Other assets | 561 | — | ||||||||
” | SH&C Life Insurance | Other assets | 1,455 | — | ||||||||
” | Shinhan Bank (Trust) | Other assets | 100,194 | 120,927 | ||||||||
” | Shinhan Finance | Due from bank | 16,965 | 7,995 | ||||||||
” | ” | Loans | 280,287 | 316,332 | ||||||||
” | ” | Other assets | 1,261 | 20,407 | ||||||||
Shinhan Bank (Trust) | Shinhan Bank | Due from banking accounts | 224,387 | 82,179 | ||||||||
Shinhan Finance | Shinhan Bank | Loans | 230,636 | 277,907 | ||||||||
” | ” | Other assets | 5 | — | ||||||||
Chohung Bank | Shinhan Bank | Securities | 96,515 | — | ||||||||
” | ” | Other assets | 4,324 | — | ||||||||
” | Shinhan Capital | Loans | 392 | — | ||||||||
” | Chohung Bank (Trust) | Other assets | 104,227 | — | ||||||||
” | Chohung Finance | Due from bank | 651 | — | ||||||||
” | ” | Loans | 61,088 | — | ||||||||
” | Chohung America | Due from bank | 1,067 | — | ||||||||
” | ” | Loans | 17,967 | — | ||||||||
” | Chohung Deutschland | Due from bank | 1,197 | — | ||||||||
” | ” | Loans | 107,576 | — | ||||||||
Chohung Bank (Trust) | Chohung Bank | Due from banking accounts | 31,893 | — | ||||||||
Chohung ITMC | Chohung Bank | Due from bank | 50,397 | — | ||||||||
” | ” | Other assets | 1,199 | — | ||||||||
Shinhan Finance | Chohung Bank | Due from bank | 10,696 | — | ||||||||
” | ” | Loans | 80,958 | — | ||||||||
Chohung Deutschland | Chohung Bank | Loans | 105,539 | — | ||||||||
Goodmorning Shinhan Securities | Shinhan Bank | Due from bank | 53,064 | 11,908 | ||||||||
” | ” | Other assets | 6,791 | 5,778 | ||||||||
” | Chohung Bank | Due from bank | 2,011 | — | ||||||||
” | ” | Other assets | 8 | — | ||||||||
Good Morning USA | Goodmorning Shinhan Securities | Other assets | 1,117 | — | ||||||||
Good Morning Europe | Goodmorning Shinhan Securities | Other assets | 908 | — |
F-61
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(30) Significant Transactions among Consolidated Companies, Continued
Creditor | Debtor | Account | 2003 | 2002 | ||||||||
Shinhan Card | The Company | Other assets | 906 | — | ||||||||
” | Shinhan Bank | Due from bank | 102 | — | ||||||||
” | ” | Other assets | 1,189 | 387 | ||||||||
” | Goodmorning Shinhan Securities | Other assets | 4,635 | 3,289 | ||||||||
” | SH&C Life Insurance | Other assets | 338 | — | ||||||||
Shinhan Capital | The Company | Other assets | 773 | — | ||||||||
” | Shinhan Bank | Short-term financial instruments | 58,231 | 16,666 | ||||||||
” | ” | Other assets | 108 | — | ||||||||
” | ” | Currency swap | 1,941 | 2,000 | ||||||||
Shinhan Capital | Shinhan Bank | Other assets | 292 | 418 | ||||||||
” | Chohung Bank | Securities | 6,714 | — | ||||||||
” | ” | Other assets | 173 | — | ||||||||
Shinhan BNPP ITMC | Shinhan Bank | Cash and due from bank | 4,436 | 8,985 | ||||||||
” | ” | Other assets | 105 | — | ||||||||
” | Goodmorning Shinhan Securities | Other assets | 3,496 | 850 | ||||||||
” | Shinhan Bank | Loans | — | 4,922 | ||||||||
” | ” | Other assets | 561 | — | ||||||||
Jeju Bank | Jeju Bank (Trust) | Other assets | 798 | — | ||||||||
Jeju Bank (Trust) | Jeju Bank | Due from banking accounts | 4,382 | 36,262 | ||||||||
SH&C Life Insurance | Shinhan Bank | Cash and cash equivalents | 33,563 | 12,327 | ||||||||
” | ” | Other assets | 46 | — | ||||||||
3,970,744 | 1,843,184 | |||||||||||
Subsidiaries accounted for by the equity method: | ||||||||||||
The Company | Sinhan Credit Information | Other assets | 38 | — | ||||||||
e-Shinhan | Shinhan Bank | Cash and cash equivalents | 2,158 | 3,718 | ||||||||
Shinhan Macquarie | Shinhan Bank | Cash and cash equivalents | 1,187 | 168 | ||||||||
Shinhan Credit Information | Shinhan Bank | Cash and cash equivalents | 1,686 | 1,395 | ||||||||
” | ” | Other assets | 1,146 | — | ||||||||
” | Shinhan Card | Other assets | 892 | — | ||||||||
” | Jeju Bank | Other assets | 101 | — | ||||||||
” | ” | Other assets | 60 | — | ||||||||
Shinhan Data System | Shinhan Bank | Due from bank | 2,404 | 2,175 | ||||||||
” | ” | Other assets | 185 | — | ||||||||
Chohung Vina | Chohung Bank | Loans | 16,769 | |||||||||
26,626 | 7,456 | |||||||||||
3,997,370 | 1,850,640 | |||||||||||
F-62
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(30) Significant Transactions among Consolidated Companies, Continued
(c) Guarantees and acceptances
Guarantees and acceptances as of December 31, 2003 are as follows:
Amount of | ||||||||
Guarantees and | guarantees and | |||||||
Guarantor | Guarantee | acceptance provided on | acceptances | |||||
The Company | Goodmorning Shinhan Securities | Lease guarantee deposits (*) | 50,000 | |||||
Shinhan Bank | Shinhan Capital | Letter of credit | 30,547 | |||||
” | Shinhan Finance | Loans | 11,025 | |||||
Chohung Bank | Chohung Finance | Letter of credit | 240 | |||||
Goodmorning Shinhan Securities | Good Morning USA | Guarantees on operation | 14,374 | |||||
106,186 | ||||||||
(*) Interest expense incurred on lease contract is separately guaranteed.
F-63
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(31) Condensed Financial Statements of Consolidated Companies
(a) Balance sheets
Condensed balance sheets of the Company and its subsidiaries as of December 31, 2003 and 2002 are as follows:
2003 | ||||||||||||
Total stockholders’ | ||||||||||||
Subsidiaries | Total assets | Total liabilities | equity | |||||||||
Controlling company and subsidiaries included in consolidation: | ||||||||||||
The Company | 8,294,430 | 2,176,875 | 6,117,555 | |||||||||
Shinhan Bank | 70,066,189 | 66,550,821 | 3,515,368 | |||||||||
Shinhan Bank (Trust) | 1,768,128 | 1,768,128 | — | |||||||||
Shinhan Finance | 524,180 | 459,598 | 64,582 | |||||||||
Chohung Bank | 59,227,864 | 57,289,224 | 1,938,640 | |||||||||
Chohung Bank (Trust) | 1,345,158 | 1,345,158 | — | |||||||||
Chohung ITMC | 69,636 | 1,495 | 68,141 | |||||||||
Chohung Finance | 144,708 | 109,947 | 34,761 | |||||||||
Chohung America | 386,498 | 322,274 | 64,224 | |||||||||
Chohung Deutschland | 204,071 | 171,002 | 33,069 | |||||||||
Goodmorning Shinhan Securities | 2,928,017 | 2,290,044 | 637,973 | |||||||||
Good Morning Europe | 7,364 | 60 | 7,304 | |||||||||
Good Morning USA | 5,981 | 198 | 5,783 | |||||||||
Shinhan Card | 1,778,191 | 1,620,555 | 157,636 | |||||||||
Shinhan Capital | 1,153,907 | 1,051,683 | 102,224 | |||||||||
Shinhan BNPP ITMC | 47,461 | 2,489 | 44,972 | |||||||||
Jeju Bank | 1,785,961 | 1,682,328 | 103,633 | |||||||||
Jeju Bank (Trust) | 14,958 | 14,958 | — | |||||||||
SH&C Life Insurance | 114,012 | 87,970 | 26,042 | |||||||||
149,866,714 | 136,944,807 | 12,921,907 | ||||||||||
Subsidiaries accounted for by the equity method: | ||||||||||||
e-Shinhan | 3,924 | 225 | 3,699 | |||||||||
Shinhan Macquarie | 11,255 | 7,642 | 3,613 | |||||||||
Shinhan Credit Information | 13,588 | 9,726 | 3,862 | |||||||||
Shinhan Data System | 2,697 | 532 | 2,165 | |||||||||
Chohung Vina | 149,347 | 126,849 | 22,498 | |||||||||
180,811 | 144,974 | 35,837 | ||||||||||
150,047,525 | 137,089,781 | 12,957,744 | ||||||||||
F-64
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(31) Condensed Financial Statements of Consolidated Companies, Continued
2002 | ||||||||||||||||||||
Total stockholders’ | ||||||||||||||||||||
Subsidiaries | Total assets | Total liabilities | equity | |||||||||||||||||
Controlling company and subsidiaries included in consolidation: | ||||||||||||||||||||
The Company | 4,784,979 | 774,759 | 4,010,220 | |||||||||||||||||
Shinhan Bank | 58,889,402 | 56,028,924 | 2,860,478 | |||||||||||||||||
Shinhan Bank (Trust) | 1,742,131 | 1,742,131 | — | |||||||||||||||||
Shinhan Finance | 513,726 | 446,894 | 66,832 | |||||||||||||||||
Goodmorning Shinhan Securities | 1,570,244 | 982,268 | 587,976 | |||||||||||||||||
Good Morning Europe | 3,942 | 56 | 3,886 | |||||||||||||||||
Good Morning USA | 9,462 | 1,980 | 7,482 | |||||||||||||||||
Shinhan Card | 2,473,694 | 2,226,234 | 247,460 | |||||||||||||||||
Shinhan Capital | 960,234 | 876,551 | 83,683 | |||||||||||||||||
Shinhan BNPP ITMC | 47,081 | 1,918 | 45,163 | |||||||||||||||||
Jeju Bank | 1,800,648 | 1,699,577 | 101,071 | |||||||||||||||||
Jeju Bank (Trust) | 16,045 | 16,045 | — | |||||||||||||||||
SH&C Life Insurance | 29,738 | 478 | 29,260 | |||||||||||||||||
72,841,326 | 64,797,815 | 8,043,511 | ||||||||||||||||||
Subsidiaries accounted for by the equity method: | ||||||||||||||||||||
e-Shinhan | 5,758 | 475 | 5,283 | |||||||||||||||||
Shinhan Macquarie | 3,503 | 2,675 | 828 | |||||||||||||||||
Shinhan Credit Information | 3,931 | 810 | 3,121 | |||||||||||||||||
Shinhan System | 2,108 | 229 | 1,879 | |||||||||||||||||
15,300 | 4,189 | 11,111 | ||||||||||||||||||
72,856,626 | 64,802,004 | 8,054,622 | ||||||||||||||||||
F-65
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(31) Condensed Financial Statements of Consolidated Companies, Continued
(b) Statements of earnings
Condensed statements of earnings of the Company and its subsidiaries for the years ended December 31, 2003 and 2002 are as follows:
Year ended December 31, 2003 | ||||||||||||||||||||||||
Operating | Operating | Operating | Ordinary | Net earnings | ||||||||||||||||||||
Subsidiaries | revenue | expense | income (loss) | income (loss) | (losses) | |||||||||||||||||||
Controlling company and subsidiaries included in consolidation: | ||||||||||||||||||||||||
The Company | 486,428 | 121,480 | 364,948 | 362,227 | 362,227 | |||||||||||||||||||
Shinhan Bank | 4,851,995 | 4,180,640 | 671,355 | 685,756 | 476,023 | |||||||||||||||||||
Shinhan Bank (Trust) | 118,533 | 114,349 | 4,184 | — | — | |||||||||||||||||||
Shinhan Finance | 16,868 | 19,440 | (2,572 | ) | (2,114 | ) | (2,114 | ) | ||||||||||||||||
Chohung Bank | 5,425,189 | 6,107,050 | (681,861 | ) | (915,775 | ) | (965,951 | ) | ||||||||||||||||
Chohung Bank (Trust) | 128,692 | 128,758 | (66 | ) | — | — | ||||||||||||||||||
Chohung ITMC | 13,630 | 6,104 | 7,526 | 6,274 | 4,411 | |||||||||||||||||||
Chohung Finance | 10,296 | 21,796 | (11,500 | ) | (11,392 | ) | (11,392 | ) | ||||||||||||||||
Chohung America | 22,313 | 18,615 | 3,698 | 3,937 | 2,280 | |||||||||||||||||||
Chohung Deutschland | 12,370 | 13,959 | (1,589 | ) | (1,362 | ) | (1,130 | ) | ||||||||||||||||
Goodmorning Shinhan Securities | 649,701 | 619,693 | 30,008 | 68,616 | 35,813 | |||||||||||||||||||
Good Morning Europe | 2,546 | 2,723 | (177 | ) | (177 | ) | (177 | ) | ||||||||||||||||
Good Morning USA | 2,782 | 4,129 | (1,347 | ) | (2,044 | ) | (1,728 | ) | ||||||||||||||||
Shinhan Card | 431,863 | 506,606 | (74,743 | ) | (90,063 | ) | (89,824 | ) | ||||||||||||||||
Shinhan Capital | 145,355 | 116,084 | 29,271 | 22,565 | 15,755 | |||||||||||||||||||
Shinhan BNPP ITMC | 12,728 | 10,604 | 2,124 | 2,629 | 1,834 | |||||||||||||||||||
Jeju Bank | 137,162 | 137,005 | 157 | 727 | 4,751 | |||||||||||||||||||
Jeju Bank (Trust) | 1,703 | 1,703 | — | — | — | |||||||||||||||||||
SH&C Life Insurance | 44,986 | 47,478 | (2,492 | ) | (3,369 | ) | (3,369 | ) | ||||||||||||||||
12,515,140 | 12,178,216 | 336,924 | 126,435 | (172,591 | ) | |||||||||||||||||||
Subsidiaries accounted for by the equity method: | ||||||||||||||||||||||||
e-Shinhan | 1,714 | 3,361 | (1,647 | ) | (1,583 | ) | (1,583 | ) | ||||||||||||||||
Shinhan Macquarie | 11,454 | 7,816 | 3,638 | 3,804 | 2,559 | |||||||||||||||||||
Shinhan Credit Information | 25,557 | 24,309 | 1,248 | 1,096 | 741 | |||||||||||||||||||
Shinhan Data System | 4,264 | 4,143 | 121 | 204 | 163 | |||||||||||||||||||
Chohung Vina | 8,254 | 5,645 | 2,609 | 3,762 | 3,762 | |||||||||||||||||||
51,243 | 45,274 | 5,969 | 7,283 | 5,642 | ||||||||||||||||||||
12,566,383 | 12,223,490 | 343,893 | 133,718 | (166,949 | ) | |||||||||||||||||||
F-66
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(In millions of Won)
(31) Condensed Financial Statements of Consolidated Companies, Continued
Year ended December 31, 2002 | ||||||||||||||||||||||||
Operating | Operating | Operating | Ordinary | Net earnings | ||||||||||||||||||||
Subsidiaries | revenue | expense | income (loss) | income (loss) | (losses) | |||||||||||||||||||
Controlling company and subsidiaries included in consolidation: | ||||||||||||||||||||||||
The Company | 643,360 | 41,141 | 602,219 | 603,931 | 603,931 | |||||||||||||||||||
Shinhan Bank | 4,821,339 | 3,888,932 | 932,407 | 842,993 | 595,866 | |||||||||||||||||||
Shinhan Bank (Trust) | 133,114 | 131,452 | 1,662 | — | — | |||||||||||||||||||
Shinhan Finance | 22,385 | 14,692 | 7,693 | 8,171 | 8,171 | |||||||||||||||||||
Goodmorning Shinhan Securities | 482,873 | 474,722 | 8,151 | 11,845 | 31,624 | |||||||||||||||||||
Good Morning Europe (*) | 703 | 1,544 | (841 | ) | (849 | ) | (849 | ) | ||||||||||||||||
Good Morning USA (*) | 9,703 | 7,984 | 1,719 | 1,516 | 1,516 | |||||||||||||||||||
Shinhan Card | 228,954 | 228,213 | 741 | 798 | 504 | |||||||||||||||||||
Shinhan Capital | 152,314 | 139,302 | 13,012 | 10,988 | 7,635 | |||||||||||||||||||
Shinhan ITMC | 12,773 | 6,312 | 6,461 | 6,066 | 4,605 | |||||||||||||||||||
Jeju Bank | 145,558 | 129,404 | 16,154 | 12,502 | 12,502 | |||||||||||||||||||
Jeju Bank (Trust) | 1,165 | 1,859 | (694 | ) | — | — | ||||||||||||||||||
SH&C Life Insurance | 338 | 1,243 | (905 | ) | (905 | ) | (905 | ) | ||||||||||||||||
6,654,579 | 5,066,800 | 1,587,779 | 1,497,056 | 1,264,600 | ||||||||||||||||||||
Subsidiaries accounted for by the equity method: | ||||||||||||||||||||||||
e-Shinhan | 2,529 | 3,776 | (1,247 | ) | (1,094 | ) | (1,094 | ) | ||||||||||||||||
Shinhan Macquarie | 5,127 | 5,405 | (278 | ) | (742 | ) | 281 | |||||||||||||||||
Shinhan Credit Information | 3,136 | 3,001 | 135 | 162 | 121 | |||||||||||||||||||
Shinhan System | 2,905 | 2,795 | 110 | 145 | 145 | |||||||||||||||||||
13,697 | 14,977 | (1,280 | ) | (1,529 | ) | (547 | ) | |||||||||||||||||
6,668,276 | 5,081,777 | 1,586,499 | 1,495,527 | 1,264,053 | ||||||||||||||||||||
(*) Operating results from April 1, 2002 to December 31, 2002 are reflected.
(32) Financial Performance
Financial performance for the quarters ended December 31, 2003 and 2002 are as follows:
Quarter ended | ||||||||||||
Quarter ended | December 31, 2002 | |||||||||||
December 31, 2003 | (Unaudited) | |||||||||||
Operating revenue | 3,078,037 | 1,536,457 | ||||||||||
Operating income | 401,326 | 270,996 | ||||||||||
Net earnings | 104,756 | 167,605 | ||||||||||
Net earnings per share in Won | 181 | 638 |
F-67
Shinhan Financial Group Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
December 31, 2003 and 2002
(33) Economic Environment
In common with other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices including corporate governance. The Company may be either directly or indirectly affected by these economic conditions and the reform program described above. The accompanying consolidated financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Company. Actual results may differ materially from management’s current assessment. |
F-68